Plan Ahead: The Process and Pitfalls of Buying Back Your Military Time – Mason Veterans and Servicemembers Legal Clinic

Written By Spring 2022 M-VETS Student Advisor Stuart Cerutti.

For many United States Servicemembers, their commitment to this this nation does not stop at the end of their military career. Many service members continue their commitment to the United States by acting in different role within the United States Federal Government.[1] The transition from the military to the federal sector can be difficult in terms of financial planning for retirement. Thankfully, there are programs in place to help former servicemembers connect their eligible military time to their federal employment time for retirement purposes. This article provides information about the military buyback program (“MBP”), provides recommendations on submitting a successful buyback application to the Defense Finance and Accounting Service for the U.S. Department of Defense (“DFAS”), and highlights common misunderstandings among former servicemembers applying for this benefit.

What is “buying back” military time through DFAS?

The process of buying back military time starts with the concept of a military service deposit (“MSD”).[2] A MSD is a “payment made to the civilian retirement fund to allow creditable military service to be used toward retirement eligibility and in annuity computations.”[3] Essentially, this means the MBP exists to allow former active duty military, reservists, and guardsmen, under certain circumstances, to use their military time to increase their government service time.[4] This in theory can increase a former servicemembers retirement pay.[5] However, in order to receive this benefit, the applicant must pay the deposit to DFAS prior to the date of retirement.[6] To be completely clear, this means that payment cannot be made to the Office of Personnel Management (“OPM”) or to DFAS after the date of retirement.

Understanding the buyback process.

As a preface, the process of buying back military can be complex depending on your history in the military. This means that an applicant should plan accordingly if they wish to buy back military time in order to avoid missing the opportunity. While the time to process applications can vary, the amount of time needed to gather supporting documents can take even more time.

Therefore, step zero in the process is for an applicant to determine if buying back their military time is worth it financially. There are a couple of benefits that come with buying back military time, but it comes at a cost. First, let’s start with the benefits. In general, buying back military time can let an applicant do two things: first, it can allow the applicant to retire earlier than expected and second it can increase an applicant’s federal pension based on the number of years of service.[7] This sounds great on paper, but every applicant’s financial situation is different. Buying back time will cost an applicant based on a varying percentage of an applicant’s military base pay plus interest calculated over time.[8]

In order to apply an applicant must first display proof of an Honorable Discharge from the military.[9] This is just the preliminary step as OPM cannot calculate your estimated earnings during the time of service without proof of military service.[10] Therefore, an applicant should plan ahead and obtain a copy of a DD form 214 that displays their Honorable Discharge.[11] If you do not have a copy of your DD form 214, it can be requested through the National Personnel Records Center using a Standard Form 180 (“SF-180”).[12] According to OPM, there are other ways to verify your service but all documents used to verify service must include five pieces of information: your rank, type of service under Title 10, your character of discharge, your amount of lost time (non-active duty time), and the beginning/end dates of your service.[13]

Once you have obtained proof of service, make sure to gather documents relating to your pay and any promotions that you received. These documents will be used to complete an Estimated Earnings During Military Service Request Form, (“RI 20-97”).[14] This form requires proof of service, as mentioned above, to be attached as supporting documentation.[15] The information in the form is used by DFAS and OPM to assist in calculating an estimate of your earnings or base pay.[16] OPM has made it clear that their calculation is based on information submitted to them.[17] This means that OPM will only provide an estimate on the earnings during eligible service periods that are visible to them.[18]

If an applicant wants to receive an actual dollar amount of base pay earnings during an eligible time period, then the applicant must provide all leave and earning statements for each month and year requested.[19] Please note that an applicant must submit a separate RI 20-97 form for each branch of service if the applicant has served under multiple branches.[20] Once this information is received, an applicant’s estimated military earnings computation will be sent from the DFAS through the mail back to the applicant.[21]

The next step in the application process requires cooperation with human resource officers to complete an application based on the employment and the retirement system the applicant is paying into.[22] Again, be proactive and plan ahead to ensure your human resource officer can assist you in completing the Application to Make Service Credit Payment (“SF 3108”) if you are paying into the Federal Employees Retirement System (“FERS”).[23] If you are paying into the Civil Service Retirement System (“CSRS”) as an employee, fill out the Application to Make Deposit or Redeposit (“SF 2803”).[24]

After consultation with your human resources officer, be sure to send your estimated earnings statement (mailed back to you from DFAS), DD 214 (proof of service), and SF 2803 or SF 3108 to your human resources office.[25] Based on these forms and supporting documents, your human resources office will contact your payroll office and give their estimate of the deposit amount due.[26] This also certifies that your application information is correct.[27]

Next the payroll office will finalize the amount owed, send an invoice to you by mail detailing the amount owed, and send you instructions to make the payment.[28] This payment can be made at pay.gov, and yes, payments made through an amazon account are considered an accepted payment method.[29] If this sounds too complicated, don’t worry, many other traditional payment methods are accepted including PayPal, debit, credit, or check.[30]

Common areas of confusion and important limitations.

