Military Service Credit: FERS Employees
Many federal employees have served or are currently serving in the Uniformed Services. Since honorable active military service can be credited for the dual purpose of retirement eligibility and in the computation of the FERS annuity, this column will discuss how FERS-covered federal employees can obtain credit for their military service.
[Editor's note: A previous column here discussed how CSRS-covered employees receive credit for their military service.]
Honorable active service in the following Uniformed Services is considered military service for FERS purposes: (1) Army; (2) Navy; (3) Air Force; (4) Marine Corps; (5) Coast Guard; (6) Regular Corps of the Public Health Service of the United States; and (7) as a Commissioned Officer of the National Oceanic and Atmospheric Administration (formerly the Coast and Geodetic Survey and Environmental Sciences Services Administration).
There are other types of military service that are potentially creditable as military service, including: (1) military academy service which includes a midshipman at the U. S. Naval Academy or as a cadet at the U.S. Military Academy, U.S. Air Force Academy or at the U.S. Coast Guard Academy; (2) Naval Reserve Officers Training Corps when ordered to active duty or training duty as members of the Army Reserve; and (3) National Guard Service if the individual was called or drafted into the actual military service of the United States. The Naval Reserve Officers Training Corps service must have been performed after the effective date of Public Law 88-647, Oct. 13, 1994. National Guard service must be verified by the employee's agency contacting the State Adjutant General's Office of the state with which the employee served. The purpose is to verify whether this service was performed under a "call" by the President of the United States under the authority of section 233(d) of the Armed Forces Reserves Act of 1952, or under title 10 of the U.S. Code. The National Guard service or training periods are not creditable when performed before Jan. 1, 1953 and not directly under a "call" by the President, when called for duty solely by the Governor of a state, and when performed exclusively for a state. For example, federal employees who were Louisiana state National Guardsmen and who were called to active duty by the Governor of Louisiana in August-September 2005 to assist in the cleanup from the damage following Hurricane Katrina are not eligible to receive credit for military service for FERS retirement purposes. This is because the services were performed exclusively for the state of Louisiana.
Active military service is defined as duty in the Armed Forces of the United States performed on a full-time basis with military pay and allowances. Active military service assumes that all of an individual's time and efforts are at the disposal of the military authorities and he or she disassociates himself or herself from the performance of civilian employment during the period of military service. A requirement for receiving credit for military service under FERS is that the military service was considered "honorable" military service. "Honorable" military service means service that was terminated under honorable conditions.
Service in the Military Reserves
Active service in the various reserve components listed above is creditable for FERS purposes. That means service in any of the reserve corps of the armed forces is creditable when an individual is called to active duty and for the active duty period only.
While certain reservists are required to spend weekly or biweekly reserve duty training sessions for which they receive pay, these sessions are not creditable for FERS purposes. But the annual 15-day training camp or cruise (which reservists are called upon to attend and for which they receive pay and allowances) is active duty and therefore creditable for FERS purposes.
A FERS-covered employee who must enter military service - for example, a reservist who is being called up for active duty overseas - and is retained by his or her agency in a furlough or leave-without-pay status, is considered to be on both active duty and on leave of absence from his or her civilian position. As such, the individual must make a military deposit (see below) in order to receive credit for the period of military leave for any purpose including retirement entitlement and FERS annuity computation. In order to obtain credit for the period of military separation the employee must treat the time as military furlough. The employee must exercise his or her restoration rights within the time limit specified under title 38 of the U.S. Code.
Conditions for Receiving Credit
A period of military service may be credited for FERS retirement eligibility, in the FERS annuity calculation, and for FERS death benefit purposes provided:
1. The military service was performed before the date of the separation from federal service upon which title to a FERS annuity is based.
2. The military service is not included in the computation of military retired pay unless the retired pay was awarded under the circumstances discussed below.
3. A full deposit is made by the FERS-covered employee. The deposit - including any interest charges - must be made in full by the employee's retirement date. This deposit is discussed below.
Some additional information:
1. Military service performed after retirement by a retired FERS-covered employee cannot be added to increase the retiree's FERS annuity. This is true unless the retiree becomes re-employed, acquires a new retirement right and makes a military deposit for the military service.
2. In general, an employee must waive military retired pay in order to receive credit for military service in the computation of the FERS annuity. This is the case unless the military retiree is receiving military retired pay awarded on account of a service-related disability incurred in combat with an enemy of the United States or caused by an instrument of war, incurred in the line of duty, or under provisions of 10 United States Code.
