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Federal Employees News Digest : June 3, 2013
"R edeposit service" is defined as any period of creditable civilian service---service under either the Civil Service Retirement System (CSRS) or under the Federal Employees Retirement System (FERS) or both---for which retirement deductions were taken from an employee's salary and later refunded in accordance with law and regulations upon an employee's separation from service. This first in a series of three columns dis- cussing redeposits examines redeposit service for CSRS employees who left federal service and withdrew their CSRS contributions for any service time occurring before March 1, 1991. It is important to note that a redeposit is not required in order for the years covered by the withdrawn contributions to be used both for the employee's eligibility to retire and in the computation of the employee's CSRS annuity. But if an employee does not make a full redeposit---this includes the withdrawn contributions and interest charges---then the employee's CSRS annuity will be actuarially reduced. A CSRS redeposit may be made by a current CSRS or CSRS Offset employee, by a separated employee with title to an immediate CSRS annuity, by a former employee with title to a deferred CSRS annuity, by a spouse of a deceased employee who is entitled to a survivor CSRS annu- ity and by a former spouse of a deceased employee who is entitled to a survivor CSRS annuity. Amount of the Redeposit. The amount of a redeposit equals the amount of the refund received plus accrued interest. This is generally 7 percent of an employee's wages. The amount of the redeposit for a CSRS Offset employee who is making a redeposit for CSRS Offset service is equal to 1.3 percent of wages earned in 1984, 1985, 1986 and 1987, 0.94 percent of wages earned in 1988 and 1989, and 0.80 percent of wages earned starting in 1990. Interest. If the refund application was received by the Office of Personnel Management (OPM) before Oct. 1, 1982, then the inter- est charge is 3 percent (of the withdrawn contributions) accrued daily and compounded annually on Dec. 31 through the date the redeposit is paid, or until the commencement date of the retire- ment benefit, whichever is earlier. If the refund application was received after Sept. 30, 1982, interest charges are 3 percent (of the withdrawn contributions) through Dec. 31, 1984, accruing daily and compounding annually on Dec. 31, and a variable interest rate determined annually by the Department of Treasury beginning on Jan. 1, 1985, accrued daily and compounded annually on Dec. 31. The table at the right presents the annual interest rates by year from 1985 through 2013. For those CSRS and CSRS Offset employees who withdrew their contributions in the 1970s and 1980s, the amount of interest they owe should far exceed the amount of their withdrawn con- tributions. Affected employees should note that in the case of any refunded service before March 1, 1991, a redeposit is not required in order for the withdrawn years to be used for annu- ity computation purposes. But as will be explained in next week's column, in the event a full redeposit is not made for refunded service occurring before March 1, 1991, the employee's CSRS annuity will be subject to a permanent actuarial reduction. An employee who wants to make a full payment of the redeposit to get full annuity benefit for the refunded service must do so before final adjudication of their retirement claim. An employee may pay the redeposit in installments; however, the unpaid balance is subject to continuing interest charges. If an employee does not make a full redeposit for all refunded service periods before final adjudication of their retirement claim, then OPM applies the payments as explained here: Two or more refunded service periods. If the employee did not specify the refunded period or periods when the payments were made, or if the employee did not specify how to apply the redeposit money and there are two or more refunded periods, then OPM will apply the redeposit payment for a full period of refunded service. In general, OPM will try to obtain the highest CSRS annuity payment possible under the cir- cumstance. One period of refunded service. If an employee made a partial redeposit for refunded service for a period ending before March 1, 1991, then OPM will not issue a refund of partial rede- posit payments made before May 5, 1991. The employee may only get a refund of the partial redeposit if they are eligible for a total lump-sum credit or if they are eligible for and elect the alternative form of annuity. The next "Informed Investor" column will discuss whether it makes financial sense for a CSRS or CSRS Offset employee to make a redeposit for refunded service prior to March 1, 1991. 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 When employees should make a redeposit: Part I June 3, 2013 Vol. 62, No. 44 7 Visit us on the Internet at www.FederalDaily.com Interest rates (%) by year for redeposits Year Interest Rate (%) Year Interest Rate (%) 1985 13.0 2000 5.875 1986 11.125 2001 6.375 1987 9.0 2002 5.5 1988 8.375 2003 5.0 1989 9.125 2004 3.875 1990 8.75 2005 4.375 1991 8.625 2006 4.125 1992 8.125 2007 4.875 1993 7.125 2008 4.75 1994 6.25 2009 3.875 1995 7.0 2010 3.125 1996 6.875 2011 2.75 1997 6.875 2012 2.25 1998 6.75 2013 1.625 1999 5.75
May 27, 2013
June 10, 2013