To begin, all applicants must understand that reservist or guardsmen time does not count toward the MBP unless the applicant was called to active duty.[31] This means drill weekends for individuals in the reserves do not count towards the program.[32] This is where proof of service is essential. Therefore, an applicant should provide copies of orders calling them to active duty or a DD form 214 that reflects Honorable Service and active-duty time to demonstrate eligibility.

Sometimes estimates of base pay earnings can differ and an applicant might have differing calculations for the same time period. According to OPM if “both estimates are signed by an authorized individual and processed according to local guidance at the time, you may choose the earnings that are most beneficial to the member.”[33] OPM also tells applicants if they are unsure about which estimate to use to take the most recent estimate.[34] This will not always be the most beneficial you, so be sure to talk with your human resource office to understand the benefits or each estimate.

As previously mentioned, many individuals need to decide whether or not the purchase of their military time this is smart financial decision. Fortunately, DFAS has a military service earnings/buyback estimator tool.[35] This tool is incredibly useful as an official estimate of earnings can take upwards of 12 weeks.[36]

As a general tip, during any period of active duty or military service be sure to document payment and service dates especially if you are a reservist who receives orders for active duty. If you are planning on buying back your military time, having access to dates of service readily available is a great head start in order to accurately calculate the periods of service required by SF 2803 and SF 3108 forms.[37]

Next, as soon as you make the decision to buy back your military time, do it as quickly as possible. This is because interest rates continually add up the longer you wait to buy back your military time.[38] Furthermore, there is a grace period of two years from the day an individual starts as federal job to buy back military time without any interest.[39] Additionally, interest isn’t calculated until after the grace period is over, so practically speaking most individuals will have a three-year grace period of no interest to buy back their time.[40]

Finally, some applicants buying back their military time might already be receiving compensation in the form of a military retirement. Be aware that current policy does not allow a person to receive their military retirement and buy back their military time.[41] What this means is an applicant must pick between adding their military time to their federal employment time for the purposes of retirement or continue to receive military retirement payments.

Conclusion

In conclusion, the choice to buy back military time will vary based on an individual’s financial situation. The administrative process to buyback time will not happen overnight so plan ahead. Use the tools provided to you by DFAS to make the decision as early as possible which will help you avoid missing out on the opportunity to receive this benefit and can potentially lower your cost based on interest rates. Further, take advantage of grace periods without interest to buy back time. Next, gather supporting documentation for your military service as soon as possible to streamline your application. If there is an issue with the characterization of your discharge, make sure you attempt to correct this as soon as possible to avoid delays. Finally, make sure you do not inadvertently loose your military retirement in favor of combining your military service with federal retirement plans. This is a decision that will require a personalized examination of your finances, be proactive and make the choice that can afford you the greatest benefits.

[1] See, https://hawsfederaladvisors.com/buying-back-military-time-the-ultimate-guide/ (finding that 30% of federal employees have some type of military time).

[2] https://www.usgs.gov/human-capital/military-service-deposits

[3] Id.

[4] Id.

[5] See, https://hawsfederaladvisors.com/buying-back-military-time-the-ultimate-guide/

[6] See, https://www.dfas.mil/CivilianEmployees/militaryservice/militaryservicedeposits/

[7] https://hawsfederaladvisors.com/buying-back-military-time-the-ultimate-guide/

[8] Id.

[9] https://www.dfas.mil/civilianemployees/militaryservice/militaryservicedeposits/

[10] https://www.opm.gov/forms/pdf_fill/RI20-97.pdf

[11] See, https://www.dfas.mil/civilianemployees/militaryservice/militaryservicedeposits/

[12] Id. (National Personnel Records Center, Military Personnel Records, 9700 Page Avenue, St. Louis, MO 63132-5100).