FERS Transfer Handbook: Civil Service Retirement System (CSRS)

Overview

The Civil Service Retirement System (CSRS) has traditionally been a single benefit retirement plan. Employees have had one payroll deduction for the plan and, after retirement, have received one check from CSRS each month for the rest of their lives.

CSRS employees may also contribute to the Thrift Savings Plan in order to receive additional retirement income. If you stay with CSRS, you can contribute up to 5% of your basic pay each pay period and receive a tax break today. (CSRS, including CSRS Offset employees, receive no agency contributions to their Thrift accounts.)

If you have CSRS Offset coverage, you should read both this section, which gives the basic CSRS rules, as well as the following section. It tells you what is different under the Offset rules. If you are a law enforcement officer, firefighter, air traffic controller, or military reserve technician, you also need to read the Special Employee Groups section.

When You Can Receive Retirement Benefits

If You Stay Until Retirement Age

With CSRS, you can retire with full benefits as soon as your age and years of Federal service match one of the retirement combinations shown below:

Retiring Under CSRS

• At least age 55 with 30 years of service or more.
• At least age 60 with 20 years of service or more.
• At least age 62 with 5 years of service or more.

Except in limited circumstances, CSRS does not allow you to retire voluntarily before you have the required age and service combination and take a reduced benefit (a reduced annuity) like FERS and many other modern plans do.

If You Leave Before Retirement Age

The chart above shows when you can retire and begin receiving CSRS benefits as an immediate annuity. If you leave Federal service before you are eligible to retire, you must wait until age 62 to receive monthly benefits, no matter how many years of service you have.

For example, let's say you simply stop working for the Federal Government at age 53 with 30 years of service. You're not 55 yet, so you don't qualify for retirement. Your monthly checks from CSRS won't start until you turn 62. Your monthly benefit amount is based on your pay when you leave. With inflation, those dollars don't buy as much by the time you receive them at age 62. You can't continue your health or life insurance as a retiree, either.

If you don't want to wait until age 62 to get benefits, you can withdraw all of the money you've contributed when you leave. However, in most cases, your money will be returned to you without any interest, and, you will not get monthly checks from CSRS, even at age 62.

How Much You Will Receive After Retirement

The amount of your annuity -- the monthly checks you receive after retirement -- depends on two things: your pay and your length of service. In computing your annuity, the Government uses your 3 highest consecutive years of basic pay and your length of service (the number of years and months you worked for the Federal Government and your creditable military service). If you retire and receive a benefit right away, you will also get credit for any unused sick leave.

Here is how the CSRS annuity formula is calculated:

CSRS Annuity Formula
Years of Service	What You Receive
First 5 years of service	1.5% of your high-3 average pay for each year, or 7.50% of your high-3.
Second 5 years of service	Plus 1.75% of your high-3 average pay for each year, or 8.75% more for a total of 16.25%.
For all years of service over 10	Plus 2% of your high-3 average pay for each year.
10 more years (20 total years)	20% more, for a total of about 36% of your high-3.
15 more years (25 total years)	30% more, for a total benefit of about 46% of your high-3.
20 more years (30 total years)	40% more, for a total benefit of about 56% of your high-3.

Note: The maximum benefit you can receive from CSRS is 80% of your high-3 pay plus credit for your sick leave. This limit generally affects only those who have more than 41 years of service when they retire.

According to the formula above, if you retire at age 55 with 30 years of service, you will be eligible for an annual annuity that is about 56% of your high-3 pay.

You will receive your full monthly annuity even if you have other retirement income or start a second non-Federal career when you retire. There is no reduction in your annuity because of other employment.

This is a very generous annuity formula compared to those used by many other retirement plans. As you can see, it rewards long service, because you receive more money for the years of service that come late in your career. It's not quite as generous if you have less than 10 years of service.

Cost-of-Living Adjustments (COLA's)

Inflation is a fact of life, but the actual rate of increase varies from year to year. To help retirement benefits keep pace with inflation, CSRS gives all those who retire annual cost-of-living adjustments or COLA's.

Your retirement benefits are eligible to be increased by a cost-of-living-adjustment in the year after you retire, and every year after that. The increases you receive each year actually match the rate of inflation, as measured by the Consumer Price Index (CPI).

For example, if the increase in the Consumer Price Index is 2%, CSRS retirement checks will increase by 2%. If the increase in the Consumer Price Index is 5%, the cost-of-living adjustments will also be 5%.

Cost-of-living adjustments help make sure that your retirement dollars keep the same buying power year after year. CSRS is better than many other retirement plans because it provides complete protection against inflation.

Cost to Participate

CSRS retirement benefits are financed by contributions from you and much larger contributions from the Government. Your contributions are automatically deducted from your paychecks. Your deduction in 1998 is 7.0% of the total basic pay you earn in a pay period. Your agency pays 7.0% of your basic pay each pay period. The balance of the cost of CSRS benefits are paid from the U.S. Treasury.

Thrift Savings Plan for CSRS

CSRS employees may participate in the Thrift Savings Plan. The Plan gives you a way to save extra money for the future and gives you a tax break today. The Plan allows you to contribute up to 5% of your basic pay per pay period on a before tax basis to your Thrift Savings Plan account. CSRS employees do not receive Agency Matching or Automatic (1%) Contributions.

The Thrift Savings Plan investment options, withdrawal and tax information are the same for both CSRS and FERS employees. See the FERS Thrift Savings Plan section for this information.

