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What Is a Deposit and When Is It Required?
FERS and "Trans" FERS
Edward A. Zurndorfer, CFP

This article discusses deposits for "nondeduction" service and when a deposit is

required for those employees covered by the Federal Employment Retirement System

or FERS.  FERS-covered employees include those who have transferred to FERS

from CSRS, sometimes called "Trans" FERS employees.

Any period of civilian service performed before Jan. 1, 1989 during which

FERS contributions (normally, 0.8 percent of an employee's after-taxed wages)

were not deducted from an employee's wages is called nondeduction service.

Nondeduction service under FERS also includes service credited under the FERS

rules in which deductions were made under another retirement system (such as

CSRS or CSRS-Offset) but were refunded before the employee became subject to the

FERS retirement rules.

The following are the rules regarding making a deposit for

nondeduction service for FERS employees who have no prior federal service under

another retirement system:

  • A FERS employee may make a deposit to get credit for any nondeduction

    service performed prior to Jan. 1, 1989. Nondeduction service performed prior to

    this time will not count for retirement eligibility or FERS annuity computation

    purposes unless such a deposit is made prior to the final adjudication of the

    employee's retirement claim. Any nondeduction service prior to Jan. 1, 1989 will

    nevertheless be credited for annual leave purposes without a deposit. The

    employee's service computation date (SCD) for annual leave purposes will

    therefore be adjusted accordingly, whether or not a deposit is made. Consider

    the following example.

Jody had three years of temporary federal service between 1984 and 1987.

She was not covered by any pension system during that time. On March 1, 1988,

Jody started full-time federal service under FERS. Her annual leave SCD is March

1, 1985, meaning that she immediately accrued six hours of annual leave every

pay period upon her starting full-time federal service. But unless Jody makes a

deposit for her three years of temporary federal service, her SCD for retirement

purposes will be March 1, 1988.

  • Nondeduction service performed on or after Jan. 1, 1989 generally is not

    creditable for retirement purposes under FERS.

  • Service performed on or after Jan. 1, 1989 under another retirement system

    for federal employees is not creditable under FERS for any purpose. The

    exception is creditable service under the Foreign Service Pension System (FSPS),

    provided that the employee waives credit for the service under the FSPS and

    makes a deposit for the service.

For those employees who transferred from CSRS-Offset service to

FERS:

The CSRS-Offset service is credited according to the FERS service credit

rules.

If, as of the date of transfer to FERS, the employee has

performed:

    • less than five years of civilian service creditable under CSRS rules (not

      counting any CSRS-Offset service) then the CSRS service also becomes subject to

      FERS service credit rules. Employees who were subject to full CSRS payroll

      deductions -normally 7 percent of after-taxed wages - are entitled to a refund

      of any deductions that exceed the full FERS payroll deductions which is 0.8

      percent of after-taxed wages.

    • more than five years of civilian service  creditable under CSRS rules

      (not counting any CSRS-Offset service), the employee remains subject to the CSRS

      service credit rules for the years under CSRS. This means that the employee

      could be eligible for two annuities - one based on CSRS service and the other

      based on FERS service.

For those employees who transferred from full CSRS coverage to FERS:

    • If, as of the date of the transfer, the employee has performed five or more

      years of civilian service under CSRS rules, then all of the service performed

      before the employee's effective date of transfer to FERS counts towards the

      employee's eligibility for a CSRS annuity. This means that the employee could be

      eligible for two annuities - one based on CSRS service and the other based on

      FERS service.

    • If, as of the date of the transfer, the employee has performed less than

      five years of civilian service creditable under CSRS rules, then all service

      becomes subject to the FERS service credit rules. Employees are entitled to a

      return of CSRS payroll deductions, normally 7 percent of an employee's

      after-taxed wages that exceed the FERS payroll deductions required for that

      period which is 0.8 percent of an employee's after-taxes wages.

A deposit for FERS service may be made only by:

  1. a current employee who is subject to FERS;

  2. a retiree who is entitled to an immediate annuity and whose annuity has not

    been fully adjudicated;

  3. a former employee whose annuity has not been fully adjudicated and who is

    eligible for a deferred annuity because he or she had at least five years of

    paid civilian service at the time of leaving federal service;

  4. the spouse of a deceased employee who is entitled to a survivor annuity;

  5. the former spouse of a deceased employee who is entitled to a survivor

    annuity; and

  6. the surviving former spouse of a deceased former employee who is eligible

    for a survivor annuity.

A deposit for eligible nondeduction service under FERS may be made at any

time prior to the final adjudication of the individual's retirement claim.

The deposit under FERS for nondeduction service is equal to 1.3 percent of

the basic pay earned during the nondeduction service, plus interest. The 1.3

percent applies regardless of when the service was performed or whether

deductions would have been taken at 0.8 percent, if they had been taken at that

time. Consider the following example:

Jay was employed under CSRS from 1973 to 1975. He resigned, applied for

and received a refund of his 7 percent CSRS contributions from his wages. He

returned to federal service in 1987 and was automatically covered by FERS. Since

his service from 1973 to 1975 is now credited under FERS rules, Jay's deposit

(if he chooses to make one for his years of service under CSRS) is equal to 1.3

percent of his basic pay from 1973 to 1975, plus interest.

Interest is charged from the midpoint of each period of nondeduction service.

Interest accrues annually on the outstanding balance on December 31 of each year

and is compounded annually until the outstanding balance is deposited. Interest

is charged from the date of deposit or the commencing date of the FERS annuity,

whichever is earlier. The rates are assessed at three percent interest, accrued

daily and compounded annually through Dec, 31, 1984, and after Jan.1, 1985 at a

variable rate determined annually by the Department of the Treasury and

presented below:


Why should a FERS-covered employee with pre-Jan. 1, 1989 nondeduction

service consider making a deposit? What effect will it have on the employee's

FERS annuity? Consider this example:

An employee earned $25,000 during one year of nondeduction service before

Jan. 1, 1989. If the employee chooses to make a deposit for the one year of

nondeduction service, the employee owes a deposit equal to $25,000 times 1.3%

plus $1,200 of interest, or $1,525. The employee's high-three average salary is

$75,000.

By making the full deposit,  the employee's FERS annuity will be

permanently increased by 1 percent times $75,000, or $750 per year if the

employee retires before age 62, or by 1.1% times $75,000 or $825 per year if the

employee retires after age 62 with at least 20 years of FERS service.  It

will take the employee less than two years receiving a higher annuity benefit to

equal the amount of the $1,525 deposit. In other words, where could the employee

invest $1,525 and be guaranteed an annual return of $750 or $825 for the rest of

his or her life?


FERS-covered employees who wish to make a deposit for pre-Jan. 1,

1989 nondeduction service need to complete form SF 3108, Application to Make

Service Credit Payments for Civilian Service. This form may be obtained at the

employee's Personnel or Human Resource Office. The form may also be downloaded

from OPM's website at www.opm.gov. Deposits are

made directly to OPM in a single lump or in installments no smaller than $50.00.

When an employee makes partial payments, OPM sends the employee a receipt

showing the new balance due, including updated interest charges. Once the

deposit has been paid in full, OPM should send an acknowledgment that a deposit

has been paid in full. Employees should keep the acknowledgment as the official

notification that a deposit was paid in full.

Helpful Flowcharts Related to This

Article:

About the Author

Edward A. Zurndorfer is a Certified Financial Planner and Enrolled Agent

in Silver Spring, Maryland. He is also a registered representative with

Multi-Financial Securities Corporation (Branch A9X), member FINRA/SIPC, also

located in Silver Spring, Maryland

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