Overview
FERS is a retirement plan that provides benefits from three different sources: a Basic Benefit Plan, Social Security, and the Thrift Savings Plan. Two of the three parts of FERS (Social Security and the Thrift Savings Plan) are portable should you leave the Federal Government before retirement. FERS gives you more control over the retirement benefits you receive.
The Basic Benefit and Social Security parts of FERS require you to make contributions each pay period. The cost of the Basic Benefit and Social Security are withheld from your pay as payroll deductions. The Government makes contributions too. Then, after you retire, you receive benefit checks each month for the rest of your life. This is what is called an annuity. The Thrift Savings Plan part of FERS is an account that is automatically set up for you. Each pay period your employing agency deposits into your account an amount equal to 1% of the basic pay you earn for the pay period. You can also make your own contributions to your TSP account and your agency will contribute even more.
Although FERS is a single retirement plan, the three benefit sources have different rules. The Basic Benefit and Social Security portions will be discussed together first. The Thrift Savings Plan will be explained by itself later.
Information about Social Security appears throughout this section on FERS. A brief overview of the Social Security program prepared by the Social Security Administration is also included in this Handbook.
There are also some special rules for employees who transfer from CSRS/CSRS Offset to FERS.
When You Can Receive Retirement Benefits
Basic Benefit Plan
If You Stay Until Retirement Age
With FERS, you can retire with a Basic Benefit as soon as you reach the Minimum Retirement Age (MRA) and have just 10 years of service. The MRA is the first year in which you can receive benefits. It varies according to the year you were born. For anyone born before 1948, the MRA is age 55. It increases gradually to age 56 for those born before 1965 and goes up to 57 for those born in 1970 and after.
The following chart will help you determine what your MRA is.
| Minimum Retirement Age | |
|---|---|
| If you were born... | Your MRA is... |
| Before 1948 | 55 |
| In 1948 | 55 and 2 months |
| In 1949 | 55 and 4 months |
| In 1950 | 55 and 6 months |
| In 1951 | 55 and 8 months |
| In 1952 | 55 and 10 months |
| In 1953 - 1964 | 56 |
| In 1965 | 56 and 2 months |
| In 1966 | 56 and 4 months |
| In 1967 | 56 and 6 months |
| In 1968 | 56 and 8 months |
| In 1969 | 56 and 10 months |
| In 1970 and after | 57 |
Under FERS, you can retire when your age and years of Federal service match any of the retirement combinations shown below. These are all immediate annuity benefits that also allow you to keep your Federal Employees Health Benefits (FEHB) and Federal Employees' Group Life Insurance (FEGLI) coverages as a retiree if you have been enrolled for enough time (usually the 5 years immediately preceding your retirement) before you retire.
| Retiring Under FERS | |
|---|---|
| If you leave with this much service | You get Basic Benefits at this age |
| At least 5 years | 62 years |
| At least 10 years | Your Minimum Retirement Age, with reduced annuity |
| At least 20 years | 60 years* |
| At least 30 years | Your Minimum Retirement Age* |
| *With these combinations, your Basic Benefit includes the Special Retirement Supplement if you have at least 1 full calendar year of FERS coverage. | |
Postponing Your Benefits
If you retire at...
If You Leave Before Retirement Age
One real advantage to FERS is that you do not have to stay with the Federal Government until retirement to receive good value from your retirement plan. This value comes from the fact you get an Agency Automatic contribution to your Thrift Savings Plan (TSP) account equal to 1% of your salary. Plus, if you contribute to the TSP, you can get up to 4% more. In addition, you will probably earn more Social Security credits wherever you work next. If you leave the Government long before retirement, with little service, FERS will always be best.
Let's say that you leave before you have the right combination of age and service to retire. Once you reach the age shown in the chart above, you may elect to begin receiving benefits. If you don't have 30 years of service, you may also choose to put off receiving benefits until as late as age 62. This will allow you to receive a bigger benefit by avoiding part or all of the 5% per year reduction, and you can collect on your Social Security and your TSP benefits.
