Federal Employee Retirement System (FERS)

What Is the Federal Employee Retirement System (FERS)?

The term Federal Employee Retirement System (FERS) refers to a retirement plan for U.S. federal civilian employees. FERS is a defined-benefit plan that went into effect in 1987 when it replaced the Civil Service Retirement System (CSRS). Employees are automatically enrolled in the program and receive retirement benefits from three different sources. Benefit eligibility is determined by a worker's age and the number of years of service. Benefits fall into four different categories, which are explored further down.

Understanding the Federal Employee Retirement System (FERS)

Just like employees of large corporations, federal government workers are able to save money through retirement savings plans under a program called the Federal Employee Retirement System. The program went into effect in 1987 for all federal employees hired by the government after Dec. 31, 1983, and replaced the CSRS program. Although less generous than CSRS was, FERS is more generous than many corporate plans.

The FERS is a defined-benefit plan, which means retirement benefits are determined by an employee's salary and years of service. The benefits 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.

The program's benefits are paid out through Social Security benefits, a basic benefit plan for which the employee is charged a nominal amount, and the Thrift Savings Plan (TSP), which is made up of automatic government contributions, voluntary employee contributions, and matching government contributions.

The system has four categories of benefits when they are paid out. They include:

1. Immediate: This benefit begins 30 days from when you cease working. You can take immediate retirement if you are 62 with five years of service, or are 60 and 20 years of service. If you wait until your minimum retirement age and have between 10 and 30 years of service, your benefit drops by 5% for each year until you turn 62. Those with 20 years of service only have to wait until 60 to get the full benefit.
2. Early: This option is available in certain involuntary separation cases and in cases of voluntary separations during a major reorganization or reduction in the workforce.
3. Deferred: Eligibility for this option depends on how many years of service you have under your belt. You must have completed five years of service if you're 62. Your benefit is reduced by 5% if you reach the minimum retirement age but aren't yet 62. You can only defer payments at the full benefit amount if you're 60 and have 20 years of service behind you.
4. Disability: This benefit option plan pays individuals who become disabled while employed in a FERS-eligible position because of a disease or injury, for useful and efficient service in their position. The disability must last more than a calendar year. The employing agency must attest that it cannot accommodate your condition and that you have been considered for other similar, internal positions.
   

The table below lists the minimum retirement age based on the year of birth:

Source: OPM.gov

Special Considerations

CSRS retirement benefits were never fully funded by employer and employee contributions and the fund had an unfunded liability. According to a Congressional Research Service report, the unfunded liability was $985 billion in 2018. 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.

But according to the Brookings Institution, FERS costs the government between 21.2% and 25.4% of payroll, where:

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.