Important Facts About CSRS ; image: older couple on a hill of coins under a tree

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)

Upon retirement, these funds can be withdrawn as a lump sum, or the retiree can select to receive an annuity. There is no mixing and matching between these two options – it is either/or. When withdrawing the contribution portion of the VCP, there are no taxes due. This money can then be placed in a traditional IRA, a Roth IRA, or an outside 401(k). The earnings portion of the VCP is subject to a 20% federal tax withholding if paid directly to the VCP participant. It is also subject to taxes if transferred directly into a Roth IRA. (But in this case, the VCP participant must request the withholding themselves – it is not mandatory.) No taxes are due if transferring the earnings portion of a VCP to a traditional IRA, outside 401(k), or traditional TSP account, but the funds will be taxed as ordinary income upon withdrawal thereafter. Before retirement, a CSRS employee can put up to 10% of their aggregate pay (meaning the total amount of money they’ve earned over their federal career) into a VCP account. From there, the money can moved into a Roth IRA where it can grow tax-free.

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

For federal workers under FERS, the Thrift Savings Plan (TSP) is a vital component to building sufficient savings for retirement. Although TSP contributions are voluntary for both retirement systems, there is less incentive for the CSRS folk. FERS employees have their contributions matched by the government and their agency, up to 5% of their salary, but TSP contributions from CSRS employees receive no match whatsoever.

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.


Until Next Time,

Benefits Ben, STWS

**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.

Important Facts About CSRS ; image: older couple on a hill of coins under a tree

Important Facts about CSRS