Uncle Sam offers federal workers still under the old Civil Service Retirement System the equivalent of a government-backed certificate of deposit. The so-called Voluntary Contributions plan, which paid 5.675 percent this year, will pay 5.875 percent in 2000.

The special investment vehicle--separate from the better-known thrift savings plan--allows CSRS workers to invest on an after-tax basis. Earnings on the investment are tax-deferred.

The better-known thrift savings plan (which also is a better deal) is a 401(k) plan. It's open to all employees. But the thrift savings and Voluntary Contributions plans, while very different, are often confused. Many downsized federal human resources offices, especially those with relatively new employees, don't known the latter program exists.

Reader Sheila Strickland writes that she has heard something about a "little-publicized and little-used option for federal employees to save money in a certificate with some restrictions. . . . Any idea what it is, and where I can find info?" she asks. Good question.

The Voluntary Contributions program is open only to that rapidly shrinking group of still-working feds under the old CSRS. Most were hired before the mid-1980s when CSRS was replaced by the Federal Employees Retirement System. FERS now covers about 60 percent of the federal work force.

An important feature of CSRS is that the civil service annuity is nearly twice as generous as the annuity under FERS. CSRS retirees also qualify for annual cost-of-living adjustments fully indexed to the consumer price index. And the COLAs are effective regardless of the age at which they retire. Under FERS, COLAs are determined using a less-generous formula and don't start until age 62.

Next month, for example, CSRS annuities will increase 2.4 percent. Those paid under FERS will go up 2 percent.

Another feature of the CSRS system is eligibility to participate in the thrift savings plan and the Voluntary Contributions program. Under the latter, an employee can:

* Invest the equivalent of 10 percent of lifetime federal salary in the program. (In other words, if you previously earned $210,000 from Uncle Sam, you can--if you can find the money--contribute up to $21,000 immediately, then 10 percent of your future salary.)

* Defer paying taxes on the interest earned until the money is withdrawn. When the money is withdrawn, an individual's contributions are not taxed, only the earnings.

* Roll over the earnings (but not the amount contributed by the employee) to an individual retirement account.

* Leave the money in the voluntary contribution account, which will increase--very slightly--an employee's lifetime federal annuity. Most people, however, withdraw the money from Voluntary Contributions accounts before they retire. Once account balances have been withdrawn, employees cannot reopen their accounts.

Eligible employees obtain Voluntary Contributions accounts by applying to the Office of Personnel Management. Once OPM sets up an account, contributions can be made any time the employee chooses. Employees make contributions--by personal check or money order--in increments of $25.

Workers are sometimes told that there is no such thing as the Voluntary Contributions program or that is is closed. Not true--if you are eligible.

Among the differences between the thrift savings plan and the Voluntary Contributions program:

The thrift savings plan is open to all federal workers. Those under FERS can contribute twice as much (10 percent) as workers can under CSRS. Also, FERS employees are eligible for a match of up to 5 percent from the government and get a 1 percent contribution from Uncle Sam even if they invest nothing in the thrift savings plan's stock, bond or Treasury securities funds.

Because they get a more generous federal retirement benefit, workers under CSRS are limited to contributing 5 percent of pay to the savings plan, and they don't get a government match.

Obviously the thrift savings plan, with its tax break and government match, is a better deal for nearly everyone in government.

But for CSRS workers who have extra money to invest after contributing the maximum to the thrift savings plan and who are looking for a totally safe vehicle (essentially a government-backed certificate of deposit), the Voluntary Contributions program might be worth investigating.

Mike Causey's e-mail address is causeym@washpost.com

Tuesday, Dec. 14, 1999