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Federal Employees News Digest : May 13, 2013
May 13, 2013 Vol. 62, No. 41 7 Visit us on the Internet at www.FederalDaily.com I n the second of two columns discussing civilian deposits for temporary or seasonal service (some- times called "non-deduction service"), this week's col- umn examines whether it makes financial sense for an employee to make a deposit. The May 6 "Informed Investor" discussed the cost of making a deposit, in particular: (1) CSRS and CSRS Offset employees -- 7 percent of base pay earned as a temporary employee plus interest charges; and (2) FERS employees -- 1.3 percent of base pay earned as a tempo- rary employee plus interest charges for "non-deduction" service performed before Jan. 1, 1989. The table at the bottom of the page summarizes the effect of a CSRS or FERS employee making a full depos- it. Note that for CSRS/CSRS Offset employees, the effect of making a deposit will depend on when the employee with non-deduction service was hired -- before Oct. 1, 1982, or after Sept. 30, 1982. The following three examples illustrate the effect of making a full deposit for non-deduction service: Example 1. CSRS/CSRS Offset employee hired before 10/1/1982 with prior temporary service. Joseph is a CSRS employee who was hired as a permanent employee on Jan. 16, 1980. During 1971-1973, Joseph worked as a temporary employee for the Postal Service. His earn- ings as a temporary employee totaled $20,000. Joseph owes a deposit for his two years of temporary service equal to 7 percent of $20,000, or $1,400, plus interest charges totaling $1,000, or a total of $2,400. Joseph wants to retire June 29, 2013. His service computation for retirement is Jan. 16, 1978, which includes two years of temporary service. His CSRS annuity is $64,500. If Joseph does not make a full deposit of $2,400, his CSRS annuity will be permanently reduced annually by 10 percent of $2,400, or $240. Joseph's CSRS annuity will therefore be $64,500 less $240, or $64,260. If Joseph makes the full deposit, his annuity will be $64,500. Conclusion: By making the full deposit, Joseph will "get his money back" in 10 years. The alternative for Joseph is to invest the $2,400 he owes and find an investment that yields a guaranteed annual return of 10 percent. This is highly unlikely. Example 2. CSRS/CSRS Offset employee hired between 10/1/1982 and 12/31/1983 with prior tem- porary service. Jean, a CSRS employee, was hired as a permanent employee on May 1, 1983. Between July 1, 1981, and Dec. 31, 1981, Jean was a temporary employee at a federal agency in which she did not contribute to CSRS. She earned a total of $30,000 during these six months. She owes a deposit equal to 7 percent of $30,000, or $2,100, plus $1,500 of interest, or $3,600. Jean would like to retire May 31, 2013. Her service computation date for retirement eligibility is Nov. 1, 1982. But without a full deposit, Jean's service computation date for CSRS annuity computation is May 1, 1983. By making a full deposit of $3,600, Jean will add six months to her annuity compu- tation. Since every additional year of service will add 2 percent to a CSRS annuity, Jean's making a deposit for six months of service will add 1 percent to her CSRS annuity. If Jean's high-three average salary is $60,000, then making a full deposit of $3,600 will add 1 percent of $60,000, or $600 a year, to Jean's annuity for the rest of her and her survivor annuitant's life. Conclusion: In making a full deposit, Jean will "get her money back" after six years. Example 3. FERS employee with prior temporary service before Jan. 1, 1989. Deborah entered federal service on Aug. 1, 1984, as a FERS employee. She was 27 years old at the time. Deborah had a one-year temporary appointment with the federal government in 1982. She earned $40,000 during her one-year temporary appointment. Without making a deposit for her temporary service, her retirement service computation date for both retirement eligibility and FERS annuity computation is Aug. 1, 1984. If Deborah were to make a full deposit, her service com- putation date will be adjusted backwards to Aug. 1, 1983. She owes for her deposit 1.3 percent of $40,000, or $420 plus interest. That means by making a full deposit, Deborah will have 30 years of service as of Aug. 1, 2013, and because she has reached her minimum retirement age of 56, she can retire. Conclusion: By a making a full deposit, Deborah can retire one year earlier. Edward A. Zurndorfer is a Certified Financial Planner and Enrolled Agent in Silver Spring, MD. He is also a registered representative with FSC Securities Corporation, branch address: 833 Bromley St. - Suite A, Silver Spring, MD 20902. Phone: (301) 681-1652. Securities offered through FSC Securities Corporation,member FINRA/SIPC. EZ Accounting and Financial Services and FSC are independent companies. Informed Investor Eligible employees should make deposits: Part II Retirement System When employee was hired as a permanent employee When "non- deduction” service occurred Effect of not making a deposit Effect of making a full deposit CSRS or CSRS offset Before 10/1/1982 Before 10/1/1982 Full credit for retirement eligibility and CSRS annuity computation. But annuity will be perma- nently reduced annually by 10 percent of deposit due (including interest). Full credit for retirement eligibility and CSRS annuity computation. No reduction in annuity. CSRS or CSRS offset Between 10/1/1982 and 12/31/1983 Before 12/31/1983 Full credit for retirement eligibility, but not for CSRS annuity computation. Full credit for retirement eligibility and CSRS annuity computation. FERS After 12/31/1983 Before 01/01/1989 No credit for either retirement eligibility or FERS annuity computation. Full credit for retirement eligibility and FERS annuity computation.
May 6, 2013
May 20, 2013