What does a government employee get after retirement?

If you are a government employee, you may be covered by the Federal Employees Retirement System (FERS) or the Civil Service Retirement System (CSRS). Civilian federal workers hired before 1984 were covered by CSRS, but this retirement system was replaced by FERS in 1987. Federal civilian employees hired after 1984 were automatically enrolled into the FERS retirement plan.

Federal workers covered by FERS receive retirement benefits from the basic benefit plan, social security, and Thrift Savings Plan (TSP). The basic benefit plan is a pension that is paid based on your high-3 average salary and years of service. You can collect social security income starting from age 62, but you can wait until you reach the full retirement age to get the full benefits. You can also take distributions from your TSP when you retire or wait until when you reach age 72 to take the required minimum distributions.

What is the Federal Employees Retirement System (FERS)?

FERS is a retirement plan for federal employees, and it covers employees working in the three arms of government i.e. executive, judiciary, and legislature. It does not cover state government employees (see PERS retirement plan) or military personnel.

FERS replaced the Civil Service Retirement Service (CSRS) in 1987, and all new civilian employees hired after 1984 were enrolled in FERS. Unlike the CSRS, all federal employees enrolled in FERS pay taxes to social security, and earn social security benefits when they retire. These employees are eligible to contribute to a TSP plan, and they can receive employer matching contributions.  

Employees enrolled in FERS become fully vested after five years of service. Employees born before 1948 have a minimum retirement age (MRA) of 55, and the MRA increases to 57 for employees born in 1970 or after. If you have reached the minimum retirement age and you have completed at least 30 years of service, you can retire and receive an immediate unreduced annuity. If your length of service spans at least 20 years, you can retire at age 60 with an unreduced annuity. If you have at least 5 years of service, you can retire with an unreduced benefit at age 62.

Components of FERS Benefits

FERS is a three-tiered retirement plan, and it comprises the following elements:

Basic benefit plan

The basic benefit is also known as a defined pension plan, and it pays a specified sum of money based on a pre-determined formula. Although the pension portion of FERS is less lucrative than the CSRS pension, it is still a valuable benefit for retirees. The pension you receive is based on your years of creditable service and the average of your highest three earning years of your federal service. If you retire early, you will be eligible to receive the FERS annuity supplement until age 62, when you can start collecting social security.

Social security

Federal employees enrolled in the FERS plan pay 6.2% of the eligible earnings into the social security fund. Once you reach age 62, you can start receiving social security benefits. However, if you wait until you reach the full retirement age, you will get the full benefits.

However, if you reach the minimum retirement age for FERS and retire before 62, you will be eligible for a FERS annuity supplement. This supplement is equivalent to the portion of social security benefit that federal workers are eligible to receive at age 62, based on their years of federal service.

Thrift Savings Plan

Congress established the Thrift Savings Plan to offer federal workers the same tax benefits as a 401(k). Typically, the agency you work for contributes 1% of your basic pay into your TSP account, and you can decide to make additional contributions to the plan. The agency you work for will match your TSP contributions up to 5% of your pay. The contributions you make to your TSP are tax-deferred, and you can choose how these funds are invested.

CSRS vs FERS

CSRS is a pension plan for federal workers that was established in 1920, and it provides a lifetime annuity to retired workers. When the Social Security Administration was established in 1935, federal employees were ineligible to receive social security since they received an annuity from CSRS.

When FERS was launched in 1987, all federal workers hired before 1983 were allowed to switch over to the FERS system, while all new federal workers hired after 1983 were automatically enrolled in FERS.

Although FERS pays a lower retirement benefit than CSRS, employees enrolled in the retirement plan are eligible for social security and an employer match into their thrift savings plan. In contrast, a CSRS plan provides a larger benefit to retirees than FERS, since the employer deducts a bigger portion of the employee’s pay. Employees contribute 7% of their pay to the CSRS plan compared to a maximum of 4.4% for FERS employees.