PAYROLL OFFICE LETTER

U. S. Office of Personnel Management

Number: P-98-11 Date: November 20, 1998 

Subject: Conner Decision

 

This letter is to advise you of required payroll office actions as a consequence of a decision of the

United States Court of Appeals in Conner v. OPM. As a result of Conner, some employees are

erroneously covered by the Federal Employees Retirement System (FERS). You may already

have received general information about Conner under the cover of our Financial Management

Letter F-98-05; some of that is repeated here. 

In addition, you are strongly encouraged to refer to the Benefits Administration Letter (BAL) 98-

114 (dated November 3, 1998). This BAL provides an abundance of detailed guidance

concerning the effects of Conner. It is available on OPM’s web site at www.opm.gov/asd or from

your personnel officer. 

EFFECT OF CONNER

Conner requires a new rule be retroactively applied to all retirement coverage determinations

made on or after January 1, 1987: 

K Employees who were automatically placed under FERS, despite having completed five

years of creditable civilian service before 1987, have been placed in the wrong retirement

system.

K Most of these employees should have been placed under CSRS-Offset coverage, with a

right to elect FERS. Those employees in non-permanent positions excluded from CSRS

coverage should have been placed in Social Security only, with a right to elect FERS.
EMPLOYEE ELECTIONS

 

Most employees affected by Conner will be afforded an opportunity to:

K remain in FERS; or

K have his or her coverage corrected to CSRS Offset 

If the employee makes no election, he/she will be deemed to have elected FERS.

ELECTION OF CSRS OFFSET COVERAGE

If the employee elects to have his or her records corrected to CSRS Offset coverage, payroll

offices must:

K Correct the employee's payroll records to reflect CSRS Offset coverage retroactively to

the effective date stated on the SF 50. This is the effective date of the appointment or

conversion to appointment that placed the employee under FERS erroneously.

K Make the adjustment to the employee's Thrift Savings Plan account in accordance with

the regulations of the Federal Retirement Thrift Investment Board, at 5 CFR 1605.3.

K If the employee received basic pay that exceeded the maximum taxable wage base for

FICA, at any time he/she was covered by FERS, compute the additional agency

contributions due for CSRS Offset coverage and collect from the employee.

K Amend withholdings and contributions reported to OPM via the Retirement and

Insurance Transfer System (or, in now rare cases, the hard-copy SF 2812): 

 ̃ Report the actual amount of FERS deductions and agency contributions since the date

the error occurred as a negative.

 ̃ Report the amount of deductions and agency contributions that should have been made

for CSRS Offset coverage, since the effective date of the CSRS Offset appointment, as a

positive amount.

K Record the amount actually deducted for FERS as a negative on a separate line on the

SF 3100; the amount of cumulative deductions should be zero. Void the SF 3100 and

establish an SF 2806. The voided SF 3100 should not be sent to OPM until the

employee separates. For agencies that maintain manual retirement records, the SF 3100
should be updated and attached to the new SF 2806. The amount that should have been

deducted for CSRS coverage must be recorded on the SF 2806, with the amount

applicable to each year of service on a separate line.

K Compute the additional amount due and interest thereon under CSRS rules, if, while

under FERS, the employee made a deposit for military service or for nondeduction

civilian service performed before the erroneous coverage began. For a FERS military

deposit, the employee owes the difference between a CSRS military deposit at 7% and a

FERS military deposit at 3%. Deposit for nondeduction service performed prior to the

effective date of CSRS Offset coverage is computed under CSRS rules at 7% of earnings

rather than 1.3%. Give the employee credit for each FERS deposit payment made

during an interest accrual period before adding interest to the unpaid balance. In

addition, inform the employee of the corrected amount(s) due, and of his/her entitlement

to receive repayment of amounts already paid. If an employee chooses to have money

returned, send employee's written request to OPM's Retirement Operations Center and

identify it as an election made under the Conner decision. See Attachment 3 for example

of partially paid military deposit.

