Non-Appropriated Fund Instrumentality (NAFI) Program Retirement Coverage

OFFICE OF THE ASSISTANT SECRETARY OF DEFENSE
4000 DEFENSE PENTAGON
WASHINGTON, D.C. 20301-4000
AUG 09 1996

FORCE MANAGEMENT POLICY

MEMORANDUM FOR DISTRIBUTION:

SUBJECT- Retirement Coverage Election Under Section 1043, P.L, 104-106

Attached for appropriate action is DoD policy on subject election for eligible employees moving between appropriated fund and nonappropriated fund (NAF) employment systems. A draft of this policy was provided by my memo of July 10, for coordination by August 2. The policy, effective on August 10, 1996, supplements OPM and Federal Retirement Thrift Investment Board regulations to be published in the Federal Register with an effective date of August 10.

The attached policy primarily addresses crediting service to DoD NAF retirement plans, transferring NAF funds, and the relationship of the new requirements to the Portability of Benefits for Nonappropriated Fund Employees Act of 1990, OPM is preparing a Benefits Administration Letter which will provide additional guidance and forms for employee elections of retirement coverage, Additional DoD guidance will be issued as necessary.

DoD personnel offices may direct questions on entitlements for benefits under the Civil Service Retirement System or the Federal Employees Retirement System to the Field Advisory Services Division, Civilian Personnel Management Service (CPMS) (703-696-630 1, or DSN 426630 1, menu # 1). Questions on entitlements for benefits under NAF retirement plans may be directed to the DoD NAF Personnel Policy Office, CPMS (703-696-3310, or DSN 426-3310). Questions on specific NAF retirement plan provisions should be directed to the NAF employer responsible for the NAF plan.

Thank you for your cooperation in the implementation of this policy.

Diane M. Disney
Deputy Assistant Secretary
Civilian Personnel Policy

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DoD Regulations on Retirement Coverage Elections

Provided by P.L. 104-106

I. Summary of Legal Requirements

A. Coverage. Section 1043 of P.L. 104-106, The National Defense Authorization Act for Fiscal Year 1996, provides new retirement coverage elections for certain employees who moved between nonappropriated fund (NAF) and appropriated fund (APF) positions after December 31, 1965. It amends title 5, United States Code (USC, to expand the retirement election provisions of the Portability of Benefits for Nonappropriated Fund Employees Act of 1990. Some amendments liberalize the eligibility requirements for making elections under the 1990 law and apply on or after the August 10, 1996, effective date of Office of Personnel Management (OPM) and DoD regulations.

B. Notification. The law requires that individuals who may be affected by the new retirement elections be notified of the new provisions. It also requires that individuals must be provided, upon their request, information concerning their eligibility to make an election, and the amount of any payment which would be required of the individual in connection with any such election.

C. Funding. Certain retroactive elections will require an employee payment for service credit, in the form of a reduction in the monthly retirement benefit, in addition to a transfer of employee and employer funds between NAF and civil service retirement systems.

II. Implementation of Retirement Coverage Elections

A. Responsibilities. The Heads of Components, or their designees, shall take appropriate action to:

1. Provide employee benefit portability entitlements to eligible employees in accordance with Section 1043 of Public Law (P.L.) 104-106, OPM regulations at 5 CFR Part 847, Federal Retirement Thrift Investment Board regulations at 5 CFR Pan 1620, and this supplementary DoD policy document.

2. Notify employees of the new entitlements and eligibility requirements. A chart summarizing the prospective retirement elections is at Appendix A, A chart summarizing retroactive retirement elections is at Appendix B. These charts may be used by DoD Components, in addition to OPM guidance, to notify employees,

3. Provide information to employees, upon their request, regarding their eligibility to make a retirement election, and the amount of any employee payment that would be required for additional service credit (see paragraph MG, below). Employees who request a determination of eligibility to make an election, and who are determined to be ineligible, must receive a final decision in writing, in accordance with 5 CFR 847 106

4. Ensure that documents of NAF retirement plans under their responsibility are amended as necessary to comply with the law.

