Civil Service 

Retirement 

System 

Federal Employees’ 

Group Life 

Insurance Program 

Federal Employees 

Health Benefits 

Program 

Federal Employees 

Retirement 

System 

Long Term 

Care Insurance 

Program 

United States 

Office of 

Personnel Management 

The Federal Government’s Human Resources Agency

Retirement and Insurance Service 

Benefits Administration Letter 

Number: 03-102 Date: January 22, 2003 

Subject: Crediting Service with a DoD or Coast Guard Nonappropriated Fund 

Instrumentality for CSRS or FERS Immediate Retirement Under Public Law 

107-107, the National Defense Authorization Act for Fiscal Year 2002

Section 1132 of the National Defense Authorization Act for Fiscal Year 2002, Public Law 107-

107, changed how service with a Department of Defense (DoD) or Coast Guard 

Nonappropriated Fund (NAF) Instrumentality is credited under the Civil Service Retirement 

System (CSRS) and the Federal Employees Retirement System (FERS). Section 1132 gives 

CSRS and FERS employees the opportunity to elect to credit DoD or Coast Guard NAF service 

for the sole purpose of establishing eligibility for immediate retirement benefits. In this Benefits 

Administration Letter (BAL), we describe how employees make an election to credit NAF service 

to qualify for immediate retirement, and we describe how to compute the retirement annuity 

when employees make such an election. 

Who can elect to credit their NAF service to qualify for immediate CSRS or FERS 

retirement under Public Law 107-107? 

CSRS, CSRS Offset, and FERS employees may elect to credit NAF service to qualify for 

immediate retirement provided: 

 they have at least 5 years of creditable non-NAF civilian service and qualify for a deferred 

retirement, and 

 they do not already qualify for an immediate retirement based on their non-NAF service. 

Attachment 1 of this BAL provides examples describing situations where employees are eligible 

to elect NAF service to qualify for immediate retirement as well as situations where employees 

are not eligible to make that election. 

What type of NAF service can employees use to qualify for CSRS or FERS immediate 

retirement under Public Law 107-107? 

Employees can use any service with a DoD or Coast Guard NAF component that is not already 

creditable for CSRS or FERS retirement under other provisions of law. This includes service 

covered by a NAF retirement plan as well as service not covered by a NAF retirement plan. 

FERS employees may even elect to credit NAF service performed after 1988. However, NAF 

service used to qualify for CSRS or FERS immediate retirement cannot be used to qualify for, or 

increase the amount of, a NAF retirement benefit. 
2

(Chapter 20, Part 20A2 of The CSRS and FERS Handbook for Personnel and Payroll Offices 

and BAL 96-108, dated September 6, 1996, describe when NAF service can be credited under 

CSRS and FERS under other provisions of law.) 

Do employees have to elect to credit all of their NAF service if they only need a few years 

of NAF service to qualify for CSRS or FERS immediate retirement? 

Employees must elect complete periods of service with an NAF employer. For example, a 

CSRS employee who worked 6 straight years under a covered appointment for a DoD NAF 

must elect to credit the entire 6 years even if the employee only needs 2 years of service to 

qualify for a CSRS immediate retirement. 

A complete period of service with an NAF employer is the period from the date of appointment 

to the date of separation. If an employee moves directly from an NAF appointment excluded 

from NAF retirement coverage to an appointment subject to NAF retirement coverage with the 

same NAF employer, the move from non-covered employment to covered employment is 

considered to be a separation. For example, a CSRS employee needs 2 years of service to 

qualify for an immediate CSRS retirement. The employee had worked for an NAF for 6 straight 

years – 2 years under an appointment excluded from NAF retirement coverage and 4 years 

under an appointment covered by an NAF retirement plan. The 2 years of NAF service not 

subject to NAF retirement coverage is considered a complete period of service, and the 

employee may elect to credit only that 2 years of NAF service for CSRS retirement purposes. 

Do employees have to pay a deposit for the NAF service used to qualify for CSRS or 

FERS immediate retirement, or do NAF deductions covering the service need to be 

transferred to the CSRS or FERS retirement fund? 

Employees cannot pay CSRS or FERS deposits to cover the NAF service, and NAF retirement 

deductions withheld for any of the NAF service cannot be transferred to the CSRS or FERS 

retirement fund. Instead, the annuity will be computed with an actuarial reduction to offset the 

additional cost to the retirement fund resulting from the employee using NAF service to qualify 

for immediate retirement. 

If an employee elects to use NAF service to qualify for an immediate CSRS or FERS 

retirement, will that service also be used to increase the amount of the retirement 

annuity? 

No. CSRS and FERS employees may only elect to credit NAF service for the sole purpose of 

establishing eligibility for immediate retirement benefits. Public Law 107-107 requires that the 

crediting of NAF service not result in a long term cost to the retirement fund. Therefore, NAF 

service cannot be used to increase the amount of CSRS or FERS retirement benefits. 

The annuity of an employee electing to credit NAF service to qualify for immediate retirement 

must be reduced so that it equals the present value of the deferred annuity that would be 

payable to the employee assuming the employee: 

 separated from service on the actual date of retirement; and 

 elected not to credit the NAF service to qualify for immediate retirement.

In Attachment 2, we explain in detail how to compute the annuity of an employee who elects to 

credit NAF service to qualify for immediate CSRS or FERS retirement. 

FERS employees electing to use NAF service to qualify for immediate retirement are not eligible 

for the FERS retirement supplement. 
3

When do employees need to make their election to use NAF service to qualify for 

immediate CSRS or FERS retirement? 

