Uncle Sam's Super CD

The Voluntary Contributions program has been around a long time but very few feds know about it, or how it works. Many confuse it with the Thrift Savings Plan, which is a mistake.

For one thing the VC program is open only to federal and postal workers who are under either the Civil Service Retirement System or the CSRS Offset plan. That's a fast-dwindling pool of people who were hired before Dec. 31, 1983 and who are still on the job. Most people in government today are under the FERS program. While both groups are eligible for the TSP program, only CSRS and CSRS Offset workers can put money into the VC.

Here's how it works:

• If you are eligible for the VC you sign up (you'll need a SF 2804, Applications to Make Voluntary Contributions,) using forms available at your agency HR office and online as a pdf. Once the Office of Personnel Management admits you, you can send OPM a check for virtually any amount, so long as it is in $25 increments.

• The amount you can put into the VC is staggering. You can put up to 10 percent of your lifetime federal salary into the account. Each year the Treasury sets the rate the VC will pay for the upcoming year. Last year it was 4.125 percent.

• You can put money (via check, in $25 increments) into the VC as often, or as infrequently as you wish. It's not like the TSP where your contributions are made via payroll deduction.

• In the VC program only the interest you earn on your account is tax-deferred. You've already paid taxes on the money you invested, so when you withdraw it only the earnings are taxed. For example if you put $5,000 in and your account had grown to $6,400 only the earnings, $1,400 would be subject to federal or state tax.

• You can use the VC two ways. The most popular is to withdraw it before you retire. Some people put it in another account, or spend it. Or roll it over into an IRA. If you don't tell OPM what to do, it will automatically set up an annuity which will boost (very slightly) your total CSRS retirement benefit.

• You can also set up an account as you are about to retire, using the same SF 2804 which you submit along with your Application for Immediate Retirement, SF 2801. Once accepted by OPM, you can start sending in contributions by check in $25 increments.

Postal Pay Raises

The American Postal Workers Union has agreed to a new contract with the Postal Service (USPS) that provides modest pay raises, continued cost of living adjustments, and a reduction in the Postal Service's share of health premiums.

Under the new agreement covering more than 200,000 postal clerks and other inside craft employees, workers will get a 1.3 percent raise retroactive to last November, a one level salary upgrade in February 2008, and another pay raise of 1.2 percent in November 2009.

For its part, the USPS will trim its share of employee health premiums by one percentage point each year, over four years. The government pays an average of 72 percent of the total premium for white collar employees, but the USPS pays a higher percent for its employees.

To reach me: mcausey@federalnewsradio.com