Generally, a federal employee must waive military retired pay in order to receive credit for military service in the computation of a federal annuity. The exceptions are:
Military retired pay based on a service-connected disability caused by an instrumentality of war and incurred in the line of duty during a period of war, or incurred in combat with an enemy of the United States (a determination made by the branch of service, not your employing agency or the Office of Personnel Management);
Military retired pay received under the provisions of 10 U.S.C. 12731-12739 (Chapter 1223) which grants retired pay to members of reserve components of the armed forces on the basis of age and service (active and reserve); and
Military service not used in the computation of military retired pay.
To determine whether it’s beneficial to combine your retired military service with your civilian service, obtain a retirement estimate with and without credit for your retired military service. Second, determine how much the military deposit will be. Once you have this information you’ll be able to determine if the deposit is beneficial for you. Typically an employing agency will perform this calculation.
Complete RI 20-97 (Estimated Earnings During Military Service), attach a copy of your DD 214(s) reflecting your military service, and mail to the appropriate military finance center listed on the form. The center will return the completed RI 20-97 or a letter showing your estimated military earnings. Ask your agency for a military deposit application and a Military Deposit Worksheet (OPM 1514). Complete the employee portion of the application and mail it along with the OPM 1514, the form or letter showing your estimated military earnings, and your DD 214(s) to payroll office. That office will compute amount of deposit due and contact you to make arrangements to pay the deposit.
When you’re ready to retire, you must submit a waiver of your military retired pay to the appropriate military finance center 60 to 90 days prior to the effective date of your civilian retirement. If you fail to waive your military retired pay, OPM will refund the deposit, with interest if you are FERS, without if you are CSRS. (You’ll submit the appropriate refund application form with your retirement package.)
The earlier you pay the deposit, the less interest you pay. If you decide to pay the deposit, it must be completed prior to retirement. If you don’t pay the deposit, or if you decide not to waive military retired pay, your military service will not be creditable towards civilian retirement.