Deposits and Credits
By Tammy Flanagan
June 20, 2008
Do you like surprises? A birthday party, bouquet of flowers, maybe even a visit from a long-lost friend -- all of these can be pleasant surprises. But when it comes to retirement, surprises are to be avoided. To do so, it's important to understand two concepts that are uniquely important to federal retirement: deposits and service credits.
Let's first identify some key terms:
Covered service: Federal service (under both the Civil Service Retirement System and the Federal Employees Retirement System) for which deductions are withheld from an employee's pay for retirement purposes.
Deposit: A payment to the retirement fund for a period of civilian or military service that was not covered by retirement deductions. This term also can be used to describe redeposits that are made when a period of service that was covered by retirement deductions is refunded after an employee has a break in service. Not all service is eligible for a deposit. For example, if a former employee has taken a refund of FERS retirement contributions, he or she cannot redeposit these refunded contributions and therefore cannot receive credit for this service toward retirement.
Creditable service: Service in a position covered by retirement deductions, or, in some cases, in a job that is not -- such as a temporary appointment. This is sometimes called nondeduction service, and the rules for receiving credit for it differ between CSRS and FERS.
Service computation date: A date created by subtracting a period of federal service from another date to create a starting date for a federal employee that reflects continuous government service. There is a leave SCD and a retirement SCD. When an employee is hired (or rehired) into federal service, the leave SCD date is created to determine whether the employee will earn four, six or eight hours of annual leave each pay period. When an employee retires from federal service, the retirement SCD date is created (or evaluated) to determine if the same service is creditable for retirement eligibility and computation of retirement benefits.
Where Credit Is Due
During a recent conversation with an agency benefits specialist, I learned she was undertaking a project to review the service history of each of the agency's employees to determine if they had any unpaid civilian or military service deposits. The idea was to inform the employees of the situation as early as possible to avoid any unexpected retirement surprises. This specialist knows that it is often in an employee's best interest to pay a deposit to maximize their retirement benefits. But many employees do not become aware of an unpaid service credit deposit until they begin to inquire about retirement. This often means that the employee will be faced with a bill that includes interest for the years that the deposit was unpaid. These deposits can be tens of thousands of dollars, since the interest may have been accruing for 30 years or more. Why don't employees know about these payments? There are several reasons:
- Some of the deposits are for service from which no retirement deductions were withheld. At the time the service was performed, there was no correlation between retirement deductions and the future credit of the period of service toward retirement.
- The employee may have been informed by memo or e-mail regarding a deposit, but the warning went unheeded, because the employee might not have understood the implications of the payment.
- Employees who have taken a refund of CSRS retirement deductions might not realize that there was a change in the law in 1990 that affected how such refunds affect retirement benefits. There are also differences between CSRS and FERS regarding crediting service covered by refunded contributions.
- Military service credit deposits can be confusing. The rules regarding them are extensive and complicated. There are differences between CSRS and FERS and also differences in crediting service that was performed prior to a federal career versus service that interrupts a government career.
- In some cases, an employee already has paid the deposit, but the agency might not be aware, since the record is maintained by the Office of Personnel Management and might not appear in the employee's personnel folder. If you're in this situation, I'd recommend getting a copy of the OPM statement filed in your folder and -- depending on how close you are to retirement -- requesting a retirement estimate to confirm that your human resources office is aware that the deposit has been paid.
I've covered the subject of service credits, deposits and computation dates in several of my early columns. For more information, be sure to check them out:
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.
By Tammy Flanagan
June 20, 2008