If you don't want to wait until retirement age, you can withdraw all of the money you have contributed toward the FERS Basic Benefit Plan. It will be paid to you with a market rate of interest; that is, the same rate of interest earned by the U.S. Treasury securities purchased by the Retirement Fund (the account that contains all employee and employer contributions to CSRS and FERS). However, you give up your right to your Basic Benefit after retirement. If you take your money out, you cannot put it back in if you return to work with the Federal Government later. It's usually better to leave your money in FERS so that you can receive monthly benefits when you retire. This is because you pay very little compared to the benefits you will eventually receive from the Basic Benefit.
For almost all American workers, Social Security is the basic retirement plan to which other benefits are added. To qualify for Social Security retirement benefits, you must have paid Social Security taxes for at least 10 years (or 40 credits or "quarters") over the course of your lifetime. (This 40-credit rule applies if you were born after 1928. If you were born before 1929, you need fewer credits to qualify). The Social Security credits you earn as a Federal employee are added to those you have earned in other employment throughout your career.
You can receive unreduced Social Security benefits if you wait until age 65. Starting in the year 2000, this age will gradually increase to 67. Or, you can retire at age 62 and receive reduced benefits. Your monthly Social Security checks will be reduced about 20% from the full benefit amount you would receive if you waited until age 65. (This gradually increases to a 30% reduction for those born in 1960 or later.) Leaving the Federal Government before you retire has no effect on the Social Security benefits you receive later. All of your FERS Social Security credits (years of covered employment) still count. You may continue to add more Social Security credits as long as you work under Social Security. You can still receive reduced Social Security benefits at age 62 or full benefits at age 65 (or later as the Social Security retirement age goes up to 67).
How Much You Will Receive After Retirement
Basic Benefit Plan
The amount of your FERS Basic Benefit annuity -- the monthly checks you receive after retirement -- depends on two things: your pay and your length of service.
As in most other retirement plans, an annuity formula is used to determine your benefits. The Government averages your highest 3 consecutive years of basic pay in your Federal career. This "high-3" average pay, together with your length of service, are used in the annuity formula. Your length of service is the total number of years and months you were covered under FERS.
Here is how the annuity formula is calculated:
| FERS Annuity Formula |
|---|
| One Percent of your high-3 average pay for every year of service. |
| (Exception: If you are age 62 or older and have at least 20 years of service when you retire, you will receive 1.1% of your high-3 pay for every year of service.) |
According to this formula, if you retire at age 55 with 30 years of service, you will be eligible for an annual annuity that is 30% of your high-3 pay. If you retire at age 62 with 30 years of service, you would get 33% of your high-3 pay.
In addition, if you have at least 1 calendar year (January 1 to December 31) of FERS service, you will be eligible for the Special Retirement Supplement. The Special Retirement Supplement (also known as the FERS Annuity Supplement) is a special benefit for those who have at least 1 full calendar year of FERS coverage, and who retire
If you take advantage of the FERS early retirement option (retiring at your MRA after leaving the Government), your annuity will be calculated according to the FERS annuity formula shown at the beginning of this section. Then, if you have less than 30 years of service, it will be reduced 5% for each year you are away from age 62 when you retire or elect to receive benefits. If you are 60 with 20 years of service, there is no reduction.
Remember, the Basic Benefit is just one of the three sources of benefits you'll receive. You may also get Social Security and Thrift Savings Plan benefits.
Social Security
It's difficult to predict exactly how much you will receive from Social Security.
A number of factors can affect your Social Security benefits, such as your complete pay history, whether or not you plan to work after retirement, and whether your spouse has been covered by Social Security.
Social Security benefits are determined by a three-part formula that is applied to your lifetime earnings under Social Security. Those who postpone receiving Social Security benefits until the full retirement age get higher benefits from the system.
Whether you start receiving Social Security benefits at age 62 or at the full retirement age, you should be aware that continuing to work may result in what is called an earnings offset under the Social Security Earnings Test. If you work at any job after you start receiving Social Security payments, your benefits will be reduced if you earn over the allowable amount. If you are under your full retirement age, for every $2.00 you earn over the amount, you'll give up $1.00 in Social Security benefits. The same rules apply to the Special Retirement Supplement. (See Special Notes on the Social Security Earnings Test.)
