B-5660, SEPTEMBER 9, 1939, 19 COMP. GEN. 340

B-5660: Sep 9, 1939

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- A PERSON MAY NOT ELECT TO MAKE DEPOSITS IN THE RETIREMENT FUND TO COVER PERIODS OF SERVICE DURING WHICH HE WAS NOT WITHIN THE OPERATION OF THE CIVIL SERVICE RETIREMENT ACT. 1939: I HAVE YOUR LETTER OF AUGUST 18. SUCH INTEREST SHALL NOT BE INCLUDED FOR ANY PERIOD DURING WHICH THE EMPLOYEE WAS SEPARATED FROM THE SERVICE. NUMEROUS EMPLOYEES WILL AND HAVE BEEN IN THE PAST SEPARATED FROM THE SERVICE UNDER CONDITIONS ENTITLING THEM TO RETIREMENT ON AN ANNUITY WITHOUT HAVING MADE DEPOSIT IN THE RETIREMENT FUND TO COVER PERIODS OF SERVICE DURING WHICH THEY WERE NOT WITHIN THE OPERATION OF THE LAW. THE LARGE PERCENTAGE OF SUCH EMPLOYEES ARE FINANCIALLY UNABLE AT TIME OF RETIREMENT TO MAKE SUCH DEPOSIT.

B-5660, SEPTEMBER 9, 1939, 19 COMP. GEN. 340

RETIREMENT - CIVILIAN - DEPOSITS IN RETIREMENT FUND AFTER ADJUDICATION OF CLAIM FOR ANNUITY AFTER ADJUDICATION OF HIS CIVIL SERVICE RETIREMENT ANNUITY CLAIM--- BASED ON LENGTH OF SERVICE AND AMOUNT OF CREDIT IN THE RETIREMENT FUND "AT DATE OF RETIREMENT"--- A PERSON MAY NOT ELECT TO MAKE DEPOSITS IN THE RETIREMENT FUND TO COVER PERIODS OF SERVICE DURING WHICH HE WAS NOT WITHIN THE OPERATION OF THE CIVIL SERVICE RETIREMENT ACT, SUCH DEPOSITS BEING AUTHORIZED UNDER SECTION 9 OF THE SAID ACT, AS AMENDED, IN THE CASE OF "EMPLOYEES" ONLY, AS DISTINGUISHED FROM ANNUITANTS.

COMPTROLLER GENERAL BROWN TO THE PRESIDENT, UNITED STATES CIVIL SERVICE COMMISSION, SEPTEMBER 9, 1939:

I HAVE YOUR LETTER OF AUGUST 18, 1939, AS FOLLOWS:

SECTION 9 OF THE CIVIL SERVICE RETIREMENT ACT OF MAY 29, 1930 READS AS FOLLOWS:

