Overview
For most people, transferring to FERS means you may take advantage of the features of both CSRS and FERS. (The exception is if you have less than 5 years of creditable civilian non-Offset CSRS service at the time you transfer. All of your CSRS Service will be switched over to FERS and any excess contributions can be returned to you.)
All your CSRS service is creditable toward eligibility for death and disability benefits, as well as retirement, so you and your family do not risk any gaps in protection if you transfer to FERS.
When You Can Receive Retirement Benefits
If you transfer, your past CSRS service and all future FERS Service will be added together to determine when you can retire. Instead of the CSRS retirement rules, you will follow the more flexible FERS rules that appear below:
| Retiring With Full Benefits |
|
| Retiring with Reduced Benefits |
|
Example: If you have 18 years of CSRS service when you transfer and you work 2 more years, your total service is 20 years. According to the preceding chart, you can retire with full benefits at age 60, or with reduced benefits at age 55-57 (depending on your Minimum Retirement Age).
One advantage that FERS offers is the opportunity to retire early -- at the Minimum Retirement Age with as little as 10 years of service, and transferees don't have to work under FERS for any minimum amount of time. If you retire early, you will receive reduced combined CSRS and FERS benefits. The reduction will be 5% for each year you are away from age 62 when you retire. However, there is no reduction if you are 60 when you retire and you have at least 20 years of service. You also can keep your Federal health and life insurance coverage as a retiree if you met participation requirements as an employee.
Example: If you transfer to FERS and then leave the Federal Government at age 55 with 20 years of service, you'll receive combined FERS and CSRS benefits that are 35% lower than the full benefit you would have received if you waited until age 62. You will, however, receive full cost-of-living adjustments on the CSRS part of your benefit. For many people, receiving benefits earlier and for a longer period of time will make the reduction worthwhile.
FERS rules will also apply if you leave the Federal Government before you have the right combination of age and service to retire. You'll keep your service credit and, once you reach the necessary age, will start receiving benefits. This is an important advantage to transferring to FERS. If you stay with CSRS and leave before retirement, you will not receive any benefits until age 62.
How Much You Will Receive After Retirement
The retirement benefits you actually receive normally will come from both CSRS and FERS. The higher CSRS annuity formula will be used for the years of non-Offset service you put in under CSRS. You can get credit for your unused sick leave (the amount you have when you transfer or retire, whichever is less) if you work until your MRA.
The lower FERS Basic Benefit (and the Special Retirement Supplement) formula will apply only to the years you spent under FERS and CSRS Offset, so you're probably not giving up all the CSRS benefits you've already earned. You are trading a higher CSRS benefit after you transfer for increased flexibility with FERS.
The high-3 pay that determines your benefits at retirement will be the highest 3 years in your entire Federal career, under CSRS or FERS. Your Social Security benefits will be based on all of the Social Security credits you've earned in your lifetime.
Cost-of-Living Adjustment (COLA's)
Once you start receiving retirement benefits, the CSRS part of your benefit will receive cost-of-living adjustments (COLA's) right away, even if you are receiving your CSRS benefit before you could have under CSRS rules. The FERS part of the benefit won't be eligible for a cost-of-living adjustment until you reach age 62. The FERS cost-of-living adjustment will usually be 1% less than the rate of inflation.
If you transfer to FERS and become disabled, your disability benefit will be determined totally under FERS rules. The Social Security disability portion of your benefit generally can't begin until you are fully insured and have paid Social Security taxes for 5 out of the last 10 years before you become disabled. For more information on disability benefits see the Disability Benefits Under CSRS and FERS.
How CSRS Offset Service Is Credited
If you are covered by CSRS Offset provisions, and you transfer to FERS, your Offset service becomes subject to the less generous FERS rules.
You must have at least 5 years of non-Offset service to be eligible for an annuity with a component computed under CSRS rules -- in other words you must have at least 5 years of civilian service other than your Offset service. (Count all service, even it you didn't pay CSRS deductions or you received a refund.)
