Tips for juggling different retirement systems

There is more than one type of retirement system for people who work on our nation’s military bases. 

Active duty uniformed service members are covered under one of several military retirement systems including “regular” retirement, “reserve” retirement, and disability retirement. Civilian employees on the base are covered by either CSRS or FERS the same as most federal employees.

But, did you know that there are also more than 100,000 employees who work under the Nonappropriated Fund Instrumentality Personnel System and have retirement benefits through NAF retirement? 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 Department, 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. 

Sometimes an employee covered under NAFI will switch to an “appropriated fund” appointment under CSRS or FERS. The rules concerning the coordination of these two systems can be complex, so be sure to discuss your specific situation with your HR office or your NAFI employee benefits office.  

Here is a recent email that I received that made me think it is time for an article on the basics of portability when moving between the civil service and DOD NAF employment systems:

An article on ARMY NAF Retirement would be refreshing. There are so many articles on FERS/CSRS/TSP but nothing on ARMY NAF's Retirement Pension/401K, which is notable as a good chunk of NAF employees go GS and keep their NAF retirement. Notably, ARMY NAF only has to contribute 2% of their gross, as opposed to the 4.4% “Appropriated Fund” has to contribute to FERS.  

Here are a few more details about coverage under NAF:

• As stated above, with the NAF Retirement Plan, you contribute 0.8% up to 2% of your gross salary each pay period, depending on which NAFI you are working for (Army, Commander, Navy Installations Command or CNIC, Navy Exchange Service Command or NEXCOM, Marine Corps, Air Force, Army and Air Force Exchange Service or AAFES).
  • FERS employees contribute 0.8%, 3.1% (first hired in 2013), or 4.4% (first hired in 2014 or later (0.5% more for special groups such as law enforcement officers, firefighters, etc.)

• Army, Marine Corps, Air Force, and AAFES NAF offers a military buyback of up to five years of active duty (provided the military service is not already providing you a retirement benefit, or you have not used the military service in another retirement plan).  
• An 8.7% cost of living adjustment was applied to the April 1, 2023 retiree payments for CNIC, NEXCOM and AAFES retirees. Army, Marine Corps and Air Force NAF have a cap on the COLA of 3% to 4%.  
  • FERS retirees received a 7.7% COLA on Dec. 1, 2022, but only if they had reached age 62 before Dec. 1 (there are immediate COLAs for special groups such as law enforcement officers, survivor annuitants, and disability retirees).  

For additional comparisons, see this DOD Nonappropriated Fund (NAF) Component Retirement Plan and FERS Policy Reference Chart

So, there may be some advantages of the NAF system over FERS and an employee joining FERS may want to remain covered under NAF.  Is this an option?  Over the years, a variety of legislation addressed portability between NAF and CSRS / FERS. 

Public Law 101-508, effective Jan. 1, 1987, allows vested NAF employees to remain in the NAF Retirement Plan if they move to a job that uses “appropriated” funds (i.e. CSRS or FERS) within 3 days.

• It also allows vested Army APF employees to choose to remain in CSRS or FERS, if they move from to a NAF job within DOD and within 3 calendar days. 

Public Law 104-106, for moves that occur on or after Aug. 10, 1996, allows up to a one-year break in service and up to one year to make a retirement system election as long as the election is made within 31 days of the appropriated fund appointment. 

• This law expanded moves to include the entire federal government; not just with DOD.
• This law did not change the eligibility and still required employees to be vested in the losing retirement system. 

Public Law 107-107, effective December 2001, removes the vesting requirement of P.L. 101-508 and 104-106 and allows the employee to continue coverage in the retirement plan that covered them immediately before the move. The move still must occur with a break of not more than one year. Provides CSRS or FERS employees the opportunity to use any service with a DOD or Coast Guard NAFI. This includes service covered by a NAF Retirement Plan as well as service not covered by a NAF Retirement Pan.

In accordance with this most recent law impacting NAFI portability, federal employees who are hired with prior NAFI coverage can choose between the following options when hired:

• They may elect to retain retirement coverage in the NAF retirement plan with the understanding that because of this irrevocable decision, they will never be able to earn additional credit under the Civil Service Retirement System (CSRS) or the Federal Employees Retirement System (FERS). Regardless of future moves between NAF and civil service employment, breaks in service, and changes in employment or retirement status, the retirement coverage will remain with a NAF retirement plan in accordance with the rules of that plan.
• If a FERS employee does not choose to retain NAF retirement coverage, then:
  •  Former NAF covered employees may choose coverage under FERS, CSRS, or CSRS Offset as appropriate. In the future, they may be able to elect to credit NAF service to qualify for an immediate FERS, CSRS, or CSRS Offset retirement (election can only be made at the time of retirement). NAF service will not increase the amount of any future FERS, CSRS, or CSRS Offset annuity to which the employee may become entitled.
  • There will not be another opportunity to retain coverage in a NAF retirement plan if there is ever a move from a NAF position to a civil service appointment in the future. However, if an employee moves back to a NAF position, they will be subject to the NAF plan in accordance with its rules.
  • In the future the employee moves back to a NAF retirement covered position without a break in service of more than 1 year, including employment covered by the NAF retirement plan that they are leaving, they will be given a one-time opportunity (only if never before given the opportunity) to elect to retain coverage in FERS, CSRS, or CSRS Offset as appropriate, or to enter the appropriate NAF plan without transfer of FERS, CSRS, or CSRS Offset service credit.

The election is made on form 38-134.  

If you are a FERS employee with prior NAFI service and 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.

If you need to obtain copies of your prior NAFI records, here are contacts for NAF employee records.