"BEGINNING WITH THE EFFECTIVE DATE OF THIS ACT, ALL EMPLOYEES WHO MAY BE BROUGHT THEN OR THEREAFTER WITHIN THE PURVIEW OF THE ACT BY LEGISLATIVE ENACTMENT, OR BY APPOINTMENT, OR THROUGH CLASSIFICATION, OR BY TRANSFER, OR REINSTATEMENT, OR EXECUTIVE ORDER, OR OTHERWISE, SHALL BE REQUIRED TO DEPOSIT WITH THE TREASURER OF THE UNITED STATES TO THE CREDIT OF THE "CIVIL-SERVICE RETIREMENT AND DISABILITY FUND" A SUM EQUAL TO 2 1/2 PERCENTUM OF THE EMPLOYEE'S BASIC SALARY, PAY, OR COMPENSATION RECEIVED FOR SERVICES RENDERED AFTER JULY 31, 1920, AND PRIOR TO JULY 1, 1926, AND ALSO 3 1/2 PERCENTUM OF THE BASIC SALARY, PAY, OR COMPENSATION FOR SERVICES RENDERED FROM AND AFTER JULY 1, 1926, TOGETHER WITH INTEREST COMPUTED AT THE RATE OF 4 PERCENTUM PER ANNUM COMPOUNDED ON JUNE 30 OF EACH FISCAL YEAR, BUT SUCH INTEREST SHALL NOT BE INCLUDED FOR ANY PERIOD DURING WHICH THE EMPLOYEE WAS SEPARATED FROM THE SERVICE. ALL EMPLOYEES WHO MAY HEREAFTER BE BROUGHT WITHIN THE PURVIEW OF THIS ACT MAY ELECT TO MAKE SUCH DEPOSITS IN INSTALLMENTS DURING THE CONTINUANCE OF THEIR SERVICE IN SUCH AMOUNTS AND UNDER SUCH CONDITIONS AS MAY BE DETERMINED IN EACH INSTANCE BY THE COMMISSIONER OF PENSIONS. THE AMOUNT SO DEPOSITED, LESS $1 FOR EACH MONTH, OR MAJOR FRACTION THEREOF, OF SERVICE AFTER THE EFFECTIVE DATE OF THIS ACT, SHALL BE CREDITED TO THE EMPLOYEE'S INDIVIDUAL ACCOUNT, AS PROVIDED IN SECTION 12 (A) HEREOF. UPON MAKING SUCH DEPOSIT THE EMPLOYEE SHALL BE ENTITLED TO CREDIT FOR THE PERIOD OR PERIODS OF SERVICE INVOLVED: PROVIDED, THAT FAILURE TO MAKE SUCH DEPOSIT SHALL NOT DEPRIVE THE EMPLOYEE OF CREDIT FOR ANY PAST SERVICE RENDERED PRIOR TO AUGUST 1, 1920, TO WHICH HE OR SHE WOULD OTHERWISE BE ENTITLED.'

NUMEROUS EMPLOYEES WILL AND HAVE BEEN IN THE PAST SEPARATED FROM THE SERVICE UNDER CONDITIONS ENTITLING THEM TO RETIREMENT ON AN ANNUITY WITHOUT HAVING MADE DEPOSIT IN THE RETIREMENT FUND TO COVER PERIODS OF SERVICE DURING WHICH THEY WERE NOT WITHIN THE OPERATION OF THE LAW. THE LARGE PERCENTAGE OF SUCH EMPLOYEES ARE FINANCIALLY UNABLE AT TIME OF RETIREMENT TO MAKE SUCH DEPOSIT, AND THE PRACTICE IN SUCH CASES HAS BEEN TO PERMIT SUCH PAYMENT AT ANY TIME THEREAFTER PRIOR TO THE ANNUITANT'S DEATH WITH A CORRESPONDING INCREASE IN ANNUITY RATE EFFECTIVE AS OF THE DATE OF HIS RETIREMENT.

SUBSEQUENT TO HIS DATE OF RETIREMENT, MR. WILLIAM E. WESTON DEPOSITED IN THE RETIREMENT FUND THE SUM OF $12.36 TO COVER THE PERIOD, SEPTEMBER 1, 1921, TO MARCH 26, 1922, FOR THE PURPOSE OF SECURING ADDITIONAL CREDIT FOR THIS TIME. IN THE READJUDICATION OF THIS ANNUITY CLAIM IT DEVELOPED THAT NOTWITHSTANDING THE ADDITIONAL SERVICE CREDIT THE DEPOSIT HAD THE EFFECT OF REDUCING THE ANNUITY THERETOFORE ALLOWED BY REASON OF THE FACT THAT HIS HIGHEST AVERAGE SALARY FOR THE LAST 10 YEARS OF CREDITABLE SERVICE WAS MATERIALLY LOWERED BY THE INCLUSION OF THE PERIOD REFERRED TO. THE QUESTION AS TO WHETHER THE DEPOSIT COULD BE RETURNED TO MR. WESTON WAS PRESENTED TO THE DEPARTMENT OF THE INTERIOR, WHICH OFFICE WAS AT THAT TIME CHARGED WITH THE ADMINISTRATION OF THE RETIREMENT LAW, AND UNDER DATE OF OCTOBER 7, 1929, THE ASSISTANT SECRETARY OF THE INTERIOR HELD THAT THE AMOUNT INVOLVED COULD NOT BE RETURNED TO THE ANNUITANT. THE ASSISTANT SECRETARY FURTHER EXPRESSED THE OPINION,HOWEVER, THAT WHERE AN EMPLOYEE AT TIME OF RETIREMENT FAILS TO PURCHASE OPTIONAL SERVICE, THE ADJUSTMENT IN ANNUITY RATE SHOULD BE EFFECTIVE ONLY FROM THE DATE OF THE ADDITIONAL PAYMENT.

