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_______________________________

Institute for Workplace Studies----------------- Professor Samuel B. Bacharach

School of Industrial & Labor Relations-------- Director, Institute for Workplace Studies

Cornell University

16 East 34th Street, 4th floor---------------------- Stuart Basefsky

New York, NY 10016 -------------------------------Director, IWS News Bureau

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Congressional Research Service (CRS)

 

Federal Employees’ Retirement System: Benefits and Financing

Katelin P. Isaacs,  Analyst in Income Security

January 30, 2014

https://www.fas.org/sgp/crs/misc/98-810.pdf

[full-text, 23 pages]

 

Summary

Most civilian federal employees who were hired before 1984 are covered by the Civil Service

Retirement System (CSRS). Federal employees hired in 1984 or later are covered by the Federal

Employees’ Retirement System (FERS). Both CSRS and FERS require participants to contribute

toward the cost of their pensions through a payroll tax. Employees who are covered by CSRS

contribute 7.0% of pay to the Civil Service Retirement and Disability Fund (CSRDF). They do

not pay Social Security taxes or earn Social Security benefits. Employees enrolled in FERS and

first hired before 2013 contribute 0.8% of their pay to the CSRDF. Employees enrolled in FERS

and first hired in 2013 contribute 3.1% of pay to the CSRDF. Employees enrolled in FERS and

first hired after 2013 contribute 4.4% of pay to the CSRDF. All employees enrolled in FERS

contribute 6.2% of wages up to the Social Security taxable wage base ($117,000 in 2014) to the

Social Security trust fund.

 

The minimum retirement age (MRA) under CSRS is 55 for workers who have at least 30 years of

service. The FERS MRA is 55 for employees born before 1948. The MRA for employees born

between 1953 and 1964 is 56, increasing to the age of 57 for those born in 1970 or later. Both

FERS and CSRS allow retirement with an unreduced pension at the age of 60 for employees with

20 or more years of service and at the age of 62 for employees with at least 5 years of service.

 

The Thrift Savings Plan (TSP) is a retirement savings plan similar to the 401(k) plans provided by

many employers in the private sector. In 2014, employees covered under either CSRS or FERS

can contribute up to $17,500 to the TSP. Employees aged 50 and older can contribute an

additional $5,500 to the TSP. Employees under FERS receive employer matching contributions of

up to 5% of pay from the federal agency by which they are employed. Federal workers covered

by CSRS also can contribute to the TSP, but they receive no matching contributions from their

employing agencies.

 

The Office of Personnel Management (OPM) estimates the cost of CSRS to be an amount equal

to 26.0% of employee pay. The federal government pays 19.0% of this amount and the other

7.0% is paid by employees. OPM estimates the cost of the FERS basic annuity at an amount

equal to 12.7% of pay. For FERS employees first hired before 2013, the federal government

contributes 11.9% of this amount and the other 0.8% is paid by employees. For FERS employees

first hired in 2013 or later, the federal government contributes 9.6% of this amount; employees

hired in 2013 pay the remaining 3.1% and employees hired after pay 4.4% (with the additional

sums above the cost of FERS going to pay down the CSRS unfunded liability). There are three

other employer costs for employees under FERS. Both the employer and employee pay Social

Security taxes equal to 6.2% of pay up to the maximum taxable amount; agencies automatically

contribute an amount equal to 1% of employee pay to the TSP; and agencies make matching

contributions to the TSP equal to up to 4% of pay.

At the end of FY2011, the CSRDF had an unfunded liability of $761.5 billion, consisting of a

$741.4 billion deficit for CSRS and a $20.1 billion deficit for FERS. Although the civil service

trust fund has an unfunded liability, it is not in danger of becoming insolvent. OPM projects that

the balance of the CSRDF will continue to grow through at least 2080, at which point it will hold

assets equal to more than 5.3 times total payroll and about 20 times total annual benefit payments.

 

This report also summarizes relevant legislation in the 113th Congress that would make significant

changes to federal benefits and financing, including P.L. 113-67, S. 18, S. 1678, and H.R. 3639.

 

Contents

Background ...................................................................................................................................... 1

Origins of the Federal Civilian Retirement System ................................................................... 1

Two Types of Retirement Plans ................................................................................................. 2

Eligibility and Benefit Amounts Under FERS and CSRS ............................................................... 3

Retirement Age and Years of Service ........................................................................................ 3

Retirement Income Adequacy .......................................................................................................... 4

Replacement Rates .................................................................................................................... 4

Determinants of the Replacement Rate ............................................................................... 4

Salary Base .......................................................................................................................... 4

Accrual Rates ...................................................................................................................... 5

Replacement Rates for Federal Retirees ............................................................................. 5

Social Security and the “FERS Supplement” ...................................................................... 6

Cost-of-living Adjustments ....................................................................................................... 6

The Thrift Savings Plan ................................................................................................................... 6

TSP Investment Options ............................................................................................................ 7

TSP Withdrawal Options ........................................................................................................... 9

Employer and Employee Contributions to CSRS and FERS ........................................................ 10

Pension Funding in the Private Sector vs. the Federal Government ....................................... 10

Employee Contributions .......................................................................................................... 11

Employee Contributions from a Budgetary Perspective ................................................... 11

Employee Contributions in Actuarial Terms ..................................................................... 11

Financing Pension Benefits for Federal Employees ...................................................................... 13

Federal Trust Funds and Pre-Funding of Benefits ................................................................... 14

Investment Practices of Federal Trust Funds ........................................................................... 15

Enacted Legislation in the 113th Congress ..................................................................................... 16

P.L. 113-67, the Bipartisan Budget Act of 2013 ...................................................................... 16

Legislative Proposals in the 113th Congress .................................................................................. 17

S. 18, the Sequester Replacement and Spending Reduction Act of 2013 ................................ 17

S. 1678, the Public-Private Employee Retirement Parity Act ................................................. 17

H.R. 3639, the Provide for the Common Defense Act of 2013 ............................................... 18

 

Figures

 

Tables

Table 1. Minimum Retirement Age Under FERS ............................................................................ 3

Table 2. Government Matching Rate on TSP Contributions by FERS Participants ........................ 7

Table 3. Annual Rates of Return for Thrift Savings Plan Funds ...................................................... 8

Table 4. FERS Employee Contribution Rates by Date of Hire ...................................................... 17

 

 

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