Expert's View

It amazes me just how many people come to work for the government and then leave before they are eligible to retire. And every time they leave, they ask themselves the same question: “Should I take a refund of their retirement contributions?” Well, should they? Let’s see.

Every civilian employee of the federal government – whether covered by CSRS or FERS – contributes a portion of his or her salary to the Civil Service Retirement and Disability Fund. The big difference is the percentage they contribute. Special category employees, such as law enforcement officers and firefighters, contribute the most; the rest contribute less. And CSRS employees contribute more that FERS employees. Therefore, the dollar amount that would be available for refund to a departing employee varies by employment category and retirement system; but it also varies by salary level and the number of years that employee has been contributing to the fund.

Clearly CSRS employees have the most to gain financially by withdrawing their contribution. However, if they do take a refund and return to work for the government they may need to redeposit that amount plus accumulated interest to get credit for the time in their annuity computation. FERS employees are in a much less enviable position. Not only will there be less money in their accounts, but if they do take a refund and return to work for the government that time will be permanently lost. For retirement purposes, that time will be treated as if it never existed. No redeposit is possible.

If you do want to resign and take a refund of your retirement contributions, you’ll have to get a copy of the appropriate form either from your servicing personnel office (SF 2802 for CSRS, SF3106 for FERS) or by downloading it from the Internet by going to www.opm.gov and clicking on Federal Forms in the lower-left corner. Second you have to be off the rolls for 30 days. Then you’ll need to send the completed form to OPM Retirement Operations Division, P.O. Box 45, Boyers, PA 16017-0045).

Oh, yes, there’s one more thing. 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.

Before reaching a decision about taking a refund, you need to know about one more thing – interest. Well, these days no interest is paid on refunds taken by CSRS employees. That’s because they all have five or more years of service. That’s the legal cutoff point under the CSRS law. 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.

Now you need to ask yourself a question, is it a better idea to take the money and run or leave it in the fund? 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.