Any employee who is receiving (or is eligible to receive) military retired pay has to not only make a deposit for any period of active duty military service to get credit for it but also waive that retired pay.
The differing requirements for reserved retired pay and military retired pay are spelled out in the instructions section of Standard Forms 2801 (CSRS) and 3107 (FERS). In short, you cannot receive retirement credit for military service if you receive military retired pay, unless you were awarded the retired pay (a) due to a disability incurred in combat with an enemy of the United States or caused by an instrumentality of war and incurred in the line of duty during a period of war or (b) under the provisions of Chapter 10, U.S. Code, Sections 12731 through 12739 (pertaining to retirement from a reserve component of the Armed Forces).
So, if you are retired from active duty, you have to pay the deposit and waive your military retired pay to get credit for those years in your civilian annuity. On the other hand, if you are retired from the reserves, you don’t have to waive that retired reserve pay; however, you still have to make a deposit for any periods of active duty service.
Careful handling of the paperwork is needed:
Box 1 asks if you are receiving or have ever applied for military retired pay. The proper answer to that question is Yes, even for those employees who are receiving payments from the Department of Veterans Affairs instead of military retired pay.
Box 2 asks if your military retired or retainer pay was awarded for reserve service under Chapter 1223, Tile 10, U.S. Code, Sections 12731 through 12739. Again, answer Yes to that question.
Box 3 asks if your military retired pay or retainer pay was awarded for a disability incurred in combat or caused by an instrumentality of war and incurred during a period of war. The purpose of this question is to find out if someone retired from active duty is eligible to get credit for their active duty service without waiving their retired pay. Note: Those folks still have to make a deposit to the retirement fund. Assuming you didn’t suffer such an injury,, you’ll answer No.
Box 4 asks if you are waiving your military retired pay in order to receive credit in your civilian retirement benefit. Answer No, because you don’t have to waive your reserve retired pay.
