Understanding the Federal Employees Retirement System

The Federal Employees Retirement System (FERS) is a retirement system specifically for U.S. federal civilian employees. FERS became effective Jan. 1, 1987, and it supplanted the Civil Service Retirement System (CSRS). FERS is now in line with those retirement plans with in the private sector.

Depending on their date of employment, federal employees may be covered by either CSRS or FERS, but most new federal employees hired on or after Jan. 1, 1984, are automatically covered by FERS.

An employee remains covered by FERS once he or she is covered by FERS or elects to switch from CSRS to FERS coverage. FERS consists of three major components: the FERS annuity, which is a defined benefit plan; participation in Social Security, which is mandatory; and the Thrift Savings Plan (TSP), which is a defined contribution plan similar to a 401(k).

(Most CSRS employees are not part of Social Security and they do not pay taxes into the system, nor are they eligible for benefits unless they qualify under private sector employment or by being rehired and covered by CSRS with a Social Security Offset).

The FERS annuity is based on 1) the length of an employee’s federal service eligible for FERS retirement (termed "creditable federal service’’ and not necessarily the actual duration of federal employment) and 2) the average annual rate of basic pay of the employee’s highest-paid consecutive three years of service (termed the "high-3" period).

The FERS annuity is calculated on a base of the "high-3" average pay. For the majority of FERS employees the annuity structure encourages workers to continue working until age 62, which is the earliest age a FERS employee can collect Social Security benefits. It provides employees retiring at or after age 62 with at least 20 years of service, an annuity that is 1.1 percent of the high-3 average times the number of years worked. For employees retiring before age 62, or at or after age 62 with fewer than 20 years of service, the annuity is 1.0 percent of the high-3 average times the number of years worked. Separate calculations exist for employees who transferred from CSRS to FERS. Different formulas also apply to “special group” employees such as law enforcement officers, fire fighters and air traffic controllers.

The annuity does not begin until one calendar month has passed since the participant retired. Thus, an employee retiring on the last day of a month (June 30, for example) starts his/her annuity on Aug.1 (the entire month of July will have passed), but an employee retiring on the first day of a month (July 1, for example) does not begin his/her annuity until September 1 (as July will not be a full month passed, but August will be). Eligibility for Social Security benefits and TSP withdrawals are covered by the regulations for those plans.

In order to qualify for the standard FERS annuity an employee must have reached a minimum retirement age (MRA) and have a specified number of years of creditable federal service. Certain levels of military service may be purchased for a specified amount, but such repurchase is optional. The retirement age depends on the birth year beginning with those born in 1948 or earlier, with a MRA of 55, to those born in 1970 or later, with a MRA of 57. For an immediate retirement or a deferred retirement, the employee must meet one of the following combinations of age and years of creditable service: age 62, with five years of service; age 60, with 20 years; achieve a MRA, with 30 years, or an MRA with 10 years.

In certain cases employees, of either involuntary separation, or voluntary separation during a "reduction in force" can qualify for early retirement. The employee must either have 25 years service at any age, or 20 years and be age 50. Disability retirements are available for eligible employees with at least 18 months service.

Retirees are eligible for a cost of living adjustment if they meet certain criteria. The most notable is retirement after age 62; most employees who retire before age 62 will not receive a COLA until age 62.

Both CSRS and FERS pensions are subject to distribution based on a coverture share. Model COAPs (Court Order Acceptable for Processing) under the CSRS and the FERS for active plan participants use a traditional coverture approach, which creates a coverture fraction, a tool to separate marital benefits (those earned during the marriage, and subject to distribution) from those benefits which were earned outside the marriage (and generally separate property and not subject to distribution). The coverture fraction shows the portion of the value of the benefits attributable to the marriage. The numerator of the fraction represents the time the worker participated in the plan during the marriage, and the denominator is the amount of time he or she participated in the plan as of the cut-off date or date of termination or retirement.

The plans permit “former spouse annuity coverage” in the COAP, but only for “post-retirement” purposes in the event the participant dies after his or her retirement date but before his former spouse. Moreover, in both CSRS and FERS a former spouse loses survivor coverage if he or she remarries before 55.

A survivor annuity may be payable if an employee dies with at least 18 months of creditable civilian service under FERS or CSRS, if the surviving spouse was married to the deceased for at least nine months, or the employee’s death was accidental, or there was a child born of the marriage to the employee. Monthly payments may be made to the former spouse of a deceased employee under a court order. A former spouse must also meet the nine-month marriage requirement.

Married employees reduce their annuity by the cost of a survivor benefit unless the spouse consents to receiving less than a full benefit. The cost is based on the survivor benefit chosen.

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