Eligible Employees Should Consider the CSRS Voluntary Contribution Program (VCP)- Part I
Edward A. Zurndorfer
Employees covered by the Civil Service Retirement System (CSRS) – including employees covered by CSRS Offset – have an opportunity to make additional contributions to the Civil Service Retirement and Disability System. In the first of four columns discussing the CSRS Voluntary Contribution Program (VCP), this column presents an overview of the VCP, employee eligibility requirements for participation in the VCP, the maximum amount of VCP contributions, and the interest paid on VCP contributions.
The VCP is a retirement program that allows CSRS and CSRS Offset employees to voluntarily contribute after-taxed monies into the CSRS Retirement and Disability System. VCP contributions are in addition to CSRS retirement contributions regularly deducted from a CSRS employee’s basic pay each pay date. In particular, 7 percent is deducted from a CSRS employee’s basic pay, and 0.8 percent is deducted from a CSRS Offset employee’s basic pay. These employee CSRS contributions, together with the employee’s agency CSRS contributions, are used in the calculation of CSRS annuity that a retiring CSRS or CSRS Offset annuitant receives throughout retirement. Through participation in the VCP, an employee can receive another CSRS annuity check from the Office of Personnel Management.
Employee Eligibility Requirement. The following employees can participate and contribute to the VCP: (1) Employees who are covered by CSRS or CSRS Offset; and (2) those CSRS/CSRS Offset employees who have retired – separated from federal service – and whose applications for retirement under CSRS are being adjudicated by OPM’s retirement office.
The following employees are ineligible to participate and contribute to the VCP:
· CSRS or CSRS Offset employees who owe a deposit or redeposit. A CSRS or CSRS Offset employee who owes a deposit for “nondeduction” (temporary) civilian service or a redeposit for refunded retirement deductions may not make a VCP contribution until they complete in full their deposit or redeposit.
· “Trans” FERS employees. An employee covered by FERS may not participate in the VCP. An employee who was covered by CSRS and transferred to FERS (a “Trans”FERS employee) and who has a VCP account that was opened at the time the employee was under CSRS, may not make additional contributions to a VCP account. Any amount of VCP contributions erroneously made to the employee’s account after the employee became covered by FERS does not earn interest and will be refunded to the employee upon OPM’s determination that the employee was ineligible to make contributions to their account.
If a VCP participant had requested and received a refund of VCP contributions, then the individual cannot make further VCP contributions unless the individual leaves federal service and is reemployed under CSRS or CSRS Offset after a separation of more than three calendar days.
· Filing an Application. Eligible employees must complete Form SF 2804 and submit the form to their agency’s Personnel Office. The personnel office will complete the agency certification box and forward the application to OPM. No payment should be sent with Form SF 2804. Once the applicant’s application is accepted, OPM will send complete instructions as to how to make contributions.
· Amount of VCP Contributions and How to Make Contributions. Once an employee is approved by OPM to participate in the VCP, the employee can make payments in multiples of $25. For example, $25, $50, $75, or $100. OPM will assign the VCP participant with instructions on how to make payments. VCP contributions can be made at regular intervals or whenever a participant wishes. Contributions cannot be made via payroll deduction.
·Limit on VCP Contributions. A VCP participant’s contributions cannot be more than 10 percent of the aggregate basic pay the participant has received while in Federal service as of the date any contribution is made. Basic pay is the pay an employee receives for civilian service that appears on an employee’s form SF 50. Participants may not circumvent the 10 percent limit by making contributions based on anticipated future earnings.
· Interest Paid on VCP Accounts. VCP contributions earned interest at a rate of 3 percent a year through Dec. 31, 1984. Thereafter, VCP accounts earned interest and continued to earn interest at a rate equal to the average yield earned by the new investments purchased by the Civil Service Retirement and Disability Fund during the preceding year. Each December 31, interest is compounded.
The following table summarizes the interest paid each year starting in 1985 and through 2020.
|Year||Interest Rate||Year||Interest Rate|
*Source: Office of Personnel Management
Edward A. Zurndorfer is a Certified Financial Planner, 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 the employees of Serving Those Who Serve 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.