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Number: 04-308

Subject: Calendar Year 2005 Interest Rate

Date: October 22, 2004


The Treasury has announced that the calendar year 2005 interest rate applicable to "post-1956" military service credit accounts is 4.375 percent. This is the rate that OPM will also apply to civilian service credit and voluntary contribution accounts.

Employing agencies must assess interest on the unpaid balance in post-1956 military service credit accounts on the employees' "interest accrual date" (IAD). Interest is compounded annually and is assessed at the rate of 3.000 percent through 1984 and thereafter, as follows:

Calendar YearInterest Rate (%)Calendar YearInterest Rate (%)
1985 13.000 1996 6.875
1986 11.125 1997 6.875
1987 9.000 1998 6.750
1988 8.375 1999 5.750
1989 9.125 2000 5.875
1990 8.750 2001 6.375
1991 8.625 2002 5.500
1992 8.125 2003 5.000
1993 7.125 2004 3.875
1994 6.250 2005 4.375
1995 7.000    

The interest rate that is actually applied is a "composite" rate, based on the rates in effect during the 12-month period preceding the IAD. Thus, it has components of both the current and previous year’s interest rates. For instance, the rate that will be applied on October 1, 2005 reflects a composite interest rate of 4.250 % [three months at 3.875% and nine months at 4.375%].

Chapter 23 of the Civil Service Retirement System/Federal Employees Retirement System (CSRS/FERS) Handbook contains guidance for computing interest on military service credit deposits, including the determination of the IAD and the formula for composite interest rates. For your convenience, we have also attached an Excel spreadsheet containing the composite interest rates for each IAD through December 31, 2005.

To reduce the unpaid balance in a military service credit account prior to the assessment of interest, a remittance must be timely received. To be considered timely, remittances must be physically in the possession of the agency official authorized to receive them by the close of business on the last regular business day before the IAD. Thus, for deposits sent by mail, the date on the postmark does not constitute the date of remittance.

If you have any questions about this letter, we would prefer that you email us at finance@opm.gov, so we have a record of them. You may of course call us on 202-606-0606.

Robert A. Yuran, Manager
Financial Policy Group
Center for Financial Services

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