5. Transfer civil service or NAF retirement plan employee and employer contributions covering the additional service to be credited,

B. Elections to Continue Retirement Coverage After a Move on or after August 10, 1996, the Effective Date of DoD and OPM Regulations.

1. This policy document supersedes the retirement coverage policy published by DASD (CPP/EO) memorandum on April 16, 1991, as Section J, "Retirement," Appendix F, DoD 1401.1-M.

2. Heads of Components are delegated the authority provided in 5 CFR 847.206 to waive the 30 day time limit for making an election. Waivers may be granted to employees who, despite due diligence, are prevented by circumstances beyond their control from making an election within the time limit. This waiver authority may be delegated to another appropriate level of responsibility,

C. Employee and Employer Retirement Contributions After a Move on or after August 10, 1996.

1. Per 5 CFR 847.209, NAF employers will make salary deductions and employer contributions for NAF employees who elect to continue Civil Service Retirement System (CSRS) or Federal Employees Retirement System (FERS) coverage. Thrift Savings Plan (TSP) salary deductions and contributions will also be remitted, where applicable, in accordance with 5 CFR Part 1620. Established Defense Finance and Accounting Service (DFAS) procedures provide further information on submitting NAF employee and employer contributions for CSRS, FERS, and TSP.

2. Employee and employer contributions for employees who elect to remain in a NAF retirement plan following a move to an APF position will be calculated in exactly the same way as the actual contribution for a NAF employee in the NAF plan. Employee and employer contributions to NAF 401(k) plans will also be calculated as if for a NAF employee in tile NAF plan. Established DFAS procedures provide further information on submitting civil service employer and employee contributions to NAF retirement plans and 401(k) plans.

D. Elections of Coverage Under the Retroactive Provisions (Covering moves after December 31, 1965, and before August 10, 1996).

1. Per 5 CFR 847.304, the time limit for making an election under the retroactive election provisions in 5 CFR Part 847, Subpart D, is August 11, 1997. Heads of Components, or their designees, must waive this time limit in the event the employee did not receive timely notice or counseling regarding the opportunity to make a retroactive election,

2. When an APF employee covered by FERS elects to have previous NAF service credited toward FERS, the NAF service ceases to be creditable for purposes of NAF retirement.

3. An employee who had a prior election under the 1990 Portability Act to continue retirement coverage following a move between employment Systems is ineligible to retroactively return to the previous retirement system under the provisions of 5 CFR 847.411 or 847.44 1, as applicable. However, such a prior election does not exclude the employee from electing to have service covered by the previous retirement system credited in the employee's current retirement system under the provisions of 5 CFR 847.421 or 847.43 1, as applicable.

(a) For example, a DoD NAF employee who previously elected not to retain coverage in the NAF retirement plan following a move to a DoD) APF position, but instead moved to FERS, does not have an election to return to the NAF retirement plan. The employee does have an election to remain in FERS and have NAF service credited.

(b) An employee who elected, under the 1990 Portability Act, to retain retirement coverage following a move made an irrevocable decision and has no further election under the new legislation,

4. Employees who make retirement coverage elections under the retroactive provisions continue to be covered by that retirement system for all future periods of APF or NAF service not otherwise excluded from retirement coverage, This includes APF or NAF service performed as a reemployed annuitant.

E. Waiver of 30 Day Time Limit for Making an Election under the Provisions of the 1990 Portability Act.

1. By memorandum dated March 4, 1996, the DASD(CPP) exercised DoD's authority to waive the 1990 Portability Act requirement that retirement elections be made within 30 days of the move. The waiver applies to employees who moved on or after February 10, 1996, but before August 10, 1996. It permits employees to delay making an election until after the retroactive service credit benefits of P.L. 104-106 are available and the election process established. The DoD) waiver is hereby extended through December 31, 1996.

