What Is the Federal Employee Retirement System (FERS)?

The Federal Employee Retirement System (FERS), is a system that became effective 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 are accumulated in three ways:

  1. Through Social Security benefits
  2. Through a basic benefit plan for which the employee is charged a nominal amount
  3. Through a Thrift Savings Plan (TSP), which comprises automatic government contributions, voluntary employee contributions and matching government contributions

Key Takeaways

  • The Federal Employee Retirement System (FERS) is the retirement plan for U.S. civilian federal government employees, replacing the CSRS.
  • The FERS rretirement plan provides benefits from three different sources: a Basic Benefit Plan, Social Security (SS), and the Thrift Savings Plan (TSP).
  • The Basic Benefit and Social Security parts of FERS require you to pay your share each pay period and the SS and TSP pieces is portable if you leave your employer.

Understanding the Federal Employee Retirement System

Retirement benefits under FERS are structured as annuities and paid out to retired employees monthly starting one month after they leave government service. Eligibility and payment amounts are based on age, years of service and contributions to the plan. Although less generous than CSRS was, FERS is more generous than many corporate plans.

Federal employees hired after 1983 are automatically covered by FERS, rather than CSRS. FERS costs the government between 21.2% and 25.4% of payroll, according to the Brookings Institution:

Two of the three FERS components (Social Security and the 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 pay to the system. TSP is voluntary, but it depends 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 equal to 1 percent per year of service, or 1.1 percent for workers retiring at age 62 or later with 20 or more years of service.

Vast, 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 $985.0 billion in FY2018. According to actuarial estimates, the unfunded liability of the CSRDF will continue to rise into the future.

However, the report notes the following:

From that point onward [FY2025], the unfunded liability will steadily decline and is projected to be eliminated by FY2090. Actuarial estimates indicate that the unfunded liability of the CSRS does not pose a threat to the solvency of the trust fund. There is no point over the next 80 years at which the assets of the Civil Service Retirement and Disability Fund are projected to run out.