ELECTION OF SOCIAL SECURITY ONLY

If an employee elects to have his or her records corrected to Social Security only, payroll offices

must:

K Correct the employee's payroll records to reflect Social Security coverage only

retroactively to the effective date shown on the corrected SF 50. (That is, the effective

date of the appointment or conversion to appointment that placed the employee

erroneously under FERS rather than Social Security only). 

K Make the adjustments to the employee's Thrift Savings Plan account in accordance with

the regulations of the Federal Retirement Thrift Investment Board, at 5 CFR 1605.3.

K Amend withholdings and contributions reported to OPM via the Retirement and

Insurance Transfer System (or, in now rare cases, the hard-copy SF 2812): 

 ̃ Report the actual amount of FERS deductions and agency contributions since the date

the error occurred as a negative.

 ̃ Report the actual amount of any FERS military deposit as a negative. If the employee is

not covered by CSRS Offset or FERS, the military deposit is erroneous, because the

employee has no retirement coverage.

K Arrange for the return of all erroneous FERS deductions to the employee. 

 ̃ Withholdings. Refund erroneous FERS deductions to employee.
 ̃ Service Credit Deposits. Contact OPM's Retirement Operations Center if the employee

made a deposit for his/her nondeduction service or applied to make a service credit

payment. OPM will close out the employee's service credit account and refund any

service credit payment directly to the employee. 

 ̃ FERS Military Deposits. Refund erroneous FERS military deposits to employee. If a

military deposit was made when the employee was at a prior agency, contact OPM. It is

OPM that will refund the military deposit to the employee. Contact the Agency Services

Division on (202) 606-0788 at OPM for assistance.

K Void the employee's regular (civilian service retirement deductions) SF 3100. Where

applicable, also void the SF 3100 which documents the employee's FERS military

deposits.

ELECTION TO REMAIN IN FERS

If an employee elects to remain in FERS, payroll offices must:

K Post the employee's sick leave balance as of the effective date of deemed FERS election

to his or her individual retirement record in the same manner as in other FERS transfer

cases where the employee has a CSRS annuity component. (In most cases, the sick

leave balance will be the amount of recredited leave, if any).

K Make the adjustments to the employee's TSP account and submit lost earning records

for retroactive agency contributions in accordance with the regulations of the Federal

Retirement Thrift Investment Board at 5 CFR 1605.2. Note that FERS transfer

employees do not have to wait for the second open season to be eligible for TSP.

K Compute the additional amount due and interest thereon under CSRS rules, as modified

below, if the employee made a deposit under FERS rules for military service or

nondeduction service performed before the erroneous coverage began. 

K Military deposits. Although the employee has chosen to remain in FERS, he or she may

owe additional amounts for a post-1956 military deposit, if the military service will be

credited in the CSRS component of the employee's future retirement benefit. This is

because under FERS, the deposit is 3% of the military
basic pay, plus interest, versus CSRS, which requires a deposit equal to 7% of the military basic

pay, plus interest. If the military service forms part of a CSRS component, the employee owes an

additional 4% of military basic pay to complete the post-1956 military deposit. See example in

Attachment 3 of a partially paid military deposit.

 ̃ If the post-1956 military deposit has been paid in full, do not compute interest on the

additional 4% of military basic pay now needed to complete the deposit. Notify the

employee of the additional principal due and of the need to make the payment in order to

pay the deposit in full. 

 ̃ If the employee has made no post-1956 military deposit payments, recompute the

deposit amount and interest. Interest accrues on the entire amount of the employee's

post-1956 deposit beginning with the employee's initial Interest Accrual Date (IAD).

 ̃ If the post-1956 military deposit is partially paid, then interest on the additional deposit

amount accrues prospectively beginning with the employee's next IAD anniversary. Do

not recompute the deposit to include interest accrued from the employee's initial IAD.

K Service credit deposits. A deposit for nondeduction service performed prior to the

effective date of the deemed FERS election is computed under CSRS rules at 7% of

earnings rather than 1.3%. 

 ̃ If a deposit was fully paid under FERS rules, the employee owes only the additional

5.7% of earnings. No additional interest will be charged, but the payments must be

completed before retirement.

