FERS Military Deposit: 3 Critical Steps to Boost Your Pension

The short answer: A FERS military deposit lets a federal employee receive civilian pension credit for active-duty military service. According to OPM, the deposit is generally 3% of the military basic pay earned during that service, plus interest after a grace period.

What is a FERS military deposit, and why does it matter?

A FERS military deposit converts past active-duty service into creditable years toward a civilian federal pension. The Office of Personnel Management explains the basic rule for service performed after 1956. A deposit generally must be paid for that time to count. Without it, the years may not count toward two things. The first is eligibility for an annuity. The second is the size of that annuity.

• The deposit is generally 3% of military basic pay earned during the service period under FERS. This figure comes from OPM’s Service Credit page.
• A deposit is generally required for post-1956 military service to receive FERS credit, per OPM’s Creditable Service page.
• There is typically a two-year interest-free grace period. After that point, interest begins to accrue and compounds annually. This is described in OPM benefits-officer training materials.
• The deposit is generally made to the employing agency before separation, not directly to OPM, according to OPM guidance.
• Military basic pay excludes allowances such as combat pay and flight pay, per OPM’s deposit computation materials.

How much does a FERS military deposit usually cost?

The FERS deposit is 3% of the basic pay you earned during post-1956 active duty — not your current salary, and not including allowances such as housing or subsistence. That exclusion is why the figure is usually far smaller than people expect.

For the full calculation, a worked example weighed against the added pension, and the forms involved, see our guide to the 3% military basic pay deposit.

How does interest work on a FERS military deposit?

Interest generally does not begin immediately. According to OPM benefits-officer training, both CSRS and FERS provide a two-year interest-free grace period. Consider a FERS employee first employed on or after January 1, 1987. For that person, interest typically begins to accrue two years from a specific date. That date is when the employee was first hired into a position subject to FERS. After that point, interest is added once each year. It then compounds annually at a variable rate. The Treasury Department sets that rate.

This structure is one reason the timing of a FERS military deposit can matter. Paying within the interest-free window generally keeps the cost at roughly the base 3% figure. Waiting longer can produce a different result. In that case, interest may be layered on top of the original amount. The longer the delay, the more that added interest can grow.

How can a FERS military deposit boost a pension? A worked example

The pension impact comes from added years of service. OPM’s Computation page explains the basic FERS annuity formula. It is generally 1% of the high-3 average salary for each year of service. That figure rises to 1.1% per year in one situation. It applies to those who separate at age 62 or older with at least 20 years of service.

Consider a hypothetical employee with a high-3 average salary of $90,000. Suppose this person served four years on active duty. Each creditable year would generally add 1% of $90,000. That works out to about $900 per year of annuity. Four bought-back years could therefore add roughly $3,600 per year. That amount is paid for life. Now suppose the same employee qualifies for the 1.1% multiplier. In that case, the per-year figure would be closer to $990. The four years would then add about $3,960 annually.

Over a long retirement, those amounts can accumulate substantially. This is one reason many federal employees with prior service take a closer look at the option. They want to know whether a FERS military deposit makes sense for their situation. The actual figures depend on several personal factors. These include individual salary history, length of service, and retirement age. Because of that variation, a personalized estimate is often useful. A benefits counselor is generally the most reliable guide.

When does a FERS military deposit usually need to be completed?

The deposit generally must be completed before the employee separates from federal service. OPM’s Service Credit page addresses the post-1956 military service deposit. It is paid to the employing agency. It must also be made before the person stops working for the government.

OPM also notes how the application process typically begins. The first step is Standard Form 3108, the Application to Make Service Credit Payment. The form is submitted through the employing agency. Payments may often be made in a lump sum or in installments. A deposit completed at the time of retirement, however, generally must be paid as a lump sum.

How do you start a FERS military deposit, and what documents are involved?

The process usually unfolds in a few steps through the employing agency. As OPM describes, the request begins with Standard Form 3108. That form is the Application to Make Service Credit Payment. It tells the agency that the employee wants to pay for the post-1956 service.

One key piece of supporting information is an estimate of the military basic pay earned during the service. This estimate helps the agency calculate the deposit. Recall that the FERS military deposit is generally 3% of that basic pay. The agency then applies the correct rate for each year of service. It also accounts for any interest that may have accrued after the two-year interest-free period.

Proof of the active-duty service itself is generally needed as well. A military discharge document, such as a DD-214, commonly serves this purpose. Together, the earnings estimate and the service record give the agency what it needs to compute the amount. Procedures can vary by agency. Confirming the exact paperwork with a servicing personnel office is generally a sensible first move.

FAQ

Is a FERS military deposit required to get credit for military service?

For active-duty service performed after 1956, a deposit is generally required. The time must be paid for to count toward a FERS annuity, according to OPM. Service performed before 1957 is generally creditable without a deposit.

How is the FERS military deposit amount calculated?

It is generally calculated as 3% of the military basic pay earned during the service, plus any applicable interest. OPM notes that basic pay excludes allowances such as combat pay and flight pay.

What is the interest-free grace period?

OPM training materials describe a two-year interest-free period. For FERS employees, interest generally begins to accrue two years from a specific date. That date is when the employee was first hired into a position subject to FERS. After that, it compounds annually.

Who do I pay the FERS military deposit to?

The deposit is generally paid to the employing agency rather than directly to OPM. The process typically starts with Standard Form 3108. That form is submitted through the agency, according to OPM.

Does buying back military time always increase the pension?

Added creditable years generally increase the annuity under the FERS formula. Individual circumstances, however, can vary. Some people have a CSRS component or eligibility for certain Social Security benefits. They may face different rules. OPM therefore suggests reviewing the specifics with a servicing personnel office.

Can I make the FERS military deposit in installments?

OPM materials indicate that payments may often be made in a lump sum or in installments. Installment payments are commonly required to be at least $50. A deposit made at retirement, though, generally must be paid in a lump sum.

Understanding how a FERS military deposit fits into a broader retirement picture can feel complex. This is especially true when prior military service is involved. Fed Pilot, a woman-owned small business, offers free educational workshops for federal employees. These sessions walk through topics like creditable service, pension computation, and the retirement application process. You can register for a free workshop to learn more. The setting is no-pressure and informational.

For related reading, you may find these Fed Pilot guides helpful. One is a walkthrough of the OPM retirement application (SF 3107). Another is an explanation of the FERS 1.1% multiplier for those retiring at 62 with 20+ years. A third is an overview of how part-time service affects FERS pension pro-ration.