One of the least understood aspects of federal retirement policy involves capturing credit for military service. The military began deducting Social Security from military pay on January 1, 1957. Congress enacted a law in 1982 giving employees the opportunity to make a deposit into their retirement system for active military time served after 1956.
Individuals who make the deposit are entitled to credit for the military service under both the Social Security system and the applicable civilian (FERS or CSRS) retirement system. No interest will be computed if a deposit for military service is made within two years after the date you first became employed. If the deposit is not completed in the two-year period, interest will be posted to your account one year after the two-year period; thus the total effective interest-free period is three years minus one day.
If you are covered under FERS, you will receive retirement credit for military service only if a deposit for military service is made. For periods of active duty service prior to January 1, 1999, the deposit equals 3 percent of the military base pay (not allowances) you received. For periods of service performed during 1999, the required deposit equals 3.25 percent; for 2000, 3.4 percent; and for after 2000, 3 percent.
If you were first employed under CSRS on or after October 1, 1982, you will receive retirement credit for post-1956 military service only if a deposit for the military service is made. For service prior to January 1, 1999, the deposit required is 7 percent of military base pay. For periods of service performed during 1999, the deposit required is 7.25 percent; for 2000, 7.4 percent; and for after 2000, 7 percent.
If you were first employed under CSRS before October 1, 1982, you have two options: (1) making the deposit for the post-56 military service; or (2) receiving service credit but having your annuity recomputed at age 62 to eliminate post-1956 military service—a reduction in annuity known as “catch-62.” (This only occurs if you are eligible for Social Security. If you do not currently have enough quarters to be eligible for Social Security benefits and will not have enough quarters by age 62, there is no advantage to making a deposit for the post-1956 military service.)
If you are retired military, you may combine your active duty military service and civilian service for one annuity. This generally requires a deposit into the civilian retirement system for the active military service and you must waive your military retired pay effective with the beginning of the civilian annuity. The exceptions are that you do not have to waive your military retired pay if it was awarded for a disability incurred in combat or caused by an instrumentality of war, or awarded for reserve service under Chapter 67, Title 10.