FERS Retirement Benefits
The Federal Employee Retirement System (FERS) is the successor to the Civil Service Retirement System (CSRS) which started for new hires on January 1, 1984 and having full effect on every employee not vested with five years of service prior to January 1, 1987.
During the transition between FERS and CSRS, some employees were given the option to switch to the new FERS system. However, all employees hired after the formal implementation of FERS were entered into this system automatically.
CSRS and FERS differ primarily in the sources and amounts of income they provide participants upon retirement. CSRS retirees do not participate in the federal Social Security system. CSRS participants generally have not paid into Social Security and therefore are ineligible to receive Social Security benefits in retirement. They are paid only through the CSRS annuity but at a rate twice the FERS rate.
FERS participants, on the other hand,
have three primary sources of income after retirement:
The FERS annuity is a defined benefit plan similar to the CSRS annuity. The primary difference between the FERS and CSRS annuities is the cost difference that participants pay into their respective systems. CSRS participants contribute 7.0% of their annual salaries, whereas FERS employees hired in 2014 or after currently contribute 4.4%. (Those hired prior to 2013 pay only .8% and those hired in 2013 pay 3.1%).
FERS participants pay the standard 6.2% of their annual salaries into the social security system. Upon retirement, FERS participants receive a standard Social Security benefit payment which does not affect their pension amount. The majority of CSRS participants receive nothing from Social Security but if they do qualify to receive Social Security, those benefits will be reduced by the amount of pension they receive from the CSRS system. Conversely, CSRS Offset employees pension will be decreased by the amount of Social Security they receive.
The TSP (Thrift Savings Plan) 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 5% of their annual salary.
TSP is structured to work similarly to a 401(k) so that in retirement any savings within the TSP, whether put in by the employee or the government matching, will be taxable only as the employee draws money out. The one exception is for employees who put their money into the TSP Roth—the contributions, growth, and interest in this account is always tax-free.
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 in order to Buyback their military time.
What is High 3 Average Salary?
An employee’s High-3 Average Salary is calculated using the highest 36 consecutive months of service including locality pay. 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 and locality pay. This is not necessarily true for Healthcare, Special provision, Firefighters, and Law Enforcement employees. These must be assessed on an individual basis to know how much special pay is payable as a pension. 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:
The goal for most federal employees: to get as much retirement pay as soon as they qualify.
There are three basic standards to be met in order to qualify for immediate retirement with 100% of your pension:
- Retire at age 62 or older with at least five years of creditable federal service
- Retire at age 60 or older with at least 20 years of creditable federal service
- Retire having reached your Minimum Retirement age which is at least age 55 - 57 with no less than 30 years of creditable federal service
OPM publishes the MRA chart here.
FERS retirees who choose to retire before the minimum age of 62 for any reason other than disability may be able to draw an immediate pension check provided that they meet the following requirements:
- They have completed at least 10 years of creditable federal service.
- They have reached their minimum retirement age. (MRA chart)
Those opting for early retirement though will have their pension permanently reduced at a rate of 5% per year short of full qualification.
Example: If John has 13 years of service and is age 58, he can retire now and begin receiving a pension check. That pension will be only 80% of his full pension amount because he is four years short of the earliest year/age combination for full retirement.
This group of FERS employees are those who quit working for the federal government prior to reaching their minimum retirement age and/or the required years of service necessary for a full retirement but who have completed five years of creditable federal service.
Receiving this pension requires the employee to postpone their FERS annuity payments until the minimum retirement age of 62. As a result, they are not penalized and receive normal retirement benefit payment amounts.
Some employees who qualify for an early reduced pension, will wait until 62 in order to not be hit with the 5% per year penalty.
These FERS employees retire as a result of being downsized. Because this group is forced to retire before the minimum age of 62 due factors beyond their control, they can be granted special eligibility rules. As such, they often are not penalized and receive a full FERS annuity retirement benefit. What pension they qualify for depends on age, years of service, and departmental approval.
FERS employees whose agency is downsizing or restructuring can 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 organizations experiencing significant decreases in manpower requirements, needing reorganization, or those undergoing restructuring to reduce their employee numbers with minimal impact to the employee. VERA allows such agencies and organizations to temporarily lower the minimum retirement age and service requirements of their employees.
VSIP is similar. It lowers the requirements to qualify for an immediate pension without the usual reduction. But it goes further to give the employee a "buyout" in order to incentivize them to leave earlier than they had planned. The incentive pay is currently a $25,000 one-time payment. (That amount increases to a $40,000 one-time payment for Department of Defense employees).
Certain types of government employees (e.g., Law Enforcement Officers, Firefighters, Air Traffic Controllers, etc.), may be eligible for early retirement without penalty due to specific, job-related factors.
The eligibility requirements are:
- Retirement at or after Age 50 with at least 25 years of creditable federal service. Twenty years of this service MUST be service under special provision i.e. Law Enforcement, ATC, or Firefighter years. The other five can be generic federal service or even military time that has been "bought back".
- Retirement at any age with 25 years of creditable Federal Special service.
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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 Officers, 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 taxes.
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 CSRS Annuity amount
In addition to the creditable service time and High-3 Average Salary, a number of other factors also influence the CSRS retirement benefit.
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Frequently Asked Questions
After reviewing the above information about retirement eligibility, you now should know when you can retire. When you should retire comes down to factors including what your expected lifestyle is in retirement, expected incomes in retirement, current debt and savings, and spending habits. Everyone's situation is unique. Contact us for a personalized consultation.
