February 25, 2011During the past two weeks, we've been looking at service credit issues, starting with military service credit and moving on to civilian nondeduction service. This week, in the final installment, let's look at redeposits, which come into play when you've had a break in federal service and you withdrew your retirement contributions.
If you had a such a break, then you should have been given the opportunity to request a refund of retirement deductions using Standard Form 2802 for the Civil Service Retirement System, or Standard Form 3106 for the Federal Employees Retirement System. If you did so and were later rehired into another federal job, you can file another form to pay back the refunded contributions, and receive credit for the service toward your retirement. (This requires Standard Form 2803 for CSRS, or Standard Form 3108 for FERS.) After you fill out the form and turn it in to a retirement specialist in your agency's human resources office, it will be sent to the Office of Personnel Management. Then you'll get a statement showing how much you owe and instructions on how to make payment.
What You Need to Know
Here are some important questions and answers related to redeposits:
If you are covered under FERS, did you have a break in service and take a refund of FERS retirement deductions?
If so, you will receive credit toward retirement eligibility for the refunded service whether or not you pay back the refund. But you won't receive credit in the computation of your retirement benefit unless you pay back the refunded contributions. Here's a letter from OPM on a 2009 change in law that permits FERS refunds to be redeposited. (The OPM website hasn't been updated to reflect the changes yet.)
If you are covered under FERS, did you have a break in service and take a refund of CSRS contributions for less than five years of civilian service that is now creditable under FERS?
You must make a FERS deposit for this service to count for retirement eligibility and computation of your benefit.
If you are covered under CSRS, CSRS Offset, or if you have a CSRS component to your FERS retirement, did you take a refund of CSRS retirement contributions for service that ended prior to March 1, 1991?
You're in luck: You will receive credit toward retirement eligibility and computation of your retirement benefit whether or not you pay back the redeposit. But if you choose to not pay the redeposit, you will have your retirement benefit reduced.
The reduction is computed based on your life expectancy at retirement. For example, if a 60-year-old owes a $50,000 deposit, his or her their retirement would be reduced by $244 per month. If you kept the $50,000 in your Thrift Savings Plan, and were able to get a return of 6 percent, you could earn as much interest as you would be losing from your retirement. Think about this before you write a redeposit check.
If you applied for a refund prior to Oct. 1, 1982, the interest on your unpaid redeposit is grandfathered at a 3 percent interest rate until you retire, or until you pay the redeposit in full. If you applied for the refund on or after Oct. 1, 1982, you will be charged an interest rate that varies over time. It's been as high as 13 percent in 1985 and as low as 2.75 percent this year.
If you are covered under CSRS, CSRS Offset, or if you have a CSRS component to your FERS retirement, did you take a refund of CSRS retirement contributions for service that ended on or after March 1, 1991?
This service will count only toward eligibility for retirement if left unpaid. To use the service in the computation of your retirement benefit, you must pay the redeposit. The interest on these deposits was not grandfathered at 3 percent. Variable rates have been charged since 1985 -- and interest compounds on these unpaid amounts.
Questions and Comments
Here are some recent reader comments and questions on redeposits: I left federal service in 1983 (and withdrew retirement deposits), then returned in 1992. I received no interest on my deposits when I withdrew them ($25,000 in 1983), but now must pay interest (about $120,000 interest plus the $25,000) if I were to return them for retirement credit.
The good news here is you still will be credited with the service covered by the refund even if you don't pay back the $120,000, since your service ended before March 1, 1991. And you don't have to pay the redeposit: You could choose a reduced retirement and try to contribute enough to the TSP to offset the reduction.
I worked nine months prior to 1981 and quit to go to college full time. When I returned to the government, my service computation date was adjusted for the prior time worked. Am I correct to say that I don't have to do a redeposit and I will not be penalized on my annuity?
Remember, you have one service computation date for leave purposes and a different one for retirement. You never have to pay a redeposit to credit your past service for leave accrual. And, as shown above, sometimes you don't have to pay it to get credit for retirement eligibility. But if you want to get your full retirement benefit based on the service, then a redeposit is required. You just have to determine if such a move makes the most financial sense for you.
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 federalnewsradio.com or on WFED AM 1500 in the Washington metro area.
February 25, 2011