Last week I wrote about employees who were thinking about jumping ship now and applying for a deferred annuity at a later date. However, some of the folks I talked to wondered if they wouldn’t be better off taking a refund of their retirement contributions and investing in today’s rising market. Good questions. Let’s hunt for some answers.

All civilian employee of the federal government contribute a portion of their salaries to the Civil Service Retirement and Disability Fund. (Don’t be confused by that title. Contributions from both CSRS and FERS-covered employees are deposited in the same place.) The big difference is the percentage they contribute. Special category employees, such as law enforcement officers and firefighters, deposit the most; regular employees less. And CSRS employees contribute more to it that FERS employees (the difference is that FERS employees contribute to Social Security as well). As a result, the amount of money that would be available to a departing employee would vary not only by category and retirement system but by salary level and the number of years they’ve been contributing to the fund.

The reason I bring this up is that most departing FERS employees won’t find a whole lot of money in their account. Further, they will be facing a significant barrier if they later decide to return to work for the government. They are barred by law from recapturing that time by repaying that refund. For retirement purposes, that time is treated as if it never existed.

Both CSRS and FERS employees lose other benefits when they resign. Your coverage under the Federal Employees’ Group Life Insurance and Federal Employees Health Benefits Program programs will cease after a 31 day cost-free extension of coverage. You may, of course, convert to individual policies or, in the case of FEHB, continue for 18 months under the Temporary Continuation Provision of law. Both will be at your own expense.

If you do want to resign and take you a refund of your retirement contributions, how is that done? First, you have to get a copy of the appropriate form from your servicing personnel office (SF 2802 for CSRS, SF3106 for FERS). Second, you have to be off the rolls for 30 days. Finally, you must send the completed form to OPM at the following address: P.O. Box 45, Boyers, PA 16017-0045). Note: Before you can receive a refund, you must notify your spouse and any former spouse that you have filed the application. If the refund would end any court-ordered right they have based on future benefits, you may be barred from receiving a refund.

Now comes another question. Will any interest be paid on my refund? Well, it depends. If you are a CSRS employee who is due a refund covering one to five years of total service, the answer is yes. Interest would be paid at the rate of 3 percent, and it would be compounded annually to the date you left government. If you left with more than five years of service, no interest would be paid. On the other hand, market rate interest is paid on all FERS contributions covering a period of service that totals one year or more. And it is compounded annually up to the month before OPM makes the payment.

The final question is this. Would I be better off taking the money and investing it? That’s a question best left to a financial advisor, one who will not be making money based on his answer. However, here’s a parting thought. If you are close to being eligible for a deferred retirement, it would probably be better to leave your money in the fund. While the annuity you eventually receive may not be large, it will be backed by the full faith and credit of the government. And it will keep being paid to you as long as you live.