What is the Federal Employees Retirement System (FERS)?
The Federal Employees Retirement System (FERS) is a system that came into effect in 1987 and replaced the Civil Service Retirement System (CSRS) as the primary retirement plan for U.S. federal civilian employees.
Retirement benefits under FERS accrue in three ways:
- Through Social Security benefits
- Through a basic benefit plan for which the employee is charged a nominal amount
- Through a Thrift Savings Plan (TSP), comprising automatic government contributions, voluntary employee contributions, and government matching contributions
- The Federal Employees Retirement System (FERS) is the retirement plan for civilian employees of the US federal government, which replaces the CSRS.
- The FERS retirement plan provides benefits from three different sources: a Basic Benefit Plan, Social Security (SS), and the Savings Savings Plan (TSP).
- The Basic Benefit and Social Security portions of FERS require you to pay your portion each pay period and the SS and TSP portions are transferable if you leave your government employer.
Understanding the Federal Employee Retirement System
Retirement benefits under FERS are structured as annuities and are paid to retired employees on a monthly basis beginning one month after they leave government service. Eligibility and payment amounts are based on age, years of service, and plan contributions. Although less generous than CSRS, FERS is more generous than many corporate plans.
The Civil Service Retirement System (CSRS) was created in 1920 and at that time had most of the characteristics of traditional pension plans. Today, FERS also incorporates Social Security benefits, government contributions, and employee contributions.
Federal employees hired after 1983 are automatically covered by FERS, rather than CSRS. The FERS costs the government between 21.2% and 25.4% of the payroll, according to the Brookings Institution:
Two of the three components of FERS (Social Security and TSP) are portable and move with the employee as they change jobs, either within or outside of the federal government. Two components (Social Security and the DB plan) require employees to contribute part of their salary to the system. TSP is voluntary, but relies heavily on employee contributions.
Participants accrue benefits in the defined benefit plan at slower rates than in CSRS. After the most recent FERS reforms, workers accrue a benefit equivalent to 1 percent per year of service, or 1.1 percent for workers who retire at age 62 or older with 20 or more years of service. service.
The system has four categories of benefits when paid:
- Righ now: If you retire from the MRA with at least 10 but less than 30 years of service, your benefit will be reduced by 5 percent per year for each year you are under 62, unless you have 20 years of service and your benefit begins when you reach age 60 or older.
- Early: The early retirement benefit is available in certain cases of involuntary separation and in cases of voluntary separation during a major reorganization or downsizing.
- Deferred: If you retire from the MRA with at least 10 but less than 30 years of service, your benefit will be reduced by 5 percent per year for each year you are under 62, unless you have 20 years of service and your benefit begins when you reach age 60 or older.
- Disability: Must have become disabled, while employed in a position subject to FERS, due to illness or injury, for useful and efficient service in your current position. The disability should be expected to last at least one year. Your agency must certify that you are unable to accommodate your disabling medical condition in your current position and that it has considered you for any vacant position at the same agency at the same grade / pay level, within the same travel area, for which you are qualified for reassignment.
Vast and underfunded retirement system
CSRS retirement benefits have never been fully funded by employer and employee contributions and the fund has an unfunded liability. According to a Congressional Research Service Report, the unfunded liability was $ 985 billion in fiscal 2018. Based on actuarial estimates, the CSRDF’s unfunded liability will continue to increase in the future.
However, the report notes the following:
From that point on [FY2025], the unfunded liability will decline steadily and is projected to be eliminated by fiscal 2090. Actuarial estimates indicate that the CSRS unfunded liability does not pose a threat to the solvency of the trust fund. There is no time in the next 80 years when the assets of the Civil Service Retirement and Disability Fund are expected to be depleted.