A while back FedSmith published two articles I wrote about CSRS deposit and re-deposit service (see the “related articles” section at the end for links to these). This article deals with how those types of service are dealt with under FERS.
OPM calls temporary time and other time for which retirement deductions were not taken “deposit service”. You might have been a seasonal letter carrier when you were in school, or perhaps you took a temporary job as a means of getting in to the federal workforce. In either situation, you did not make contributions towards a FERS pension.
Under FERS, deposit service will not count for either your eligibility to retire or in the computation of your annuity unless you make a deposit. The amount of the deposit will be 1.3% of the salary you earned during the period of deposit service, plus interest (compounded annually) which is charged at variable rates. For 2015 the interest rate is 2%, though it has been much higher in the past.
But, you are only allowed to make a deposit for time that occurred before 01/01/1989 (there is an exception for Peace Corps or VISTA service). Therefore any deposit service that occurred on or after that date will not count towards retirement in any fashion. What follows is an example of deposit service that ended before 01/01/1989.
Let’s say that you had one year of temporary service that ended on 12/31/1988 and you made $25,000 during that year. 1.3% of that amount, or $325, represents your deposit. By today, interest has increased it to roughly $1,277.
Now let’s say that, counting your temporary time, you now have 30 years of total service and you are age 56 years old. You apply for voluntary retirement and are told that you are not eligible because you only have 29 years of creditable service. This is because the one year of temporary time does not count towards your retirement, as you have not made a deposit for it. All you need to do to be able to retire is to make that $1,277 deposit; that gives you 30 years of creditable service and you are now eligible to retire.
Let’s do another example and say that you are actually eligible to retire without having to count the one year of temporary service. You have 30 years of creditable service and you are age 56. Your salary has grown to $100,000 a year. Your annual FERS pension would be $30,000. However if you paid the $1,277 deposit, you would have 31 years of creditable service and your annual pension would be $31,000. If you paid the deposit, your break even period would be about 1 ¼ years.
FERS transferees may have deposit service that falls during their period of CSRS service. This service would be covered under CSRS rules, which are different (more generous) than FERS rules and are discussed in an earlier article.
If you left federal service, withdrew your retirement contributions and did not re-pay them upon your return, you have “re-deposit service”. FERS employees who have left federal service and withdrawn their FERS retirement contributions can re-deposit them (with interest if applicable) when they return to federal service. If the re-deposit is not made, time covered by the withdrawn contributions will not count in the computation of a FERS annuity, though they will count for eligibility to retire. Here’s a re-deposit example.
Let’s say that you started on 01/01/1988 and, after ten years, you decided to take a job in the private sector. You withdrew your FERS retirement contributions which amounted to $3,500. You lost your private sector job during the 2001 recession and were able to find another federal job at the start of 2002. You didn’t repay the money you took out at the time you returned to federal service because you had spent it. You planned to pay it back, but soon forgot about it due to other responsibilities; and you were not aware of the effect it would have on your pension. You plan to retire at the end of this year with 23 years of service at age 60.
Like the individual in the example above, your salary is now $100,000. The amount you owe as a re-deposit has grown to $5,756 due to interest. The re-deposit time counts towards your eligibility to retire, but will not count towards your pension unless you make the re-deposit. If you make the re-deposit, your annual FERS pension will be $23,000. If you do not make the re-deposit, your annual FERS pension will be $13,000. Your break even period is only a little more than six months!
As with deposit service, FERS transferees may have re-deposit service that applies to their period of CSRS service. Such re-deposits would be covered under the more generous CSRS rules.
In almost all cases it makes sense to pay a FERS deposit or re-deposit if you have the opportunity to do so. With a deposit (remember the service has to be before 01/01/1989), the amount owed will usually be small, even if you count interest. With a re-deposit, the reduction to your pension could be so great that it would make sense to pay it, even if you have to take out a loan to do so.
If you have any questions about your own situation regarding deposit or re-deposit service, you should contact your HR office.
John Grobe’s latest book, The Answer Book on Your Federal Employee Benefits, has just been released by LRP Publications. Order your copy at shoplrp.com. Ask your human resources office to contact Federal Career Experts about pre-retirement training.