Edward A. Zurndorfer, CFP

Redeposit service is any period of creditable federal service -- including creditable service under another eligible retirement system for federal employees -- in which employee retirement contributions were withdrawn upon an employee's separation from service before retirement.

Payment of a redeposit is not required in determining an employee's eligibility to retire. But with some employees a redeposit may be required in order for the withdrawn service time be used in the employee's annuity computation.

A redeposit of withdrawn contributions covering Civil Service Retirement Service (CSRS) time may be made only by:

1. an employee who is currently covered by CSRS or who was covered by CSRS and who is currently covered by the Federal Employee Retirement System (FERS);
2. a separated employee with title to an immediate annuity;
3. a former employee with title to a deferred CSRS annuity;
4. a spouse of a deceased employee who is entitled to CSRS annuity benefits; and
5. a former spouse of a deceased employee who is entitled to CSRS annuity benefits. A redeposit may be made at any time prior to the adjudication of an individual's claim for retirement or survivor benefits.

The amount of a redeposit for CSRS-covered employees is equal to the amount of the refunded employee contributions -- normally 7 percent of an employee's after-taxed wages -- plus interest. CSRS-Offset employees who have withdrawn their contributions also must pay interest as part of their redeposit. The amount of their redeposit is generally based on deductions of 1.3 percent of after-taxed wages from 1984 through 1987, 0.94 percent of after-taxed wages in 1988 and 1989, and 0.8 percent of after-taxed wages beginning in 1990.

The following interest charges are incurred:

• If an application to make a redeposit is received by an employee's employing agency or OPM before Oct. 1, 1982, then the interest on the redeposit accrues daily and compounded annually. This begins on the date the refund of the employee's contributions are made and is charged at a flat rate of 3 percent through the date the redeposit is made or to the commencing date of the CSRS annuity, whichever is earlier. 
• If an application to make a redeposit is received by an employee's employing agency or OPM after Sept. 30, 1982, then interest is charged on the redeposit, beginning on the date the refund of the employee's contributions was made and compounded annually at 3 percent through Dec. 31, 1984 and a variable rate determined by the Department of the Treasury beginning Jan. 1, 1985, as presented in the table below:

The effect of making or not making a redeposit for refunded retirement CSRS contributions depends on whether the refunded service ended before or after Oct. 1, 1990. If the refunded service ended before October 1, 1990 and the employee's nondisability annuity began after Dec. 1, 1990, then the employee is not required to make a redeposit of withdrawn retirement contributions in order to include the service time covering the withdrawn contributions in the CSRS annuity computation. Full credit will be allowed for the length of the refunded service. But if a full redeposit is not made,  then the CSRS annuity will be actuarially reduced each month by an amount equal to the  refunded retirement contributions plus interest charges, divided by a present value factor as shown in the following table:

Consider the following example:

John, a 55 years old employee has 30 years of creditable federal service as of April 1, 2009. His high-three average salary is $100,000.

John's work history:

• Hired March 1, 1975 under CSRS and separated from federal service on Feb. 28, 1978. He received a refund of CSRS retirement contributions of $4,000.
• Rehired April 2, 1982 with CSRS coverage and worked another 27 years until he retired at 55 on April 1, 2009, with 30 years of federal service. The redeposit due at the time of retirement is $16,000 which John has not paid.

Therefore:

• John is eligible to retire under CSRS and the three years of refunded service are included in determining his retirement eligibility without his making a redeposit.
• If John makes a full redeposit, then his annuity will be unreduced and equal to 56.25 percent of $100,000 - $56,250 annually or $4,687.50 monthly.
• If John does not make a redeposit his annuity will still be based on 30 years of service. But his annuity will be actuarially reduced as follows:

$16,000 divided by 207.2 (the present value factor for age 55) which equals $77.22 (rounded up to $78.00)
$4,687.50 less $78.00 equals his reduced gross monthly CSRS annuity check of $4,609.50

• If John decides to make a full redeposit of $16,000 his breakeven point is 207.2 months or 17.27 years. Since John intends to retire at age 55, he will have to live until 72 years and 4 months in order to get his money back. Note that in the event John is married and if he provides a survivor annuity to his wife, then the actuarial reduction of $78 will cease at his death. That is, a survivor annuity benefit is not subject to a redeposit actuarial reduction.  

