FERS, Pension Contributions and Returning to Federal Service

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By on June 29, 2011 in Retirement with 12 Comments

For most of the 25 years or so of the existence of the Federal Employees Retirement System (FERS), if a FERS employee resigned and accepted a refund of his pension contributions, it was final and absolute. That is, if the employee returned to Federal
service, and wanted to repay the refund, the answer was “no.” The time was lost forever. About two years ago, this changed.

The revised rule is that a FERS employee is allowed to pay back the refunded money, with interest, and he will get full retirement credit for the time. Here’s how the debt is
calculated:

Each calendar year has a new interest rate, set by the Treasury Department in accordance with prevailing market rates. First do a pro-rated calculation for the initial period immediately after the refund, then add compounded interest for all the years through December 31 of the prior year.

Example

Employee resigns and receives a $763 refund on June 17 of 2003. For 2003, the interest rate is 5.0%. The calculation is:

  • 763 *
    0.05 = 38.15 Full year.
  • (193 /
    360), or 0.5361111, remaining in 2003
  • 38.15 * 0.5361111
    = 20.45 interest for 2003.

Add the $20.45 interest to the $763 principal and the debt carried forward for 2003 is $783.45. (Note: in accordance with public law, years used in financial calculations all have 360 days and months are all 30.)

Then just add interest for each year thereafter, until you get to December 31 of the year prior to the year in which the debt is being paid. In this case, the applicable rates
are:

 Year  Interest Rate (%) Year  Interest Rate (%)
 2004  3.875  2008  4.75
 2005  4.375  2009  3.875
 2006  4.125  2010  3.125
 2007  4.875

 

Total principal plus interest in this case, as of Dec 31, 2010, is $1,093. If not paid before Dec 31 of this year (2011), one more year of interest will accrue, at the current rate
of 2.75%.

Payment

There are two ways to pay. The first is cash and the second is payroll deduction.

© 2017 Robert F. Benson. All rights reserved. This article may not be reproduced without express written consent from Robert F. Benson.

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About the Author

Robert Benson served 35 years in various Federal agencies, as both a management analyst and IT specialist. He is a graduate of Northwestern University.

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