On May 17, OPM issued notices in the Federal Register indicating that the present value factors for CSRS and FERS will be changed, effective October 1, 2019. The last time OPM changed the present value factors was in 2014.
That raises two questions. What are present value factors? And what impact might they have on you?
Present value factors are based on economic assumptions and demographic factors. They change when an analysis done by the Board of Actuaries of the Civil Service System determines that those assumptions and factors have changed enough to warrant a revision in the tables. The recent changes reflect just that, essentially showing increased life expectancy.
Present value factors are important to to 1) retirees who elect to provide a survivor annuity to a spouse they marry after they retire, and 2) retiring employees who: elect the “alternative form of annuity”; owe certain redeposits if they received a refund of their retirement contributions before March 1, 1991; or want to get credit for certain kinds of service with non-appropriated instrumentalities.
If you are covered by CSRS, the present value factors range from 351.8 at age 40 to 102.7 if you are 80 (the table goes up to age 109, but hardly anyone would be making decisions based on these factors beyond age 80). If you are covered by FERS and your annuity isn’t increased by COLAs before age 62 (which is standard), the range is 213.9 at 40 to 99.9 at 80. If your annuity is increased by COLAs before age 62 (primarily those retired under “special group” provisions for law enforcement, firefighting or air traffic control), the range is from 244.2 at age 40 to 215.8 at age 61, after which the factors for all those covered by FERS are the same
In making up your mind whether to make a redeposit or to accept a reduction in your annuity instead, you’ll first need to find out how much you owe. To do that, you’ll have to fill out a Standard Form 2803 (CSRS), available at www.opm.gov/forms/pdf_fill/sf-2803.pdf or Standard Form 3108 (FERS), available at www.opm.gov/forms/pdf_fill/sf3108.pdf (FERS) and send it to OPM. The address is on the form.
When you get the number back from OPM, you’ll need to find the present value factor for your age. For CSRS, go to www.federalregister.gov/documents/2019/05/17/2019-10294/civil-service-retirement-system-present-value-factors. For FERS go to www.federalregister.gov/documents/2019/05/17/2019-10293/federal-employees-retirement-system-present-value-factors.
With that information in hand, all you have to do is divide the present value factor for your age into the redeposit you owe. The product will be your answer. At that point, you can decide if it is better to redeposit that money and have a higher annuity for the rest of your life or accept the reduction and put your money someplace else.
In other situations – such as post-retirement marriage or getting credit for NAF service – it’ll be good to know what the financial consequences of making or not making a deposit will be.
In the “alternative form of annuity,” there is an up-front lump-sum payment and future annuity payments are reduced according to those factors even though by definition anyone eligible for that form of annuity has been certified as having a life expectancy of two years or less.