Last week I wrote about what happens to the annuities of federal employees who served in the armed forces after December 31, 1956 and who will also be eligible for a Social Security benefit. To recap, FERS employees must make a deposit for that period of service or it won’t be included in their civilian annuity calculation. CSRS employees are treated the same way unless their active duty service was performed before October 1, 1982. If it was, they don’t need to make a deposit to get credit for that time unless they expect to be eligible for a Social Security benefit at age 62 (or later if they retire after age 62).
Should you make a deposit? The only way to find out if it makes financial sense is to run the numbers. To do that, you’ll need to know two things: how much you owe and how much your retirement annuity will be increased if you make a deposit. Last week I explained how to find out what your earnings were. To determine the difference in your annuity under FERS and CSRS, with and without making a deposit, you can run the numbers using the following formulas.
FERS .1 x your years of service x your high-3 = your annuity (the multiplier is .11 if you retire at age 62 or later with at least 20 years of service)
CSRS .15 x first 5 years of service x your high-3, plus
.175 x next 5 years of service x your high-3, plus
.2 x all years of service over 10 x your high-3
If you decide that it makes sense to make a deposit, you’ll need to find out how much you would owe. To do that, get a copy of Standard Form-2803, Application to Make Deposit or Redeposit, which you can get by going to www.opm.gov and clicking on Forms. When you’ve filled out the form, take it to your payroll office along with a copy of your DD-214 or equivalent, and the statement of estimated earnings you got from the finance center for your branch of service. They’ll figure out how much you owe. If you make the deposit within a period just shy of three years after you were first hired, you won’t owe any interest. If you make it after that, you will.
The deposit can be made to your agency in a lump sum or in payments as small as $50. However, the more time you take trying to decide whether to make a deposit, the more it could cost you. The reason is that interest on an unpaid deposit really mounts up. Over the years, interest rates have ranged from 13 percent in 1985 to 1.625 percent this year.