This is the second of two FEDZONE columns discussing military service credit rules for federal retirement purposes including retirement under CSRS and FERS.
This column discusses the amount of a military deposit for CSRS/CSRS Offset and FERS employees who want to make a deposit for prior active-duty military service and the procedures needed to make the military deposit. Also discussed in this column is information for survivor spousal annuitants who are the widows/widowers of deceased federal employees who had active-duty military service.
Amount of CSRS Military Deposit
Under CSRS, a military deposit equals 7 percent of military base pay for periods of active-duty military service prior to 1999. The deposit equals 7.25 percent of military base pay for periods of active-duty service performed during 1999, 7.40 percent during 2000, and 7 percent after December 31, 2000. CSRS Offset employees pay the same amount.
Interest charges begin on October 1,1985 or two years after the employee was first hired in a position subject to CSRS, whichever is later. The computation of interest charges is discussed below.
Amount of FERS Military Deposit
Military service that is creditable under FERS must be covered by a full military deposit. For periods of active-duty service prior to 1999, the deposit is equal to 3 percent of the FERS employee’s total military base pay. The deposit equals 3.25 percent of total military base pay for periods of active-duty service performed during 1999, 3.4 percent of total military base pay for active-duty service performed during 2000, and 3 percent of total military base pay performed any time after December 31, 2000.
Learn more about your retirement benefits at our No-Cost webinars, featuring Ed Zurndorfer -
Interest charges begin on October 1,1985 or two years after the employee was first hired in a position covered by FERS, whichever is later. The computation of interest charges is discussed below.
Interest Charges
Interest is computed at the rate of 3 percent through 1984 and at an annually variable rate beginning in 1985 (see table below). Interest begins as of the dates described above. However, since the method of computing the deposit calls for adding interest only at the end of the calendar year, no interest is charged for a particular year if the military deposit has been paid in full before the end of that particular year. The full deposit including interest charges has to be completed before an employee retires.
Each year the Department of the Treasury announces the interest rate for that year that applies to active-duty military service time. The following table summarizes the interest rates for military deposits, starting in 1985 and going through 2023. Note that prior to 1985 the military deposit interest rate was 3.0%.
Interest Rates – Military Service Deposit
The law allows employees a two-year interest-free period to make their military deposit. Interest on deposits for post-1956 military service starts accruing and compounds annually on the employee’s Interest Accrual Date (IAD). The IAD is the later of October 1,1985 or 3 years after an employee, covered by ither CSRS or FERS, is first employed or reemployed after a period of military service in a civil service position subject to either CSRS or FERS. To avoid interest charges an employee with prior active-duty military service must pay the military deposit before the second anniversary of the IAD. The following three examples illustrate IADs and dates when interest is applied to the account:
| 1985 | 13.00% | 2004 | 3.875% | |
| 1986 | 11.125% | 2005 | 4.375% | |
| 1987 | 9.00% | 2006 | 4.125% | |
| 1988 | 8.357% | 2007 | 4.875% | |
| 1989 | 9.125% | 2008 | 4.75% | |
| 1990 | 8.75% | 2009 | 3.875% | |
| 1991 | 8.625% | 2010 | 3.175% | |
| 1992 | 8.125% | 2011 | 2.755% | |
| 1993 | 7.125% | 2012 | 2.25% | |
| 1994 | 6.25% | 2013 | 1.625% | |
| 1995 | 7.00% | 2014 | 1.625% | |
| 1996 | 6.875% | 2015 | 2.00% | |
| 1997 | 6.875% | 2016 | 2.00% | |
| 1998 | 6.75% | 2017 | 1.875% | |
| 1999 | 5.75% | 2018 | 2.125% | |
| 2000 | 5.875% | 2019 | 2.75% | |
| 2001 | 6.375% | 2020 | 2.25% | |
| 2002 | 5.50% | 2021 | 1.375% | |
| 2003 | 5.00% | 2022 | 1.375% | |
| 2023 | 1.875% | |||
Example 1. Jason: U.S. Navy May 7,1976 to April 6, 1980
Department of the Navy: May 7,1980 to present
IAD is October 1, 1985 (earliest IAD)
Interest was first applied to the military deposit balance on October 1, 1985
Example 2. Cassandra: U.S. Air Force July 8,1993 to July 27, 1996
Department of HHS November 7,1996 to present
IAD is November 7, 1999 (three years after first hired in a civilian position)
Interest first applied to the military deposit balance on November 7, 1999
Example 3. Peter: U.S. Marines June 1,1975 to June 30, 1980
Drug Enforcement Administration October 15, 1980
Called to Active-Duty: May 15, 1990 - November 30, 1990
Returned to civilian position on January 1, 1991
First IAD is October 1, 1985 (earliest IAD)
Second IAD is January 1, 1994 (three years after return to agency following active duty which interrupted civilian service)
Interest applied to the first military deposit balance on October 1, 1985
Interest applied to the second military deposit balance on January 1, 1994
Special Considerations for Those Employees with Both CSRS and FERS Service
There are some federal employees (called “Trans”FERS employee) who have both the minimum amount of CSRS or FERS service credit to qualify to receive both a CSRS annuity and a FERS annuity. In particular, when they retire from federal service (based on the FERS eligibility rules for retirement), they will be eligible to receive both a CSRS annuity (based on federal service under CSRS) and a FERS annuity (based on federal service under FERS).
