Civilian Payback

By Tammy Flanagan

February 18, 2011

Last week, in the first in a three-part series on service credit issues, we looked at military service credit. This week, let's examine the civilian side of the equation: nondeduction service, which is civilian federal service that was not subject to retirement deductions.

There are several different types of such service, including temporary appointments, work performed while in school and seasonal work. Someone in your agency's human resources office can help you review your service to see if you have any nondeduction time.

As with military service, you can pay a deposit for such service, enabling you to receive credit for it in retirement calculations. To do so, you have to fill out an Application to Make a Deposit or Redeposit, known as Standard Form 2803 under the Civil Service Retirement System, and Standard Form 3108 under the Federal Employees Retirement System. After you turn the form in to your agency, the Office of Personnel Management determines how much you owe, and provides instructions on how to pay the deposit.

What You Need to Know

Here are some important questions and answers related to nondeduction civilian service:

If you are covered under FERS, was your nondeduction service performed before 1989?

If so, you can choose to pay the service credit deposit. If you don't pay it, the service will not count toward eligibility or computation of your basic retirement benefit.

If you are covered under FERS, was your nondeduction service performed after 1988?

Such service is not creditable under FERS and no deposit can be paid. If you have this kind of service on your record, then your service computation date for leave purposes will be different from your computation date for retirement. That might not seem fair, but an act of Congress would be required to change this rule. So if you don't like it, talk to your elected officials.

If you are covered under CSRS, CSRS Offset, or if you have a CSRS component to your FERS retirement, was your nondeduction service performed before Oct. 1, 1982?

If so, you're lucky. This service will count toward eligibility and computation of your retirement benefit even if you decide not to pay a deposit. But if you don't pay it, your retirement will be reduced by 10 percent of the unpaid deposit amount.

If you pay the deposit, you'll benefit from an unreduced lifetime annuity, which could be nice if you live a long time. The reduction for not paying the deposit also will reduce the amount of your retirement that receives a cost-of-living adjustment and the value of a spousal survivor annuity. Keep in mind that the deposit amount is based on your salary at the time you performed the service and the interest on such deposits is grandfathered in at a 3 percent annual rate that is accrued daily and compounded annually.

If you are covered under CSRS, CSRS Offset, or if you have a CSRS component to your FERS retirement, was your nondeduction service performed on or after Oct. 1, 1982?

If you don't pay a deposit for such service, then it will count toward eligibility only for retirement, not the computation of your benefit. And the interest charged on these deposits was not grandfathered at 3 percent. A variable rate was charged beginning in 1985. The initial rate was 13 percent. Currently, it's 2.75 percent. And interest compounds on unpaid deposit amounts.

Sometimes, the best way to determine whether it is worth paying a deposit is to ask for two retirement estimates: one showing your retirement with the deposit paid and the other without it. The estimates also will show the amount you owe with estimated interest through your date of retirement.

Questions and Comments

Here are some recent reader comments and questions regarding civilian service deposits for nondeduction service:

My husband tried to do this. He could not get info on the amount due. Then when he got this info, they wouldn't answer questions. Then, we read where deposits have not been credited. The office responsible would not return calls. The red tape just made us forget it.

Unfortunately, persistence pays off. If you just "fuhgeddaboudit," then you will be the one to pay the price -- or in this case, your husband and you. It helps to know who to go to and what forms you need. Someone in your agency's human resources office who specializes in retirement should be able to counsel you on service credit deposits and help you process the request to make a payment. In smaller agencies, you might have to work with a generalist who handles retirement along with other personnel and benefits issues.

I actually submitted a check for service deposit to OPM in February 2010, and have heard nothing since, in spite of many attempts to find out the status of my payment.

Here's the latest from OPM on its recent problems processing deposits and redeposits. Many readers have complained about the agency's response time and accuracy in processing applications to pay deposits.

Could you please tell me if deposits can be made after leaving employment? My twin sister will get a deferred retirement later, but currently she does not work for the government. Can she find out how much she owes for her deposit for temporary service and pay in this time also? Her agency never told her about this.

Unfortunately, your sister will not be able to pay her deposit unless she is rehired into federal service. Separated employees are not eligible to make a deposit unless they are eligible for an immediate retirement and are waiting for the final processing of their retirement claims.

I started working on March 11, 1985, almost two years before they started FERS. Are you telling me that I have to go back and pay into FERS on that time?

If you were hired after 1983, but before FERS was implemented in 1987, you were probably hired under CSRS Interim. Once FERS was established, your interim service became FERS and you do not owe any additional payments to the retirement fund.

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.

For more retirement planning help, tune in to "For Your Benefit," presented by the National Institute of Transition Planning Inc. live on Monday mornings at 10 a.m. ET on or on WFED AM 1500 in the Washington metro area.

By Tammy Flanagan

February 18, 2011