Voluntary Contributions for CSRS

CSRS employees also may make voluntary contributions. Total contributions may not exceed 10% of the total pay an employee has received to date. At retirement, each $100 in voluntary contributions (including interest earned) will provide an additional annuity of $7 a year, plus 20 cents for each full year you are over age 55 at the time you retire. You may also choose to share the annuity by electing a survivor annuity. Voluntary contributions paid out as additional annuity are not increased by cost-of-living adjustments. Voluntary contributions can also be paid out as a lump sum refund at any time before retirement.

Voluntary contributions earn a variable interest rate determined by the Treasury Department each calendar year, based on the average yield of new investments purchased by the CSRS fund during the previous fiscal year. The interest rate payable for 1998 is 6.75%. Interest accrues to the date of the refund calculation, separation, or transfer to a position not subject to CSRS or FERS, whichever is earliest. Employees who transfer to FERS may retain a voluntary contributions account, but may not add to it after transferring.

Interest on voluntary contributions is not taxed until the tax year in which it is paid out. At that time, interest may be rolled over to an Individual Retirement Account to further defer taxes. However, in contrast with Thrift Savings Plan contributions, voluntary contributions are not pre-tax dollars that permit you to reduce your taxable income. For further information on voluntary contributions, ask your servicing personnel office for the pamphlet "Voluntary Contributions Under the Civil Service Retirement System," (RI 83-10). Voluntary contributions are administered by the U.S. Office of Personnel Management. This program is not part of the Thrift Savings Plan.

Important Conclusions About CSRS

CSRS was designed for a workforce that was likely to retire from the Federal Government after many years of service. For that reason, it provides excellent benefits to employees who put in many years of service, especially if they retire before age 60. Employees who join the Federal Government late in their careers and can't retire before age 60 are less well off. CSRS does not provide good benefits to employees who leave the Federal Government before they are eligible to retire.

There are some important advantages to CSRS:

• You can retire as early as age 55 with 30 years of service and begin receiving full benefits. Even if you start a second career somewhere else, your benefits aren't affected.
• Once you begin receiving monthly checks, you also receive annual cost-of-living adjustments that match the increases in the Consumer Price Index. So, your retirement dollars keep the same buying power.
• The annuity formula is very generous when compared to many other retirement plans. It especially rewards employees who spend many years in Federal service.
• If you work until retirement, you get retirement credit for your unused sick leave.

There are also some disadvantages to CSRS that apply if you leave the Federal Government before you're eligible to retire:

• The earliest you can begin receiving monthly retirement checks is at age 62. It doesn't matter how many years of Federal service you have. While you're waiting to become eligible for your benefit, the buying power of your retirement dollars goes down because of inflation. You don't receive cost-of-living adjustments until your benefits begin. Also, the monthly checks you receive will be smaller than if you had stayed in Federal service. Your annuity is calculated according to the pay and service you had when you left Federal service.
• Unless you are a CSRS Offset person, under CSRS, you do not have Social Security coverage. This means that if you leave the Federal Government before retirement, you have not been earning credits under Social Security. If you get a new job in the private sector, you and your family may not have any benefit if you become disabled or die until you have worked long enough to have earned these benefits.

In general, the Civil Service Retirement System is a good retirement plan for employees who know that they will stay with the Federal Government until they are eligible to retire and who retire young. It is not very well-suited to employees who may not spend their entire careers in Federal service, particularly if they leave before retirement.

CSRS Offset Benefits

If you have CSRS Offset coverage, the regular CSRS rules described in the preceding section about when you can receive retirement benefits, how the benefit is computed, and cost-of-living adjustments apply to you. Also, the rules for participating in the Thrift Savings Plan are the same for both CSRS and CSRS Offset employees.

What is different for CSRS Offset employees is the fact that you are paying Social Security taxes and earning a Social Security benefit at the same time that you are paying CSRS deductions and earning a CSRS annuity. However, instead of paying 6.2% of pay for Social Security plus 7.0% for CSRS, the Social Security tax is subtracted from, or offset, from the 7.0% for CSRS. The amount you pay for CSRS in 1998 is .80% of your basic pay. If your total pay in a year exceeds the maximum amount that is subject to Social Security taxes ($68,400 in 1998), the Social Security deduction stops and your CSRS deduction increases to 7.0% of your basic pay. Thus, you pay the same 7.0% cost for retirement as a CSRS employee, but the amount is divided between CSRS and Social Security.

When you retire, your annuity is computed under the same rules that apply to all CSRS employees. However, when you become eligible for Social Security benefits (normally at age 62), your CSRS benefit is reduced, or offset, by the value of your CSRS Offset service in your Social Security benefit. If you want to estimate the amount of the offset from your future annuity, see these instructions.

Note: If you do not become eligible for any Social Security benefit, there is no offset.

Important Conclusions About CSRS Offset

You receive the value of the CSRS benefit formula and cost-of-living adjustments, but pay a smaller amount for this benefit. You also enjoy the flexibility of having Social Security coverage that continues to build if you leave the Federal Government to work elsewhere.

If you leave the Federal Government before retirement, the same drawbacks that apply to CSRS employees who leave early also apply to you. However, you have paid far less for your benefit and your Social Security benefit is portable.

WARNING: If you are considering electing FERS you must keep in mind that any CSRS Offset service (service under both CSRS and Social Security) will then change to FERS service. Since FERS pays a lower percentage of your "high 3" average salary, this could make a significant difference in the amount of your Federal retirement benefits. See Special Transfer Rules section.

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