Retirement Planning Retirement PlanningRetirement Planning
Advice on how to prepare for life after government.

A Whole Different Kind of Service

This week, we'll finish up our examination of how different types of federal service are credited toward retirement with a look at work done at nonappropriated fund instrumentalities.

NAFI jobs are mostly at military bases in self-funding "morale, welfare and recreation" operations. The salaries and benefits for these positions are not paid from the Treasury, but from revenues generated by clubs, bowling centers, golf courses and other operations. The Army and Air Force Exchange Service is the largest NAFI employer.

So what happens when an NAFI employee takes a standard civil service job and comes under either the Civil Service Retirement System or the newer Federal Employees Retirement System? That's where it gets tricky. In fact, the latest explanation of the rules on this subject from the Office of Personnel Management runs a full 70 pages.

Here's the short explanation: The latest version of federal law allows credit for prior NAFI service, but only if necessary to make a CSRS or FERS employee eligible for retirement. The employee must have a minimum of five years of non-NAFI civilian service to be able to take advantage of this benefit.

Under the law, NAFI service is only used for determining retirement eligibility, not for the computation of benefits. And employees must use complete periods of NAFI service for the purpose of determining eligibility. For example, a CSRS employee who worked six straight years under a Defense Department NAFI appointment must choose to credit the entire six years, even if he or she only needs two years of service to qualify for immediate retirement.

Employees do not pay a deposit to the retirement system to receive credit for this service, but there is an actuarial (that is, life expectancy-based) reduction applied to the retirement benefit to offset the cost to the government of allowing an employee to retire sooner by using the NAFI service. So if you are considering using prior NAFI service to make you eligible for retirement, be sure to ask for two retirement estimates. The first one should be an estimate for immediate retirement using the NAFI service, including the actuarial reduction. The second should estimate what your benefit would be after you are eligible to retire without crediting the NAFI service. It should be substantially larger, since you'll have to work longer to get it.

Cases in Point

There are, not surprisingly, other complexities in the law. Let's look at a couple of examples to see how some of them play out.

Suppose Andrea is 58 years old with 22 years of service under CSRS and could credit 10 years of Air Force NAFI service to make herself eligible for immediate retirement. Her CSRS benefit would be computed using her non-NAFI service (22 years) and her retirement would be actuarially reduced since she normally would not have been eligible to retire until age 60 without crediting the NAFI service.

Suppose Andy, on the other hand, is 58 years old and has 15 years of service under FERS and another 15 years of Army NAFI service. He cannot use his prior NAFI service, since he already is eligible for an immediate retirement with a reduced benefit. If he could use the NAFI service, he would be eligible for an unreduced FERS benefit, but this is not possible since the law does not allow this credit if he is already eligible for immediate optional retirement.

Changing Laws

The laws and regulations regarding NAFI service changed significantly in 1990 and again in 1996. The latest change was aimed at combining, for retirement purposes, regular civil service employment with NAFI employment. The definition of a "qualifying" move from one form of employment to another was loosened, allowing certain FERS and NAFI employees who shifted after 1965 and before Aug. 10, 1996, to combine all their service toward a single retirement benefit. If the move was after Aug. 10, 1986, the qualifying move no longer has to be within Defense or the Coast Guard, and the break between service could be up to one year rather than less than four days.

These are just a few of the new rules and regulations covering this tricky area. So if you have prior NAFI service, be sure to discuss the service credit issues with a retirement specialist at your agency. If you don't have previous NAFI service, consider yourself lucky not to have to deal with such a complicated issue.

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.


Tammy Flanagan has spent 30 years helping federal employees take charge of their retirement by understanding their benefits. She runs her own consulting business at and provides individual counseling as well as online training for the National Active and Retired Federal Employees Association, Plan Your Federal Retirement as well as the Federal Long Term Care insurance Program. She also serves as the senior benefits director for the National Institute of Transition Planning Inc., which conducts federal retirement planning workshops and seminars.

For more retirement planning help, tune in to "For Your Benefit," presented by the National Institute of Transition Planning Inc. live on Federal News Radio on Mondays at 10 a.m. ET on WFED AM 1500 in the Washington-metro area. Archived shows are available on

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