Military Service Credit Rules for Federal Retirement

This is the first of two FEDZONE columns discussing military service credit rules for federal retirement under both the CSRS and FERS retirement systems

Military service includes active-duty service in the Army, Navy, Air Force, Marine Corps and Coast Guard including Service Academies. After June 30, 1960, military service also covers active-duty service in the Regular Corps or Reserve Corps of the Public Health Service, and after June 30, 1961, military service includes an employee being a commissioned officer of the National Oceanic and Atmospheric Administration.

Military service is creditable for federal retirement purposes under the following two conditions: (1) It was active-duty service and terminated under honorable conditions, and (2) The employee performed it before separating from a civilian position under CSRS or FERS.

Deposits for Post-1956 Military Service – General Policies and Rules

Beginning January 1, 1957, military service became subject to Social Security (FICA) taxes. Treatment of active-duty military service under civilian retirement with respect to required deposits depended on whether the service was performed before or after December 31, 1956. The following is a summary of whether a military deposit (explained in more detail below) is necessary in order to obtain federal retirement credit for active-duty military service performed before or after December 31, 1956:

No deposit is required to obtain federal retirement credit for active-duty military service performed before January 1, 1957.
Veterans employed in a CSRS position before October 1,1982 have the option of either making a deposit to include their military service in the calculation of their CSRS annuity or having their CSRS annuity recomputed to delete post-1956 military service. This is applicable only if they are eligible for Social Security at age 62 – the “Catch 62” provision. Those veterans who were first employed under CSRS before October 1, 1982, and who will not be eligible for Social Security at the later of age 62 or the age they retire from federal service under CSRS are not required to make a deposit for post-1956 military service. Post-1956 military service will be used to meet both the eligibility to retire requirement and in the computation of the starting CSRS annuity.

Any required military deposit for post-1956 military service must be made before an employee retires in order for it to be creditable for eligibility or computation for retirement purposes. If a veteran dies as a federal employee without making a military deposit, then the veteran’s surviving spouse will have the option to make a deposit for military service for the purpose of the calculation of a survivor annuity benefit.

Special Rules for Retired Military Personnel

Credit for active-duty military service is limited for military members who retired from the military with a minimum 20-years of active-duty time. A federal employee who is receiving active-duty military retirement pay cannot get credit for their active-duty military service time unless the employee was awarded the military retirement pay:

(1) On account of a service-related disability either incurred in combat with an enemy of the United States or caused by an instrumentality of war and incurred in the line of duty during a period of war, or
(2) Under the provisions of 10 U.S.C. Chapter 1223 pertaining to retirement from a Reserve Component of the Armed Forces.

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A federal employee who is a military retiree for active-duty and who wants to credit the military service towards his or her civilian retirement (either CSRS or FERS) must waive his or her military retirement pay to make the military deposit and get credit. The only exceptions are (1) and (2) above. The following example illustrates:

Example 1. Ken was in the Army Reserves. He had eight years of active duty and twelve years of inactive duty. Ken will be eligible to receive his Army Reserve Retirement pay when he is age 60. In the meantime, Ken is a federal employee under FERS and currently has 22 years of federal service. Ken can make a military deposit for his active-duty time as an Army Reservist. By making a full military deposit, Ken will add the eight years of active-duty time to his 22 years of FERS civilian service time, for both FERS eligibility to retire and FERS annuity computation purposes. Note that Ken is not required to waive his Reserve Retirement pay [under exception (2)] and by making this deposit, Ken will take nothing away from his Reserve Retirement pay.

Rules for Receiving Credit for Active-Duty Military Service for CSRS/CSRS Offset Employees

A 1981 change in the law distinguished between pre-October 1,1982 hired federal employees with prior active-duty military service and those federal employees with prior active-duty military service hired after September 30,1982 and before January 1,1984. The question is whether a military deposit is required in order for a CSRS/CSRS Offset employee to get credit for the purpose of: (1) Eligibility to retire; and (2) The computation of the CSRS annuity.

For the purpose of eligibility to retire, a CSRS employee hired before October 1,1982 and with prior active-duty military service will always get credit for those active-duty years for eligibility to retire. The employee is not required to make a military deposit in order to get credit for CSRS eligibility to retire purposes.

For the purpose of CSRS annuity computation, employees hired in civil service positions before October 1,1982 do receive credit for military service after 1956 without making a military deposit. However, credit for this service will be eliminated if the individual becomes eligible for Social Security benefit by becoming Social Security “fully insured” (earning the minimum 40 credits of Social Security) at the later of age 62 or at the time he or she retires from federal service.

Employees hired in positions subject to CSRS after September 30,1982 with prior active-duty military service after 1956 will get credit for CSRS eligibility purposes and for CSRS annuity computation purposes but only if a full military deposit is made. It makes no difference whether they are Social Security “fully insured.” The following examples illustrate:

Example 2. Jason entered federal service on July 30,1981 as a CSRS employee. Prior to entering federal service, Jason had three years of active-duty military service. For the purposes of CSRS eligibility for retirement and CSRS annuity computation, Jason is credited with three years of CSRS service without having to make a military deposit.

Jason retired in 2012 at the age of 62 with 34 years of federal service, including three years of active-duty military service. At the time he retired, Jason had 35 credits of Social Security. He was therefore not “fully insured.” Jason’s three years of military service will be included in the computation of his CSRS annuity. This is the case even though Jason made no military deposit for his three years of active-duty military service.

Example 3. Peter entered federal service on November 1,1982 as a CSRS employee. Prior to entering federal service, Peter had three years of active-duty military service. For the purpose of CSRS eligibility for retirement and in the computation of Peter’s CSRS annuity, Peter is credited with three years of service but only if Peter makes a full military deposit.

The next FEDZONE column will discuss the computation of the CSRS military deposit.

Rules for Receiving Credit for Active-Duty Military Service for FERS Employees

Active-duty military service that would be creditable under CSRS is creditable under FERS, except that all active-duty military service after 1956 must be covered by a military deposit, for both the purpose of FERS eligibility to retire and in the computation of the FERS annuity. Even if an employee covered by FERS and initially hired before October 1,1982 cannot be credited for prior active-duty military service under FERS rules unless a full military deposit is made.

If an employee transferred to FERS and has a CSRS annuity component (a “trans” FERS employee), the employee continues to be under the CRS military deposit rules for service performed before the transfer.

The next FEDZONE column will discuss the computation of the FERS military deposit.

National Guard and Reserve Service

If federal service is interrupted by active-duty military service, special rules apply. Active-duty military service in any Reserve component is creditable when the federal employee is called to active duty. Such periods include annual active-duty training service periods. Note that when an employee performs annual active-duty training service during which he or she is on military leave with pay from a civilian position, the active-duty military service period is credited as civilian service. If an employee goes on leave without pay in order to perform active- duty military service, then the employee upon returning to federal service must make a full military deposit in order to get credit for both eligibility to retire and in the computation of the CSRS or FERS annuity.

Service in the National Guard, except when ordered to active duty in the service of the United States, is generally not creditable. However, an employee may receive credit for National Guard service followed by federal civilian re-employment that occurs after August 1,1990 when all of the following conditions are met:

The service must interrupt civilian service under CSRS or FERS and must be followed by reemployment in accordance with the appropriate chapter of the laws concerning Veterans benefits.
It must be full-time active duty and not inactive duty, and performed by a member of the U.S. Army National Guard or U.S. Air National Guard, and
It must be under a specified law and the employee must be entitled to pay from the U.S. for the service.

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.