Preparing for FERS Retirement: Making Deposits and Redeposits – Part III (Redeposits)

This is the third of three FEDZONE columns helping FERS employees prepare for immediate retirement from federal service. With a new Presidential administration and a new Congress taking office in January 2025, there is much discussion in Washington with respect to reducing the size of the federal workforce in the form of reductions-in-force (RIFs), discontinued service retirements, and early retirements.

To help FERS employees understand and meet the minimum service requirement thereby allowing them to retire when they are first eligible, three FEDZONE columns are presented discussing deposits and redeposits. The first FEDZONE column (https://stwserve.com/preparing-for-fers-retirement-making-deposits-and-redeposits-part-i-deposits-for-non-deduction-service/) presented deposits for “non-deduction” (temporary or intermittent) service time. The second FEDZONE column (https://stwserve.com/preparing-for-fers-retirement-making-deposits-and-redeposits-part-i-deposits-for-non-deduction-service-copy/) presented deposits for active-duty military service time. This column presents redeposits of previously withheld FERS retirement deductions. These FERS retirement deductions were withheld from a FERS employee’s  salary and refunded to the employee when the employee left federal service.

What is a FERS redeposit?

A FERS-covered employee contributes (via payroll deduction) 0.8 percent of his or her bi-weekly salary into the FERS Retirement and Disability Fund. Some FERS-covered employees contribute more of their bi-weekly salary (3.1 percent or 4.4 percent) depending on when the employee was hired; namely, during 2013 or after December 31, 2013. The purpose of this contribution is to establish service time for meeting the employee’s retirement eligibility and to add service time in the  computation of the employee’s FERS annuity that the employee receives throughout retirement.

Since the FERS retirement system started in 1984, there have been FERS employees who left federal service before they were eligible to retire from federal service. When they left federal service, they were given the option of a full refund of their payroll deduction FERS retirement contributions. Those departing FERS employees who requested and received a refund of their FERS contributions thereby lost FERS credit for the years that they worked, both for the purpose of FERS retirement eligibility and for the computation of their FERS annuity.

Until passage of Section 1904 of the National Defense Authorization Act (NDAA) for Fiscal Year 2010, Public Law 111-84 (enacted October 28, 2009), a FERS employee who had left federal service and received a refund of his or her FERS contributions but subsequently returned to federal service could not redeposit the FERS retirement deductions the employee withdrew when the employee withdrew from federal service. The purpose of the redeposit was to reestablish credit for FERS retirement eligibility and for computation of the FERS annuity. With the passage of Public Law 111-84, any departed FERS employee who returned to federal service after October 28,2009 has the option of redepositing the FERS retirement deductions previously made.

Which FERS employees can make a redeposit?

Employees returning to federal service under FERS after October 28, 2009, may redeposit any FERS retirement deductions previously refunded to them. They may also redeposit any CSRS deductions previously refunded to them that covered CSRS service that is credited under FERS rules.

Payment of the FERS redeposit for FERS service covered by a refund of FERS retirement deductions (and CSRS retirement deductions for service that is credited under FERS rules and refunded) allows the refunded service to be creditable for determining an employee’s FERS retirement eligibility and for computing the amount of an employee’s FERS annuity.

A redeposit that is not made for FERS service covered by refund of FERS contributions allows the refunded service to be creditable only for the purpose of an employee’s retirement eligibility. But a full refund of FERS contributions that are not redeposited  will not be creditable for the purpose of FERS annuity computation.

The survivors of FERS-covered employees may also make a FERS redeposit of the deceased employee’s refunded service. Survivors will be advised of the effect of making the redeposit on their survivor annuities and have the option of making the redeposit either by paying it in a lump sum or in installments. A surviving spouse of a deceased FERS employee also has the option of making the redeposit in which  a portion or all of the  redeposit amount is withheld from the after-tax proceeds of the Basic Employee Death Benefit (BEDB).

A paid-in full military deposit that is refunded to an employee as part of a refund will be included in the FERS redeposit computation. The refunded military service is not creditable for both FERS retirement eligibility and FERS annuity computation unless the full redeposit is paid. Under the FERS rules for military deposits, credit for both FERS eligibility for retirement and annuity computation cannot be given unless a full deposit is made.  Also, OPM cannot calculate a separate redeposit based on the military deposit refund.

Interest charges

Interest will accrue annually on the outstanding portion of any amount that will be redeposited and is compounded annually until the amount owed is fully redeposited. The interest is computed from the date the FERS contribution was paid to the departing employee through December 31 of the year before the year in which the redeposit is paid in full. Interest is charged at a variable rate determined annually by the Department of the Treasury. The variable rate for any year equals the overall average yield to the fund from retirement security during the preceding fiscal year.