Military Creditable Service Deposits

Military Creditable Service Deposits

creditableIf you are a federal employee, your active duty military service is in most cases “creditable” toward your civilian retirement.

But you probably need to take some action and pay some money – a deposit — to insure full credit for that service. It’s almost always money well spent, since the deposit amount is based on your low military pay, but the added benefit is based on your high-3 average salary.

 

Who Must Pay and Deposit?

If you had active military service prior to January 1, 1957, it is fully creditable for retirement purposes without making a military deposit.

If you are covered under the Federal Employees Retirement System (FERS) and your active military service was performed after January 1, 1957, this service is creditable for retirement only if you pay a deposit. The deposit is 3% of your basic military pay, plus applicable interest.

If you are covered under the Civil Service Retirement System (CSRS) or CSRS Offset and were first employed on a CSRS-covered appointment prior to October 1, 1982, your active duty service is creditable without paying a military deposit.

However, if you are eligible for a Social Security benefit at age 62 or at retirement, whichever is later, the active duty will be removed and will not be used in calculating your retirement benefit unless you pay a deposit.

If you were first employed in a CSRS or CSRS Offset appointment after October 1, 1982, your active military service is creditable for retirement only if you pay a deposit. The military deposit is 7% of your basic military pay, plus applicable interest.

If you are receiving military retired pay, generally your active duty is not creditable for civilian retirement purposes unless you waive your military retired pay and make a military deposit.

 

Criteria for Creditable Service

Whether your active duty military service is creditable for retirement purposes depends on the following factors:

1. Whether your discharge was “honorable”;

2. When the military service was performed;

3. Whether you are currently receiving military retired pay;

4. When your civilian retirement coverage (FERS or CSRS) began; and

5. Whether you have paid a deposit for military service to your retirement system.

6. For most current federal employees, active duty military service from which you have been honorably discharged is creditable for retirement purposes if you are not receiving retired military pay for that service – and if a deposit to the appropriate civilian retirement system has been completed.

 

Benefits of Making a Deposit

If you are a current federal employee with prior military service you should consider making a deposit for your military service.  There are two reasons why making a military deposit may be beneficial:

  1. You could retire sooner, or
  2. You could increase your retirement annuity.

By making this deposit, your years of military service are included in your civilian retirement computation, just as if you performed that service under your current retirement system.   Unless you are receiving a military retirement, making a military deposit is usually a good value, often paying for itself within a year or two of retirement.

 

Retiring Sooner

A military deposit may allow you to retire from your civilian position earlier than with your civilian service alone. If you reach your Minimum Retirement Age (MRA) before you have put in the required years of service, this may provide your path to retiring earlier than anticipated.  For example, if you began your federal civilian career at age 28 as a FERS employee and you were born in 1955, your MRA is 56, but you will not attain 30 years of federal civilian service until you reach age 58.  If you made a deposit for your four years of active duty military service, you could retire at the MRA of 56 – two years earlier than if you did not make the deposit.  (If you are covered under the Special Retirement provisions for Law Enforcement Officers, Firefighters, Air Traffic Controllers, and Military Reserve Technicians, the military service cannot be credited towards the 20 years of special retirement coverage for retirement eligibility, but will be used in computing your annuity.)

 

Increased Annuity

Making a military deposit will increase your federal retirement annuity. By making the deposit, you are purchasing a guaranteed monthly annuity payable when you retire.  The annuity is paid directly to you in the form of monthly payments for the rest of your life (and your spouse’s life if you elect a spousal annuity).  Furthermore, your military deposit is fully refundable if you change your mind and want a refund of the deposit.

To determine if this deposit is advantageous to you, simply compare the total military deposit amount to the increase in retirement income.  Then determine how long it will be before the increase in your retirement annuity will pay for the military deposit amount.

For example, assume you have four years of military service and five years of federal service as a FERS employee.

 

High-three Salary

: You don’t know what your high-three salary will be when you retire, but you decide to use your current salary of $60,000 as your high-three salary.

 

Military Deposit Amount

: Your payroll or HR office determines that your military deposit amount will be $2,600 for four years of military service.
If you are a FERS employee, your retirement annuity is increased by 1% for each additional year of service.  So the computation is:
4 years of additional service x 1% per year x $60,000 = $2,400 yearly increase in retirement income attributable directly to the one-time military deposit.  That is a $200 per month increase in your annuity payable for your entire life.

In this example, it took just one year and one month of retirement income attributable to the military service to equal the entire military deposit amount.  This is the breakeven point.  The higher annuity income continues for as long as you live, and will be also used to compute a spousal annuity if applicable.  If you plan to spend more than 13 months receiving this annuity, the deposit is beneficial.

If you are a CSRS employee, the military deposit amount is higher, but the return is also higher.

 

Retired Military

Making the military deposit is not right for everyone.  If you are retired military and are receiving full military retirement pay, it is usually not advantageous to make a military deposit, because you must waive your military retired pay for your period of military service to be included in your civilian retirement annuity.  Usually the full military retirement is of greater value than the civilian retirement annuity.  Use the computation method above to determine if making the deposit would be beneficial or consult with your HR/Benefit Specialist.

 

Military Disability Retirement and Reserve Retirement:  You must waive your military retired pay in order to receive credit for military service in a civilian annuity, unless your military retirement is based on:

  1. A service-connected disability incurred in combat with an enemy of the US;
  2. A service-connected disability caused by an instrumentality of war and incurred in the line of duty during a period of war; or
  3. Under provisions of 10 U.S.C. 12731-12739 (retired members of the reserves).

A deposit is still required for the active duty military service to be credited in your civilian retirement annuity.

 

Creditable Military Service:  As a general rule, military service in the Armed Forces of the United States is creditable for retirement purposes if it was active service terminated under honorable conditions, and performed prior to your separation from civilian service for retirement.  If you are in the FERS retirement system or your civilian service began after October 1, 1982 a deposit is required to receive credit for the service.