The Civil Service Retirement System – here’s a list of fast facts that you should keep in mind.
Welcome to part two of our 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 covered was FERS. Now we’ll be covering CSRS.
Learn how to get the most out of your CSRS retirement! Attend our no-cost webinar on CSRS benefits
1. What is CSRS?
The Civil Service Retirement System (CSRS) was enacted into law by President Woodrow Wilson in 1920 and went into effect on August 1 of that same year. Any federal employee who was hired before January 1st, 1984, is covered by CSRS, which was replaced by FERS (the Federal Employee Retirement System) in 1987. When FERS took over, old CSRS employees were allowed to switch to FERS – they are known as “FERS Transfer” employees. If a CSRS employee had a gap in service over 365 calendar days, they will start paying into Social Security (unlike normal CSRS employees) and are considered “CSRS-offset.” This also applies to CSRS employees who paid into Social Security while working another job in the private sector. The best estimates show only 1% to 4% of the current federal workforce (100,000 employees at the most) are still covered under CSRS.
2. Making Contributions
For Federal Employees who contribute to CSRS, the amount of their net pay that goes into the pension system is 7%.... although some CSRS workers used to contribute 7.5% or 8% to the defined benefit plan. (And CSRS-offset employees contribute 0.8%.) These contributions are made after taxes. When a CSRS employee has worked over 41 years and 11 months, their pension income hits a ceiling at 80% of their high-three salary. At this point, excess contributions can be deposited into a separate account, where the money gains interest – this is the voluntary contribution plan.
3. Voluntary Contribution Plan (VCP)
4. WEP and GPO
The Windfall Elimination Program (WEP) and the Government Pension Offset (GPO) come from the 1935 Social Security Act and both reduces the Social Security benefits that are disbursed to some CSRS retirees and their survivors. Those who contribute to CSRS do so at a rate of 7% but they don’t contribute to Social Security like their FERS and CSRS-offset counterparts. Therefore, if they do get social security benefits that were earned at an outside job, these benefits are reduced (this is the WEP). If their spouse then collects their Social Security survivor benefits, these would also be reduced (and that’s the GPO). While CSRS-offset employees don’t have to worry about the GPO (or at least their survivors don’t), they might be impacted by the WEP if a minimum of 30 years of “substantial” earnings was not accumulated in their lifetime. Despite recent efforts to eliminate these provisions, they remain on the books.
5. The Thrift Savings Plan
Next Steps
If you’d like to dive into more detail about CSRS, check out this page. On that page, you can also register for the next CSRS webinar with Ed Zurndorfer. It’s never too early (or too late) to learn about your CSRS 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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**Written by Benjamin Derge, Financial Planner, ChFEBC℠ 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 Benjamin Derge and not necessarily those of RJFS or Raymond James. Links are being provided for information purposes only. Expressions of opinion are as of this date and are subject to change without notice. Raymond James is not affiliated with and does not endorse, authorize, or sponsor any of the listed websites or their respective sponsors.
