Nearing Retirement? You Probably Have Reason to be Thankful

Nearing retirement? You are probably in the CSRS. Be thankful; you are in a system that is a remnant of America’s golden economic age.

Anyone reading the comments from federal employees on sites such as may come to the conclusion that there are a large number of federal employees who are unhappy and not afraid to express their discontent.

Complaints most often concern pay, performance management, supervisory skills (or lack thereof) and benefits.

No doubt some of these concerns are based on experience and the nature of the federal personnel system.

But there is one large benefit that most federal employees would agree is very beneficial to many of the large number of federal employees planning on walking out the door and turning in the federal employee badge.

And the benefit is looming large. The federal government is particularly vulnerable to the coming baby boomer retirements. While the average age of the American worker has increased over the past decade, the federal civil service has twice as many workers over age 45 (60 percent) as the private sector (31 percent). According to the Office of Personnel Management (OPM), among all full-time permanent employees in the federal workforce as of October 2004, 58 percent of supervisory and 42 percent of non-supervisory workers will be eligible to retire by the end of FY 2010.

Many of these federal employees who are planning to retire are under the Civil Service Retirement System (CSRS). Federal employees who started work in the mid-eighties are under the Federal Employees Retirement System (FERS).

The CSRS system is a throwback. It was created in the 1920’s–before Social Security was created and at a time when most people did not have any retirement system. The CSRS system is a defined pension benefit plan. With this system, you can figure out (with some work, a little luck and a good software program or very knowledgeable human resources retirement specialist) how much you will receive in your retirement check.

CSRS doesn’t require much in the way of pre-planning. Uncle Sam takes out a mandatory deduction from your paycheck and puts it into an account that you will draw down after you retire. Most retirees long outlive the amount of money they put into the plan. That doesn’t matter; a retiree under CSRS keeps on getting checks and annual cost of living allowance increases each year. Moreover, CSRS employees still get to participate in the Thrift Savings Plan although under a different financial arrangement than employees under the FERS system.

Some readers have commented that private sector companies have more generous retirement benefits. No doubt, there are some employees in private companies that have much better plans than the CSRS. But there are not very many. Moreover, some employees in plans that may have been as good or better than CSRS have been shocked.

IBM has frozen its pension plan for its employees. As of January 1, 2008, no one in that retirement plan will accumulate any more benefits. And IBM employees are not alone. Employees at General Motors, Unisys, Verizon and others have had similar jolts to their future retirement plans.

And, in a way, employees at these companies are better off than employees in some other large American companies. At United Airlines, the company dumped its pension plan. Employees who planned on a luxurious retirement are now getting pensions from the Pension Benefit Guaranty Corp. and the amount for most is less than they anticipated or would have thought possible.

Even worse, some employees of companies like these still think they are going to receive a pension under a plan that no longer exists. According to the Employee Benefit Retirement Institute, 21% of American workers are now under a defined pension plan. 61% of American workers think they will be receiving benefits from a defined pension plan when they retire. You can do the math; there is obviously a problem looming.

One of the most popular articles on the FedSmith website in 2005 was entitled “High Three” to “High Five”? That proposal, by the way, has not resurfaced in recent months.

Occasional rumors also surface from readers to the effect that the federal government is going to retire the CSRS system and put all employees into FERS. While that rumor certainly reflects an unstated fear of many in the CSRS system, no serious proposal has been discussed, at least publicly, to do away with the CSRS system for those already in the system.

That does not mean it could not happen in the future. Uncle Sam is probably the safest employer a worker can have. Oddly enough, while companies can find themselves in legal hot water for having an underfunded pension plan, the federal government is a bigger violater of these rules than many companies. The difference is that Congress has the power to tax American citizens to fund future pension benefits. Moreover, the federal government is not subject to global competition which is driving American companies to eliminate or reduce benefits. In other words, Congress can create benefits and it can take them away.

As one Congressman noted: “[E]ven the Federal Government’s own defined benefit pension plan – the Civil Service Retirement System – is underfunded. As of the end of 2002, total assets attributable to CSRS amounted to $417 billion, but the liabilities for future benefits amounted to $950 billion, resulting in an unfunded liability for CSRS of $533 billion. As a result of this under funding, the assets attributable to CSRS are expected to be depleted by the year 2023. In contrast, the Federal Employees Retirement System (FERS), which covers employees hired since the beginning of 1984, is fully funded by the employees and agencies.”

Politics being what it is, eliminating the CSRS system is very unlikely, at least in the near future as all of these retirees have plenty of time to vote, lobby and express their views in many different forums.

In effect, those federal employees under the Civil Service Retirement System are the beneficiaries of a system that is a remnant of a time when the American economy was in its golden age. There are certainly advantages to the FERS system–especially for federal employees who do not plan to make working for Uncle Sam a career. Overall, most federal employees getting ready to retire are undoubtedly thankful they started working for an employer at a time when the CSRS was common among large companies and but which is not going to go out of business or sell a big chunk of its assets to a global competitor.

About the Author

Ralph Smith has several decades of experience working with federal human resources issues. He has written extensively on a full range of human resources topics in books and newsletters and is a co-founder of two companies and several newsletters on federal human resources. Follow Ralph on Twitter: @RalphSmith47