More information about Social Security is presented in the Brief Description of the Social Security Program section.
Cost-of-Living Adjustments (COLA's)
Basic Benefit Plan
Cost-of-living adjustments, or COLA's under the FERS Basic Benefit Plan begin when you reach age 62.
FERS cost-of-living adjustments's match the rate of inflation when the increase in the Consumer Price Index (CPI) is up to 2%. (The CPI is a monthly survey that measures changes in consumer prices.) If the increase in the CPI is between 2% and 3%, the cost-of-living adjustments will be 2%. If the CPI increases 3% or more, the cost-of-living adjustments will be the rate of increase in the CPI minus 1%. This means that FERS cost-of-living adjustments are sometimes less than the rate of inflation.
For example, if the increase in the CPI is 2%, FERS basic benefit payments will increase by 2%. If the increase in the CPI is 5%, FERS retirement checks will increase by 4%.
The Supplement paid through age 62 is not increased by cost-of-living adjustments.
Social Security
Social Security gives cost-of-living adjustments that match the rate of inflation.
Basic Benefit Plan
FERS Basic Benefits, including the Special Retirement Supplement, are financed by very small contributions from you and much larger contributions from the Government. Your contributions are automatically deducted from your paychecks. The Basic Benefit deduction for 1998 is .80% of the total basic pay (basic pay, not including such things as overtime, bonuses, etc.) you earn in a pay period. However, in contrast, your agency pays 11.5% of your pay each pay period for your Basic Benefit.
If you leave the Federal Government before retirement, you can take out all of your Basic Benefit Plan contributions, and you will receive market rate interest, but you lose any right to a future Basic Benefit based on that service. This means that the service covered by the refund will not count toward eligibility to retire if you become a Federal employee again. However, taking a refund does not affect creditability of the service for non-retirement purposes such as reduction in force credit or leave.
Social Security
Your contributions to Social Security are actually a tax. This means that there are no refunds -- even if you never gain enough years of Social Security credit to qualify for benefits.
Social Security taxes are a percentage of your pay, including overtime and bonuses. They are limited to earnings below the maximum taxable wage base, which in 1998 is $68,400. This amount increases each year based on the annual average increase in earnings of the American work force as a whole. (You do not pay Social Security taxes on any earnings above the maximum taxable wage base. However, these excess earnings are not used in calculating your Social Security benefits, either.) The Social Security tax rate, not counting Medicare, in 1998 is 6.2% of salary up to the maximum taxable wage base. Your agency also pays the same amount.
Total Cost to Participate
The total cost to you of the FERS Basic Benefit contribution and Social Security in 1998 is 7.0%. This 7% is made up of .80% of pay for the Basic Benefit and 6.2% for Social Security. However, FERS will cost you less than 7.0% if you earn more than the $68,400 maximum taxable wage base because the Social Security tax stops when your earnings reach this amount. You only pay .80% of pay for the Basic Benefit until January 1 of the next year, when you start paying Social Security taxes for a new year. For example, suppose that Jill's pay reaches $68,400 on November 15. From November 16 thru December 31, she pays only .80% of basic pay for her FERS basic benefit. On January 1, Social Security taxes start again for the new year.
The Thrift Savings Plan is an important part of the total FERS retirement package. It gives you a way to save extra money for the future and to get a tax break today.
When you join FERS, your agency sets up a Thrift Savings Plan account in your name. Every pay period, your agency automatically puts in an amount equal to 1% of your basic pay. This money is called your Agency Automatic (1%) Contribution. It is not a deduction from your basic pay. It is an amount your agency contributes for you based on your basic pay per pay period.
