The Federal Employee Retirement System – here’s a list of fast facts that you should keep in mind.
Welcome to part one of a new series of “listicles.” We’ll be going over 5 key points to remember for several areas of retirement planning and employee benefits for members of the Federal Workforce. The first topic we’ll be covering is FERS.
Learn how to get the most out of your FERS retirement! Attend our no-cost webinar on FERS benefits -
1. What is FERS?
The Federal Employee Retirement System (FERS) was enacted into law by President Reagan in 1986 and went into effect on January 1, 1987. However, any federal worker who was hired on or after January 1, 1984, is automatically covered under FERS. The older system that it replaced, CSRS (the Civil Service Retirement System) started covering federal workers starting in 1920. When FERS took over, old CSRS employees were allowed to switch to FERS – they are known as “FERS Transfer” employees.
2. Making Contributions
For Federal Employees who contribute to FERS, the amount of their net pay that goes into the pension system is 0.8%... unless they were hired in 2013 or later. FERS-RAE (Revised Annuity Employees) contribute 3.1% of their pay. FERS-RAE only applies to individuals hired between January 1st and December 31st of 2013. If hired in 2014 or later, they’re a FERS-FRAE (Further Revised Annuity Employees) and contribute 4.1% to the defined benefit plan. Unlike TSP contributions, the amount contributed cannot be adjusted and all contributions to FERS are post-tax.
3. The Three-Legged Stool
The old CSRS plan was relatively simple. There was no Social Security to worry about (although CSRS-offset employees are whole different story), and there was no investment component (defined contribution plan) like the TSP until 1987. For FERS, the three of these income sources were designed to build a comfortable retirement for federal employees. It is often called a “three-legged stool” comprised of Social Security benefits, retirement investments in the Thrift Savings Plan (TSP), and the pension income from a FERS annuity. However, here at Serving Those Who Serve, we believe there is a crucial ”fourth leg” – strategy.
4. Retirement Boost at 62
When retiring under FERS, the calculation used to determine the pension income amount contains a “multiplier” component. Unless the retiree is 62 when claiming their pension, and is doing so immediately (as in not postponed or deferred), they will not get to use the 1.1%. A FERS employee needs to be 62 or older with 5 years of service or more to be eligible for an immediate retirement with the 10% boost. If a disability retirement is claimed at age 62 or older, then the FERS annuitant could still receive the boost with less than 5 years of service (minimum 18 months). Read more about FERS retirement options.
5. Sick and Annual Leave
Sick and annual leave operate differently and both play a role in a FERS retirement. For sick leave, there is no “use-it-or-lose-it” element. You can carry sick leave from one calendar year into the next. At retirement, remaining sick leave can add service time to your retirement calculation - but not for retirement eligibility! With annual leave, there is a limit of 240 hours that can be carried over from one year into the next. Any remaining annual leave is then disbursed as lump sum payment upon retiring.
Next Steps
If you’d like to dive into more detail about FERS, check out this page. On that page, you can also register for the next FERS webinar with Ed Zurndorfer. It’s never too early (or too late) to learn about your FERS retirement and start making a plan! For an even deeper dive into your benefits as a federal employee, check out our entire (no-cost) webinar series.
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Until Next Time,
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The information has been obtained from sources considered reliable but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Serving Those Who Serve writers and not necessarily those of RJFS or Raymond James. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy suggested. Every investor’s situation is unique and you should consider your investment goals, risk tolerance, and time horizon before making any investment or financial decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. **