If the refunded service ended after Sept. 30, 1990, then a CSRS or CSRS-Offset employee must pay the redeposit in order to receive credit for the service in the CSRS annuity computation. Any period that overlaps Oct. 1, 1990 or any period that is completely after that date is not subject to an actuarial reduction and a redeposit must be made in order to use the service to compute the CSRS annuity.

Consider the following example:

Cheryl, a CSRS-covered employee, received a refund of $20,000 for 10 years of federal service that ended after Oct. 1, 1990. Cheryl began her federal service on April 2, 1978 and left federal service on March 1, 1992. She returned on Jan. 3, 1994 and is eligible to retire with 30 years of service in December 2009. Should Cheryl make a redeposit?

Result:

• With interest, Cheryl owes a redeposit of $35,000 ($20,000 refund plus $15,000 interest)
• Cheryl's high-three average salary is $100,000
• Cheryl is eligible to retire whether or not she makes a redeposit. The 10 years of refunded CSRS contributions are important for determining retirement eligibility.
• If Cheryl makes a full redeposit, then her CSRS annuity is equal to 56.25 percent of $100,000 or $56,250
• If Cheryl does not make the redeposit, the 10 years of refunded service are not used in the CSRS annuity calculation. Twenty years of service are used in the CSRS annuity calculation, resulting in an annuity of 36.25 percent of $100,000 or $36,250. By not making a full redeposit, Cheryl is therefore losing at least $20,000 a year for the rest of her life.

By making a full redeposit of $35,000, Cheryl would "break even" after 1.75 years of retirement.

An employee who wants or needs to make a complete payment of the redeposit in order to get full annuity benefits for the refunded service must do so before final adjudication of his or her retirement claim. Before retirement, an employee may pay the redeposit in installments. But in case the employee does not redeposit all refunds before adjudication of his or her retirement claim, OPM applies the payments as follows:

Two or more refunds

• The refunds the employee specified when payments were made;
• If the employee did not specify how to apply the money, OPM will apply the money toward payment of the refund plus the applicable interest towards a full period of service. In general, OPM will try to obtain for the employee the highest CSRS annuity possible under the circumstances.

One refund

• If the employee has refunded service ending after Oct. 1, 1990, and the amount paid does not complete repayment of any one refund, OPM will refund the partial payment to the employee.
• If the employee made a partial redeposit for refunded service ending before Oct. 1, 1990, OPM will not pay a refund of such redeposit payments made before Nov. 5, 1990. The employee may only receive a refund if he or she is eligible for a refund of his or her total CSRS contributions.

Some other information regarding making a redeposit for refunded CSRS contributions:

• An employee who wants to make a redeposit must obtain form SF 2803, Application to Make Deposit or Redeposit. This form can be downloaded from www.opm.gov. Once completed, the SF 2803 is given to the employee's Personnel Office.
• An employee's agency must advise the employee that an SF2803 should be filed only if the employee intends to make a payment.
• An employee should not file an SF2803 if he or she is within six months of retiring. In that case, OPM will give the opportunity to make a full redeposit at retirement.
• An employee pays OPM in full or in installments of at least $50.00 after receiving the official bill.

These CSRS or CSRS-Offset employees with refunded service prior to Oct. 1, 1990 and who choose not to make a redeposit will have their annuities actuarially reduced as discussed above. If the employee chooses to give a survivor annuity upon the annuitant's death, the survivor annuity is not subject to the actuarial reduction.

Redeposits for FERS-Covered Employees

Finally, FERS-covered employees who request a refund of their FERS contributions upon leaving federal service are not permitted redeposit their withdrawn contributions upon their reentering federal service.  FERS-covered employees -- especially those with at least five years of federal service -- are therefore advised not to withdraw their FERS contribution upon leaving federal service.

Helpful Flowcharts Related to This Article:

• CSRS Creditable Service Flow Chart
• FERS Creditable Service Flow Chart
  

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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