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Federal Employees News Digest : June 17, 2013
T his third of three columns discussing redeposits for refunded service for CSRS and FERS employ- ees discusses redeposit service for CSRS/CSRS Offset employees who received refunds of their CSRS contri- butions for service time occurring after Feb. 28, 1991. The column also examines redeposit service for FERS employees who received refunds of their FERS con- tributions any time after Dec. 31, 1983. CSRS/CSRS Offset and FERS employees should note that refunded service time will count for retirement eligibility pur- poses. But any refunded service time after Feb. 28, 1991, for CSRS/CSRS Offset employees and FERS employees with refunded service time will not get credit for annuity computation purposes unless a full redeposit is made. For CSRS/CSRS Offset employees, any refund cover- ing service time that overlaps March 1, 1991, or that occurs entirely after that date is not subject to an actu- arial reduction (discussed in the "Informed Investor" column of Jun. 10, 2013). But a redeposit must be paid to use the service time in the annuity computation. Consider the following example: George, age 62, entered federal service in 1981 as a CSRS employee. George left federal service in 1992, withdrew his CSRS contributions and returned to federal service in 1995 as a CSRS Offset employee. As of 2013, George has for retirement eligibility purposes 29 years of service (1981-1992, 1995-2013) and can retire. Unless George makes a full redeposit, only 18 years (1995-2013) will be used in the computa- tion of his CSRS annuity. The amount of the redeposit for CSRS employees is equal to the amount of the refund plus accrued interest. "Informed Investor" has discussed how interest charges are computed. For CSRS Offset employees, the amount of the redeposit is the amount of the refund (based on employee contributions of 1.3 percent of salary in 1984, 1985, 1986 and 1997; 0.94 percent of salary during 1988 and 1989, and 0.80 percent of salary beginning in 1990) plus interest. Interest charges accrue daily and compound annually on Dec. 31 at a variable interest rate determined annually by the Department of Treasury. The question for CSRS/CSRS Offset employees with refunded service is: Is a redeposit financially wise? To answer this question, consider the example above with George. Suppose his high-three average salary is $100,000 and he owes a redeposit of $20,000. By making a full redeposit of $20,000, George will be able to include the 11 years (1981-1992) in the computation of his CSRS annuity. Eleven years of service permanently adds 22 percent (2 percent per year) of $100,000, or $22,000 a year, to George's CSRS annuity. In short, by making a full redeposit, George will "get his money back" after less than one year of retirement. CSRS/CSRS Offset employees who want to make a redeposit may do so by downloading Form SF 2803 from www.opm.gov/forms. The completed Form SF 2803 should be sent to the employee's personnel office who will then send the form to OPM's Retirement and Insurance Office. The employee will be notified by OPM as to how and where to send payments. The employee has until the final adju- dication of his or her retirement application to complete the redeposit. FERS employees with refunded service time have been able to make redeposits since Oct. 28, 2009. FERS employees who owe a redeposit may do so no matter when their refunded service time occurred. A FERS redeposit may be made by a current FERS employee, by a separated FERS employee with title to an immediate FERS annuity and by a former employee with title to a deferred FERS annuity. As is true with CSRS employees with refunded ser- vice time, FERS employees with refunded service time get credit for their refunded service time for retirement eligibility purposes but not for FERS annuity computation purposes unless a full redeposit is made, as shown in the following example: Carla, age 60, entered federal service in 1988 as a FERS employee. She worked until 1998, left federal service and withdrew her FERS contribu- tions. She returned to federal service in 2003. Carla is eligible to retire in 2013 since she has 20 years of federal service. But unless Carla makes a full redeposit, her FERS annuity will be computed using 10 years of service (2003-2013). The amount of an employee's redeposit is the refund, equal to the employee's FERS contributions which were deducted from the employee's salary under FERS, plus accrued interest. The con- tribution rate for FERS service is listed at right by year. For some service subject to spe- cial retirement provisions--- for example, law enforcement officials---the deduction is 0.5 percent higher than the rate shown in the table. Interest is charged at the same rates and computed the same way as is done for CSRS redeposits. FERS employees who want to make a redeposit need to download and complete Form SF 3108 from www.opm.gov/forms. The form should be submitted to the employee's human resource office. Once processed and submitted to OPM's Retirement and Insurance office, OPM will contact the employee for redeposit payment information. 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 III June 17, 2013 Vol. 62, No. 46 7 Visit us on the Internet at www.FederalDaily.com Date Service was Performed Payment Rate (%) Through 12/31/1987 1.3 1/1/1988 -- 12/31/1989 0.94 1/1/1990 -- 12/31/1998 0.8 1/1/1999 -- 12/31/1999 1.05 1/1/2000 -- 12/31/2000 1.20 After 2000 0.8
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June 24, 2013