Federal Employees Retirement System

The Federal Employees Retirement System (FERS) is the current civil service retirement system for United States government employees, replacing the prior Civil Service Retirement System (CSRS). Its purpose was to reform civil service to more closely align with private sector employment, especially with regards to retirement benefits.

Eligibility

Except for some rare instances, all Federal employees newly hired during or after 1987, as well as prior employees rehired who had less than five years nonmilitary service prior to 1987, are covered by FERS. Employees hired between 1984-1986 were transitioned to FERS in 1987; their service period prior to that is called "CSRS Offset" and benefits for that period are calculated under the old CSRS rules. Former employees with five or more years nonmilitary service could, upon rehire, choose to go back to CSRS or, within six months of rehire, move under FERS (but such a move was irrevocable).

Retirement Components

The retirement aspect of FERS consists of three components:

• The FERS annuity (a defined-benefit pension plan, similar to CSRS but at a much lower benefit),
• Mandatory participation in Social Security (CSRS employees do not participate in Social Security unless they had prior private sector employment), and
• Participation in the Thrift Savings Plan (TSP, a defined-benefit contribution plan) with matching contributions (CSRS employees may participate in TSP but do not receive matching contributions).

FERS Annuity

Contributions

Employees contribute a portion of post-tax salary towards their annuities, the rate differs depending on when the employee was hired as well as higher rates for certain employee categories (mainly those who must mandatorily retire early) and does not change; even an employee leaving civil service but returning will only contribute whatever rate they contributed during their first period of civil service. The government also contributes toward the annuities; the rates are dependent on employee job classification, and are based on actuarial assumptions which can change.

An employee leaving civil service may in most cases (but are not required to) request a refund of contributions made; only employee contributions and earned interest are refunded (the government's contribution is forfeited). The contributions, since they were post-tax, are not taxable (but the interest is taxable). Should an employee return to civil service, any such contributions must be repaid (with interest) or else the employee's prior service will not be counted in the annuity.

Retirement Eligibility

An employee must meet certain combinations of age and "creditable Federal service" in order to be eligible for a FERS annuity. Certain levels of military and part-time civilian service may be "repurchased" (at a set percentage of then salary plus interest) in order to be counted in the annuity; such repurchase is optional but must be done before retirement (it cannot be done after retirement).

For an "immediate" retirement annuity (which starts one full calendar month after retirement), or a "deferred" annuity (which starts at age 62 or after), the majority of employees must meet one of four combinations of age and service:

• Age 62, 5 years of service
• Age 60, 20 years of service (but a deferred annuity is unavailable under this combination)
• "Minimum Retirement Age" (MRA), 30 years of service
• MRA, 10 years of service (but if having less than 30 years of service, the annuity is permanently reduced by 5/12 of 1% for each month the employee is under age 62, unless at retirement the employee has 20 years of service and agrees to defer the annuity until age 60)

Certain employees facing involuntary separation, or "reductions in force" (RIF, or a layoff in the private sector) may be eligible for early retirement at either age 50 with 20 years service, or any age (not MRA) with 25 years. Also, disability retirement is potentially available for certain employees who due to illness or injury cannot meet the requirements of their position, the employee must have 18 months service and the agency must certify that the employee cannot be accommodated in his/her current position and was considered for other jobs (at the same grade/pay level) in the commuting area, but could not be placed in them.

Annuity Calculation

The annuity is calculated based on three factors:

• The employee's "high-3" salary (the average salary for the highest 36 consecutive months of pay),
• A specified percentage (either 1% or 1.1% in most cases), and
• The amount of "creditable Federal service" (in terms of years and months expressed as fractions of years, days of service less than 30 days in a month are excluded).

The "high-3" salary is usually the final 36 months of the employee's tenure, but may be an earlier period if an employee took a voluntary downgrade in pay. The salary includes base pay, locality adjustments (pay increases to account for cost of living in certain metropolitan areas), and shift differentials, but does not include overtime (except for some categories involving mainly first responders), bonuses/awards, severance pay (including voluntary buyouts), cash out payments for unused annual leave and credit hours, or hazard pay.

The system is structured to provide employees an incentive to continue working until age 62 (the earliest date at which an employee can also obtain Social Security benefits), as the annuity percentage is 1.1% for employees age 62 or older with at least 20 years service, and 1% for all others. Also most employees retiring before age 62 will not receive a cost of living increase until age 62 (except for certain occupations where the mandatory retirement age is under 62, or employees retiring on disability).

Although unused sick leave is added to "creditable Federal service", it cannot be used to make an ineligible employee eligible for retirement, nor to make an employee eligible for the increased 1.1% percentage.

The actual calculation of creditable service adds years, months, and days separately for civilian employment, military employment repurchased, and unused sick leave.

• For example, an employee with 33 years, 11 months, and 17 days of actual service time, plus four months and 20 days of unused sick leave, will be calculated as having 33 years, 15 months, and 37 days of time.
• The days are then converted to months at a rate of 30 days = one month, with any excess days lost (in this case, the 37 days will convert 30 days to one month, with the remaining seven days lost, leaving the employee with 33 years and 16 months).
• The months are then converted to years at a rate of 12 months = one year, with the remaining months shown as a fraction (in this case, the 16 months will convert 12 months to one year, leaving the employee with 34 years and four months, or 34 4/12 years for annuity calculation purposes).

No other types of earned leave are factored into the annuity calculation. Unused annual leave hours are "cashed out" (paid to the employee, at his/her rate of pay at retirement). Where applicable, earned but unused credit hours are also cashed out upon retirement at the same rate as annual leave. Other types of unused leave (such as compensatory time off for travel outside normal duty hours, and time off awards given in lieu of cash) are not paid and are thus lost if not used before retirement.

Generally, an employee has the right to determine his/her "date of final separation" (i.e. the last day on the payroll; it does not have to be the final working day in a pay period); the following day is the employee's retirement date. The annuity does not begin until one full calendar month has passed since the employee's retirement. Thus, an employee retiring on June 30 will have his/her annuity begin on August 1 (as the employee will be retired beginning July 1 and for the entire month of July), but an employee retiring on July 1 will not have his/her annuity begin until September 1 (as the employee will be retired beginning July 2 but not for the entire month of July, only in the following month -- August -- will the employee be retired for an entire month).

Married employees must agree to provide spouses (or former spouses, in some cases), a survivor annuity (which pays a lower portion of salary to the surviving spouse or former spouse), unless the spouse or former spouse affirmatively consents in writing to forego the annuity. (The only exception is if the spouse or former spouse cannot be located.)

A portion of the annuity, since it was paid from post-tax earnings, is not taxable, and will be shown on the annuity statements.

If an employee/retiree dies and a survivor benefit was not chosen, then any unpaid balance of employee contributions (but not government matching contributions) is paid to the beneficiary(ies) designated. If the employee/retiree did not designate any beneficiary(ies), then the "statutory order of precedence" is used, as follows:

• To the widow or widower,
• To any surviving children (in equal shares) or their descendants,
• To any surviving parent or parents,
• To the court-appointed executor or administrator of the estate,
• To the next of kin as determined by the laws of the state where the employee/retiree lived at death.