THIS DECISION WAS APPARENTLY CONSIDERED AS APPLYING ONLY TO CASES WHERE THE MAKING OF THE ADDITIONAL DEPOSIT WOULD RESULT IN A REDUCTION OF ANNUITY RATE, AND THE FORMER PRACTICE OF MAKING THE INCREASES IN ANNUITY UPON SUCH DEPOSIT RETROACTIVE TO DATE OF RETIREMENT WAS CONTINUED. IN THE EARLY PART OF THIS YEAR, HOWEVER, THIS QUESTION WAS RAISED IN THE ADJUDICATION OF CERTAIN ANNUITY CLAIMS, AND THE PRACTICE WAS INAUGURATED BY ALLOWING THE INCREASE IN ANNUITY ONLY FROM THE DATE THE SERVICE CREDIT WAS MADE. THIS ACTION APPEARS TO BE SUPPORTED BY THE DECISION OF COMPTROLLER GENERAL MCCARL RENDERED UNDER DATE OF MARCH 22, 1933, IN THE CASE OF PETER MASTERSON, IN WHICH HE HELD THAT AN ELECTION OR CHANGE OF ELECTION RELATIVE TO SURRENDER OF MILITARY PENSION FOR THE PURPOSE OF CREDITING THE MILITARY SERVICE FOR CIVIL RETIREMENT PURPOSES COULD BE MADE AT ANY TIME, BUT ANY SUCH CHANGE IN ELECTION COULD BE GIVEN ONLY PROSPECTIVE EFFECT.

THE ACT OF JUNE 23, 1938, AMENDED SECTION 9 OF THE ACT OF MAY 29, 1930, ONLY BY REDUCING THE PENALTY FOR FAILURE TO MAKE SERVICE CREDIT DEPOSIT BY DENYING ONLY THE ANNUITY PURCHASABLE BY SUCH DEPOSIT RATHER THAN DISALLOWING FULL CREDIT FOR THE SERVICE INVOLVED. IT IS NOT BELIEVED, THEREFORE, THAT THIS ACT WOULD AFFECT THE INTERPRETATION OF THE ORIGINAL SECTION 9.

IN CONNECTION WITH THE ABOVE, TWO QUESTIONS ARE PRESENTED FOR YOUR CONSIDERATION:

1. SINCE THE RETIREMENT LAW PROVIDES ONLY FOR THE MAKING OF SUCH DEPOSIT BY EMPLOYEES, MAY A PERSON AFTER THE ADJUDICATION OF HIS ANNUITY CLAIM ELECT TO MAKE SUCH DEPOSIT, OR IS THE EXERCISE OF SUCH ELECTION BARRED BY THE ACTION OF ADJUDICATION? SUCH ELECTION HAS BEEN PERMITTED THROUGHOUT THE ENTIRE OPERATION OF THE RETIREMENT LAW, AND THE ASSISTANT SECRETARY'S DECISION IN THE WESTON CASE, A COPY OF WHICH IS ENCLOSED, WOULD AUTHORIZE AND AFFIRM SUCH PROCEDURE.

2. IN CASE SUCH OPTION IS AVAILABLE TO SUCH ANNUITANT SHOULD THE ANNUITY RATE BE ADJUSTED AS OF THE DATE SUCH DEPOSIT IS MADE, OR AS OF THE EFFECTIVE DATE OF THE ORIGINAL ANNUITY AWARD?

