I’ve written about “Catch 62″ several time here already, but judging by the search engine traffic it seems to still be a very popular subject. (See here and here for some previous information)
Based on some recent conversations with military/civil service retirees the subject still seems to be widely misunderstood, so perhaps it’s time for a short primer. There are a few other legal issues floating around out there that also have “62″ in their names so let me be specific. This primer is referring to the “Catch-62″ provisions of Public Law 97-253.(9-82).
In essence these provisions may apply to any person who has served in the active components of the US military and who has also been employed in the US civil service, so the number of folks possibly impacted is a lot larger then the knowledge base on this subject seems to be.
In particular, personal conversations and perusal of lawyer’s web sites gives me the feeling that a lot of lawyers out there who may otherwise be very expert in divorce procedures also don’t have a comprehensive understanding of this legal speed bump. I’ll write more at a later date date on some of the finer points of valuation and division of marital assets and Catch 62, in this article I’ll just cover the basics of how it affects most potential retirees … even though you almost certainly need competent legal assistance for a divorce, you need a basic understanding of the points that your attorney has to consider, at the least.
In simplest terms the Catch 62 (I’m sure this term was adapted from Heller’s “Catch 22″ novel, especially since the novel, in some cases, makes more sense than the law) attempts to give employees with combined military and federal civil service time a way to get credit for all their years of government service, while at the same time insuring that their time in the military (which counts toward any potential military retirement benefit) is ‘paid for’ in the applicable retirement system (CSRS or FERS) that the civil servant retires under.
There are major differences in how Catch 62 applies to CSRS and FERS employees. I’ll cover the FERS system first, since the rules seem to be the simplest there and the potential pitfalls for the employee don’t seem as fearsome.
Catch 62 and FERS: For those employees hired under the FERS (Federal Employees Retirement System) the required contribution is 3% of the base pay received during their active military service. The employee must pay the contribution in order to receive any credit for their military time. Thus, the vast majority of FERS employees will have already paid the contribution. In spite of some (in my opinion) nonsensical claptrap advice an employee will always be ahead of the game by paying this contribution. It seems smart to pay it during the first three years of employment when their is no interest penalty, but even when an employee has delayed payment and interest has begun accruing I can’t see any circumstance where the decision to pay would be wrong … unless the employee plans to die early. if an employee still decides not to pay there is no pitfall awaiting him or here. The employee will simply retire with a smaller annuity than s/he would have been entitled to had the contribution been made, and life goes on.
Catch 62 and CSRS: Now, as Shakespeare is alleged to have written, here’s the rub. For military time served before 1956 the employee is ‘home free”. The time is added to the employee’s total service time, his or her annuity is calculated and … life goes on.
For military time accrued after 1982, the same rule as the FERS program applies. The employee must make a contribution (7% in this case) and if s/he chooses not to, the military time disappears for purposes of annuity calculation.
Those CSRS employees with military time between 1956 and 1982 (which includes a great many CSRS employees coming up for retirement) are the ones that the “goofiness” of the law puts most at risk. The employee gets credit for the military time as if it were “good” civil service time. If he or she retires before age 62 the annuity will be calculated using the “real” civil service years and the military years. If the employee failed to consider Catch 62, however, a time bomb is ticking … the employee’s 62nd birthday. Since a person eligible for Social Security retirement may choose to begin collecting their retirement benefit at age 62 the law assumes that they will … regardless of the amount of money involved and regardless of the advisability of taking “early” Social Security retirement. An ignorant or careless employee will find their Civil Service annuity pay reduced … recalculated to exclude the unpaid years of military service. This can be a significant cut in pay … reductions of $1,000 a month or more are common. At the same time, employees eligible for Social Security not only find that their reduced age 62 benefit doesn’t match the amount they have lost from their civil service annuity, but that the Social Security benefit they are entitled to may be further reduced by the Windfall Elimination Provision (WEP) which many of us subject to the provision are convinced should be referred to as the WEPT. Basically, for a federal retiree who had service for which Social Security Tax was not deducted is determined to have received a ‘windfall” by being eligible for both CSRS annuity and a Social Security annuity and the Social Security benefit is reduced … by hundreds of dollars per month in many cases to eliminate this so-called “windfall”.
