Welcome to Federal Benefits and Retirement: A benefits training resource for federal agencies and individuals

FERS Retirement Benefits

 

The Federal Employee Retirement System (FERS), the successor to the Civil Service Retirement System (CSRS), went into effect January 1, 1987. During the transition between FERS and CSRS, some employees were covered under both systems. However, all employees hired after the formal implementation of FERS were entered into the new system.

CSRS and FERS differ primarily in the sources of income they provide participants upon retirement. CSRS retirees do not participate in the federal Social Security system. With a few exceptions then, CSRS participants receive no Social Security benefits in retirement. They are paid only through the CSRS annuity.

FERS participants, on the other hand,
have three primary sources of income after retirement:

The FERS federal annuity pension

The FERS annuity is a defined benefit plan similar to the CSRS annuity. The primary difference between the FERS and CSRS annuities is the amount of salary the two types of participants pay into their respective systems. CSRS participants contribute between 7.0% and 8.0% of their annual salaries, whereas FERS participants currently contribute 3.1%.

Social Security

FERS participants pay the standard 5.3% of their annual salaries into the social security system. Upon retirement, FERS participants receive a standard Social Security benefit payment, whereas the vast majority of CSRS participants receive nothing from Social Security.

The Thrift Savings Plan (TSP)

The TSP was created as a supplement to the FERS system. As a defined contribution plan, TSP allows employees of the U.S. Federal Government to contribute a certain percentage of their salaries up to a certain capped amount. The government matches the employee contribution up to a certain percentage. TSP is structured to work similarly to a 401(k) or a Roth 401(k).

It’s important to note that CSRS participants are also eligible to make TSP contributions under the same guidelines as FERS participants.

Obviously, the FERS annuity pays less to retirees than does the CSRS annuity. However, FERS participants also receive Social Security payments and TSP monies after retirement. As noted above, CSRS participants may also contribute to a TSP plan.

The amount of annuity income the FERS beneficiary receives in retirement is determined by length of time spent in a creditable position and by the “High-3 Average Salary.” Please note: Time spent on Active Duty in the U.S. Military is classified as creditable service. Military veterans are required to repay only 3% of total earnings plus interest.

What is High 3 Average Salary?

An employee’s High-3 Average Salary is the highest average basic salary the employee earned during any three consecutive years of service. For most employees, the final three years on the job will be the highest-paid. However, since this won’t be the case for all employees, the High-3 Average Salary might be calculated based on an earlier three-year period in the employee’s career.

It’s important to note that the High-3 Average does not include salary earned through overtime, bonuses, or any other payment beyond basic salary. Also, if the employee’s total service was less than three years overall, the average salary is simply calculated based on all creditable work periods.

As with the CSRS system, all FERS contributions are made on an after-tax basis. Also as with the CSRS system, FERS retirement eligibility is determined by the employee’s age and years of creditable service.

FERS retirement eligibility is divided into
the following classifications:

No Reduction

This group of FERS retirees retire at the minimum age of 62 and are eligible to receive 100% of their FERS retirement benefit.

 

Early/Reduced

This group of FERS retirees retire before the minimum age of 62 and receive a reduced FERS annuity benefit amount.

Deferred -Delay receiving annuity until 62 with no penalty

This group of FERS retirees retire before the minimum age of 62, but postpone FERS annuity payments until the minimum retirement age of 62. As a result, they are not penalized and receive normal retirement benefit payment amounts.

 

Involuntary Early Retirement (Reduction in Force)

This group of FERS retirees retire is forced to retire before the minimum age of 62 due to a Reduction in Workforce or other factors beyond their control. As such, they are not penalized and receive a full FERS annuity retirement benefit.

Voluntary Early Retirement (VERA)

This group of FERS retirees opt to retire before the minimum age of 62 under the Voluntary Early Retirement Authority (VERA). VERA was enacted by the federal government to enable companies experiencing significant downsizing, reorganization, or restructuring to reduce their employee numbers. VERA allows such companies to temporarily lower the minimum retirement age and service requirements of their employees.

