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:
- Through Social Security benefits
- Through a basic benefit plan for which the employee is charged a nominal amount
- Through a Thrift Savings Plan (TSP), which comprises automatic government contributions, voluntary employee contributions, and matching government contributions
- The Federal Employee Retirement System (FERS) is the retirement plan for U.S. civilian federal government employees, replacing the CSRS.
- The FERS retirement 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 are portable if you leave your government 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.
The Civil Service Retirement System (CSRS) was created in 1920 and at that time possessed most of the features 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. 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% per year of service, or 1.1 % for workers retiring at age 62 or later with 20 or more years of service.
The system has four categories of benefits when they paid out:
- Immediate: If you retire at the MRA with at least 10, but less than 30 years of service, your benefit will be reduced by 5 percent a year for each year you are under 62, unless you have 20 years of service and your benefit starts when you reach age 60 or later.
- Early: The early retirement benefit is available in certain involuntary separation cases and in cases of voluntary separations during a major reorganization or reduction in force.
- Deferred: If you retire at the MRA with at least 10, but less than 30 years of service, your benefit will be reduced by 5 percent a year for each year you are under 62, unless you have 20 years of service and your benefit starts when you reach age 60 or older.
- Disability: You must have become disabled, while employed in a position subject to FERS, because of a disease or injury, for useful and efficient service in your current position. The disability must be expected to last at least one year. Your agency must certify that it is unable to accommodate your disabling medical condition in your present position and that it has considered you for any vacant position in the same agency at the same grade/pay level, within the same commuting area, for which you are qualified for reassignment.
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.