Federal Employees Retirement System - FERS

Alex Sierra, CFP®️

June 24, 2024

Federal Employees,

As dedicated employees of the Federal government, your focus is on doing what you do to serve the country. Sometimes it can be tough to take time to think about your own financial future, especially when it comes to the Federal Employees Retirement System or “FERS”. This blog post is designed to provide you with a deeper insight into the FERS pension, ensuring you are well-prepared for your retirement journey.

Participation

Participation in FERS is mandatory for most federal employees and became effective on January 1, 1987. Employees are automatically enrolled in FERS, which covers full-time and part-time workers. The Federal Employees Retirement System provides benefits from 3 different sources: The Basic Benefit Plan, Social Security, and the Thrift Savings Plan (TSP)¹. Social Security is a federal retirement pension that almost all employees and employers contribute to throughout the country. The Thrift Savings Plan is a defined contribution plan, like a 401(k) or a 403(b) that typically involves investing. This article will focus on the Basic Benefit Plan which is the pension plan unique to FERS participants.

Contributions

FERS Basic Benefit Plan funding is a joint effort between employees and the federal government. Employees automatically contribute a percentage of their salary toward their retirement benefits, while the government also makes contributions on their behalf. Employees hired before January 1^st, 2013, who completed 5 years of service prior to this date contribute 0.8% of their salary to FERS. Employees hired during 2013 contribute 3.3% of their salary, and employees hired after January 1^st, 2014, contribute 4.4% of their salary.²

Eligibility

Eligibility for FERS retirement benefits depends on the employee's age and years of service. Generally, employees can retire with full benefits at:

Age 62 with at least 5 years of service,
Age 60 with at least 20 years of service,
Or minimum Retirement Age (MRA) with at least 30 years of service
- Reference the chart below to find your MRA.³

You can also retire earlier than the ages described above but will receive reduced benefits.

The Basic Benefit Plan also has provisions for early retirement, deferred retirement, and disability retirement under certain conditions, which you can learn more about HERE.

Calculating Your FERS Pension

The FERS Basic Benefit Plan pension is calculated using a formula based on the employee's “high-3” average salary and years of service.

Your “high-3” average salary is the highest average basic pay you earned during any 3 consecutive years of service. These three years are typically your final 3 years but can also be an earlier period if your pay was higher during that time. Note, this basic pay does not include payments from overtime or bonuses.

To calculate your years of service, just add all your years of creditable service where you have contributed to FERS.

The general formulas to calculate your FERS Basic Benefit Plan benefits are:

1% of the high-3 average salary multiplied by years of service for employees retiring before age 62 or those with fewer than 20 years of service.¹

1.1% of the high-3 average salary multiplied by years of service for employees retiring at age 62 or older with at least 20 years of service.¹

So, for example if you retire at age 62 with 25 years of service, and your “high-3” average salary is $100,000, your benefit would be $27,500/year (1.1% * $1,000 * 25).

To calculate more precise estimates, click HERE (https://www.fedweek.com/fers-csrs-calculator-get-a-ballpark-estimate-your-annuity/) to visit the FEDweek’s FERS Basic Benefit Calculator.

There are certain special scenarios where your benefit is computed differently including scenarios involving air traffic controllers, firefighters, law enforcement officers, Capitol police, Supreme Court police, nuclear materials couriers, members of Congress, and Congressional employees.¹

Inflation Protection

To protect against inflation, FERS pensions include Cost-of-Living Adjustments (COLAs). These adjustments are applied annually based on changes in the Consumer Price Index (CPI). For retirees under age 62, COLAs are generally not provided except for special categories like disability retirees and survivor annuitants.¹

Survivor Benefit Options

FERS provides a few survivor benefit options to protect your loved ones. Upon retirement, you can elect to provide a survivor annuity for your spouse or other eligible beneficiaries. The most common options include:

Full survivor benefit: This option reduces your annuity by 10% and provides 50% of your unreduced annuity to your survivor.

Partial survivor benefit: This option reduces your annuity by 5% and provides 25% of your unreduced annuity to your survivor.

No survivor benefit: This option does not reduce your annuity, and provides no benefit to your survivor.¹

For those that have spouses and dependents, this is the most important decision you will make in your retirement planning, other than deciding when to retire. Please consult a financial planner before making your final decision.

Other Considerations

Some other considerations regarding FERS include:

Social Security: Remember, the Basic Benefit Plan is only part of your retirement income. You also have Social Security. It is important to be knowledgeable on both your Basic Benefit Plan and Social Security when it comes to retirement planning. Visit Social Security’s website to get estimates on Social Security. Engage a financial planner (INSERT MY LINK) to help you determine how to best coordinate these benefits.

Thrift Savings Plan (TSP): Similar to a 401(k), the TSP offers federal employees the opportunity to contribute to tax-deferred retirement savings. The TSP is automatically set up for employees, and typically your agency deposits 1% of your basic pay into the account. You also have the option to make your own contributions (sometimes matched) into the plan.¹ This is a great way to build up additional savings for retirement and take advantage of compounding market growth. The FERS Basic Benefit Plan and Social Security will provide great forms of fixed income in retirement, but saving into your TSP is the best way to build up supplemental savings that allow you to access money in retirement on your own time. If you need help determining how much to save into your TSP or which investment options to select, click HERE.

Resources

For more information on FERS and to help with retirement planning, federal employees can access various resources:

Office of Personnel Management (OPM) website¹: The official source for FERS regulations and guidance.
Thrift Savings Plan (TSP) website (https://www.tsp.gov/): Provides details on contribution options, investment choices, and withdrawal rules.
Social Security Administration (SSA) website(https://www.ssa.gov/): For information on Social Security benefits.

Additionally, I encourage you to set up a complementary initial consultation with me. I specialize in working with government employees and planning around pensions like FERS and Social Security.

The Federal Employees Retirement System is a robust and multifaceted program designed to support federal employees throughout their retirement. By understanding the intricacies of participation, contributions, eligibility, and benefit calculations, you can make informed decisions that maximize your retirement security. Utilize available resources and plan ahead to ensure a comfortable and financially stable future.

Warm regards,

Alex Sierra, CFP®

Works Cited