 

Special Provisions

Certain types of government employees (e.g., law enforcement, firefighters, air traffic controllers, etc.), may be eligible for early retirement without penalty due to specific, job-related factors.

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CSRS Retirement Benefits

Civilian employees of the U.S. federal government hired before January 1, 1984, qualify for the federal Civil Service Retirement System (CSRS). The position(s) held must be classified as a CSRS “covered” position.

If so, CSRS retirement contributions are automatically withheld at a rate of 7% for regular employees and 7.5% for Special Provision employees (i.e., law enforcement, firefighters, air traffic controllers). Specific CSRS eligibility is determined by the employee’s age and years of creditable service. All CSRS contributions are made after tax.

The amount of income the CSRS beneficiary receives in retirement is determined by time-length of creditable service and the “High-3 Average Salary.”

What is High 3 Average Salary?

An employee’s High-3 Average Salary is the highest average basic salary the employee earned during any three consecutive years of service. For most employees, the final three years on the job will be the highest-paid. However, since this won’t be the case for all employees, the High-3 Average Salary might be calculated based on an earlier three-year period in the employee’s career.

It’s important to note that the High-3 Average does not include salary earned through overtime, bonuses, or any other payment beyond basic salary. Also, if the employee’s total service was less than three years overall, the average salary is simply calculated based on all creditable work periods.

Other Factors that Determine the CRCS Annuity Amount

In addition to the creditable service time and High-3 Average Salary, a number of other factors also influence the CRCS retirement benefit.

These include:

Sick leave time (calculated in whole months)

Leave taken without pay (up to six months each regular calendar year)

Some types of worker's compensation

Breaks from service of up to three days

Military/Deposits/Re-deposits

Part-time service

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Frequently Asked Questions

**How do I know when I can retire versus when I should retire?

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**What is the difference between special provision and traditional FERS and CSRS?

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What is FERS Retirement?

The Federal Employee Retirement System (FERS) is the successor to the Civil Service Retirement System (CSRS). FERS went into effect January 1, 1987. During the transition between FERS and CSRS, some employees were covered under both systems. However, all employees hired after the formal implementation of FERS were entered into the new system.

 

So anybody hired before January 1, 1987 is automatically part of CSRS? Is that right?

No. This is where the transition from CSRS to FERS gets a little muddled. Under the CSRS system, employees were required to work a minimum of 5 years in a CSRS “covered” position to be fully vested.

Employees who didn’t meet this requirement were transitioned into FERS. This is how some employees were covered under both systems during the transition. An employee hired January 2, 1982, would have started in CSRS; however, strictly speaking, because he/she wouldn’t have been fully vested by January 1, 1987, he/she would have ultimately been transitioned into FERS.

 

How do I know when I’m vested as a CSRS or a FERS employee?

In both the CSRS and the FERS system, vesting occurs upon the employee’s fifth anniversary of employment in a “creditable position.”

 

How do I know I’m in FERS?

“Creditable” or “covered” positions are eligible to be part of the CSRS or the FERS retirement systems. The terms are interchangeable. You should have been informed of this information upon being hired or shortly thereafter.

You should have been informed of your eligibility for FERS at some point during the hiring process or shortly after you started. Additionally, your FERS contributions, which are automatically deducted from each paycheck, are detailed on every paystub. Your FERS contributions and government-matched benefits will be clearly designated on the stub. Questions about your FERS eligibility or benefits can be directed to the Retirement Office of the United States Office of Personnel Management (OPM):

Email: retire@opm.gov

Phone: 888-767-6738

Mailing Address: U.S. Office of Personnel Management

Retirement Operations Center

Post Office Box 45

Boyers, PA 16017

 

What retirement-income sources are guaranteed to me as an FERS employee?

There are three sources of income guaranteed in retirement to all vested FERS employees:

  1. The FERS federal annuity pension

    The FERS annuity is a defined benefit plan. It’s similar to the CSRS annuity. The primary difference between FERS and CSRS annuities is the amount of salary participants pay into the respective systems. CSRS participants contribute between 7.0% and 8.0% of their annual salaries, whereas FERS participants currently contribute 3.1%.