Bottom line? Every federal civil service employee had better learn about the Catch 62 rules before retirement and CSRS employees in particular must make some very important decisions as early as possible. Unless you think a surprise reduction of a thou or so per month won’t affect you. And if you’re a potential divorce candidate looking for an attorney and the prospective attorney gives you a blank look when you mention Catch 62 … run, don’t walk to find a different lawyer. You’re playing around with huge sums of money over a lifetime and decisions that once made can be irrevocable … don’t take a chance, know before you light the fuse.
Disclaimer
As always remember that this site, although written by a retiree with substantial experience in the school of hard knocks, it is for personal, lay opinions and informational purposes only. If you have a legal question you should seek help from a legal professional. If you have questions involving current or future values of pensions you need an actuary or competent pension valuation expert. If your questions are tax-related, seek a competent tax advisor. In other cases, I recommend the base chaplain.
If you really need an accurate reading on a case involving these issues, I’d suggest you call Bill — 719-475-7529
Related posts:
- Proper valuation of pension plans
- When The 62nd Birthday Blows Up In Your Face
- Types of Retirement — Our Roadmap
- FERS, the Background and Nitty Gritty
- TSP — Thrift Savings Plan — Division and Conservation
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Bill ,
how does catch 22 affect the Fers retirement of a civil service employee who retire after 20 years of military service
Hi David, thanks for reading and for your comment. Catch 22 only really doesn’t affect FERS retirees. With FERS, if you want credit for any military time, you ahve to buy that time … make the 3% contribution equivilent to the FERS regular contributions before you retire. This is eitgher a thing you want to do, or not, based on your individual numbers. But noting essentially ‘happens’ at age 62 for you except a birthday.
Catch 62 really only affects CSRS employees with military time. When a CSRS retires earlier than age 62 with less than a 20 year military retirement, s/he gets ‘free credit’ fi=or huis her years of military service. If the employee chooses to retire without paying the 7% contribution BEFORE retirement, at age 62 those ‘free’ years of military time go away, and the CDRS annuity is recalculated as if the employee had not worked for those years.
Since FERS employees never gets those ‘free years’ to begin with, they can’t lose them at 62. They either have them already paids for and ‘good for life; or they gave them away at retirement.
For a military retiree (as opposed to a vet with military service short of retirement), Catch 62 affects nothing. You earned your military pension. You either continue drawing it and also drawing what your CSRS or FERS annuity is, or you made a decision to combine your years of service, paid the “buy back” cost again, before civil service retirement, and life goes on. In short, any bought back years military tears are your for life, Ctach 62 only affects “free” years of credit that the employee cjhose not to buy back. Hope this helps navigate the mine field a bit.
I retired in 2002 after a combined service of 30 years federal law enforcement; 4 years military – bought back and 26 years Fed Law Enforcement. In 1998, a switched from CSRS to FERS. So in essence I had about 4 years under the FERS system before I hit the door. What’s the likely impact of Catch 62 for me? Thank you….
Hi Ken,
If you ‘bought back’ your military time, there is no affect at all at age 62 … it only affects CSRS folks who got free credit of “none-bought” military time when retiring before age 62. If you retired under FERS, all the time you were credited with was paid for, becuase, unlike CSRS, FERS doesn’t give crediut for unpaid military time. Enjoy your 62nd birthday
Bill
I am a national guard technician so I had 4 months Active duty basic training.
I bought back that military time. Then I started as a Temporary CSRS employee for 10 months in 1981 thru early 1982 no retirement deductions were taken out but FICA was. At the end of my 10 months temp I converted to a regular CSRS employee. I converted from CSRS to FERS in 1998. My question is should I buy back the 10 months Temp time ? Thanks
@Timmy: I’m not sure you can buy back temporary CSRS time, but if you can (check with your personnel office … and be persistent, they probably don’t know the answer right off the bat), I’m pretty sure you’d be money ahead to do so.
In round numbers, each year of CSRS time credited is ‘worth’ about 2% of your inal top three salary. So 10/12th’s of 2% is what you would gain, every month for the rest of your retirement years. Verus whatever 7% of your base salary was for those 10 temporary months. Unless you plan on dying really, really early, you should make your money back in the first year of retirement or less, and then it’s all profit from there.
In answer to RP–yes, a CSRS employee who transfers to the FERS system can buy back temporary CSRS time. (I just did it)
An employee that is hired under FERS (ie: has no CSRS component to his service) cannot buy back temp time.
I’m still unclear as to whether an original CSRS employee (pre 1982) who transfers to FERS needs to buy back military time. My guess is yes, because the amount to be repaid is calculated at 7% just like CSRS , so the time is credited to the CSRS component of the FERS retirement. CSRS transferees to FERS have some very different rules.
