Nearly 12,000 federal workers are putting money in a super-safe but little-known government program that guarantees them an 8.625 percent rate of return this year with taxes deferred on their earnings.
The so-called voluntary contributions program is open to the 1.8 million workers in the Civil Service Retirement System. Most of them were hired before 1984. The program isn't open to people in the new Federal Employees Retirement System pension plan.
Voluntary contributions can be made by check, in multiples of $25. Workers can put up to 10 percent of their past, current and future pay in the program. The money can be used to boost pensions (very slightly). Most workers withdraw it before retiring. Only the earnings are taxable.
Many find the voluntary program attractive because the interest rate is set in January and locked in for the entire year. In 1989, it was 9.1 percent; 1990, 8.75 percent and this year it is 8.625 percent.
In February 1989, when first reported on, the voluntary program had fewer than 300 participants. Now there are 11,600.
The voluntary program is separate from the tax-deferred thrift savings plan, which works via payroll deduction and is available to all federal workers. The voluntary plan does not interfere with participation in the savings plan, in individual retirement accounts or certificates of deposit.
Thrift savings plan contributions are made by payroll deduction and go into stock, bond or Treasury securities options. The return on stocks and bonds varies. The savings plan Treasury option pays a return that can change monthly. In 1989, the Treasury option paid 8.81 percent; in 1990, it was 8.86 percent. For both January and February of this year, the rate has been 8.125 percent.
By contrast, the 8.625 percent rate for the voluntary plan is steady whether other interest rates rise or fall. Under the voluntary plan, workers:
Make contributions directly to the Office of Personnel Management by check. Workers may put in up to 10 percent of their federal pay to date, plus 10 percent of future pay. In 1989, one employee put in $10,000 at one time to get that year's guaranteed 9.1 percent rate.
Can let their contributions increase -- minimally -- their pensions or take out the money just before retiring. Most people do the latter. Money must be withdrawn in full. And, generally speaking, employees cannot reenter the program.
Often encounter a stone wall when they ask their personnel offices about the program. Many are told incorrectly that there is no such program or there are no forms. The program is real. The form is SF 2804 "Applications to Make Voluntary Contributions." Your personnel office should have it or can get it from OPM's Retirement and Insurance Programs Office, Washington, D.C. 20415.
Details of the program also can be found in the Federal Employees Almanac at most agency libraries. The almanac can be ordered by calling 703-533-3021.