Factors ranging from federal agency downsizing to shifts in remote work policies have prompted a number of Feds to start rethinking their career paths. Increasingly, state government jobs have become a popular choice. The appeal is clear: working for a smaller agency, having more local impact, and in some cases, greater flexibility, and a better work-life balance.
On paper, switching from a federal to state job can seem like a logical next step. In practice, it’s a decision that comes with meaningful differences in pay structure, benefits, and retirement planning that should be weighed carefully before making a move.
Benefits Breakdown: Federal vs. State Employment
Benefits are often a core part of the total compensation for federal employees, and the structure can change significantly when moving to state service. While every state has its own system, there are a few common differences to consider.
Health Insurance
Federal employees have access to the Federal Employees Health Benefits (FEHB) Program, one of the largest and most flexible employer-sponsored health plans in the country. FEHB offers nationwide coverage, multiple plan types, and the ability to carry coverage into retirement, as long as you’ve met the eligibility requirements.
State plans vary widely. Some states offer competitive coverage, while others have more limited networks or higher out-of-pocket costs, especially for employees living outside major metro areas.
Federal vs. State Government Retirement
Under the Federal Employees Retirement System (FERS), Feds receive a three-part retirement benefit: a basic pension, Social Security, and the Thrift Savings Plan (TSP) with government matching contributions.
State government employees are typically covered by a state pension plan, which may have a generous benefit formula but often lacks a TSP-style investment plan or matching contributions. Some state retirement systems limit an employee’s ability to participate in Social Security.
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Job Protections and Tenure
Federal service generally offers strong job protections and well-defined tenure rules, including priority placement in the event of downsizing.
State government job protections can vary significantly. While many states have civil service systems, others have “at-will” employment rules that make it easier for agencies to restructure or eliminate positions.
Key Tradeoffs
Some states offer pensions with higher replacement rates than FERS, especially for employees who stay until full retirement eligibility. However, without a TSP-equivalent and matching contributions, some may find it more difficult to build a diversified retirement portfolio. Differences in vesting requirements and service credit rules may also impact how much of your prior federal time (if any) will count toward state retirement benefits.
Questions to Ask Before Making the Switch
Making the leap from federal to state service can change the trajectory of your retirement plan. Before you make a decision, ask these key questions:
- How will my vesting timeline change? Some state pensions require 5–10 years of service to qualify for a benefit.
- Will my federal service time count? In many cases, it won’t, and buyback options vary by state.
- Can I buy back service time? Some states allow you to purchase credit for prior service, but the cost and rules can differ widely.
- What benefits could I lose? You may forfeit federal sick leave credit toward your pension and future TSP matching contributions.
- Will I remain eligible for my federal retirement benefit? Leaving too early may affect your eligibility or reduce your payout.
Understanding these key points can help you decide whether the financial tradeoffs support your long-term goals.
Weigh Your Options and Decide with Confidence
Moving from federal to state service can feel like a fresh start, but it’s not always a financial win. Of course, there are many factors to consider, including your career stage, location, benefits, and long-term goals. The team at Serving Those Who Serve can help you compare the options side-by-side and decide what makes sense for you. Reach us at [email protected] to get started.
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. **