@EH: Thanks for that answer, info and confirmation. That’s agood thing to know for those with CSRS Temp Time, because as a person who bought back 10 years of regular military time, the results are sweet. I’m now entering my seventh year of retirement and that buy-back money which seemed big at the time is now re-payed who knows how many times over.
I have a question, i spent 14 and half years on active duty in the air force. six years ago i joined the air national guard and became a military technician, in that time i’ve started buying back my active duty time. my question is when it comes time for me to retire will i be able to use all of the points i’d attained while on active duty towards my military reserve retirment or will i lose them because i bought my time back?
@Steven: Hello Steven, and thanks for your question. Yes those points will still work for you, both ways. Reserve Forces retirement has essentially nothing to do at all with your Civil Service retirement. When you complete the buy back, you will have those 14 and a half years to your credit for either CSRS or FERS civil service time. As you know, for your active duty time, you earn a point per day toward your ANG retirement. there is no rule or ‘catch’ that prevents you using both. n fact, my own pensions are very similarly based … I had 10 years active USAF time, which I ‘bought back’ for my CSRS retirement, giving me 38 plus years of CSRS time when added to my 28 years of “real” civil service time. And my USAFR Reserve annuity check is based on all the points I had accumulates in 10 years active and a total of 14 ‘good years’ in the USAFR. I also started in Civil Service as an ART, so welcome to the club
With all the different ways it seems the government seems to ‘take away’ from retirement programs, this seems to good to be true, but it is not an oversight on the part of the bean counters.
You get the apparent ‘double credit’ because you paid (are paying) for it. The military does not contribute in cash to the retirement programs, so you are entitled to use any creditable time without any sort of payback. The civil service, OTOH does require cash ‘contributions’ from your pay, so what you are ‘buying back’ is ‘converting’ those years of military service to what they would have been, contribution-wise, had they been civil service rather than military time.
You’re in good shape, so enjoy, you’ve earned it/paid for it.
I was military for 4 years prior to CSRS. I transferred from CSRS to FERS in 1988 and left the govt. entirely in 1989. I have been re-instated to FERS in 2007 and plan to retire in 6 months. I am already 65. Do I have to buy back my 4 years of military time to avoid a reduction in my social security or my CSRS/FERS retirement?
Thanks.
@Steve: if you want to use those years to increase your FERS annuity, yes. There is no Catch 62 for FERS retirees, because unlike CSRS, you can’t have ‘free use’ of your military time until age 62.
But to convert military years of service into civilian years of service, you have to pay OPM what you would have paid in retirement contributions for those years. In your case it is likely a no-brainier, because your years in the military ‘way back when’ likely have little monetary value, and your contribution would normally be only the lower FERS percentage … while the impact of those years over the rest of your life will be large.
In my case (CSRS) I had to pay $10,000. Many of my fellow workers argued it wasn’t worth it. But those 10 years of military service increased my annual annuity more than $10k, so my payback was achieved in a year … and now every year I live I get $10K more. Four years and FERS has less impact, but be sure you do the math before you make the deison … remember, you might live to your 100th birthday, I certainly plan to
Sir,
Thank you for posting this blog and clearing these issues.
My questions are the follow:
I serve 9 years of Active military service. I have a year in the NSPS FERS system with rumors that it will be GS again in this year. I just receive my pay back papers and they want 6,200 for my 9 years.
-Now if this means that after 3 years they are going to charge interest rate in this?
-If I pay, can I work 11 years and retire after 62 with a total of 20 years of complete service?
I was reading in this web site:
http://www.opm.gov/retire/pre/election/handbook/h_fers3.htm
What I understand is that if I don’t complete the extra 11 I can receive retirement for 10 years of service after minimum requirement age in my case 57, but like you said it is better to wait after 62. It this is right?
Thank you,
Daniel Santiago
@Daniel Santiago: Hi Daniel. I don’t know all the answers. But yes, regarding your payback, interest is charged (based on some formula off the national T-Bill rate, compounded and accruing annually. So if you are going to pay it is better to do so as soon as possible.
Those paid for years should count for total time in service to retire … once they are paid for they are part of your personal history, so far as I know.
I am not sure what effect NSPS changing back to GS will have on FERS retirement, but it appears that there will be no change to FERS itself, you will just be changed to a GS grade and step that equals or exceed your current pay.