Expert's View

Looking for a safe place to invest and a way to boost your retirement savings? Look no farther than the Voluntary Contributions Program (VCP) if you are a CSRS or CSRS-Offset employee and you don’t owe any deposits or redeposits to the retirement system. If you are one of them, you may invest up to 10 percent of your lifetime federal civilian earnings in the VCP and earn market rate interest. You can make those contributions at any time and in any amount, as long as it’s in multiples of $25. While the money you deposit is after-tax, the interest it earns is tax deferred. Payments are made directly to the Office of Personnel Management.


Why would the government offer you such a good deal? Good question. The original purpose of the VCP was to allow federal workers to increase their retirement annuities. That was back in the days when a government annuity didn’t amount to much. However, the law stayed on the books. As a result, at retirement every $100 in your account can be used to buy an additional $7 per year of annuity. You get 20 cents more for each full year you are over age 55. So, if you were 62 years old at retirement, each $100 would buy $8.40 of annuity.

If you purchase additional annuity at retirement, you can also make a survivor election. And. unlike a survivor election under CSRS, you can name anyone to be your beneficiary. That’s because your election doesn’t require spousal consent. Nor is it subject to garnishment.

Today most employees aren’t interested in using the VCP to increase their annuities or make survivor elections. They want to invest their money and let it grow. The best place to do that is by maximizing your contributions to the Thrift Savings Plan and shoveling in any catch-up contributions you’re eligible to make. TSP contributions are with before-tax money and the earnings are tax deferred.

After you’ve done that, though, there are at least four reasons why the VCP may be a good investment option for you. First, the money can be withdrawn at any time and for any reason. Second, it can be rolled over into an IRA, either a standard one or a Roth IRA. Third, you can earn the same amount of interest whether you invest a little or a lot. And you’ll know what the interest rate is before you send in your money. That’s because interest rates are set for the year ahead. In 2003 that rate is an attractive 5 percent. Fourth, it’s one of the few no-risk opportunities around. That’s because VCP investments are backed by the government.

If you want to participate in the Voluntary Contribution Program, you need to go your personnel office and file an SF 2804, Application to Make Voluntary Contributions. They’ll send it to the OPM, which will then help you set up an account. The VCP is a pretty good deal. If you’re eligible, give it some thought.