17 Years Later–Former Fed Learns Expensive Lesson

When you leave federal service before being eligible for retirement, what are the implications of taking a lump sum payment? This former Navy employee discovered the answer.

When you resign from a federal job, get a lump sum payment for your retirement contributions, and later try to file for an annuity, you will most likely be out of luck. A recent appeals court case, Vidal v. Office Personnel Management, C.A.F.C. No. 2007-3315 (nonprecedential), 2/25/08, graphically illustrates the point.

Mr. Vidal had over 18 years of active military service, and then worked for the Department of Navy for almost 17 more years. He resigned from his civil service position and applied for a refund of his CSRS contributions. The form he filled out warned him that he would be giving up rights to receive an annuity if he accepted the refund. Nevertheless, he pursued the refund and got a check for $19,281.23. (Opinion p. 2)

You guessed it. More than 17 years later Mr. Vidal filed for a CSRS annuity and the Office of Personnel Management denied his application. OPM pointed out that the contribution refund barred him from receiving an annuity. Further, he could not redeposit the funds in exchange for an annuity, which is permitted only when an applicant is working for the civil service. The Merit Systems Protection Board affirmed OPM’s decision, so Vidal decided to take his case to court. (p. 2)

In its decision affirming the OPM and the MSPB, the appeals court points out that Vidal would have been entitled to a deferred annuity if he had not obtained a refund of his contributions. However, because he got the refund, he is out of luck. (p. 3)

For those of you wondering why Mr. Vidal gave up his right to a CSRS annuity in the first place, he argued that he had to leave his civil service job due to illness aggravated by his working conditions and that therefore OPM should let him have a deferred annuity. While there may have been other avenues available to him at the time (Federal Employees Compensation Act, disability retirement are two that come to mind), he apparently did not pursue them.

The lesson is to make sure you fully understand the consequences of your actions before trading a deferred annuity for a lump sum payment—and make sure you fully weigh the trade off.

About the Author

Susan McGuire Smith spent most of her federal legal career with NASA, serving as Chief Counsel at Marshall Space Flight Center for 14 years. Her expertise is in government contracts, ethics, and personnel law.