If Uncle Sam offered a certificate of deposit paying a guaranteed 5.75 percent this year, would you take it? Is your local savings and loan as generous--or solvent?
Suppose the deal allowed you to contribute up to 10 percent of your lifetime salary--past, present and future--into the government-backed investment. Your contributions would be in the form of after-tax dollars, but interest would be tax-deferred. You could take it out before retirement and roll over the interest into a tax-deferred individual retirement account. Or spend the money and pay taxes only on the interest.
That sounds like a good deal for people with extra cash who already put the maximum amount allowed into the tax-deferred federal thrift savings plan. To some federal personnel offices, it sounds too good to be true. But it is true.
There is such a deal, but there is a catch.
For one thing, it is available only to the approximately 800,000 active-duty federal and postal workers in the old Civil Service Retirement System. Generally speaking, CSRS (or the CSRS offset program) covers people hired before 1984.
Officially, the certificate of deposit is the Voluntary Contributions program.
The Aug. 24 Federal Diary made a passing mention of the program, inspiring a pile of e-mail, letters and calls from federal workers. All of them said the same thing: Their agency says it never heard of such a program. The readers then contacted us, asking whether that was a clarification or correction is in order? Or what?
Good news: There is a Voluntary Contributions program.
Bad news: Many federal human resources offices--many of which are staffed largely by people who are under the newer Federal Employees Retirement System--have no knowledge of the program. That may be, in part, because FERS employees can't participate in the Voluntary Contributions program. Many human resources offices have been downsized in recent years and longtime employees--with institutional memory of such things as the Voluntary Contributions program--were given buyouts to retire. Many human resources offices apparently confuse the Voluntary Contributions program with the thrift savings plan, the federal 401(k) plan. The two programs are equally real, but totally different.
Reader Jim Finerfrock says he is interested in the Voluntary Contributions program but, like many other feds, "I have been unable to locate anything on it. Can you please advise where a federal employee can obtain further information about this program and how an account can be established? Are you certain that this program is in addition to the thrift savings plan?"
Good questions. Here are some answers:
The Voluntary Contributions program is not to be confused with the thrift savings plan. Nor do they cancel each other out. The savings plan allows workers under the CSRS program to contribute up to 5 percent of salary on a tax-deferred basis. FERS employees can contribute up to 10 percent of salary and get a match of up to 5 percent from their agencies--all tax-deferred.
The Voluntary Contribution program is run by the Office of Personnel Management. CSRS employees can sign up by getting a Standard Form 2804 (Application to Make Voluntary Contributions) from their human resources office. If the people there tell you there is no such thing, ask them to check out the Office of Personnel Management's pamphlet "Voluntary Contributions Under the Civil Service Retirement System." The existence of the official government pamphlet and the application forms is a good indication that this thing is for real.
Once the application form has been accepted by OPM, you can make regular payments into your account--in $25 multiples--any time you choose. There is no regular schedule and no set amount for deposits, so long as they are in the form of payments of $25, $50, $75, $100, etc.
If you are in one of 10 federal agencies with buyout authority, your chances of getting paid $25,000 (before deductions) to retire this year are slim. Those agencies are the Defense, Agriculture and Energy departments, the Internal Revenue Service, the Bonneville Power Administration, the Architect of the Capitol, the Nuclear Regulatory Commission, the Central Intelligence Agency, the Government Printing Office and the National Aeronautics and Space Administration.
If you work for an agency that is seeking congressional approval to offer buyouts in the coming fiscal year, your chances of getting a buyout are almost nonexistent. But there is some new action on the buyout front.
For details, check the Federal Diary tomorrow.
Mike Causey's e-mail address is firstname.lastname@example.org
Tuesday, Aug. 31, 1999