 ̃ If deposit was partially paid, interest on the additional 5.7% of earnings will accrue

prospectively.

 ̃ If no payments have been made, interest will accrue on the entire deposit under current

rules. (See Chapter 21 of the CSRS and FERS Handbook).

NOTE - these interest rules apply only in cases where the FERS regulations

implementing the 5-year test were incorrect. They do not apply to other deemed

FERS elections, where an employee can elect to remain in FERS because his or her

agency erred in placing the employee under FERS.

For your convenience, we have enclosed with this letter, historical information about FERS and CSRS Offset

withholding and contribution rates in Attachments 1 and 2. These rates are also found in Chapter 30,

"Employee Deductions and Agency Contributions" of the CSRS and FERS Handbook for Personnel and

Payroll Offices along with the employee and normal cost percentages for special category employees. 

INQUIRIES

The effects of Conner are complex and we encourage you discuss the specifics of the rule changes with your
personnel counterparts. If you or your staff have any questions on revised reporting requirements, please

contact us on (202) 606-0606, or send an email, finance@opm.gov.

Robert A. Yuran, Chief

Financial Policy Staff

Retirement and Insurance Service

Attachments (3)
ATTACHMENT 1

FERS WITHHOLDING AND CONTRIBUTION RATES

 ("Regular" Employees)

Date

FERS

Normal Cost

%

FERS

 Regular

Employee

Withholding 

Rate

 % 

FERS Agency

Contribution

Rate

 %

Payroll

Office

Letter

 #

01/01/87 16.10 1.30 14.80 86-14

10/01/87 13.80 1.30 12.50 87-11

01/01/88 13.80 .94 12.86 87-18

01/01/90 13.8 .80 13.0 89-11

10/01/91 13.7 .80 12.9 91-13

10/01/94 12.2 .80 11.4 94-4

10/01/97 11.5 .80 10.7 97-7
ATTACHMENT 2

CSRS OFFSET WITHHOLDING AND CONTRIBUTION RATES 

("Regular" Employees)

Year

CSRS Regular

Employee W/H

Rate 

% 

(Note 1)

Social Security

Contribution

& Benefit

Base

CSRS Agency 

Contribution

Rate 

%

(Notes 2 & 3)

1987 1.30 $43,800 7.0 

1988 .94 45,000 7.0 

1989 .94 48,000 7.0 

1990 .80 51,300 7.0 

1991 .80 53,400 7.0 

1992 .80 55,500 7.0 

1993 .80 57,600 7.0 

1994 .80 60,600 7.0 

1995 .80 61,200 7.0 

1996 .80 62,700 7.0 

1997 .80 65,400 7.0, 8.51 

1998 .80 68,400 8.51 

Notes:

1) CSRS-offset employees, whose year-to-date basic pay exceeds the Social Security

contribution and benefit base, are subject to the full CSRS employee withholding rate (7%

for regular employees).

2) Unlike FERS, the employing agency contribution rate for CSRS-offset employees is set

by statute and does not change as a result of changes in the OASDI deduction rate.

3) CSRS agency contribution increased to 8.51% on the first pay period beginning on or

after 10/1/97 under P.L. 105-33, "The Balanced Budget Act of 1997." (See Payroll Office

Number 97-10 for additional information).
ATTACHMENT 3

EXAMPLE -- PARTIALLY PAID MILITARY DEPOSIT

Military Basic Pay: $6430.00 $6430.00

Multiplied by 3% X .03 Multiplied by 7% X .07

$ 192.90 $ 450.10

FERS Deposit: $ 193.00 CSRS Deposit: $ 450.00

Additional Amount Due: $257.00 ($450 - $193.00)

Employee has been making payments, but deposit is not paid in full.

Initial IAD: January 1, 1990

On January 1, 1999, the employee's original post-1956 deposit amount increases by interest accrued

from January 1, 1998 through December 31, 1998. After increasing the original deposit by interest,

add the additional principal due ($257.00) to the unpaid post-1956 deposit balance. Interest

accrued on the additional principal ($257.00) will not be posted until the January 1, 2000 IAD

anniversary.