Are you a Federal civilian employee? If so, you will have one of two federal retirement systems depending on when you joined the workforce:
- Federal Employees Retirement System (FERS)
- Civil Service Retirement System (CSRS)
If you entered the service on or after January 1, 1987, you would likely have the Federal Employees Retirement System (FERS). Otherwise, you will be eligible for the Civil Service Retirement System (CSRS).
Here is a detailed analysis of the two federal retirement systems.
What is the Federal Employees Retirement System (FERS)?
As the name suggests, FERS is a retirement plan for federal civilian employees, including executive, judicial, and legislative branches of the federal government. However, it doesn’t cover military personnel and employees of the local and state governments.
If you are covered with FERS, you will receive benefits from three sources:
Basic Benefit Plan
It allows you and your agency to contribute a portion of your paycheck to a plan. By doing so, you will receive a monthly pension after retirement. That’s why the Basic Benefit Plan is also known as the monthly annuity.
The percentage of your contributions will depend on the year you joined the service. Here is a detailed view:
|Year of hiring||Percentage of contribution|
|Before January 1, 2013||0.8|
|Between January 1, 2013, and December 31, 2013||3.1|
|On or After January 1, 2014||4.4|
The amount of FERS pension you will receive depends on the years you have worked, your income, and your retirement age.
If you retire before 62, your pension amount will be:
Years of service * 1% * High-3 average pay (highest average basic you have earned during any three consecutive years of service)
If you retire at 62, your pension will be:
Years of service * 1.1% * High-3 average pay
Remember, you will be eligible for Cost-of-living adjustment (COLA) if you start receiving benefits at 62.
You have to pay 6.2% of your income to Social Security and the agency makes matching contributions.
Thrift Savings Plan (TSP)
You can save and invest for your retirement through a Thrift Savings Plan (TSP). It resembles a 401k plan as it offers federal employees the same type of saving and tax benefits.
You can make tax-deferred contributions to a traditional TSP. By doing so, you will have to pay taxes while withdrawing money upon retirement.
Otherwise, you can choose to make contributions to a Roth TSP. You will contribute your after-tax income to the plan. So, while retiring, you won’t have to pay any taxes.
You can invest your TSP in the following funds:
- Government Securities Investment (G) Fund
- Fixed-Income Index Investment (F) Fund
- Common-Stock Index Investment (C) Fund
- Small-Capitalization Stock Index Investment (S) Fund
- International-Stock Index Investment (I) Fund
- Life-cycle (L) funds
Remember, if you leave your Federal government job before retirement, you can carry your Social Security and the TSP of the FERS to your next job.
What is the Civil Service Retirement System (CSRS)?
Civil Service Retirement System is a defined benefit, contributory retirement system created in 1920. It was the only retirement system available for Federal employees until 1984 when the FERS came into effect.
Most employees contribute about 7% of their basic pay, and their agencies make a matching contribution. To be eligible for the CSRS, you need to work for the Federal government for at least five years. You also have to serve in a CSRS coverage position for one of the last two years before your retirement.
You can calculate your CSRS basic benefit by adding:
- 1% of your high-3 average pay times of service up to 5 years
- 1% of your high-3 average pay times years of service over 5 and up to 10
- 2% of your high-3 average pay times years of service over 20
Under the CSRS, you are eligible for an immediate retirement benefit if you fulfill one of the following criteria:
You have left your Federal employment after fulfilling the age and service requirements. Then you will be eligible for receiving optional benefits.
Let’s say you have left the Federal service but are not yet eligible for an immediate annuity. In that case, you can be eligible for deferred retirement benefits.
You should be 62 and have at least five years of creditable civilian service.
Special Optional: You have retired from the agency under special provisions like an air traffic controller, Capitol police, firefighting personnel, etc.
Discontinued Service: Your retirement is NOT voluntary, but you have not been terminated due to misconduct.
Disability: You have completed a minimum of five years of service under the CSRS. And you suffer from a disease that restricts you from performing your duties in your current position.
You also must not reject any alternative job positions offered to you for which you are qualified.
Early Optional: Your organization is going through restructuring or transfer of function determined by the Office of Personnel Management. But if you are under the age of 55, you will receive reduced benefits.
The bottom line is, the Federal Employees Retirement System differs from the Civil Service Retirement System in many ways. One of the significant differences is the CSRS has one component, while the FERS has three components.
You may get a smaller annuity under the FERS, but unlike the CSRS, you can get Social Security benefits and a Thrift Savings Plan under the FERS. Federal employees under the CSRS can opt for the Thrift Savings Plan, but the government won’t make matching contributions.
In short, both retirement systems are sound in their own ways. And there is no point in comparing them now. CSRS doesn’t apply to Federal employees now unless you were in the CSRS system before 1987 and chose to remain with CSRS instead of switching to FERS.
So, get ready to enjoy golden years and be happy with the retirement system you have, and take care of your good health.
Lyle David Solomon is a licensed attorney in California. He has been affiliated with law firms in California, Nevada, and Arizona since 1991. As the principal attorney of Oak View Law Group, he gives advice and writes articles to help people solve their debt problems.