In addition, you can contribute up to 10% of your basic pay per pay period to your Thrift Savings Plan account. If you contribute to your Thrift Savings Plan account, you will also receive Agency Matchings Contributions as follows:
The following chart shows how your agency matches your contributions:
| Percent of Basic Pay Contributed to Your Account (FERS Participants Only) | |||
|---|---|---|---|
| If you Put In: | Then Your Agency Puts In: | And the Total Contribution Is: | |
| 0% | 1% | 0% | 1% |
| 1% | 1% | 1% | 3% |
| 2% | 1% | 2% | 5% |
| 3% | 1% | 3% | 7% |
| 4% | 1% | 3.5% | 8.5% |
| 5% | 1% | 4% | 10% |
| 6-10% | 1% | 4% | 5% Plus the percentage you contribute |
The money in your Thrift Savings Plan account can be invested in any of the three investment funds: the Government Securities Investment (G) Fund, the Common Stock Index Investment (C) Fund, and the Fixed Income Investment (F) Fund. The C and F Funds are riskier than the G Fund but have the potential for earning higher rates of return. For example, during the 10-year period 1988 through 1997, the C Fund's compound annual rate of return was 17.49%.
Twice each year there is a Thrift Savings Plan open season. During the open season, you can start, stop, increase or decrease, and change the investment of your Thrift Savings Plan contributions. The investment election you make during the open season affects only your future contributions. You may move any portion of your existing account balance among the three funds by requesting an interfund transfer in any month you choose, without an annual limit.
You can stop contributing to the Thrift Savings Plan at any time. However, if you stop contributing outside an open season, you must wait until the second open season after you stop before you can contribute again. If you stop contributing during an open season, you may resume contributions during the next open season.
You get a tax break for saving in the Thrift Savings Plan because your Thrift Savings Plan contribution comes out of your basic pay before Federal and many State and local income taxes are figured. There is, however, an Internal Revenue Service annual limit on tax-deferred contributions. For 1998, the limit is $10,000; this limit is indexed to cost-of-living adjustments referred to in the Tax code and may change from year to year. You won't owe taxes on your contributions and attributable earnings until you withdraw your TSP account. You can withdraw your account when you separate or retire from Federal service. If you transfer all or any portion of your Thrift Savings Plan account balance to an Individual Retirement Arrangement or other eligible retirement plan, you do not pay taxes on the funds transferred when they are transferred. You will, however, be subject to applicable taxes when you withdraw your funds from the Individual Retirement Arrangement or other eligible retirement plan.
You may withdraw money from your Thrift account while you are working for the Government if you are age 59 or older or document financial hardship. You will be liable for taxes on the amount withdrawn and, if you are under age 59 , for the 10% early withdrawal penalty. You also can borrow from it. There are two types of TSP loans: general purpose and residential. You must have at least $1,000 in your own contributions and associated earnings to be eligible for a loan.
The Thrift Savings Plan is managed by the Federal Retirement Thrift Investment Board, an independent Government agency. The Board manages the G Fund and contracts with a professional asset manager to manage the C and F Funds. This book describes the elements of the Thrift Savings Plan that are most important in making a transfer decision. To find out more about the Thrift Savings Plan, ask your employing agency for the most recent booklet prepared and issued by the Board. You should read the Board's detailed information on each of the Investment Funds and review each Fund's performance before making any investment decision. The Board also issues a Fact Sheet each month containing the monthly returns for the Thrift funds. This is available from your agency. TSP publications, forms, and rates of return are also available from the TSP Web site (www.tsp.gov).
Important Conclusions About FERS
FERS is flexible for a work force that is more likely to work for several different employers over the course of a career. It allows for the fact that many employees may not retire from the Federal government. FERS builds on the Social Security credits that employees already have or may earn in the future from non-Federal work. Also, the Thrift Savings Plan keeps its value after an employee leaves Federal service.
There are some important advantages to FERS:
If you do stay with the Federal Government until retirement, you will also receive good benefits based on your FERS coverage. FERS comes out ahead of CSRS if you retire late because the annuity value of your Social Security benefit and Thrift Savings Plan go up quickly if you continue to work past age 62. The Windfall Elimination Provision penalty reduces as you go from 20 to 30 years of service under FERS. The reduced cost-of-living adjustments have less effect if you retire later.
Updated 14 May 1998