Federal Employees Retirement SystemCoverage

SUMMARY: The Office of Personnel Management (OPM) is issuing final

regulations concerning exclusions from coverage under the Federal

Employees Retirement System (FERS) for employees who have at least 5

years of service creditable under the Civil Service Retirement System

(CSRS). These regulations clarify the existing regulations to

specifically state the requirement that, if the employee has a break in

service ending after 1986, the employee's past service must include

some service covered by CSRS to be excluded from automatic FERS

coverage. The regulations are necessary to clarify the current

regulations and to conform to OPM's guidance since implementation of

FERS.

EFFECTIVE DATE: January 13, 1995.

FOR FURTHER INFORMATION CONTACT: Harold L. Siegelman, (202) 606-0299.

SUPPLEMENTARY INFORMATION: On July 28, 1994, OPM published (at 59 FR

38376) proposed regulations and requested comments concerning

exclusions from coverage under the Federal Employees Retirement System

(FERS) for employees who have at least 5 years of service creditable

under the Civil Service Retirement System (CSRS). We received one

comment on the proposed regulations.

The commenter disagreed with our interpretation of section

8402(b)(2) of title 5, United States Code. Section 8402(b) of title 5,

United States Code, establishes the statutory exclusions from automatic

coverage under FERS.

1. OPM's Interpretation of the Statute

Section 8402(b)(2) of title 5, United States Code, provides two

sets of exclusions from automatic FERS coverage. These exclusions are

ambiguous in that they can be read to overlap or to be mutually

exclusive. OPM, as the agency charged with the administration of these

provisions, adopted the interpretation that the exclusions were

mutually exclusive. This decision was contemporaneous with the statute

and made by the same administrators involved with enactment of the

statute. The courts have determined that such agency interpretations

are entitled to great deference.

The effect of OPM's determination that the exclusions in section

8402(b)(2) are mutually exclusive is that--

Subparagraph (A) applies to all employees who reenter service on

or after January 1, 1987 (the general effective date of the FERS Act

of 1986) after a break in service; and

Subparagraph (B) applies only to employees not covered by

subparagraph (A), specifically, employees who have served

continuously since December 31, 1986.

2. The Change in Regulatory Text Makes No Substantive Change

OPM has applied this approach to the exclusions since the inception

of FERS. On pages 16 and 17 of the September 1986 edition of the FERS

pamphlet RI 90-1, OPM provided information about enrolling in FERS. In

describing the options available to ``employees in the interim plan,''

those with continuous service who had both CSRS and Social Security, it

simply states:

If you have five years of creditable civilian service by

December 31, 1986, then you remain under CSRS and Social Security *

* *. You can elect to transfer to FERS.

In describing the options available to ``rehires,'' the pamphlet states

the requirement of some prior covered service to avoid automatic FERS

coverage, in addition to the 5-years-of-service requirement.

Installment 1 of the CSRS & FERS Handbook for Personnel and Payroll

Offices (formerly FPM Supplement 830-1) clearly states OPM's

interpretation. Section 10A1.1-2I.2 explains the ``5-Year Test'' for

determining whether an employee being rehired, transferred, or

converted is automatically covered by FERS. It states--

If there is no break in service of more than 3 days ending after

December 31, 1986, the 5-year test is met if the employee had 5

years of creditable civilian service as of December 31, 1986 * * *.

If the employee has had a break in service of more than 3 days

ending after 1986, the 5-year test is met if the employee had any

amount of past coverage under CSRS * * * and also had 5 years of

creditable civilian service as of the break in service. (At 3.)

The examples include--

(c) Rehires on or after January 1, 1987, who had 5 or more years

of creditable civilian service on the date of separation from last

Federal employment AND had some prior coverage under CSRS * * * are

excluded from automatic FERS coverage. [Emphasis in original.] (Id.;

cf. example (d) at p. 4.)

In proposing to change our regulatory language implementing

paragraph (b)(2) of section 8402, we were merely clarifying the

language to state our original, contemporaneous, and continuing

interpretation of the controlling statute, by specifically stating the

requirement that, if the employee has a break in service ending after

1986, the employee's past service must include some service covered by

CSRS to be excluded from automatic FERS coverage.

3. Commenter's Arguments Conflict With Congress' Use of Language in

This Area of the Law

The commenter argues that the proper distinction between

subparagraphs (A) and (B) is that subparagraph (A) applies to

reemployed annuitants. He argues that the language in subparagraph

(A)(i), ``having been subject to [CSRS],'' refers to an annuitant who

has been reemployed, not to a coverage requirement. Service ``subject

to (CSRS)'' is a term of art for service covered by CSRS (i.e., subject

to deductions). Congress has used ``subject to this Act,'' and later

``subject to subchapter III'' language as requiring coverage since at

least Public Law 83-730, enacted August 31, 1954. The Commenter's

suggestion that this language suddenly has another meaning cannot

reasonably be read in that manner. Current CSRS law retains this

convention in section 8333(b) of title 5, United States Code, uses the

same ``is subject to (CSRS)'' to create the coverage requirement for

CSRS annuities. The commenter's suggestion that this language suddenly

has another meaning is unreasonable considering the history of this

phrase.