Employees should wait until they have decided to retire to make their election. Agency Benefits 

Offices should provide the employees with the NAF service credit election form (Attachment 3) 

along with the rest of the retirement application package. Employees should complete Part 2 of 

the election form and return it with their retirement package to their Benefits Office. 

What else do employees need to know about electing to use NAF service to qualify for 

immediate CSRS or FERS retirement? 

It is important for employees to consider not only the amount of the retirement benefit they 

would receive by using NAF service to retire, but also the amount of benefits they could receive 

by continuing to work until they qualify for retirement without using NAF service. So, before 

deciding they want to use NAF service to qualify for immediate retirement, employees should 

contact their agency’s Benefits Office for assistance. Benefits Office staff will compute annuity 

estimates allowing employees to compare the amount of the benefit they would receive if they 

use NAF service to retire to the benefit they would receive if they continued to work until they 

qualified for immediate retirement without using NAF service. 

Benefits Office staff will also obtain proper verification of the NAF service from the appropriate 

NAF employer(s). This verification will include information about whether or not the employee 

will have to give up any NAF benefit in order to credit the NAF service to qualify for CSRS or 

FERS retirement. That information is another factor employees should consider before electing 

to use NAF service to retire under CSRS or FERS. 

If an employee eligible to elect to use NAF service to qualify for immediate retirement 

simply leaves Federal service without submitting a retirement application and without 

electing to credit NAF service, can the individual submit a retirement application and 

make the NAF election after she or he leaves the Government? 

Employees who simply separate from the Government without electing to use NAF service to 

qualify for immediate retirement are not allowed to make that election and submit an application 

for immediate retirement after they separate. 

What do agency Benefits Offices need to do to help employees who want to use NAF 

service to qualify for immediate CSRS or FERS retirement? 

Agency Benefits Offices need to: 

 tell the employee how much NAF service is needed to qualify for immediate retirement; 

 contact the appropriate NAF employer(s) to obtain verification of all NAF service the 

employee wants to use to qualify for immediate retirement (remember, employees must 

elect complete periods of service); 

 compute an annuity estimate following instructions in Attachment 2 to show the employee 

how much the annuity will be if the employee uses NAF service to qualify for immediate 

retirement; 

 compute an additional annuity estimate to show the employee how much the annuity will be 

if the employee continues to work until he or she qualifies for an immediate retirement 

without using NAF service (or if the employee does not have the option to continue working, 

compute a deferred retirement annuity estimate without credit for NAF service); and 

 complete part 1 of the NAF service credit election form and then give the form to the 

employee. 

We’ve included a model letter agency Benefits Offices can use to request verification of NAF 

service, along with the addresses of the NAF employers in Attachment 4. 
4

What additional documentation do agency Benefits Offices need to include with the 

retirement application package when an employee uses NAF service to qualify for 

immediate retirement? 

In addition to the employee’s election to use NAF service to qualify for immediate retirement, the 

agency Benefits Office should include the verification of NAF service it obtained from the NAF 

employer(s) and the flag contained in Attachment 5. 

When OPM receives the case, it will not routinely authorize interim payments to the retiree. 

Because these cases require a special computation, OPM must be careful in authorizing interim 

payments to ensure that retirees are not overpaid annuity. 

Some agencies participate in OPM’s automated front end processing program where they send 

OPM certain retiree information via computer tape along with the retirement package. OPM 

automatically authorizes interim payments to the retiree as soon as it receives the computer 

tape. If your agency participates in the front end processing program, we ask that you do not 

send the retiree information via computer tape for any employee who uses NAF service to 

qualify for immediate retirement. Simply attach the flag in Attachment 5 to the actual retirement 

package and OPM will take appropriate action to authorize annuity payments once it receives 

the package. 

Should the agency Benefits Office alert the appropriate NAF employer(s) that the 

employee elected to use NAF service to qualify for CSRS or FERS immediate retirement? 

Yes, the Benefits Office should forward a copy of the employee’s election to the appropriate 

NAF employer(s), using the same address (or addresses) they used to request verification of 

NAF service, so the NAF system will know not to credit that service in a NAF benefit. 

 

 Mary Ellen Wilson, Director 

 Retirement Policy Center 

 Retirement and Insurance Service 

Attachments 

1. EXAMPLES: WHO CAN ELECT TO USE NAF SERVICE TO QUALIFY FOR CSRS OR FERS

IMMEDIATE RETIREMENT AND WHO CAN’T

2. COMPUTING ANNUITY ESTIMATES WHEN NAF SERVICE IS USED TO QUALIFY FOR IMMEDIATE 

RETIREMENT UNDER SECTION 1132 OF PUBLIC LAW 107-107 

3. ELECTION TO USE NONAPPROPRIATED FUND (NAF) SERVICE TO QUALIFY FOR IMMEDIATE 

RETIREMENT UNDER THE CIVIL SERVICE RETIREMENT SYSTEM (CSRS) OR THE FEDERAL 

EMPLOYEES RETIREMENT SYSTEM (FERS) IN ACCORDANCE WITH 5 U.S.C. 8331(B)(17) AND 

8411(B)(6) 

4. MODEL REQUEST FOR VERIFICATION OF NAF SERVICE, NAMES AND ADDRESSES OF NAF

EMPLOYERS, AND VERIFICATION OF NAF SERVICE FORM

5. NAF SERVICE CREDIT FLAG

6. CHARTS NEEDED TO COMPUTE THE ANNUITY WHEN NAF SERVICE IS USED TO QUALIFY FOR 

IMMEDIATE RETIREMENT