Reg Jones Expert's View

Attention all of you employees out there who are covered by the Civil Service Retirement System. This is directed at you and you alone. There’s a program that can help you earn additional annuity when you retire. Not such a bad thing with the economy wallowing around the way it is. I’m talking about the Voluntary Contributions Program.

By law, as a CSRS employee, you are permitted to contribute up to 10 percent of your total lifetime earnings while working for the government and earn interest on those deposits, compounded annually. Since 1985, VCP accounts have been earning market rates. In 2008, they are earning 4.75 percent.

When you retire you can buy additional annuity with that money. Here are the rules. If you retire at age 55 or earlier, you’ll get $7 of additional annuity for every $100 in your account. For example, if you had $10,000 in your account, you could buy $700 of additional annuity. For every year you were over age 55, the amount would increase by 20 cents. So, if you retired at age 60, each $100 in you account would buy you $8 of additional annuity. An extra benefit is that, you could also purchase a survivor annuity for whomever you chose.

Any annuity you purchase will continue to be paid to you for the rest of your life (or your survivor’s, if you elected a survivor benefit). That’s the good news. The bad news is that VCP-purchased annuities aren’t increased by COLAs.

In all honesty, few contributors to VCP buy additional annuity with their money. Instead they use it as a place to park investment money, but only after they have contributed the maximum amount to their TSP accounts, where they get a tax deduction for their investments; in contrast, VCP investments are made with after-tax money.

If you are one of those who would like to contribute to the VCP but who doesn’t want to buy additional annuity, you can – whenever you want to, before or after retirement – close out your account and take a penalty-free withdrawal. However, if you do that, you won’t be able to reopen it unless you leave government and come back later on to a CSRS-covered position.

If you do close out your account, taxes will only be due on the accumulated interest. However, to postpone payment of those taxes to a later date, you can roll either the interest or the entire amount of your VCP account into an IRA.

If you want to know more about the Voluntary Contributions Program, go to your personnel office and ask for a copy of OPM’s Retirement Facts 10: Voluntary Contributions Under the Civil Service Retirement System or you can download a copy by going to