A FERS military service deposit lets a federal employee count post-1956 active duty military service toward a FERS annuity. The cost is generally 3% of military basic pay, plus interest if the client waits too long. The deposit must be paid before the client separates from federal service. For many veteran clients it is one of the best-value decisions in their federal career, and one of the easiest to miss.
On Veterans Day, it is worth asking every veteran client a simple question: have you paid your military service deposit?
How the Military Service Deposit Works
OPM's FERS service credit page states that to receive FERS credit for military service performed after 1956, the employee must pay a deposit. The rate depends on when the service was performed:
| Dates of military service | FERS deposit |
|---|---|
| Through Dec. 31, 1998 | 3% of military basic pay |
| Jan. 1 to Dec. 31, 1999 | 3.25% of military basic pay |
| Jan. 1 to Dec. 31, 2000 | 3.4% of military basic pay |
| Jan. 1, 2001 to present | 3% of military basic pay |
The deposit is based on military basic pay only, not allowances or special pays. It is paid to the client's employing agency, not to OPM, and it must be paid before the client stops working for the government.
Clients with a CSRS component
Some clients have part of their annuity computed under CSRS rules. For those clients, military service performed before the transfer to FERS follows the CSRS deposit rules. The CSRS deposit is 7% of military basic pay. Clients first hired on or after October 1, 1982 receive no CSRS credit for post-1956 military service if they do not make the deposit.
Why the Deposit Is Often Worth It
FERS computes the basic annuity as a percentage of the high-3 average salary for each year of creditable service. Under OPM's computation rules, the multiplier is generally 1%, or 1.1% for clients who retire at 62 or older with at least 20 years of service. Each year of military service that becomes creditable adds that percentage of the high-3 to the annuity, every year for life.
The deposit is a one-time cost based on military pay, which was often modest. The added annuity is based on civilian pay at the end of a career. That gap is why the deposit frequently pays for itself within a few years of retirement. Creditable military service can also affect retirement eligibility, which can matter even more than the dollar amount.
A hypothetical illustration
Suppose a client's military pay records show total basic pay of $60,000 for a period served after 2001. At 3%, the deposit before interest would be $1,800. This is an illustration only. The agency computes the actual amount from official pay records or an estimated earnings statement from the military branch.
The Interest Clock
Timing is where clients lose money. Under 5 CFR 842.307:
- Interest accrues beginning on the second anniversary of the employee's FERS coverage date.
- Interest compounds annually on the unpaid portion.
- No interest is charged if the deposit is completed before the end of the year after interest begins.
In practice, that gives new employees about three years from their FERS start date to pay without interest. The regulation's own example: an employee covered on March 1, 1988 starts accruing interest on March 1, 1990, but owes no interest if the deposit is completed by February 28, 1991.
Agencies must notify new employees
OPM's Benefits Administration Letter 23-105 requires agencies to notify newly appointed employees of their eligibility to make a military deposit within 90 days of their entry on duty date. The goal is to give employees time to pay during the interest-free period. Clients hired before this requirement, or who ignored the notice, may still have an open balance.
The Rules That Trip Clients Up
It must be paid in full before separation
The regulation states that the deposit must be completed before separation. A deposit for a distinct period of service is not considered made unless the full amount for that period is paid. A partially paid deposit for a period gives no credit for that period.
Running out of time is not an error
BAL 23-105 tells agencies to advise employees with unpaid or partially paid deposits that they may accelerate payments before separation, because not having enough time to pay is not considered an administrative error. In other words, OPM will not reopen the window simply because the client retired with a balance.
USERRA service has a special computation
For military service covered by the Uniformed Services Employment and Reemployment Rights Act, agencies prepare two computations and use the smaller one.
Military retirees face additional rules
Clients who receive military retired pay generally must waive it for the service to be credited toward a FERS annuity, with exceptions such as certain disability-based retired pay and reserve retirement. OPM's military retired pay guidance explains the details. This is a decision that needs careful analysis.
How Clients Get Started
The process runs through the employing agency:
- The client requests estimated military earnings from their branch using form RI 20-97, or gathers official military pay documents.
- The client provides a copy of the DD Form 214 to verify the periods of service.
- The client completes the agency's application to make the deposit.
- The agency establishes a deposit account showing the total due, including any interest, and a payment schedule.
- The client pays by lump sum or installments, often by payroll deduction. Agencies are not required to accept installments under $50.
Survivors have a limited option as well. If a deceased employee was eligible, a survivor may pay the deposit in one lump sum before OPM completes adjudication of the survivor annuity.
Reserve and Guard Clients
Clients who served in the National Guard or reserves need a closer look. Only active duty military service is generally creditable. Active duty, including active duty for training and mobilizations, can count, while inactive duty training such as weekend drills generally does not. The DD Form 214, or equivalent records for each period, help the agency determine what counts.
USERRA service is common among Guard and reserve members who were called to active duty while working for the government. Because agencies prepare two computations for that service and use the smaller one, the deposit can be lower than clients expect. Clients should not assume the deposit is too expensive until the agency has run the numbers.
When the Deposit May Not Make Sense
The deposit usually pays off, but advisors should still run the analysis. Clients who expect a short remaining federal career, or who have military retired pay they would need to waive, may face a different trade-off. The point is not to recommend the deposit in every case. It is to make sure the client makes a deliberate choice before separation, when the option disappears.
Questions to Ask Veteran Clients
- Did you serve on active duty after 1956?
- Did you receive the agency's military deposit notice, and did you apply?
- Is the deposit paid in full for every distinct period of service?
- When did your FERS coverage begin, and is interest already accruing?
- Do you receive military retired pay?
- When do you plan to retire, and is there enough time to finish payments?
Make It Part of Every Federal Review
A military service deposit is not a product. It is a benefits decision, and the client's agency handles the computation. The advisor's role is to spot it, explain the trade-off and keep the client on schedule. For more on the conversations that set federal specialists apart, read why CFP® training alone does not cover federal benefits.
FedEd Academy™ covers FERS service credit and military deposits in its live program. Advisors who want to show that expertise can pursue the RFBS℠ designation, and the advisor opportunity page explains how FedEd supports advisors who serve federal employees.
This Veterans Day, thank your veteran clients, then ask about the deposit. A few minutes of review can add years of service to a FERS annuity, and the only deadline that cannot move is separation.
Frequently asked questions
What is a FERS military service deposit?
It is a payment that lets a FERS employee receive retirement credit for post-1956 active duty military service. Without the deposit, that military service does not count toward the FERS annuity.
How much is the FERS military service deposit?
OPM lists the deposit as 3% of military basic pay for service through 1998 and from January 1, 2001 to the present, 3.25% for 1999 and 3.4% for 2000, plus any applicable interest.
When does interest begin on the deposit?
Under 5 CFR 842.307, interest accrues beginning on the second anniversary of the employee's FERS coverage date, but no interest is charged if the deposit is completed before the end of the year after interest begins.
Can the deposit be paid after retirement?
Generally no. The deposit must be completed before separation from federal service. A survivor may pay a lump sum in limited cases, and OPM may permit a late lump sum only if it finds an administrative error. Running out of time is not an administrative error.
Who calculates the deposit?
The employing agency. The deposit is paid to the employing agency, which establishes the account, computes interest and sets a payment schedule.
