The million-plus federal workers with post-1956 military service now have the opportunity to avoid a future cut in their civilian pensions by paying the equivalent of 7 percent of their military earnings into the civil service retirement fund.
The Budget Reconciliation Act gives current employes a chance to avoid the provision that reduces civilian pensions at age 62 for people who served in the military after 1956. And it eliminates the so-called Catch 62 provision for anyone retired before Sept. 8.
Government pensions are based on combined military-civilian service. But under Catch 62, civilian retirees with military service automatically had their annuities recomputed at age 62, to exclude military service time after 1956 when the armed services went under Social Security.
The result has been that millions of federal retirees (with post-1956 military service) have taken an annuity cut on their 62nd birthday, and were left with combined Social Security benefits and a reduced civil service annuity that, even in combination, were less than their former civil service annuity.
The Budget Reconcilation Act allows retirees over 62, whose annuities have been cut by Catch 62, to have them recomputed again to restore military service time.After an initial increase, which will be automatic and without any payment on the part of retirees, their annuity will again be reduced somewhat to take into consideration the amount of the Social Security benefit that is directly attributable to their military service.
Nobody loses Social Security credit or payments. In most cases annuitants will see an overall increase in their annuity because the recompuation will bring their annuities back almost to their pre-age 62 reduction.
For annuitants not yet 62, the military service time will not discounted. But the formula recomputing the annuity for Social Security benefit purposes will mean a slight downward adjustment in the civil service pension. However, the combination of the two benefits will still generally be higher than under the Catch-62 formula.
The picture is different for current federal workers, who will have a chance to buy their way out of Catch 62 by paying the civil service fund 7 percent of the amount they were paid while in military service, then having that time count toward retirement with no age 62 pension reduction. They can reimburse the fund (at their military rates) just as if they had been civilian employes of government during their time in uniform.
If they make the payment, they will get credit for both civil service and Social Security since while they were serving in the military they paid the full Social Security tax.
Workers who decide to make the payback have two years from Oct. 1 of this year to do so. After that they can still make the payments to the fund, but will also have to pay an interest charge.
If the payment is not made, the employe will be subject to the Catch 62 reduction at age 62, meaning he would lose credit for his military service time.
For persons who retired after Sept. 8, when the Budget Reconciliation Act went into effect Sept. 8, special help is on the way. President Reagan is expected to sign separate legislation that will allow them to make their 7 percent payments directly to the Office of Personnel Management between now and Oct. 1, 1983, to protect themselves from Catch 62.
Although the 7 percent payment sounds like a lot, Sen. Ted Stevens (R-Alaska), who wrote the bill, says it provides far greater lifetime retirement benefits that outweigh the initial payback.
Because the changes are so new and complex, few federal personnel offices are aware of them, or capable of explaining them at this point. A Federal Personnel Manual letter from OPM that will explain to agencies how the system works will be published shortly. If you can't wait for a more official explanation, get a copy of Public Law 97-253.
OPM says it will contact elgible annuitants and explain the situation, and asks please don't call OPM.