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Federal Employees News Digest : May 27, 2013
May 27, 2013 Vol. 62, No. 43 8 Visit us on the Internet at www.FederalDaily.com T his second of two columns on deposits for prior and current military service discusses when an employee has to make a military deposit to get credit for CSRS or FERS retirement eligibility and the computation of CSRS or FERS annuities. The column also examines options for employees who are military retirees for active duty. The May 20 column discussed the cost of making a military deposit, in particular: (1) CSRS/CSRS Offset employees -- 7 percent of military basic pay plus interest if a full deposit was not made within the first three years of hire (or after Oct. 1, 1985, if later); and (2) FERS employ- ees -- 3 percent of military basic pay plus interest charges if a full deposit was not made within the first three years of hire or within the first three years of returning to civil- ian service after returning from military leave. The table at the bottom of the page summarizes the effect of a CSRS or FERS employee making a full mili- tary deposit. Note that for CSRS/CSRS Offset employees, the effect of making a military deposit will depend when the employee was initially hired, before Oct. 1, 1982, or after Sept. 30, 1982. The following examples illustrate. Example 1. Karl, age 64, had three years of military service (1969- 1972) prior to entering federal service on Feb. 1, 1980. Karl intends to retire from federal service on Feb. 1, 2014, with 34 years of CSRS service. Karl will be automatically credited for his three years of military service without having to make a military deposit. Since Karl only has 16 credits of Social Security, Karl's CSRS annuity will be computed using 37 years of service plus all of his unused sick leave. Example 2. Chris, age 60, had four years of military service from 1978-1982. Chris entered federal service on Nov. 15, 1983. If Chris does not make a full deposit for his military service he will not get credit for either retirement eligibility or CSRS annuity computation. Suppose Chris owes for his military deposit (including interest) $12,000. If Chris makes a full deposit before he retires on Nov. 30, 2013, he will add four times 2 percent, or 8 percent, of his high average salary to his CSRS annuity. If his high three average salary is $100,000, then making a full deposit of $12,000 results in Chris receiving an extra $8,000 (8 percent of $100,000) a year for the rest of his life. Example 3. Karen, age 60, entered federal service as a FERS employee on Sept. 15, 2003. Prior to entering federal service Karen served 10 years in the U.S. Navy. She has not made a deposit for her military service. If Karen makes a full deposit for her military service, Karen will add the 10 years for the purpose of FERS retirement eligibility and annuity computation. How to determine the amount of military basic pay There are two ways to determine an employee's military basic pay: (1) with military pay documents that show the exact basic pay for a full period of service; and (2) by requesting an estimate of basic pay by attach- ing Form RI 20-97 -- downloadable from www.opm. gov/forms -- to a copy of one's DD-214 (Certificate of Release or Discharge from Active Duty) or equivalent and any avail- able records of pay promotions. Eligible employees should contact their human resources specialist for more information and guidance. Military retiree for active duty Military retirees for active duty have the option of waiving their military retirement in order to include their active duty service toward their CSRS or FERS retirement. The military retirement would have to be waived and a full deposit would have to be paid prior to an employee's retirement from federal service. FERS employees generally tend to do better by keeping their mili- tary retirement pay and their FERS retirement separate, while CSRS employees and TransFERS employees may be better off by combin- ing their retirements and paying the full deposit. Military retirees are encouraged when they are within two or three years of retirement to request two retirement estimates; one estimate based on civilian service and a second estimate using the combined military and civilian service. If the combined benefit is more than keeping the military and civilian retirements separate, then a military deposit should be computed. 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 If eligible, most employees should make military deposits: Part II Retirement System When employee was hired as a permanent employee When military service occurred Effect of making a full military deposit CSRS or CSRS Offset Prior to Oct. 1, 1982 Before Oct. 1, 1982 Military service will be credited toward CSRS retirement eligibility wheth- er a deposit is made or not. But if employee has 40 or more credits of Social Security at the later of age 62 or at the time of retirement, then service is not credited in the computation of employee's CSRS annuity unless a full deposit is made ("Catch 62" provision). CSRS or CSRS Offset After Sept. 30, 1982, and before Jan. 1, 1984 Anytime Military service will be credited toward CSRS retirement eligibility and CSRS annuity computation. Without a full deposit, military service will not be used for either retirement eligibility or annuity computation. FERS After Dec. 31, 1983 Anytime Military service will be credited toward FERS retirement eligibility and FERS annuity computation. Without a full deposit, military service will not be used for either retirement eligibility or annuity computation.
May 20, 2013
June 3, 2013