2. The DoD waiver applies only to employees who (a) are eligible for a retirement election under the 1990 Portability Act. (b) moved on or after February 10, 1996, but before August 10, 1996, and (c) did not make an election, These employees have through December 31, 1996, to exercise the election provided by the 1990 Portability Act, or to make an election under the retroactive rules provided by 5 CFR Part 847, Subpart D. Until the employee makes an election, he or she is in the retirement plan of the gaining employment system, and retirement contributions are remitted under the provisions of that system's retirement plan.

3. P.L. 104-106 permits employees moving from APF positions covered by FERS to NAF positions covered by a NAF retirement plan, and vice versa, to elect retroactive service credit. This is a benefit not provided by the 1990 Portability Act. Therefore, eligible employees who want service credit in the gaining employment system's retirement plan may decide to make an election under the retroactive rules in 5 CFR Part 847, Subpart D. Employees who, after reviewing the retroactive service credit opportunities provided by PL 104-106, decide instead to retain coverage in their previous retirement plan, should elect to do so under the provisions of the 1990 Portability Act, before amendments,

4. Per PL 104-106, employees who moved on or after February 10, 1996, but before August 10, 1996, who, notwithstanding the waiver provided, made an election under the 1990 Portability Act, are not eligible for an election under the retroactive service credit rules.

F. Transfers of Contributions Under the Retroactive Provisions (Covering moves after December 31, 1965, and before August 10, 1996). Civil service and NAF retirement plan contributions will be transferred in accordance with 5 CFR Part 847, Subpart E.

1. When an employee elects to retroactively return to CSRS or FERS coverage, or to have NAF service credited towards FERS. employee contributions and government contributions made to the NAF retirement plan transfer to the Civil Service Retirement and Disability Fund, Government contributions means the amount credited to the NAF retirement plan, by the NAF employer, on behalf of the employee for the period of NAF service to be credited towards civil service retirement.

2. Where an employee participated in more than one NAF retirement plan, each NAF retirement plan is responsible for submitting contributions attributable to that particular plan.

G. Employee Payment for Cost of Service Credit Under the Retroactive Provisions (Covering moves after December 31, 1965, and before August 10. 1996). Heads of Components, or designees, who are responsible for NAF retirement plans shall establish written policy on determining the cost of crediting APF service to the NAF plan, and the affect on NAF annuity payments as a result of the credit. The policy shall include methodology which parallels that described in 5 CFR Part 847, Subpart F, for crediting NAF service to CSRS or FERS. The policy shall include tables of present value factors necessary to determine the cost and the actuarial reduction in the NAF annuity payable, The respective actuarial assumptions in cacti plan's most recent annual report to Congress required by Public Law (P.L.) 95-595 shall be used.

H. Reporting Requirement. Components shall provide a report to the DASD (CPP) by January 2, 1998, indicating the number of employees who made retroactive retirement elections under P.L. 104-106, based upon a move after December 31, 1965. but before August 10, 1996, The report shall be broken down by type of retirement election selected.

III. Related Provisions on Portability of Pay and Benefits.

A. Reduction in Force.

1. Section 1043(d) of P.L. 104-106 amended section 3502(a)(C) of 5 USC to allow credit for NAF service for reduction in force purposes for employees moving from DoD NAF to DoD APF positions on or after January 1, 1966, without a break in service of more than three days,

2 This DoD policy document hereby provides that employees who move from DoD APF positions to DoD) NAF positions on or after January 1, 1966, without a break in service of more than three days, shall be granted NAF Business Based Action (BBA) retention credit for APF service.

B. Pay and Other Benefits. The Portability of Benefits for Nonappropriated Fund Employees Act of 1990 provides pay, leave, and other benefit protection for employees who move, after January 1, 1987, between DoD APF and DoD NAF positions without a break in service of more than three days. Details of these benefits are provided in 5 USC, 5 CFR, DoD 1401.1-M, and OASD policy memorandums.

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For further assistance or counseling on options under the law, contact your Nonappropriated Fund office.

For additional background information, see the guidance issued by the Office of Personnel Management.