Furthermore, the commenter's suggestion that the language refers to

reemployed CSRS annuitants is not even consistent with the manner in

which such persons are described elsewhere in the FERS Act. Section

302(a)(12)(A) of the FERS Act uses the narrower language ``is subject

to section 8344 of title 5, United States Code'' to describe a

reemployed CSRS annuitant. (Pub. L. 99-336, 100 Stat. 514, 604.)

Similarly, sections 8344 (CSRS) and 8468 (FERS) of title 5, United

States Code, use the language ``an annuitant * * * becomes reemployed''

to refer to a reemployed annuitant.

The commenter also quoted a paragraph from the House Conference

Report that he claims supports his view that the two subparagraphs

cannot be mutually exclusive. That paragraph states:

The conferees agreed that individuals with at least 5 years

creditable service in CSRS, who return after more than a one year

break in service, should retain entitlement to CSRS benefits unless

they elect to be covered by FERS benefits. (H. Conf. Rept. No. 99-

606, May 16, 1986, p. 43, reprinted in 1986 U.S. Code Cong. and

Admin. News 1405, 1526.)

Since persons who have performed no covered CSRS service have no

``entitlement to CSRS benefits'' to be ``retained,'' we do not see how

this language supports the commenter's argument. The passage is not

inconsistent with OPM's interpretation of section 8402(b). On the

contrary, the House Conference Report contains language supporting

OPM's interpretation. In the discussion of FERS coverage the report

states:

The conference agreement adopts the Senate provisions with

modifications. Similar to the House committee bill, rehired

employees with 5 years or more prior service subject to CSRS retain

coverage under a revised CSRS. (Emphasis added.) (Ibid. Rept. at

126, reprinted at 1509.)

We again point out that the ``subject to CSRS'' language is a long-used

term of art for the coverage requirement.

The commenter also quotes a passage from the Report of Senate

Governmental Affairs Committee on the Senate version of the bill that

became the FERS Act. The ``subsection (a)(3)'' mentioned in this

passage refers to a transfer provision in the Senate bill that was not

enacted, and does not refer to a ``subsection (a)(3)'' anywhere in

chapter 84 of title 5, United States Code, or in Title III of the FERS

Act. The passage states:

Subsection (a)(3) provides that an individual electing to

transfer to [FERS], who becomes an employee or Member after a break

in service for a period including January 1, 1987, retains any

rights to make deposits for service under CSRS, prior to that date.

(S. Rept. No. 99-116, October 30, 1985, p. 70, reprinted in 1986

U.S. Code Cong. and Admin. News 1405, 1475.

Again, we do not see how this language is inconsistent with OPM's

interpretation of section 8402(b). This passage discusses only the

rights of certain employees who make the decision to transfer to FERS

after a break in service. This passage does not address employees who

are automatically covered by FERS or the requirements that employees

must satisfy to avoid automatic FERS coverage.

Furthermore, the language of the passage itself is contrary to the

claimant's position. To ``retain'' any rights to make deposits for

service under CSRS, the individual seeking to make deposit must first

have that right under CSRS. An individual with no covered CSRS service

never had such a right to ``retain.'' The employees to whom this

passage refers have some prior service that was creditable but not

covered AND some prior service that was covered. For example, an

individual who elects FERS with 3 years of service under temporary

appointments (FICA only coverage) and 3 years under a career

conditional appointment (CSRS coverage) retains the right to pay the

deposit for the period under the temporary appointments in order to

receive benefits under CSRS for the entire 6 years of service before

the FERS election.

We agree with the commenter that, if taken out of context and read

by itself, subparagraph (B) of section 8402(b)(2) would not support

OPM's interpretation. However, the subparagraph does not have to be

read by itself and may be interpreted in conjunction with subparagraph

(A) as OPM has done. We concede that our interpretation of the statute

is not the only construction possible. However, the agency's function

in administering the statute is to choose among the reasonable

interpretations. The interpretation set out in these regulations is a

reasonable one, made contemporaneously with the enactment of the

statute by agency officials involved with the enactment of the statute.

Finally, we emphasize that these regulations make no changes in

current instructions for determining retirement coverage, which are

published in the ``CSRS and FERS Handbook for Personnel and Payroll

Offices'' (formerly FPM Supplement 830-1), chapter 10.

