Funding FERS: Who Contributes What?

Funding FERS: How Much Agencies and Employees Contribute

Who is funding FERS? In October of last year, there were slight changes to the amount agencies contribute to the Federal Employee Retirement System (FERS). Employees and the US government fund the rest.

Both CSRS and FERS pensions are backed by the full faith and credit of the US government. So even though CSRS will technically be underfunded by more than $830 billion next year, there will still be money disbursed for those retirees and beneficiaries to which it is owed (so long as the US government is still intact). The unfunded liability of CSRS can be traced back to its creation in 1920 and has been estimated up to 2090. From 1920 to 1956, there was no requirement to pre-fund future benefits so individual federal agencies didn’t contribute to the pension plan. And even when there was a law on the books, there was no requirement that the cumulative contributions from CSRS employees and agencies had to enough to cover the future cost of benefits to be paid.

Don’t miss our complimentary webinar on FERS – start planning your retirement today!

FERS changed all of this when it became effective in 1987. With the new retirement system for federal workers, a factor based off actuarial work was introduced to ensure enough was contributed from agencies and FERS employees as to avoid the unfunded liabilities that happened as feds started to retire under CSRS.

Funding FERS: Employee Contributions

For FERS employees hired before 2013, they contribute 0.8% of their salary to the FERS system each paycheck. Then there are FERS-RAE workers (revised annuity employees- only those hired in the year 2013) who contribute 3.1%. For federal employees who were hired in 2014 or later (known as FERS-FRAE, “further” revised annuity employees), they contribute 4.4%. The previous presidential administration once proposed the employee contributions to FERS should be raised to 7.25%, but this never materialized.

Agency Contributions to FERS

Studies from around 2019 found that the US government funding FERS with about 23% of the average fed’s salary to the retirement system. And then employees contribute either 0.8%, 3.1%, or 4.4% depending on the date of hire. For regular* FERS employees, the agency contributions did not change from prior levels, remaining at 18.4%. For regular* FERS-RAE workers, the agency contribution slightly decreased in October 2023, going from 16.6% to 16.5%.

*For agency contributions for special provision employees, read the benefits administration letter from OPM.

Until Next Time,

**Written by Benjamin Derge, Financial Planner. 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.