Helping FERS Employees With Redeposit Questions
Redeposit service (also known as "refunded" service) refers to a period of federal service that the employee worked and paid into a retirement system (in this case, FERS) but separated from service and withdrew their retirement contributions at the time of separation. Often, employees elect to do this if they do not plan on returning to federal service.
It wasn't until the signing of the National Defense Authorization Act in October of 2009 that FERS employees were even allowed to make a redeposit of previously refunded contributions. This marked a big step for FERS employees.
After the employee rejoins federal service and begins contributing to a retirement system again, they may decide that they would like to make a redeposit for the time that they initially withdrew in order to gain full credit for the time. The redeposit amount plus interest is due when making a redeposit. All redeposits must be made prior to retiring.
There are two ways a person can get credit for their refunded service:
- toward the number of years of service required to be eligible to retire, and/or
- toward the number of years counted in the retirement annuity calculation.
The rules for FERS employees to receive credit for their refunded service are shown in the table below:
Below are examples of employees in different circumstances and how the annuity is impacted. In all of these examples, the employee has:
- 30 years total service (5 of those years were refunded to them)
- Their high-3 average salary is $50,000
- They owe a $4,000 redeposit (for the 5 years of refunded service-including interest)
- They retire at age 60
EMPLOYEE A: (retiring on or after October 28, 2009)
Scenario #1: They DO make the redeposit of $4,000:
Calculate the FERS regular annuity formula using all 30 years of service:
$50,000 x 1.0% x 30 = $15,000
FULL ANNUITY = $15,000/year
Scenario #2: They DO NOT make the redeposit of $4,000:
Calculate the FERS regular annuity formula using only 25 years of service:
$50,000 x 1.0% x 25 = $12,500
PENALIZED ANNUITY = $12,500/year
EMPLOYEE B: (retiring prior to October 28, 2009)
Since FERS employees retiring prior to October 28, 2009 are not permitted to make redeposits for refunded service, that time cannot be recaptured for credit for any purpose. Therefore, this time is treated as if it did not exist (neither for years required to be eligible to retire, nor in the calculation of the annuity).
Scenario #1: They are NOT PERMITTED make the redeposit of $4,000:
Calculate the FERS regular annuity formula using only 25 years of service:
$50,000 x 1.0% x 25 = $12,500
PENALIZED ANNUITY = $12,500/year
One way to determine if it's "worth it" or not to make a redeposit is to see how long it would take to get your money back out of the program once you begin drawing your retirement check. If it is a relatively short period, then it probably makes sense to make the redeposit if permitted to do so.
To determine the redeposit amount owed, FERS employees should use form SF-3108, Application to Make Service Credit Payment.
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