Expert's View

Based on the correspondence and e-mails I’ve been getting lately, a lot of you are getting itchy feet. Many of you are eagerly looking forward to retirement. However, a sizable number of you are simply thinking of kissing Uncle Sugar goodbye and taking a refund of your retirement contributions.

As you and your paycheck know, all civilian employee of the federal government contribute a portion of their salaries to the retirement fund. The big difference is the percentage that they contribute. Special category employees, such as law enforcement officers and firefighters, contribute the most. Regular employees contribute less, with CSRS employees contributing much more that FERS employees (7.0 percent vs. 0.8 percent—although FERS people also kick in 6.2 percent toward Social Security). As a result, the amount of money that would be available to be refunded to you if you leave would vary not only by your category and retirement system but by your salary level and the number of years you’ve been contributing to the fund.

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If you are a departing FERS employee, you won’t find much in your account. Further, if you take a refund of that money, you will have burnt your bridge behind you. If you later decide to return to work for the government, you will be barred by law from repaying that refund. So, for retirement purposes, that time would be treated as if it never existed. You’d be starting over. On the other hand, if you are a CSRS employee, you could have a sizable pot of money in your account; and, if you took a refund and returned to work for the government, you would be able to make a redeposit.

Regardless of which retirement system you are in, if you up and leave, you’ll lose other benefits when you resign. Your coverage under the Federal Employees’ Group Life Insurance and Federal Employees Health Benefits Program programs will stop after a 31-day cost-free extension of coverage. However, you may convert to individual policies or, in the case of FEHB, continue for 18 months under the Temporary Continuation of Coverage (TCC) provision of law, but at your own expense.

If you do want to resign and take you a refund of your retirement contributions, you’ll need to get a copy of the appropriate form from your servicing personnel office (SF 2802 for CSRS, SF3106 for FERS) or download a copy by going to www.opm.gov and clicking on Federal Forms in the lower left hand corner. Second you’ll have to be off the rolls for 30 days. Finally, you’ll have to send the completed form to OPM at the following address: P.O. Box 45, Boyers, PA 16017-0045. Oh, yes. Before you can get a refund, you’ll have to 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.

In some cases, interest will be paid on your refund. If you are a CSRS employee who is leaving with more than five years of service – and that includes all current CSRS employees – no interest will be paid. On the other hand, market rate interest will be 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.

Let me leave you with a final question. If you leave government before being eligible to retire, should you take a refund of your contributions? A question like that is best answered by a financial advisor, one who won’t be making money based on his answer. However, if you are close to being eligible for a deferred retirement – age 62 for CSRS and FERS employees (age 60 if you are a FERS employee with 20 years of service) – it might make more sense to leave your money in the retirement 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.