Federal Government Contributes Up to 18% of Employees’ Pay?

A recent article noted that “the federal government contributes up to 18 percent of federal employees’ pay” to their retirement plan which led to some confusion among FedSmith readers. Here is an explanation.

A very good question was recently posted to FedSmith by a reader. Because of its content and impact on federal employees, we thought it was worth addressing this issue. Our thanks to the reader for sending along the question.

What Amount Does the Government Contribute to My Federal Retirement?

The question from a reader is in regard to the article The Inaugural Address and Its Impact on Federal Employees.

Under the subheading Federal Retirement System in the Inaugural Address article you wrote, [P]rivate-sector employers who offer retirement plans typically contribute a maximum of between 3 percent and 5 percent of employees’ salaries to their retirement plan. The federal government, on the other hand, contributes up to 18 percent of employees’ pay…. ” to their retirement plan.

When I retire, I will receive 1% of my high 3 average times the number of years of my federal service. Isn’t this much lower than the 18% you wrote above? In my case it will be 1% times $43,891.00 times 12 years or approximately $5,266.92 per year.

This is much lower that 18%. How did you arrive at 18%? Am I missing something in the math?

The statement that the federal government contributes up to 18 percent of a federal employees pay to is taken from the Heritage Foundation report. It is explained in more detail on page 103 in endnote 17.

What Is Included in the 18% Contribution by the Federal Government?

Here is the explanation of the 18% contributed by the federal government toward a federal employee’s retirement plan.

OPM estimates that the total government contribution to the Federal Employees Retirement System (FERS) equals 13.2 percent (14.0 percent cost less 0.8 percent employee contribution) for employees hired before 2013 and 11.1 percent for employees hired in 2014 and later (14.2 percent less a 3.1 percent employee contribution. An additional 1.3 percent employee contribution goes toward paying of unfunded CSRS obligations. All employees receive an automatic 1 percent government contribution to their Thrift Savings Plan (TSP) and up to an additional 4 percent in matching contributions, bringing total government retirement contributions to between 15.1 percent and 18.2 percent.

Total Compensation Package

The federal contribution to the financial compensation of its employees is significantly greater than the salary each employee earns. The overall compensation package includes other items and contributes to computations noting the average federal employee’s total compensation (including salary and benefits) is over $123,000.

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