YOUR DECISION ON THESE POINTS IS RESPECTFULLY REQUESTED.

THE ACT OF JUNE 23, 1938, 52 STAT. 943, PROVIDES AS FOLLOWS:

THAT SECTION 9 OF THE CIVIL SERVICE RETIREMENT ACT, APPROVED MAY 29, 1930, IS AMENDED BY STRIKING OUT THAT PORTION OF THE SECTION FOLLOWING THE PHRASE "AS PROVIDED IN SECTION 12 (A) HEREOF," AND INSERTING IN LIEU THEREOF THE FOLLOWING: "PROVIDED, THAT FAILURE TO MAKE SUCH DEPOSIT SHALL NOT DEPRIVE THE EMPLOYEE OF CREDIT FOR ANY PAST SERVICE RENDERED PRIOR TO AUGUST 1, 1920, TO WHICH HE OR SHE WOULD OTHERWISE BE ENTITLED: AND PROVIDED FURTHER, THAT, NOTWITHSTANDING THE FAILURE OF AN EMPLOYEE TO MAKE SUCH DEPOSIT, CREDIT SHALL BE ALLOWED FOR THE SERVICE RENDERED, BUT THE ANNUITY OF SUCH EMPLOYEE SHALL BE REDUCED BY THE AMOUNT SUCH DEPOSIT WOULD PURCHASE IF MADE, UNLESS THE EMPLOYEE SHALL ELECT TO ELIMINATE SUCH SERVICE ENTIRELY FROM CREDIT UNDER THIS ACT.'

IN DECISION OF AUGUST 22, 1939, B-5238, IT WAS STATED AS FOLLOWS:

UNDER THE SECOND PROVISO TO THE ACT OF JUNE 23, 1938, THE FAILURE OF AN EMPLOYEE, WHO OTHERWISE MEETS THE REQUIREMENT OF THE STATUTE AS TO AGE, ETC., TO MAKE DEPOSITS FOR PAST SERVICE FOR WHICH CURRENT DEDUCTIONS WERE NOT MADE DOES NOT APPEAR TO DEPRIVE THE EMPLOYEE OF LONGEVITY CREDIT FOR THE SERVICE IN COMPUTING PART (1) OF THE ANNUITY, BUT, OF COURSE, THE EMPLOYEE WOULD NOT BE ENTITLED TO HAVE PART (2) OF THE ANNUITY COMPUTED ON THE BASIS OF ANY AMOUNT HE HAS NOT DEPOSITED IN THE RETIREMENT FUND. HENCE, UNDER THE EXISTING LAW, PART (1) OF THE ANNUITY IS COMPUTED UPON THE LENGTH OF SERVICE REGARDLESS OF THE AMOUNT TO THE CREDIT OF THE EMPLOYEE IN THE RETIREMENT FUND, AND PART (2) UPON THE AMOUNT TO THE CREDIT OF THE EMPLOYEE IN THE RETIREMENT FUND REGARDLESS OF LENGTH OF SERVICE.

HENCE, UNDER THE PRESENT LAW THERE IS NOT THE SAME REASON FOR AN EMPLOYEE TO MAKE DEPOSITS FOR PAST SERVICE DURING WHICH CURRENT DEDUCTIONS WERE NOT MADE AS EXISTED WHEN THE ASSISTANT SECRETARY OF THE INTERIOR RENDERED HIS OPINION OF OCTOBER 7, 1929, CITED BY YOU, RECOGNIZING AN OPTION TO MAKE SUCH DEPOSITS EITHER BEFORE OR AFTER RETIREMENT--- PRIOR TO THE CITED 1938 STATUTE, THE MAKING OF DEPOSITS FOR PAST SERVICE BEING FOR THE PURPOSE OF OBTAINING SERVICE CREDIT WHEREAS SUBSEQUENT TO THE ACT SUCH DEPOSITS ARE ONLY FOR THE PURPOSE OF SECURING GREATER ANNUITY BENEFITS BASED UPON THE AMOUNT TO THE EMPLOYEE'S CREDIT IN THE RETIREMENT FUND.