An employee became a “Trans”FERS for one of two reasons, namely: (1) An employee voluntarily transferred from CSRS to FERS during one of the two “open seasons” conducted by OPM (1987/88 and July 1 through December 31, 1998); or (2) An employee worked for at least five years under CSRS, left federal service and when the departed employee returned to federal service, chose to return as a FERS employee rather than as a CSRS-Offset employee.
Any “Trans”FERS employee with active-duty military service prior to be hired as a CSRS employee is subject to the same rules that apply with respect to making a full military deposit in order to get credit in the computation of employee’s CSRS annuity component. This means that an “Trans”FERS employee hired under CSRS before October 1,1982 with prior active-duty military service and who has not made a military deposit needs to make a full deposit. This is because when the “Trans”FERS employee switched to FERS and was then covered by Social Security, the employee became “fully insured” and therefore has to make a full military deposit.
Any CSRS or CSRS Offset employee who switched to FERS (a “trans” FERS) must make a full military deposit in order to receive credit for post-1956 military service. Any military service performed after a transfer to FERS requires a deposit under the FERS military deposit rules.
If an employee became subject to the FERS military deposit rules but the employee made a deposit under the CSRS military deposit rules, then a refund is payable. The refund will be equal to the difference between the 7 percent required deposit and the 3 percent required deposit, respectively. If an employee is eligible for this kind of refund, then the employee’s agency can give the employee more information.
If an agency erroneously bills an employee at the FERS military deposit rate for post-1956 military service performed before the employee’s switch to FERS (a common agency mistake), then the Office of Personnel Management (OPM) will tell the agency to recompute the amount due and bill the employee for any additional money due on his or her military deposit.
Procedures for Employees to Make a Military Deposit
An employee who wants to make a military deposit should contact their Human Resources Office for a copy of Form SF 2803 (CSRS, CSRS Offset employees) or Form SF 3108 (FERS employees). An employee who wants to make a military deposit must also obtain and fill out Form RI 20-97 (Estimated Earnings During Military Service).
The employee should complete Form RI 20-97 and give the completed form to their Human Resources Office, together with a copy of their DD Form 214 (Report of Transfer or Discharge). The employee’s payroll office will compute the amount of the military deposit and bill the employee. The employee may make a lump-sum payment or make payroll allotments in amounts of at least $25.00. However, if an employee does not pay the military deposit in full by the IAD (see above), interest will start to accrue at the variable rate and will be applied to the employee’s account one year later. The employee must complete the military deposit before departing for retirement. OPM does not accept military deposit payments.
Information for CSRS and FERS Spousal Survivor Annuitants with Respect to Active-Duty Military Service
If a CSRS spousal survivor annuity is based on federal service that ended after September 8, 1982, then use of post-1956 military service for civil service benefits depends on when the deceased employee or retiree was first hired in a position subject to the CSRS and whether a full military deposit was made to cover the military service.
If a deceased CSRS or CSRS Offset employee was first employed in a position under CSRS before October 1,1982 and no military deposit was made, then OPM cannot use the post-1956 military service in the calculation of the CSRS survivor annuity. This is the law even if the spouse is eligible, or would be eligible, upon proper application, for Social Security retirement benefits.
If a deceased CSRS or CSRS Offset employee was first employed in a position under CSRS after September 30,1982 and no deposit was made, then OPM cannot use the post-1956 military service in the calculation of the CSRS survivor annuity, regardless of whether the surviving spouse is eligible for Social Security retirement benefits.
If a deceased FERS employee, no matter when hired into federal service after December 31, 1983, had post-1956 military service but made no military service deposit, then OPM cannot use the post-1956 military service in the calculation of the FERS spousal survivor annuity, regardless of whether the surviving spouse is eligible for Social Security retirement benefits.
If a CSRS or a CSRS Offset employee with prior military service died in federal service but had not made his or her military service deposit, then a surviving spouse can make the military deposit. In so doing, the active-duty military service will be used in the calculation of the CSRS spousal survivor annuity. To make the military deposit the surviving spouse must contact the deceased employee’s servicing Human Resources Office for OPM Form 1519 (Survivor’s Military Service Election – Deceased Employee Covered by CSRS or CSRS Offset).
You Might Also Enjoy This Podcast
Edward A. Zurndorfer is a CERTIFIED FINANCIAL PLANNER™ professional, Chartered Life Underwriter, Chartered Financial Consultant, Chartered Federal Employee Benefits Consultant, Certified Employees Benefits Specialist and IRS Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, and EZ Federal Benefits Seminars, located at 833 Bromley Street - Suite A, Silver Spring, MD 20902-3019 and telephone number 301-681-1652. Raymond James is not affiliated with and does not endorse the opinions or services of Edward A. Zurndorfer or EZ Accounting and Financial Services. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.
