How to Buy Back Military Time for Federal Retirement

Federal civilian employees with prior active duty military service can enhance their retirement benefits by making a military service credit deposit, often referred to as “military time buyback.” This process allows eligible individuals to count their military service toward their federal civilian retirement, which can increase their years of creditable service and positively impact their future annuity. Making this deposit is a significant financial decision that can lead to a more substantial retirement pension.

Understanding Service Credit Deposits

Federal civilian employees who have served in the active duty military are generally eligible to make a service credit deposit. This includes service in the Army, Navy, Air Force, Marine Corps, Coast Guard, the Regular Corps or Reserve Corps of the Public Health Service, and commissioned officers of the National Oceanic and Atmospheric Administration. The military service must have been active duty and terminated under honorable conditions for it to be creditable. Certain periods of active duty for training, such as “summer camps” for reservists, and Military Academy service can also qualify for credit.

A crucial condition for crediting military service is that the employee must not be receiving military retired pay for the same period of service being deposited. Exceptions exist for military retired pay awarded due to a service-connected disability incurred in combat or caused by an instrumentality of war during wartime, or for retired pay under Chapter 67 of Title 10, U.S. Code. If military retired pay is being received, it generally must be waived for the service period to be credited towards federal civilian retirement. Military service performed before January 1, 1957, is creditable for federal retirement purposes without requiring a deposit, while military service performed on or after January 1, 1957, generally requires a deposit to receive credit. Special rules also apply under the Uniformed Services Employment and Reemployment Rights Act (USERRA) for military service that interrupts federal civilian employment, where the deposit amount might be calculated as the lesser of the civilian or military salary earned during that period.

Determining Your Deposit Amount

The cost of buying back military time is determined by a percentage of the military basic pay earned during the period of service. For those covered by the Federal Employees Retirement System (FERS), the deposit amount is typically 3% of their military basic pay. Slight variations exist for service performed in specific years, such as 3.25% for 1999 and 3.4% for 2000. For employees under the Civil Service Retirement System (CSRS), the deposit is generally 7% of their military basic pay, with similar adjustments for service in 1999 (7.25%) and 2000 (7.4%).

Interest begins to accrue on the deposit amount if it is not paid within a certain timeframe. A two-year grace period is provided from the date an employee first becomes subject to federal retirement coverage, during which no interest is charged. This effectively extends to a three-year interest-free period if the deposit is paid in full before the first interest accrual date. After this grace period, interest accrues annually on any unpaid balance, compounded at a variable rate established by the U.S. Treasury. To calculate the deposit, employees must first obtain their estimated military earnings. This is typically done by completing Form RI 20-97, “Estimated Earnings During Military Service,” and sending it with a copy of their DD-214 to the appropriate military pay center, such as the Defense Finance and Accounting Service (DFAS).

Preparing Your Application

The preparation phase involves gathering essential documents and completing the necessary forms to initiate the service credit deposit process. Federal employees under CSRS will use Standard Form (SF) 2803, “Application to Make Deposit or Redeposit,” while those under FERS will use SF 3108, “Application to Make Service Credit Payment.” These forms are used for both civilian and military service deposits.

Supporting documentation is crucial for the application. You will need a copy of your DD-214, “Certificate of Release or Discharge from Active Duty,” for each period of military service you intend to deposit. If a DD-214 is not readily available, a copy can be requested by completing Standard Form (SF) 180. The estimated earnings summary received from DFAS, generated from your RI 20-97 request, is a required document detailing your military basic pay. To accurately complete the forms, ensure that details such as dates of service, branch of service, and type of discharge are consistent with your DD-214, and use the DFAS earnings statement for total military basic pay. Your agency’s Human Resources or Benefits specialist can provide assistance with the computation of the deposit amount and guide you through the form completion process. Initiating this information gathering early in your federal career is advisable, as obtaining military earnings statements from DFAS can sometimes take several months.

Submitting Your Service Credit Deposit

Once all information has been gathered and the required forms are completed, the next step is to submit the entire application package. This package, including the appropriate SF 2803 or SF 3108, your DD-214, and the military earnings statement, should be submitted to your employing agency’s Human Resources or payroll office.

Payment for the service credit deposit can typically be made through a lump-sum payment, such as a check or money order, or through payroll deductions. If choosing payroll deductions, the amount deducted often needs to be a multiple of $5. The military service deposit must be paid in full before an employee retires from federal service. After submission, your agency will provide an invoice detailing the amount due and outlining the available payment options. Once the deposit is paid in full, DFAS or your payroll office will issue a “Paid-in-Full” letter or receipt, which should be retained for your records and a copy provided to your benefits specialist. The entire process, from requesting earnings to receiving confirmation of payment, can take several months.

Integration into Federal Retirement Systems

Making a military service credit deposit significantly impacts an employee’s federal retirement by increasing their total years of creditable service. This increase in service time directly translates into a larger retirement annuity, or pension, as the annuity calculation is based on both years of service and the employee’s “high-3” average salary.

Beyond increasing the annuity amount, paid military service credit also helps employees meet the minimum service requirements for retirement eligibility. For FERS employees, a deposit is essential for military service to be credited for both retirement eligibility and the computation of their annuity. For CSRS employees, particularly those hired on or after October 1, 1982, making a deposit is crucial; without a deposit, post-1956 military service credit can be removed from the annuity calculation at age 62 if they become eligible for Social Security benefits, resulting in a reduction of their annuity. While the service credit adds to the years of service, it typically does not influence the “high-3” average salary calculation, which is determined by the highest average basic pay earned during any three consecutive years of civilian employment. The decision to make a military service deposit is generally considered financially advantageous, as it can also affect other benefits such as retirement eligibility dates, leave accrual rates, and Reduction in Force (RIF) standing.