If you have less than 5 years of civilian service other than CSRS Offset at the time you transfer to FERS, all of that CSRS service will become FERS service. You can request a refund of the extra money you paid for CSRS and receive it plus interest. Employees whose CSRS service will become FERS service may also receive a partial refund of any military deposits they may have paid under CSRS rules.
Example 1: Susan had 6 years of CSRS-covered employment when she resigned and got a refund of her deductions in 1985. When she was reemployed in June 1998, she was covered under the CSRS Offset provisions. She transferred to FERS in November 1998. When Susan retires, the 6 years of CSRS service will be computed under CSRS rules. However, since Offset service is treated under FERS rules once you transfer to FERS, her service from June through November becomes FERS service.
Example 2: In contrast, Bob's employment history shows that he had 4 years of CSRS-covered employment, a break, 2 years of CSRS Offset service, and another break in 1986. When he returned to Federal employment, he was covered under CSRS Offset provisions until he transferred to FERS. Since Bob had less than 5 years of non-Offset service, all of his service is now subject to FERS rules. Bob is also entitled to a refund of the extra money he paid for CSRS since he didn't previously receive a refund for his first 4 years of service.Bob thinks he has made a good decision because he is far from retirement, and he isn't sure he will stay with the Government. In addition, he is already contributing 5% of pay to the Thrift Plan, and switching to FERS gets him the full 5% Government matching contribution.
Example 3: Ed had 15 years of CSRS service, a 3-year break, and now has 12 years of CSRS Offset service. He chooses to stay in CSRS Offset because he does not want to lose CSRS credit for his Offset service. If he were to transfer to FERS, his Offset service would become subject to FERS rules. This means that, instead of getting 24% of his high-3 for this period of service under CSRS rules, he would only get 12% under FERS rules.
WARNING: Since all Offset service becomes subject to FERS when an employee transfers to FERS, it is particularly important that CSRS Offset employees give careful consideration to their first transfer opportunity. Even though your employment history may result in your having another opportunity to elect FERS at a later date, the more Offset service you have, the more you can lose by having waited to transfer to FERS. In addition, you will have missed out on the opportunity to get a government match on your Thrift Account for that service.
For most employees, the cost to participate is essentially the same under CSRS, CSRS Offset, and FERS -- in 1998, 7.0% of your basic pay. However, if you are a high salaried employee, earning more than the $68,400 maximum 1998 taxable wage base, FERS will cost less than 7.0% because the 6.2% for Social Security drops out at $68,400 leaving only the .80% for the FERS basic benefit. This is different from CSRS Offset, which is 7.0% even when Social Security taxes drop out. If FERS salary exceeds the maximum taxable wage base, contributions in 1998 stay at .80%; thus take-home pay goes up. However, if CSRS Offset salary exceeds maximum taxable wage base, when Social Security deductions stop, retirement contributions go up to 7.0% --thus take-home pay is unchanged.
If you transfer to FERS, all your CSRS service counts toward eligibility of your survivor benefits. The benefits for your survivor will be determined entirely under FERS rules. These rules include: (1) a 5 or 10% reduction in your benefits to provide survivor benefits for your spouse; (2) a spousal benefit defined as either 25 or 50% of your benefit; (3) cost of living increases generally equal to the Consumer Price Index increases minus 1%; and (4) a 10-year service requirement before any monthly annuity is payable to your spouse.
CSRS usually provides better benefits to those who retire from the Federal service before age 62. Switching to FERS lets you take advantage of the features of both retirement systems: flexibility and early retirement from FERS and a generous annuity formula and full cost-of-living adjustments from CSRS for your service before you transfer. Switching gives you the ability to get government contributions to your Thrift account and have the portability that Social Security coverage gives if you leave the Federal government and go to another job.
The next section of the handbook, called "Making Your Decision", will point out some important retirement plan considerations that can make one of the plans a better choice for you.
Updated 14 May 1998