3. A FERS-covered employee who is eligible for, or currently receiving, Reserve Retirement pay is not required to waive the reserve retirement pay in order to make a military deposit for any active duty time he or she that was credited in the earning of the Reserve Retirement pay. The following example illustrates:
Les, age 46, served 22 years in the Army Reserves of which 12 years were active duty include 1.5 years in the Persian Gulf war. He will be eligible for Reserve retirement pay starting when he is age 60. Les recently entered federal service on Feb. 1, 2011 as a FERS-covered employee. If Les makes a military deposit equal to 3 percent of his total military compensation that he earned during his 12 years of active duty, Les will add 12 years to his civilian service for the purpose FERS retirement eligibility and in the computation of his FERS annuity. Assuming he makes his full military deposit (with no interest charges provided he makes his deposit in full by Feb. 1, 2014 - see below), Les could retire at age 60 with 26 years of service (14 years civilian and 12 years of "bought back" military service). At age 60, Les would also start receiving his military retirement pay with no offset or reduction.
Employee Responsibility for Making a Military Deposit to Receive Credit Under FERS
A FERS-covered employee may receive credit for post-1956 military service under |FERS rules only if he or she deposits with the employing agency a sum equal to three percent of the military basic pay that was earned during the period of military service. This deposit - plus interest - is required if the deposit is not made in full within three years of the employee's entrance into federal service in order for the employee to receive credit for both FERS retirement eligibility and in the FERS annuity computation.
Note that a deposit is necessary for post-1956 military service for both retirement eligibility and for computation purposes, as the following example explains:
Jeffrey is 58 years old. He has seven years of creditable service and four years of post-1956 military service. If Jeffrey makes his post-1956 military deposit, he can retire under the MRA + 10 provision. If he does not make the deposit, then he is not eligible to retire until age 62.
Military service is subject to FERS rules on military service deposits if: (1) the employee was automatically subject to FERS on Jan. 1, 1987; (2) the employee was automatically covered by FERS upon conversion from a position excluded from FERS to a position covered by FERS; (3) the employee was automatically covered by FERS upon reentering service after Jan. 1, 1987; (4) the employee performed the military service after transferring to FERS regardless if whether the individual will be eligible for a CSRS annuity component; or (5) the employee elected FERS coverage sometime after June 30, 1987, and had less than five years of civilian service before the effective date of the election. This does not count any civilian service covered simultaneously by both Social Security and CSRS after Dec. 31, 1983.
A FERS-covered employee who wishes to make a military deposit must complete Form 3108 (Application to Make Service Credit Payment) and Form 3108A, Application to Pay Military Deposit for Military Service Performed after Dec. 31, 1956 and return these forms to the appropriate employing agency along with a copy of his or her form DD 214, Report of Transfer or Discharge, or equivalent records to verify the military service. If copies of the DD214(s) are not available, then the employee may obtain a copy from the military records center by submitting form SF 180, Request Pertaining to Military Records, to the appropriate address shown on the back of the form.
The amount of the military deposit is equal to 3 percent of the employee's military basic pay during military period(s) of service plus interest if applicable (see below).
Military deposit = Total amount of military earnings X 3
(round the product to the nearest dollar that is $0.50 or more, round up; $0.49 or less, round down)
Example: Total military earnings is equal to $10,250
$10,250 x 3 percent = $307.50
The military deposit (without interest) equals $308.00
Interest begins to accrue on the unpaid deposit for post-1956 military service at the later of Oct. 1, 1985 or two years after an individual is first employed in a position covered by FERS. Interest accrues and compounds annually on the employee's personal Interest Accrual Date (IAD). Interest rates are set on a calendar year at market rates. The following table summarizes the rates for the period 1985 - 2011. A military deposit - including the deposit and interest - must be paid in full by the time an employee retires under FERS. Because of the potential interest charges, new FERS employees with prior military service are encouraged to make their military deposits as soon as possible, ideally within two or three years of entering federal service in order to avoid interest charges.
Even if an employee has not made his or her post-1956 military deposit, it makes financial sense to make the deposit before the employee retires, as the following example illustrates.
Jennifer, age 60, had five years of military service prior to her entering federal service on Sept. 1, 1988. While in the military, Jennifer earned a total of $100,000 in base pay. Together with her military deposit of three percent of $100,000 or $3,000, Jennifer owed $4,000 in interest for a total deposit of $7,000. When Jennifer retires under FERS at age 66, her high-three average salary will be $100,000. Assuming she makes the full deposit of $7,000 for military service, Jennifer's FERS annuity will be increased by five times one percent times $100,000 or $5,000 a year, for the rest of her life. In other words, by making her military deposit totaling $7,000, Jennifer "gets her money back" in about 17 months after she retires.
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 and writes numerous columns and books on federal employee benefits.