May 25, 2007In last week's column, I noted that when it comes to figuring out just how much federal service you've accumulated for retirement purposes, not all service is treated the same.
This week, we'll look at one type of service: volunteer participation in the Peace Corps or VISTA programs. Next week, I'll tackle the somewhat trickier issue of work in what are known as nonappropriated fund instrumentalities.
In 1993, Congress passed a law changing the way Peace Corps and VISTA service can be used as credit towards retirement under the Civil Service Retirement System or the newer Federal Employees Retirement System. Even though the law is now more than a decade old, it still has left some employees questioning whether they are receiving the correct amount of credit for volunteer service.
If a full-time volunteer or volunteer leader at the Peace Corps or VISTA later takes a federal civilian position, his or her volunteer service (except for training time) is creditable for retirement and survivors' benefit computations under CSRS.
Before 1993, an employee would have to pay a "deposit" to CSRS to credit such volunteer service, just as he or she would with other types of civilian service for which retirement deductions were not withheld -- such as temporary service and seasonal work. If the service was performed before Oct. 1, 1982, it would count regardless of the deposit, but the retirement would be reduced by 10 percent of the deposit amount. If the service was performed after Sept. 30, 1982, then the deposit would have to be paid to receive credit in computing CSRS retirement benefits. If the employee, a surviving spouse or child became entitled to Social Security benefits, the volunteer service would be excluded from the retirement computation (much the same way that post-1956 military service is treated).
Under the 1993 changes in the law, though, a deposit for Peace Corps or VISTA service now ensures that this service will count toward retirement even if you become eligible for Social Security benefits.
So, for example, suppose John made a deposit for two years of service as a Peace Corps volunteer from 1974 to 1976. When he retired at age 59, he received credit for this service. On June 15, 2006, he turned 62 and became eligible for Social Security benefits. Because the deposit was paid, he continues to receive credit for the two years of Peace Corps service. If the deposit had not been paid, John's annuity would have been recomputed to exclude credit for the Peace Corps service effective June 1, 1996.
Under FERS, full-time service that a Peace Corps or VISTA volunteer performed at any time prior to separation is creditable towards FERS basic retirement benefits only if a deposit has been made for the service. Credit is given for volunteer service (again, excluding training time) without regard to when the service was performed or the individual's eligibility for Social Security benefits. Paying Deposits
Under CSRS, the deposit for Peace Corps or VISTA service is equal to 7 percent of the stipend paid to the employee for each period of service as a volunteer.
Interest begins to accrue on deposits for volunteer service on Oct. 1, 1995, or two years after the date on which the individual first becomes a federal employee, whichever is later. There is a two-year interest-free grace period on Peace Corps/VISTA volunteer service deposits. After that, interest is accrued and compounded annually at the variable rate beginning on the date of the expiration of the two-year period. For employees first employed before Oct. 1, 1993, interest started accruing Oct. 1, 1995. The earliest possible interest posting for an unpaid deposit is Oct. 1, 1996. Like the deposit for post-1956 military service, interest on these deposits accrues and compounds annually on the employee's personal interest accrual date. Like other deposits for nondeduction service, deposits for Peace Corps/VISTA service must be paid to OPM following the procedures outlined on form SF-2803.
Individuals who have not separated from federal service, but who previously have made a service credit deposit for their volunteer service under the old rules, will be deemed to have made a deposit under the 1993 changes in the law.
Under FERS, the deposit is equal to 3 percent (in 1999, it was 3.25 percent and in 2000, it was 3.4 percent) of the stipend paid to the employee for each period of volunteer service. For both current and former employees, interest begins to accrue on deposits for volunteer service on Oct. 1, 1995, or two years after the date on which the individual first becomes an employee, whichever is later. As under CSRS, there is a two-year interest-free grace period on deposits and, afterward, interest is accrued and compounded annually at the variable rate beginning on the date of the expiration of the two-year period.
So, for example, suppose Jane was a Peace Corps volunteer from 1990 to 1994. Then she accepted a permanent position with the Army on April 1, 1996. Interest will not start accruing on her deposit until April 1, 1998. If the deposit is not paid in full by April 1, 1999, one year's interest will be added to the unpaid deposit.
Like other deposits for nondeduction service, those for Peace Corps or VISTA service must be paid to OPM following the procedures outlined in form SF-3108. Deposits that are refunded after FERS coverage began cannot be repaid.
Tammy Flanagan is the senior benefits director for the National Institute of Transition Planning Inc., which conducts federal retirement planning workshops and seminars. She has spent 25 years helping federal employees take charge of their retirement by understanding their benefits.
May 25, 2007