Catch 62 — Bad News — Good News



Here’s another Catch 62  question that’s both interesting and sad.  I’ve written about this subject before, Catch 62, but many haven’t seen it.  Worse yet, some know about it but fail to realize the severity of the problem.

Apparently, this was this reader’s costly error.  he knew about the regulation, but seriously misjudged the consequences:

… Just received letter from OPM on my reduction in retirement for not paying for military years.  4yrs 67-71. They said they take 7% of base pay while I was in the AF.

After four years my pay was 225.00 a month, now they have dropped my postal retirement by 394.00 a month.

Is this possible???

How do they come up with that kind of monies??

Well, let me answer first with the answer you likely did not want to hear.  Yes it certainly is possible.

Now, how can they come up with those sort of monies?  That’s the point a lot of people feel they have an answer to, but wind up dead wrong.

Catch 62 — The Basics

If you are a Federal Employee and had US Military Service after 1956, your agency must provide you with Form 1515, Military Service Deposit Election.

The form explains that you must make a deposit to continue receiving credit for  military service upon becoming eligible for Social Security benefits, and that his CSRS annuity might be reduced after age 62 if you do not make such a deposit.  What you chose to do regarding this notification and be very, very important to your retirement financial future.

Catch 62 — What You MUST Do

What you absolutely must do in order to make an informed decision is to follow the procedures explained on the form and receive an amount of deposit needed to give you retirement credit for this military time, for life (and the life of your survivor(s) if you elect Survivor Benefit protection.

Some employees may decide NOT to make this repayment, but you really have to consider the following facts to make that decision:

Catch 62 — Decision Points:

How much do you owe? You owe 7% of the basic pay you received during the military service.  Only the military service you were a member of can furnish this information precisely (unless you saved all your pay statements as a military member, which you darn will should have … but that’s a separate issue).

Let’s use an example comparable to the reader who asked this question here at RetiredPay.com.  He said when he left the service at the end of his enlistment he was making $225 a month.  Obviously, in the years before his final year, he made less.  But just to simply things, let’s make a guess and say for a four year stint he would owe 7% of perhaps $10,000 total reimbursement, or around $700.

Interest accrues on that reimbursement amount also as the years go by, but again. suppose, back when our reader made his decision to decide not to pay for this military time, perhaps he owed $2000.

Second. How Much is your Military Time Worth? Again, since we don’t know the details of this readers grade at retirement, high-three retirement base amount and so on.  But we can simply things quite a bit.  Just to show what these four years might be worth, let’s just make an assumption here, based on what we do know.

Our reader states that OPM has reduced his Postal Service Retirement by $394 a month (as a 62nd birthday present, so to speak).  Wow!  Each year of federal service under the CSRS retirement scheme is worth a bit over 2% of the high three retirement amount the employee has when he/she has their retirement annuity calculated.  So those 4 years of Federal Service which our reader chose NOT to pay for reduced his annual retirement annuity check by about $4728 dollars … $394 * 12.

Looks to me as if paying the “guesstinmate” of $2000 before retirement might have been well worth the one-time cost to me.  How about anyone else out there?

I personally had 10 years of military service.  I owed about $10,000 by the time I finally got around to doing the math and making my required deposit.

I retired with 38 years and some months service.   Had I chosen to ignore the retirement deposit, at age 62, my annuity would have been reduced by the equivalent of 10 years service and my annuity would have dropped more that $20,000 a year.

Paying that $10,000 in retirement contribution was probably the most intelligent and profitable decision I ever made regarding retirement … I “make my investment back” every 6 months and this saving will continue not only for my life, but for the life of my spouse, should she outlive me.

It’s almost impossible to conceive of a case where paying this military time back is NOT a good deal.  Except, that is, for those employees who are not entitled to Social Security retirement benefits.

For those of you in non-standard situations where your dollars and cent show that the payback is not worth it?  Make darn sure you are using real numbers and not conjecture, bar talk, or some off-the-wall comment made by a personnelist who has no military time invested and will never face this decision on his or her own.

Third. But I don’t Intend to File for Social Security at Age 62.  Fine.  the decision as to when to file for your Social Security benefits is yours and yours alone.  Volumes have been written and unconscionable quantities of numbers have been crunched in arguing over this decision.  Each person must make it for themselves.

But the issue is, the Federal Government does not care IF you opt to receive benefits at age 62.  the only way you escape the clutches of the Catch 62 :monster is if you are one of a rare category of folks who are not eligible for Social Security retirement annuity benefits.  If you are in this category, all this discussion has been merely and academic exercise for you … if you know (as in have it in writing) that you are not eligible for Social Security benefits, then you get credit for those military years for free and the credit continues for life … Catch 62 does not apply to you.

But again, better be darn certain you are not eligible if you chose this route.  Again, the issue is not at all if you opt for benefits at age 62 or do not opt for them.  The issue is if you are eligible.  If you are, you owe.  Plan accordingly.