HOWEVER THAT MAY BE, THERE SEEMS TO HAVE BEEN OVERLOOKED IN THE CITED OPINION OF THE ASSISTANT SECRETARY OF THE INTERIOR THE FACT THAT THE OPTIONAL PAYMENT OF RETIREMENT DEDUCTIONS FOR PAST SERVICE ALLOWED BY THE PROVISIONS OF SECTION 9 OF THE RETIREMENT ACT AS ORIGINALLY ENACTED AND AS AMENDED IS APPLICABLE ONLY TO "EMPLOYEES," THE TERM SPECIFICALLY USED IN THE STATUTE, AS DISTINGUISHED FROM ANNUITANTS. WHEN A CIVILIAN EMPLOYEE IS RETIRED AND IS IN RECEIPT OF A RETIREMENT ANNUITY HE CEASES TO BE AN EMPLOYEE FOR ANY PURPOSE, BUT IS AN ANNUITANT. THE AMOUNT OF THE ANNUITY IS PROPERLY FOR COMPUTATION UNDER THE TERMS OF SECTION 4 OF THE STATUTE UPON THE LENGTH OF SERVICE AND ON THE AMOUNT TO THE EMPLOYEE'S CREDIT IN THE RETIREMENT FUND AT DATE OF RETIREMENT. THE VIEW THAT THE EMPLOYEE'S SHARE OF THE ANNUITY IS FOR COMPUTATION UPON THE BASIS OF THE AMOUNT TO HIS CREDIT WHEN HE RETIRES- - OR AT LEAST WHEN HIS CLAIM IS ADJUDICATED AND PRIOR TO THE COMMENCEMENT OF THE ANNUITY--- IS STRENGTHENED BY THE PROVISIONS OF SECTION 12 (B) OF THE ACT THAT INTEREST IS NOT COMPUTED FOR PERIODS THE EMPLOYEE IS NOT IN THE SERVICE AND, ALSO, BY THE TERMS OF SECTION 10 OF THE ACT AS AMENDED BY THE ACT OF AUGUST 4, 1939, PUBLIC, NO. 263, EFFECTIVE JANUARY 1, 1940, AUTHORIZING VOLUNTARY DEPOSITS OF ADDITIONAL AMOUNTS IN THE RETIREMENT FUND AND PROVIDING THAT SUCH "AMOUNT TOGETHER WITH INTEREST THEREON AT 3 PERCENTUM PER ANNUM COMPOUNDED AS OF JUNE 30 OF EACH YEAR, SHALL, AT THE DATE OF HIS RETIREMENT, BE AVAILABLE TO PURCHASE," AN ANNUITY. ( ITALICS SUPPLIED.) THERE IS NOTHING IN THE DECISION OF MARCH 22, 1933, A-47575, CITED BY YOU, TO INDICATE OR SUPPORT ANY OTHER VIEW--- THAT DECISION IN NOWISE INVOLVING THE MATTER OF DEPOSITS FOR PAST SERVICE BUT ONLY THE QUESTION OF WHETHER AN EMPLOYEE WHO HAD RECEIVED A PENSION ON ACCOUNT OF MILITARY OR NAVAL SERVICE COULD WAIVE SUCH PENSION RETROACTIVELY FOR THE PURPOSE OF HAVING THE SERVICE FORMING THE BASIS OF THE PENSION CREDITED FOR ANNUITABLE PURPOSES UNDER THE CIVIL SERVICE RETIREMENT ACT.

IN ANSWER TO QUESTION 1, SUPRA, YOU ARE ADVISED THAT A PERSON MAY NOT, AFTER THE ADJUDICATION OF HIS ANNUITY CLAIM, ELECT TO MAKE THE DEPOSITS REFERRED TO, THE EXERCISE OF SUCH ELECTION BEING BARRED BY THE ACTION OF ADJUDICATION. THIS ANSWER TO QUESTION 1 MAKES ANY FURTHER ANSWER TO QUESTION 2 UNNECESSARY.