SOURCE: www.opm.gov
Service Credit is a program that allows employees to make payments into the Civil Service Retirement System (CSRS) or Federal Employees Retirement System (FERS) for certain periods of service during which they either did not contribute to the Civil Service Retirement and Disability Fund (i.e., deposit service), or for which they received a refund of their retirement contributions (i.e., redeposit service). In statutorily defined circumstances, an employee may make service credit deposits or redeposits, which include both principal and interest, to maximize the benefits he or she will receive upon retirement.
In July 2008, it was discovered that the system in place was not correctly calculating the amount of interest employees had to pay as part of their service credit deposits on a number of accounts. Interest on pre-October 1, 1982, deposits and redeposits under the Civil Service Retirement System (CSRS) is fixed at an annual rate of 3 percent and accrues daily. Interest on post October1, 1982, deposits and redeposits under both CSRS and the Federal Employees Retirement System (FERS) is variable and accrues annually. In some cases, interest was applied at the variable interest rates instead of the fixed 3 percent rate and in other cases the reverse happened. There were also some instances where interest was not charged at all for the year. Consequently, interest was either understated or overstated on many accounts.
So major aspects of the system were shut down to begin backup and contingency efforts, including providing manual calculations of deposit amounts upon request. Since the system was down so long, we also need to reconcile all the affected accounts, in essence turning back the clock and reapplying payments and recomputing the interest correctly, to bring the accounts current.
We are finalizing this effort now and are resuming normal operations. Accordingly, we are sending out letters and current statements to affected account holders, including anyone who had made a payment and did not get a receipt. Due to the length of time it took to adjust our system, we are providing those account holders with a one-time six month grace period in which to pay off their current balance without accruing additional interest. Because of the grace period, additional interest will not be assessed on active accounts from January 1, 2011 through June 30, 2011. If the account is not paid off during the grace period, interest will be charged on the balance that is effective on July 1, 2011.