Possible Catch 62 Recovery Options:

Thankfully, the US Merit System Protection Board (MSPB) has apparently lightened the rock-hard stance they held for years regarding allowing employee’s to reconsider the action of retirement without repayment of the retirement contribution.

I stress the fact that :

A. I am not an attorney, and I think you certainly need one if you are ‘snagged’ by Catch 62issues>

B. The law still says that contributions must be made prior to retirement and that the employee may not come back ‘after the fact” and attempt to make the retirement deposit then.

So if you are in the bind that our current reader finds himself, you are indeed in a jam … but there is hope.

Here’s a recent MSPB ruling that did allow the employee to make an after retirement deposit, based on alleged commission of administrative errors by the employee’s servicing personnel office.  It make good reading.

Also, for those who do need a lawyer, I found this case via the website of a very forward-thinking lawyer who appears expert in these cases, Attorney Chris Attig.  Thank you, Attorney Attig.

Bottom line here?  Pay Attention to Catch 62 provisions, as their bit can be very serious.




Comments

  1. COMMILLIA OLIVER says:

    Catch 62: I a retiree made a partial deposit prior to age 62 which covered a part of the pay back time; can they receive credit for the number of years (prorated to get credit for the number of years inwhich a deposit had been made) rather than losing the entire amount.
    Example: an individual had to buy back 10 years and made a depoisit top buy back 5 years.
    or owed $10,000.00 and paid back $5,000.00. Would they get credit for the time they did buy back. If they did not get the credit for the time they did buy back would the be entitled to receive the money paid back.
    Thank you.

    • COMMILLIA OLIVER » Hi Commilla and thanks for the comment. (Wow, my very first West Point commenter 😉

      I’m afraid I don’t know the answer, though. I find nothing in writing regarding partial buybacks. Logically, they might allow this, although one must be very cautious in trying to apply logic to the retirement rules … I find many illogical situations that are … well, just the way things work. The only safe way I know of to proceed in a situation like this is to write directly to the OPM with the particulars of the case, and then attempt to get a written response from them. BEFORE SIGNING THE RETIREMENT APPLICATION!!!

      Unfortunately I have found difficulty in getting responses from them, but I know of no other way I would have much confidence in. You can’t rely on self-styled experts like me, because we have no legal standing in the matter, and your servicing personnel office will likely have no official guidance they can quote.

      As a practical matter, recognizing money is tight, the economy is suffering, etc., the idea of “leaving” even part of your military time out of the retirement equation just seems ill-advised. There is no investment I know of that will ever return what credit for those years of service will return over the life of the retiree (and survivors if there are any SBP recipients).

      Using something from your own example … the $5000 that would be saved if the employee “shorted” his/her buyback by that amount would be recovered easily within the first year or so of retirement after the 62nd birthday and return again year after year after year.

      A fellow CSRS retiree just passed away at age 103. That means he enjoyed the fruits of his “buyback” for more than 40 years … better by far than any IRA. Keogh Plan, mutual fund or any other device I can think of that he could have invested that money in. Denying oneself the credit for ones tears of military service is a critical decision and I see tons of retirees who really cheat themselves in the future to avoid what, over a lifetime, amounts to a very trivial investment. Godspeed.

  2. Bert Alton says:

    Is it true that if I become eligible for Social Security at some time after I turn 62, my annuity can still be reduced, if I do not make the military service deposit?

  3. Dennis McGaughy says:

    I’m another catch 62 victim. I am currently fighting to buy my time back now due to administrative error on part of OPM. The SOB’s ought to be shot

    • @ Dennis McGaughy

      Thanks for writing in. I’m sorry to hear you are another victim. It’s amazing to me how many people there still out there under CSRS who don’t even know about the “ticking time bomb” they are carrying around with them until their 62nd birthday. I’m also surprised that so few of the “mainstream” federal employee sites don’t seem to be that interested. This problem will go on until 2016, at least (that’s the year a 20yo could have entered Civil Service under CSRS and becomes 62. That’s 13 years from now, and many people seem to think Catch 62 is a “dead Issue” already.

      Please write back and tell us just a little more about how you are fighting your own battle. With a lawyer? pro se (on your own), etc. And above all, keep the faith and don’t let your justifiable anger cloud you judgment. You aren’t alone, and especially since last year a lot of people have been having success.

      And anyone else ready this who has unpaid military time and hasn’t yet paid? Get it done, it is possible. Don’t live in poverty for the rest of your retired life because of mis-information that was furnished you back before you retired

  4. national guardsman says:

    I am currently a traditional Soldier in the National Guard. The QRB cut my retirement 8 months shy of my 60th birthday. So now I am trying to bridge the gap since I have been enrolled in Tricare Reserve Select since 2005. I have not served the 90 day active duty time as discussed in an earlier article. Do you have any suggestions?

    • Sorry I don’t have an idea how to help on this. I transferred to the retired reserve back in 1992. So many things have happened since then, I really don’t know what to suggest. Sorry.

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