Regulatory Flexibility Act

I certify that this regulation will not have a significant economic

impact on a substantial number of small entities because the regulation

will only affect Federal employees and agencies and retirement payments

to retired Government employees and their survivors.

List of Subjects in 5 CFR Part 842

Administrative practice and procedure, Air traffic controllers,

Firefighters, Government employees, Law enforcement officers, Pensions,

Reporting and recordkeeping, Retirement.

Office of Personnel Management.

Lorraine A. Green,

Deputy Director.

Accordingly, OPM is amending 5 CFR part 842 as follows:

PART 842--FEDERAL EMPLOYEES RETIREMENT SYSTEM--BASIC ANNUITY

1. The authority citation for part 842 continues to read as

follows:

Authority: 5 U.S.C. 8461(g); Secs. 842.104 and 842.106 also

issued under 5 U.S.C. 8461(n); Sec. 842.105 also issued under 5

U.S.C. 8402(c)(1) and 7701(b)(2); Sec. 842.106 also issued under

section 7202(m)(2) of the Omnibus Budget Reconciliation Act of 1990,

Pub. L. 101-508 and 5 U.S.C. 8402(c)(1); Secs. 842.604 and 842.611

also issued under 5 U.S.C. 8417; Sec. 842.607 also issued under 5

U.S.C. 8416 and 8417; Sec. 842.614 also issued under 5 U.S.C. 8419;

Sec. 842.615 also issued under 5 U.S.C. 8418; Sec. 842.703 also

issued under section 7001(a)(4) of the Omnibus Budget Reconciliation

Act of 1990, Pub. L. 101-508; Sec. 842.707 also issued under section

6001 of the Omnibus Budget Reconciliation Act of 1987, Pub. L. 100-

203; Sec. 842.708 also issued under section 4005 of the Omnibus

Budget Reconciliation Act of 1989, Pub. L. 101-239 and section 7001

of the Omnibus Budget Reconciliation Act of 1990, Pub. L. 101-508;

subpart H also issued under 5 U.S.C. 1104.

Subpart A--Coverage

2. Section 842.101 is revised to read as follows:

Sec. 842.101 Purpose and scope.

(a) This subpart contains regulations concerning automatic coverage

under the Federal Employees Retirement System (FERS). References to

FERS coverage in this subpart are to automatic, as opposed to elective,

FERS coverage.

(b) Part 846 of this chapter contains regulations concerning

elective FERS coverage. FERS elections are available under limited

circumstances to employees not subject to automatic FERS coverage.

3. Section 842.104 is revised to read as follows:

Sec. 842.104 Statutory exclusions.

(a) Lack of social security coverage. An individual not covered by

social security (title II of the Social Security Act and chapter 21 of

the Internal Revenue Code of 1954), including an individual covered by

full CSRS (and thereby excluded from social security coverage), is

excluded from FERS coverage.

(b) Senior officials subject to social security coverage despite

continuous service. An individual who has served without a break in

service of more than 365 days since December 31, 1983, in one or more

of the following positions is excluded from FERS coverage.

(1) The Vice President;

(2) A Member of Congress;

(3) A non-SES appointee to a position listed in 5 U.S.C. 5312

through 5317;

(4) A Senior Executive Service or Senior Foreign Service noncareer

appointee; or

(5) An individual appointed by the President (or his designee) or

the Vice President under section 105(a)(1), 107(a)(1), or (b)(1) of

title 3, United States Code, to a position for which the maximum rate

of basic pay payable is at or above the rate for Level V of the

Executive Schedule.

(c) Employees rehired after December 31, 1986, following a break in

service. An employee who is rehired after December 31, 1986, who has

had a break in service and who, at the time of the last separation from

the service, had at least 5 years of civilian service creditable under

CSRS rules, any part of which was covered by CSRS or the Foreign

Service Retirement System, is excluded from FERS coverage.

(d) Employees who have not had a break in service ending after

December 31, 1986. An employee who has not had a break in service of

more than 3 days ending after December 31, 1986, and who, as of

December 31, 1986, had at least 5 years of credible civilian service

under CSRS rules (even if none of this service was covered by CSRS), is

excluded from FERS coverage.

(e) Break in service. For the purposes of paragraph (c) and (d) of

this section, ``break in service'' means a separation from CSRS-covered

service lasting at least 4 days, or a transfer or separation of less

than 4 days when the employee becomes subject to automatic coverage

under social security (title II of the Social Security Act and chapter

21 of the Internal Revenue Code of 1954).

(f) Coverage under a retirement system for NAF employees. An

employee who has elected coverage under a retirement system for NAF

employees in accordance with Sec. 842.106 is excluded from FERS

coverage during that and all subsequent periods of service, including

service as a reemployed annuitant.

.[FR Doc. 94-30614 Filed 12-13-94; 8:45 am]

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