Edward A. Zurndorfer, Certified Financial Planner

In early 2008, the Office of Personnel Management (OPM) discovered an error in the manner in which its computers calculated interest charges on deposits and redeposits. The discovery led to the July 2008 shutdown of OPM's computer system used for the computation of interest charges due on deposits and redeposits owed by federal employees.

To help understand the problem and how many current federal employees are affected, it is important to first explain what a deposit and a redeposit are and how interest charges are computed.

Deposit

Both Civil Service Retirement System (CSRS) and Federal Employee Retirement System (FERS) civilian service deposits may be made for federal service in which an employee did not contribute via payroll deduction to either the CSRS or the FERS; for example, a temporary appointment (such as a summer job) with a federal agency or the U.S. Postal Service; also, a FERS employee may make a deposit for refunded CSRS contributions if the service is now credited as FERS.

Redeposit

A repayment of refunded CSRS and FERS contributions that may have been elected after a break in service.

Military Deposit

A deposit or payment made to the CSRS or FERS retirement fund for active duty military service performed after Dec. 31, 1956.

The following table summarizes what is owed for deposit (or "non-deduction") service, for a redeposit of refunded retirement contributions, and for a military deposit for CSRS and FERS employees. 

	CSRS, CSRS-Offset and CSRS Component of "Trans" FERS Covered Employees	FERS Covered Employees
Deposit	Principal owed: Generally, 7 percent of the base pay earned during the "non-deduction" service.   Interest owed: Service performed prior to 10/1/1982 is charged 3 percent interest accrued daily and compounded annually through the date the deposit is paid in full.	Principal owed: Generally, 1.3 percent of the base pay that was earned before 1/1/1989.
	Service creditable under CSRS and performed on or after 10/1/1982, and all FERS deposits are charged 3 percent interest accrued daily and compounded annually through 12/31/1984; after 1/1/1985 interest is charged at a variable rate (see table below) of interest accrued daily and compounded through the date the deposit is paid or until the commencement date of the retirement benefit, whichever is earlier.
Redeposit	Principal owed: The amount of the refunded contribution received.   Interest owed: If refund application was received by OPM before 10/1/1982, a 3 percent interest accrued daily and compounded through the date the redeposit is paid or until the commencement date of the retirement benefit, whichever is earlier.	Guidance on implementing FERS redeposits will be issued by OPM sometime during 2010
Post-1956 Military Deposit	Principal owed: 7 percent of the military base-pay for each period of actual service.     Interest owed: Employees hired prior to 10/1/1982 had an interest-free grace period until 11/1/1985 after which interest accrued and compounded annually at the variable rate shown below.	Principal owed: 3 percent of base-pay for each period of military active service.   Interest owed: After 2 year interest-free grace period, interest accrued and compounded annually at the variable interest rate shown below.

The problem that led to the 2008 shut down of OPM's computer system that calculated interest charges is that in some cases interest was applied at the "variable" interest rate instead of the fixed 3 percent rate. This caused interest charges to be overstated. In other cases, the reverse happened in which interest was charged at the fixed 3 percent rate instead of the variable rate and interest charges were therefore understated. There were also some instances where interest was not charged for a particular year which also caused an understatement of the amount due.

According to OPM, the erroneous statements and other mistakes resulting from the system change could have been quickly resolved. But at the same time, OPM lost key programming staff that consequently slowed its corrective efforts. The result is that it is possible that some employee account holders - those employees who owe deposits and/or redeposits with a mix of pre-Oct. 1, 1982 and post-Sept 30, 1982 service - have overpaid interest on one type of service and underpaid interest on another type of service.

Employees who owe deposits for non-deduction service or deposits should perform the following tasks once OPM's new Service Credit System is fully functional and new statements are sent out:

• Find out the balance due. Send a request via email to screceipts@opm.gov. Employees should send their name, date of birth and a Civil Service Deposit (CSD) claim number.

• Make payments on a Service Credit Account. Make payments by sending a check made out to the "Office of Personnel Management" and mail to:

OPM
P.O. Box 979035
St. Louis, MO 63197-9000

  One's name, date of birth and CSD claim number should be on the check (payments can be made online at http://www.pay.gov).

• Make sure a payment has been received by OPM. Send the request to screceipts@opm.gov.

• Make payments via automatic debit from a checking or service account. Download form RI 16-28, Authorization for Direct Payments, at http://www.opm.gov. Complete the form. Make sure to mark the "New Enrollment" box and mail to:

OPM
Direct Payment Program
P.O. Box 979035
St. Louis, MO 63197-9000

• New application requests for deposits or redeposits. OPM's Boyars, PA office processes applications for Service Credit. Once an application for a deposit or redeposit has been made, an email request to scbillings@opm.gov can be made. A response will be returned via email verifying receipt of the application. The applicant's name and date of birth should be put on the email.

OPM does not compute or collect deposits for military service performed after 1956. Current federal employees who want to make a deposit for military service should contact their local servicing personnel office to obtain information concerning the military deposits and how they go about making a military deposit. Any separated federal employee can obtain a copy of their military deposit record by sending an email to retire@opm.gov. The employee's name and date of birth should appear on the email request.

Any interest paid on a deposit or a redeposit is considered as personal interest and therefore nondeductible on one's federal and state income tax returns.

About the Author

Edward A. Zurndorfer is a Certified Financial Planner, Registered Health Underwriter, Registered Employee Benefits Consultant and Enrolled Agent in Silver Spring, MD and the owner of EZ Accounting and Financial Services, an accounting, tax preparation and financial planning firm also located in Silver Spring, MD.  He is an instructor at federal employee retirement seminars throughout the country for the National Institute of Transition Planning, Inc. and writes numerous columns and books on federal employee benefits.

Related Articles & Resources

·  Will New Voluntary FEHB Option Be Helpful to Federal Annuitants Eligible for Medicare?

Get other resources like this

delivered to your email box -- free.

Enter your email below:

PRIVACY:  We never share email addresses  Unsubscribe anytime.