  2. Social Security

    FERS participants pay the standard 5.3% salary into the Social Security system. Upon retirement, FERS participants receive a standard Social Security benefit payment. The vast majority of CSRS participants receive nothing from Social Security.

  3. The Thrift Savings Plan (TSP)

    The TSP was created as a supplement to the FERS system. As a defined contribution plan, TSP allows employees of the U.S. Federal Government to contribute a certain percentage of their salaries up to a certain capped amount. The government matches the employee contribution up to a certain percentage. TSP is structured to work similarly to a 401(k) or a Roth 401(k).

 

Are CSRS employees eligible for TSP?

Yes. CSRS participants are also eligible to make TSP contributions under the same guidelines as FERS participants.

 

Who receives more in retirement, CSRS or FERS employees?

Neither. The system is designed to deduct roughly equal percentages of pay from the salaries of both groups. As a result, both groups receive equitable retirement-benefit percentages.

For example, CSRS participants contribute between 7% and 8% of their pay into the CSRS retirement system. FERS participants, on the other hand, contribute 3.1% of their salaries to the FERS retirement system. Remember, however, that FERS employees also pay the standard 5.3% of salary into the Social Security system. As a result, both groups contribute around 8% of salary into retirement savings.

Both groups may also contribute to a voluntary TSP plan. As a Defined Contribution Plan, TSP allows employees to decide how much they want to contribute to the plan up to a “defined” percentage. TSP contributions are also Employers Matching plans, meaning employers match employee contributions with identical amounts up to a certain percentage. TSP contribution guidelines and employer-match standards are identical for CSRS and FERS participants.

 

Will I receive social security?

The vast majority of CSRS employees ARE NOT eligible for Social Security. However, CSRS employees DO NOT pay into the Social Security system throughout the course of their careers.

FERS employees, however, pay the standard 5.3% of their salary into the Social Security system with each paycheck. During retirement, these employees also receive a standard social security benefit.

 

How is the annuity amount for FERS participants determined?

The amount of annuity income FERS beneficiaries receive in retirement is determined by length of time spent in a creditable position and by the “High-3 Average Salary.” Please note: Time spent on Active Duty in the U.S. Military is classified as creditable service. Military veterans are required to repay only 3% of total earnings plus interest.

**How do I know how much income I’ll receive in retirement as an FERS retiree?

A: 

 

What is High 3 Average Salary?

An employee’s High-3 Average Salary is the highest average, basic salary earned during any three consecutive years of service. For most employees, the final three years of work will be the highest-paid. However, since this won’t be the case for all employees, the High-3 Average Salary might be calculated based on an earlier, three-year period in the employee’s career.

 

Does High 3 Average Salary Include locality?

As long as the employee is working in a creditable position, the physical address and locality of the job DOES NOT matter.

 

So all that overtime I worked in my career and all those bonuses I earned count on my High 3 Average, right?

Unfortunately, no. The High-3 Average does not include salary earned through overtime, bonuses, or any other payment beyond basic salary. Also, if the employee’s total service was less than three years overall, the average salary is simply calculated based on all creditable work periods.

 

How is my pension handled from a tax standpoint in retirement?

As with the CSRS system, all FERS contributions are made on an after-tax basis. Taxes aren’t withheld from the monies until funds are distributed to the account holder. The retiree isn’t bound, necessarily, to wait until retirement to take money from a CSRS or FERS fund. However, depending on the account holder’s age at withdrawal, significant penalties may be withheld from each early dispersal.

 

What types of retirement options are available to me as an FERS participant?

FERS participants have five retirement options: 

  1. Standard Separation & Retirement
  2. Disability Retirement
  3. Early Retirement
  4. Voluntary Retirement
  5. Deferred Retirement

 

What is standard separation and retirement?

FERS participants with the standard minimum service time in a coverable position are eligible to retire at age 62 (Minimum Retirement Age) without penalty, with full benefits.

 

What are my options for Disability Retirement?

