What’s FERS retirement?

If you are a federal employee, you may be familiar with the Federal Employees Retirement System (FERS). Similar to private-sector employers who offer 401(k) retirement plans to their employees, the federal government provides FERS retirements to civilian employees working in the federal government.

FERS retirement is a retirement plan for all US civilian employees, which comprises employees working in the executive, legislative, and judicial branches of the government. Retired federal employees receive benefits from three main sources i.e. the basic benefit plan, social security, and Thrift Savings plan. FERS retirement does not cover state employees and military personnel.

What is the FERS Retirement?

FERS retirement is a defined-benefits plan that became effective in 1987. All new federal employees hired after 1983 were automatically enrolled into the new retirement plan. Employees are required to contribute a percentage of their salary to the retirement plan to be eligible for retirement benefits upon retirement. The retirement benefits that covered employees receive under FERS are based on the employee’s earnings and years of service.

FERS retirement replaced the Civil Service Retirement System (CSRS), which provided benefits for civilian employees working for the federal government. However, employees who were originally enrolled through the CSRS retirement system and were hired before 1983 maintained the older retirement plan. Though FERS is less generous than CSRS, it was designed to rival retirement plans provided to private sector employees.

Components of FERS Retirement

FERS is a three-tier retirement plan, and it includes Social Security benefits, a Basic Benefits plan, and Thrift Savings Plan. Here is a detailed breakdown of these benefits:

Basic benefit plan

The basic benefit plan is a pension plan that pays a monthly income in retirement based on years of service and your high-3 average. A high-3 average refers to the three consecutive years of services when you earned the highest benefits. The benefit you get will be a fixed amount based on several factors, but it does not consider the amount you contributed. Generally, the longer you work in a covered job, the higher your monthly income from the basic benefit plan will be.

The basic benefit plan is calculated as follows:

Annual Pension= High-3 salary x Years of Service x Pension Multiplier

Social Security

FERS retirees also receive benefits from Social Security. Social Security is a government program that pays monthly benefits to eligible retired workers who worked in a covered job. The amount of Social Security benefits you receive depends on the money you earned over your working years and the number of years you worked in a covered job.

If you want to know the amount of benefits you will receive from Social Security, you should check your Social Security statement by logging into your My Social Security account, or by calling the Social Security hotline number to request a paper statement. If you are age 60 or older, Social Security will mail you a paper statement showing your actual benefits.

The Thrift Savings Plan

A Thrift Savings Plan (TSP) is a retirement plan that allows federal employees to make contributions through payroll deductions. It is similar to a 401(k) plan, and it allows federal employees to make pre-tax or post-tax contributions to the plan.

Although employees are allowed to decide how their TSP contributions are invested, the pool of investment options is limited.  Most federal employees may also be eligible for a match, where the employer contributes money to their TSP account. The amount you receive from the TSP plan when you retire depends on how much you contributed to the plan, and how well you invested the funds.

Retirement Options under FERS Retirement

Here are the retirement options you have under FERS retirement:

Disability retirement

If you become disabled and you are unable to work, you may qualify for disability benefits through FERS retirement plan. To be eligible for disability retirement, you must have at least 18 months of creditable service and be unable to perform your job responsibilities. You will be required to provide medical documentation of the disabling condition.

Early retirement

Early retirement is available to employees who have met the requirements for voluntary or deferred retirement but want to retire before reaching the minimum retirement age. Employees who retire early due to involuntary separation may also be eligible for early retirement benefits.

You can opt for early retirement if you are at least age 50 with 20 years of creditable service or any age with 25 years of creditable service. There may be a reduction in benefits for employees who choose early retirement.

Deferred retirement

This benefit is available to federal employees with at least 5 years of service who choose to leave the service. In this case, the employee receives an unreduced benefit as long as they wait until age 62 to collect this benefit. Also, if an employee has at least 30 years of service, they can choose to leave federal service before reaching the minimum retirement age (MRA), and defer taking benefits until they attain MRA.

Voluntary retirement

Voluntary retirement is a way to retire before you reach the minimum retirement age, and it has several benefits. Voluntary retirement allows you to retire sooner than if you wait for regular or deferred retirement. This can be a great option if you are nearing the age limit or if you want to retire before reaching the minimum service requirement. However, you must have the right combination of age and years of service.

To qualify for voluntary retirement, you must have attained the minimum retirement age and have 30 years of creditable service, be at least age 60 with 20 years of creditable service, or be at least age 62 with 5 years of creditable service. The MRA ranges between age 55 and 57, depending on the year you were born.

When to apply for FERS Retirement

To apply for Federal Employees Retirement System (FERS), you must complete the FERS retirement application i.e. standard form 3107 (PDF). If you have completed at least 30 days since separation from federal service, you should send the application form to the Office of Personnel Management (OPM). You should submit the application prior to the planned retirement date, as there may be a waiting period before your benefits become effective.