Retirement plan investment guarantees 7.125% interest

WASHINGTON — WASHINGTON -- Participants in the Civil Service Retirement System can earn a whopping 7.125 percent interest rate on an investment program called the voluntary contributions plan.

Contributions to the plan are invested in special government securities that are guaranteed to earn 7.125 percent in 1993.


The interest rate, which is calculated annually based on earnings from the previous year, has been dropping about three-quarters of a point a year since the mid-1980s. But next year's rate is still about twice as high as that for many certificates of deposit at commercial banks.

The plan is not open to participants in the Federal Employee Retirement System.


Participants in the voluntary plan, who must be employed full time, can contribute up to 10 percent of their salaries to the fund.

The money, plus interest, can be withdrawn in a lump sum when the participant retires, quits federal employment, takes a part-time federal job or is laid off.

Or participants can "roll" the money into their retirement annuity and receive it in their monthly pension checks. Each $100 of voluntary contributions will net $7 additional annuity each year, plus 20 cents for each year the participant is over age 55 at the time of retirement.

Most participants opt to withdraw their money in a lump sum before retirement to ensure they get back the full amount. Earnings are tax deferred, meaning that no tax is paid on the interest until the money is withdrawn.

Once the voluntary contribution money is withdrawn, participants cannot rejoin the program unless they are rehired full time by the federal government after a break of at least three days. Also, the employee must re-enroll in the Civil Service Retirement System.

Participants in the voluntary contribution plan who withdraw a lump sum because they are switching to part-time work can rejoin the program if they return to full-time employment. But they must first pay the Civil Service Retirement System an amount equal to 7 percent of the salary they earned working part time.

That is because part-time workers are not subject to the 7 percent payroll deduction that full-time employees pay. Part-time employees ordinarily do not receive retirement benefits.

If the participant chooses to roll the voluntary contribution money into the annuity, the employee also can opt to put a portion of it toward a survivor annuity. The designated survivor, who does not have to be a family member, may or may not be the person designated to receive the contributor's Civil Service Retirement System survivor annuity.


If the money is shared with a survivor, the participant's voluntary contribution annuity will be reduced by an amount ranging from 10 percent to 40 percent, depending on the age of the potential beneficiary.

Voluntary contributions are not subject to cost of living adjustments that other federal benefits receive.

Workers who wish to join the voluntary contributions plan can get a Standard Form 2804 (Application to Make Voluntary Contributions) from their payroll or personnel office.

Payments cannot be made through payroll deductions, as regular retirement payments are made. Instead, participants must send checks in increments of $25 (for example, $25, $50, $175) to the Office of Personnel Management.

OPEN SEASON -- Federal employees who are thinking about switching health insurance plans should start perusing their stacks of information now. The annual period during which federal workers can switch carriers is Nov. 9 through Dec. 14.

Government employees who were expecting things to be easier this year will discover soon that Congress did not pass promised reforms of the Federal Employee Health Benefits Plan.


Many workers complain that the system is unwieldy and confusing because beneficiaries must choose between dozens of plans, and little information is provided at the workplace.

A reform bill was introduced twice in this Congress by Rep. Gary Ackerman, D-N.Y., but it "died on the vine" because of inaction by the Bush administration, according to Nick Nolan, executive director of the Federal Government Service Task Force.

The administration failed to produce a reform plan this year, as it had agreed to do, Mr. Nolan says.

EQUAL TIME -- Concern over large-scale layoffs at the Defense Department prompted Congress to pass hefty severance packages for both military and civilian Department of Defense personnel who are the victims of downsizing.

While federal workers' advocates are pleased with this victory, they are now turning their attention to federal workers who lack the same advantages.

For example, DOD civilians may receive up to $25,000 for voluntary resignations. They also are entitled to 18 months of health insurance on the government's tab and one year of job retraining at a DOD facility. The Federal Government Service Task Force is evaluating the packages of DOD civilians and working on legislation, to be introduced in the next Congress, to even the score for non-Defense civilians.


DISABILITY FRAUD -- An eight-month investigation by Cox News Service and the Dayton Daily News estimates that up to one-third of the $1.24 billion spent each year under the Federal Employees' Compensation Act is misspent on people who are not eligible for it.

Reporters told of one beneficiary who left his post office job years ago because of an allegedly strained back and was photographed playing golf and bowling, according to an Associated Press article.

Other payments were made to people who are in prison, who should have received a lower amount, or who had died, the article said.

Under the act, the medical bills of injured federal workers are paid by the government and they may receive up to 75 percent of their former salary tax-free, the article said.