This article is dedicated to Dave K., who inquired about this topic.
It is a common misconception that anyone receiving military retired pay cannot also receive federal civilian retirement credit for their military service. However, a significant exception applies to people receiving military retired pay based on reserve service.
The general rule is that active duty military service cannot be credited in your FERS or CSRS retirement benefit if it is included in the computation of military retired pay. Reading only this part of the rule suggests that all individuals receiving military retired pay must waive that pay in order to claim credit under FERS or CSRS.
Significant exception: It’s very important to note, though, that the rule goes on to provide an exception that applies to many people. It states that active duty military service can be credited in your FERS or CSRS retirement benefit (even if military retired pay is being received) if the retired pay was awarded under the provisions of 10 U.S.C. 12731-12739 (Chapter 1223). This is the part of the law that grants retired pay to members of reserve components of the armed forces on the basis of age and service (active and reserve). [CSRS and FERS Handbook, Chap. 22, Section 22A4.1-1]
(There’s also an exception for individuals whose military retired pay is received because of a service-connected disability incurred in combat or caused by an instrumentality of war, but that’s another article!)
This exception means that if you are eligible for military retired pay because of reserve service (not active duty alone), you do not have to waive your military retired pay in order to receive credit for your active duty military service in your FERS or CSRS retirement benefit. You simply have to make any required deposit(s) to FERS or CSRS, as applicable.
Deposit requirement: These days, most employees must make a deposit before their active duty service can be credited under FERS or CSRS. (Those with military service before 1957 and those who were first under CSRS before 10/1/1982 may be exempt from this requirement.) If you are anticipating receiving both military retired pay based on reserve service and a FERS or CSRS retirement benefit for the active duty portion of your military service, be sure that you have made the required deposit(s) to your civilian retirement system before you retire.
Remember, too, that you may need to make a deposit even for active duty service while you were a civilian federal employee. That is, if you were in non-pay status (Leave Without Pay–US or Absent–US) to perform military service, you probably need to make a deposit to insure the creditability of that service in your civilian retirement benefit.
“Legal double-dipping”: So is this legal double-dipping? Not really: with the deposit requirement for credit under your civilian retirement plan, you end up paying toward the benefit in much the same way you pay toward the rest of your civilian retirement benefit. If you consider the Social Security benefit that you’ll probably receive for your military service, you might end up being a triple-dipper!