FERS members with a disability wishing to apply for early, disability-related retirement must meet two criteria:

  1. The FERS participant must provide the employer with comprehensive documentation of all medical conditions related to the disability.
  2. The agency for whom the employee works must present documentation that it has made every reasonable effort to accommodate the employee’s disability. If these efforts failed to both retain the employee and maintain his/her productivity, the employee may be eligible for Disability Retirement.
  3. The employee must have completed at least 18 months in a covered position.
  4. The employee must have sustained his/her disability in the course of performing his/her covered position.
  5. The employee or a duly-appointed legal representative must apply for Disability Retirement before separating from his/her agency or within one year of agency-provided documentation of reasonable efforts to accommodate.
  6. The employee must also apply for Social Security disability benefits. This application must be submitted in conjunction with submission for FERS Disability Retirement. Withdrawal from application for Social Security disability benefits, for any reason, will result in automatic dismissal of the employee’s FERS Disability Retirement application.

 

What are my options for Early Retirement?

FERS participants may retire early with either reduced benefits or no reduction in benefits.

  1. Early/Reduced:

    Participants with at least 10 years’ service in a creditable position may retire at the Minimum Retirement Age (MRA), which is currently 62. These participants may also retire before age 62, but will be assessed an accruing penalty of 5/12s percent for each month they retire before reaching the MRA.

    For example, an employee who retired 5 months before age 62 would receive 1% less in benefits per year for the duration of retirement. A participant who retired 25 months before age 62 (~age 60), would be penalized 5% yearly, and so forth.

  2. Early/No Reduction
  3. 30-Year Service

    Participants who complete at least 30 years of service are exempted from early retirement penalties.

  4. 20-Year Service + Age 60

    Participants who complete at least 20 years of service and retire at age 60 are exempted from early retirement penalties.

  5. Deferral Until Age 62

    FERS participants who retire before age 62, but postpone FERS annuity payments until age 62, are not penalized. These FERS retirees receive normal retirement benefit payments.

  1. Reduction in Force (RIF) Involuntary Retirement

    This group of FERS retirees are forced to retire before age 62 due to a Reduction in Workforce (RIF) or other factors beyond their control. As such, they are not penalized and receive full FERS annuity retirement benefits.

  2. Voluntary Early Retirement Authority Retirement (VERA)

    These FERS retirees opt to retire before age 62 under the Voluntary Early Retirement Authority (VERA). The federal government enacted VERA to enable companies experiencing significant downsizing, reorganization, or restructuring to reduce employee numbers. VERA allows such companies to temporarily lower the minimum retirement age and service requirements of their employees. Such employees ARE NOT penalized for retiring before age 62.

  3. Voluntary Separation Incentive Payment Authority (VSIP)

    Also known as “Buyout Authority,” the Voluntary Separation Incentive Payment Authority (VSIP) empowers downsizing or restructuring agencies to offer employees a lump-sum payment of up to $25,000 to voluntarily leave a position. VSIP can be used as an incentive for employees to resign or to retire. In contrast to FERS retirees who separate via RIF or VERA, the retirement benefits of FERS participants who retire under VSIP ARE subject to penalty.

  4. Special Provision

    Certain types of government employees (e.g., law enforcement, firefighters, air traffic controllers, etc.), may be eligible for early retirement without penalty due to specific, job-related factors.

 

How do I know if I’m special provision?

If you work in one of the following professions, your covered position may be categorized as “Special Provision,” making you eligible for early retirement without penalty under certain circumstances:

  1. Law Enforcement Officer
  2. Firefighter
  3. Nuclear Materials Courier
  4. Customs & Border Protection officer
  5. Supreme Court police officer
  6. Capitol Police officer
  7. Air Traffic Controller

For more information on Special Provision Employees, click over to our section on Law Enforcement Special Provision or Special Provision for Firefighters.

 

What is Voluntary Retirement?

FERS participants may voluntarily retire without penalty at age 62 (the Minimum Retirement Age) or any time thereafter.

As noted above, FERS participants may also voluntarily retire without penalty before age 62 under VERA.

What is Deferred Retirement?

As noted above, FERS participants who retire before age 62, but postpone FERS annuity payments until age 62, are not penalized. These FERS retirees receive normal retirement benefit payments.

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