Special Provision employees are those who serve a special role within federal service. These are generally jobs with everyday high risk/stress situations such as Air Traffic Controllers, Firefighters, and Law Enforcement Officers. Because of the demands on them, they are eligible for earlier retirement. In order to compensate for less time in the system, they pay more into their pensions and receive more matching from the federal government.
The Federal Employee Retirement System (FERS) is the successor to the Civil Service Retirement System (CSRS). FERS went into full effect January 1, 1987. During the transition between FERS and CSRS, some employees were allowed to transition to the new system or remain in the old system. However, all employees hired after the formal implementation of FERS were entered into the new system.
In the rare occasion where the employee was erroneously placed into the wrong system, the federal government allows them to choose retroactively which system they want to be in (FERCCA). Federal employees who receive a letter informing them that they are eligible for this option under FERCCA should seek guidance from us or other qualified counselors before making that selection as it can result in hundreds of thousands more dollars in retirement.
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 five 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 could have ultimately been transitioned into FERS.
In both the CSRS and the FERS systems, vesting occurs upon the employee’s fifth anniversary of employment in a “creditable position.”
“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 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):
Mailing Address: U.S. Office of Personnel Management
Retirement Operations Center
Post Office Box 45
Boyers, PA 16017
There are two sources of income guaranteed in retirement to all vested FERS employees:
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 4.4%.
FERS participants pay the standard 6.2% of their 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.
The Thrift Savings Plan (TSP)
Though this plan is offered by the government to all federal employees, TSP was created as a supplement to the FERS system and is not a guaranteed payment in retirement. 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. The combined contributions then grow with the market depending on the investments chosen by the employee.
Any lifetime income advertised on a TSP statement is in fact an annuity purchased through MetLife and can require the full surrender of your account to MetLife in return for a lifetime payment with no residual going to beneficiaries. Anyone considering TSP options should consult us or another qualified fiduciary professional.
Yes. CSRS participants are also eligible to make TSP contributions under the same guidelines as FERS participants.
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 into 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.
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.
The amount of FERS pension income that each retiree qualifies for is dependent upon three factors:
- Highest three year-average salary
- Years of creditable federal service
- A multiple predetermined by the government
32 years x $100,000 high-3 x 1%
= $32,000/ year from FERS pension
If you work until at least age 62 and have at least 20 years of service though, the federal government increases your pension multiplier from 1% to 1.1% giving you a 10% pension bonus!
32 years x $100,000 high-3 x 1.1%
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 military earnings plus interest to incorporate these years into a FERS pension. However, these years must be bought back while in an active federal employee position.
- Average salary for highest three years of earnings (base + locality)
- Years of creditable federal service
- 1% (or 1.1% if you retire after age 62 and have at least 20 years of creditable service at that point)
Sally has 35 years of service, an average high salary of $50,000, and is age 62 next month. If she retires now she'll receive $17,500 a year. If she waits for her birthday that will increase to $19,250 per year.
An employee’s High-3 Average Salary is the highest average, basic salary plus locality earned during any 36 consecutive months 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.
If you have market pay or if you are a special provision employee, some additional pay is pensionable—these numbers are best confirmed using data from your Leave and Earnings Statement or Paystub.
As long as the employee is working in a creditable position in the continental United States, the locality of the job will be added to their average High 3 Average Salary when calculated for pension.
This provides a unique consideration for those federal employees who are considering switching jobs or transferring locations as some localities are significantly higher than others.
Example: a federal Customs Officer works in Eagle Pass, Texas and is within five years of retirement. She is given an opportunity to move to Houston for a lateral move. Her current salary goes up by over 15% and her pension correspondingly increases by 15%.
Unfortunately, no. The High-3 Average does not include salary earned through overtime, bonuses, or any other payment beyond basic salary unless you are a special provision employee such as Firefighter, Law Enforcement Officer or Air Traffic Control.
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. Taxes aren’t withheld from the monies until funds are distributed to the account holder. This means that your pension payments will be subject to ordinary income taxes, both federal and state (some states do NOT tax pensions however).
The good news is that in retirement, because income generally is lower, most federal employees are in a lower tax bracket and therefore take home more of their pension than they were taking home from their paycheck.
FERS participants have five retirement options:
- Standard Separation & Retirement
- Disability Retirement
- Early Retirement
- Voluntary Retirement
- Deferred Retirement
FERS participants with the standard minimum service time in a covered position are eligible to retire at age 62 (Minimum Retirement Age) without penalty, with full benefits.
FERS members with a disability wishing to apply for early, disability-related retirement must meet two criteria:
- The FERS participant must provide the employer with comprehensive documentation of all medical conditions related to the disability.
- 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.
- The employee must have completed at least 18 months in a covered position.
- The employee must have sustained his/her disability in the course of performing his/her covered position.
- 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.
- 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.
FERS participants may retire early with either reduced benefits or no reduction in benefits.
Participants with at least ten 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 5/12th percent for each month they retire before reaching the MRA.
For example, an employee who retired five 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.
Participants who complete at least 30 years of service are exempted from early retirement penalties.
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.
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.
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.
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.
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.
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.
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:
- Law Enforcement Officer
- Nuclear Materials Courier
- Customs & Border Protection Officer
- Supreme Court police Officer
- Capitol Police Officer
- Air Traffic Controller
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.
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.