FERS: Making your Golden Years Golden!


Federal employees enjoy some of the best benefits in the country, but the current Federal Employee Retirement System, known as FERS, is a relative newcomer to the system. The previous Federal retirement program, the Civil Service Retirement System (CSRS), although still in use for those employed prior to 1984, is no longer available to new employees.

It was with FERS that the Federal government began the process of shifting from a single benefit retirement plan (CSRS) to a three-part system that has elements similar to the 401(k)-based plans that dominate the private sector today. The biggest plus of the FERS system vs. the typical private sector retirement benefit is that FERS has both a basic pension benefit as well as an employer-sponsored savings plan.

Federal employees who began work after 1983 are automatically enrolled in FERS, which provides benefits not only for retirement, but for disability and survivors as well. As a federal employee, you automatically contribute .8% of your salary to this program. You are vested in FERS, meaning you have earned the right to the full amount of the benefit, after five years, or after 18 months for disability retirement.

The FERS retirement benefit system is made up of three parts, and when you retire, you receive benefits from each of the agencies that oversee that portion of the retirement benefit.

Social Security

The Social Security Administration has the responsibility for administering the Social Security benefits of FERS. The Social Security benefit is the same for both Federal government employees and private sector employees. Most of the cost of Social Security is paid for through payroll tax deductions. Each year you pay a percentage of your salary up to a specified amount, with your employer paying matching contributions. Should you leave federal employment, your social security benefit follows you to your next job.

Thrift Savings Plan (TSP)

The Federal Thrift Investment Board administers the TSP, which is a defined contribution plan, meaning a certain amount or percentage of money is set aside annually for the benefit of the employee. It is similar to a 401K plan that is normally offered in the private sector.

FERS employees can contribute up to $16,500 in 2011 and $17,000 in 2012 of basic pay annually. The government automatically contributes 1% of employee’s basic pay to the TSP; up to 5% of basic pay depending on the amount of the employee’s contribution.
Your TSP account is the part of your retirement benefit that you control — you decide how much of your pay to put in, how to invest it, and, when you retire, you decide how you want your money paid out. Should you leave Federal employment, the TSP can go with you.

Basic Annuity

The basic annuity portion of the FERS system offers the federal employee the best ‘bang for their buck’ in their retirement benefits. An annuity offers guaranteed lifetime retirement income. Your contribution to the Basic Benefit Plan is .8% of your annual pay. The Federal government contributes an additional 11.5% of your pay each pay period for your Basic Benefit.
The basic annuity portion of FERS does not transfer with you should you leave Federal employment. You may withdraw your basic benefit contributions though, but you will not be eligible to receive benefits based on service covered by the refund.
Your basic benefit is based on a formula involving the “high-3 average pay,” which is figured by averaging your highest basic pay over any 3 consecutive years. In addition to this benefit, some Federal employees may be eligible for a Special Retirement Supplement if they meet the Minimum Retirement Age (MRA) with 30 years of service or they are age 60 with 20 years of service.
The Bottom Line in Federal Retirement Benefits

Knowing the Federal Employee Retirement System gives you the best opportunity to make the most of your retirement benefits. Sometimes, simply working an extra month or two will pay big dividends and be well worth the time. It’s up to you to take control of your retirement years by learning the FERS system.

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