Due to its own errors, the Office of Personnel Management for nearly five years undercharged thousands of federal employees for pension contributions. Now, OPM is demanding they immediately pay — in some cases thousands of dollars — to correct their pension accounts.
The reason: OPM charged about 8,500 federal employees the wrong interest on their service credit deposits or redeposits since 2006. OPM says it fixed the problem last month, once and for all.
The amount that affected feds owe varies widely — some owe less than $100, some owe thousands. Some have been overcharged and will receive a refund — though OPM will not pay them interest.
Service credit deposits are contributions that employees make into their retirement program — either the Civil Service Retirement System or Federal Employees Retirement System — to make up for periods in which they were federal employees but did not contribute. Some, for example, were working part time and others were serving in the military.
Redeposits are contributions that employees make into their retirement program after they have left government, withdrawn their retirement contributions, and then later returned to government. The redeposits enable them to count their previous periods of employment as service toward their eligibility to retire, and in calculating the size of their pensions.
OPM realized in July 2008 that its computer systems were incorrectly calculating the interest rate many feds owed on those deposits. Some who should have been charged variable interest rates were charged a flat 3 percent rate, and vice versa. Others were not charged interest at all in some years.
Bill Zielinski, OPM's associate director of retirement and benefits, told Federal Times that the agency thinks the problem stemmed from a flawed upgrade to its computer system in April 2006. Zielinski said OPM doesn't think there were any earlier interest miscalculations, but said he was not certain.
"We know that there were systems changes around that time," Zielinski said. "We have cases where interest was calculated incorrectly as early as April 2006. But we can't definitively say it wasn't going on for years."
OPM shut down faulty parts of the system when it realized it had a problem and began recalculating the interest owed for all affected accounts by hand. OPM said it is now sending letters and current statements to affected account holders, including some people who made payments and did not get receipts.
Because the problem took so long to fix, OPM said it will give affected feds a six-month interest-free window, which will end June 30, to pay their balances.
Some federal employees affected by the miscalculations are angry at OPM.
One U.S. Postal Service employee, who asked to remain anonymous because she was not authorized to talk to the press, said she deposited the entire $450 she owed in 2003. But last week she got a letter from OPM that said she owed another $930.
"Back seven years ago, they said it would cost X amount of dollars to buy back my time," she said. "I said, process it. Now they're saying if you want to continue to have these four years' credit, you have to pay us more, otherwise they'll drop it. In my mind, that's extortion."
She said she'll probably work out some payment schedule to pay the rest, so she doesn't lose her time and the money she's already redeposited.
"I think it's sad that they look to us to correct their mistakes," she said.
Zielinski said he was not sure why that employee's interest rate was miscalculated if she had paid it in full in 2003, three years before the computer changes believed to have caused the problem were made.
Another employee, a civilian Army information technology specialist who also asked not to be named, said he paid most of his service credit redeposit in October, and was told one month later that he would owe more. But though an OPM official said in November that they'd tell him in two or three weeks how much more he owed, he never heard back. He said Jan. 6 that he hadn't gotten a letter, and frequently got a busy signal when he tried to call OPM's help line.
"It does give me some frustration, but I do understand they're overloaded," he said.
Fixing the problem proved more complicated than OPM expected.
Last February, OPM Director John Berry told Sen. Barbara Mikulski, D-Md., in a letter that OPM would fix the problem by March 2010.
But Zielinski said those fixes didn't work. And when Berry realized the planned repair was falling short, he scrapped it, devoted more resources to the project and reached out to OPM Inspector General Patrick McFarland. IG staffers worked with OPM through the rest of last year to come up with a solution.
Zielinski said the government's complicated deposit and redeposit rules have many different elements, and OPM's previous solution didn't accurately account for them. The IG's office helped provide the necessary technical resources and developed quality-assurance checks to make sure the new solution would work, Zielinski said.
"The IG was involved every step of the way since then in putting the new plan into place," Zielinski said. "Given the importance of this, we wanted to make sure we were actually fixing what needed to be fixed."
Dave Snell, retirement benefits director for the National Active and Retired Federal Employees Association, said he is happy that OPM has finally fixed the problem.
"This has been going on for a couple of years, and it's very good news they were able to do this for future retirees," Snell said. "It's been a heck of a job, evidently, to get this fixed."