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Voluntary Contribution Program (VCP): Eligibility, Contributions, Refunds and Procedures for CSRS and CSRS Offset Employees
(Part 1 of 2)
This column discusses the Voluntary Contribution Program (VCP), including which employees are eligible to contribute to the VCP, how much an eligible employee can contribute, the interest earned on voluntary contributions, the refund of voluntary contributions, and the procedures governing VCP accounts.
[Editor's note: Part 2 of this column discusses withdrawal options from a VCP account, including a rollover to a Roth IRA and annuity options that allow a CSRS or CSRS Offset employee the option to receive an additional CSRS annuity from the Office of Personnel Management (OPM).]
Employees who are currently covered by CSRS and CSRS-Offset or separated employees whose application for retirement under CSRS is currently being processed by OPM can apply to make voluntary contributions to the CSRS Retirement and Disability Fund.
The following employees are not eligible to contribute to the VCP:
- FERS employees;
- an employee who has transferred to FERS from CSRS (a "trans" FERS employee); or
- CSRS or CSRS Offset employee who owe a deposit for "nondeduction" (temporary time) civilian service or a redeposit for refunded CSRS retirement deductions. Any CSRS or CSRS Offset employee who owes such a deposit or redeposit will be eligible to make voluntary contributions upon completing the deposit or redeposit.
Payments to the VCP must be made in multiples of $25 ($25, $50, $75, $100). Total contributions to the VCP may not exceed 10 percent of an employee's aggregate basic pay as of the date any contribution is made. Basic pay is the pay the employee receives for creditable civilian service that is covered by deduction or deposits.
An employee may not circumvent the 10 percent limit by making contributions based on anticipated earnings. Any amount found to be in excess of the limit will be refunded by OPM without interest.
Interest is earned at the rate of three percent annually through Dec. 31, 1984. Beginning Jan. 1, 1985, voluntary contributions earn a variable interest rate determined each calendar year by the Department of the Treasury. This is based on the average yield of new investments purchased by the VCP fund during the previous fiscal year. The interest credited to each voluntary contribution account is compounded annually through December 31st of the preceding year. .
The following table summarizes the interest rates for the period 1985 - 2009:
VCP contributions begin to earn interest on the date deposited by OPM. If a current employee takes a refund of VCP contributions, interest accrues to the date OPM authorizes the refund payment.
Interest is computed to the date of separation when an employee separates and takes a refund of voluntary contributions.
The following example illustrates this point.
Jim made a VCP contribution that OPM deposited on March 1, 2009, and then separated from federal service on July 31, 2009. The employee applied for a refund in August 2009. Interest was paid at the rate of 3.875% for five months.
Interest will continue to accrue in an individual's account if an employee separates from federal service with entitlement to a deferred annuity and does not request a refund of his or her voluntary contributions. The accrual will start from the beginning of the date of annuity or death, whichever is earlier. Interest will accrue on the VCP contribution until the date of separation for retirement if an employee separates from federal service to retire on an immediate annuity. This rule applies regardless of whether the retired employee elects to receive a refund of voluntary contributions or to purchase an additional annuity.
Voluntary contribution payments are made directly to OPM. Payments cannot be made by payroll deductions.
Employees who want to make voluntary contributions must obtain form SF 2804, Application to Make Voluntary Contributions (downloadable from the OPM website here), complete SF 2804, and submit to the agency's personnel office.
An employee must pay all deposits or redeposits for temporary service or refunded service prior to making voluntary contributions. An employee should not send money with the application. OPM will not accept contributions until it has approved the employee's application.
After such approval, OPM will assign the employee a voluntary contribution account number (CSV number) along with instructions on how to make payments to the voluntary contribution account. OPM also sends payment receipts and the Voluntary Contributions Annual Statement of Account to the account holder. The statement is sent at the beginning of each year, showing the amount of interest through December 31 of the preceding year.
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