Federal pensions

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Terms and definitions

Federal pensions are the mechanism by which federal employees receive retirement benefits. For federal employees, there are two major pension systems, the Federal Employees Retirement System (FERS) and the Civil Service Retirement System (CSRS). FERS was introduced in 1987. Individuals employed by the federal government prior to 1984 are covered by the CSRS, which FERS replaced, unless they opted to switch to FERS. Most federal employees hired after January 1, 1984, are automatically enrolled in FERS.

HIGHLIGHTS

As of September 30, 2016, the Civil Service Retirement and Disability Fund (CSRDF) had net assets of $895.7 billion available for payments. As of September 30, 2015, the CSRDF had an unfunded actuarial liability of $789.6 billion, with an actuarial present value of $2,052.6 billion for future benefits. The Office of Personnel Management projects that the federal pension fund will continue growing for the next 75 years, meaning the fund is not in danger of insolvency.

Federal employee contribution rates range from 0.8 percent of base salary to 4.4 percent. Rates vary according to the employee's start date.

As of September 30, 2015, a total of 2,636,000 people were receiving an annuity from a federal pension plan. An additional 2,688,000 people were enrolled in a federal pension system as active employees.

Background

Background

Key terms

Actuarial value of assets (AVA) • Unfunded actuarial accrued liability (UAAL) • Annual required contribution (ARC) • Discount rate • Funded ratio • Rate of return • Active member • Inactive member • OPEB

Hover over the above terms for definitions.

Glossary of pension terms

Prior to 1987, federal employees were covered by the Civil Service Retirement System (CSRS), a retirement system created in 1920. The CSRS provided retirement and other benefits to most civil employees of the federal government. Employees covered by CSRS did not participate in Social Security.

The Federal Employees Retirement System (FERS) was approved in 1986 and became effective in 1987. Employees hired on or after January 1, 1984, are required to be covered by FERS instead of CSRS. Employees with fewer than five years of nonmilitary experience on December 31, 1986, were covered by interim rules by which they made reduced payments to CSRS and contributed their full share to Social Security. Employees with more than five years of nonmilitary experience on December 31, 1986, continued to be covered by both Social Security and CSRS unless they opted to switch to FERS between July 1, 1986, and December 31, 1987. Employees covered by only CSRS remain covered by CSRS if they opted not to switch. Employees hired after January 1, 1987, are automatically enrolled in FERS.

General information

FERS consists of three major components: an annuity plan, mandatory participation in Social Security, and a Thrift Savings Plan.

The annuity is a defined benefit plan, in which retired employees are paid at a specific, guaranteed rate based on their basic pay during their employment multiplied by their years of service . Retirees begin receiving these payments one calendar month after their retirement. The retiree's Social Security benefits are paid according to Social Security regulations. The Thrift Savings Plan is similar to a 401(k). It is a plan in which employees can make contributions, which will be matched by the government. Benefits are paid out based on the employee's contribution and the investment earnings of the fund.

Pension health

Assets and liabilities

According to the Office of Personnel Management, as of September 30, 2016, the Civil Service Retirement and Disability Fund (CSRDF) had net assets of $888.4 billion available for payments. See the table below for further details.

CSRDF assets and liabilities, 2016, in thousands of dollars
Asset/liability	Total
Assets
Investments	$887,160,773
Employer contributions	$1,528,627
Participant contributions	$148,133
Investment interest	$6,558,436
Other	$323,382
Cash	$12,431
Total assets	$895,731,782
Liabilities
Annuity payments	$6,413,144
Refunds of contributions payable taxes, insurance and other withholdings	$883,564
Administrative and other	$59,478
Total liabilties	$7,362,567
Net assets available for benefits	$888,369,215
Source: Office of Personnel Management, "Civil Service Retirement and Disability Fund Annual Report," accessed September 8, 2017

As of September 30, 2015, the CSRDF had an unfunded actuarial liability of $789.6 billion, with an actuarial present value of $2,062.9 billion for future benefits. The table below provides more details about the unfunded actuarial accrued liability of the CSRDF. The Office of Personnel Management projects that the federal pension fund will continue growing for then next 75 years, meaning the fund is not in danger of insolvency.

CSRDF unfunded actuarial accrued liability, 2015, in billions of dollars
	Total, CSRS and FERS
Actuarial present value of future benefits	$2,052.6
Present value of future normal costs	$400.0
Actuarial accrued liability	$1662.9
Assets at par value	$873.3
Unfunded actuarial liability	$789.6
Source: Office of Personnel Management, "Civil Service Retirement and Disability Fund Annual Report," accessed September 8, 2017

Participants

As of September 30, 2015, a total of 2,636,000 people were annuitants, people receiving benefits from a federal pension plan. This total includes those receiving FERS and CSRS benefits as retirees and survivors. The majority of these annuitants, 1,930,000, were covered under CSRS, with 706,000 covered by FERS. An additional 2,688,000 were enrolled in a federal pension system as active employees. The majority, 2,529,000, were covered by FERS. The table below provides more detail about participants in federal pension systems.

Federal pension plan participants, 2015
Participants	CSRS	FERS	Total
Active employees	159,000	2,529,000	2,688,000
Separated employees entitled to deferred benefits	5,000	50,000	55,000
Retirees	1,435,000	647,000	2,082,000
Survivors	495,000	59,000	554,000
Total annuitants	1,930,000	706,000	2,636,000
Source: Office of Personnel Management, "Civil Service Retirement and Disability Fund Annual Report," accessed September 8, 2017

Plan details

Eligibility

In order to qualify for a FERS annual annuity, an employee must have reached a minimum retirement age (MRA), which is contingent on the employee's birth year, as well as a minimum number of years of service. The table below details the MRA based on the employee's birth year.

FERS minimum retirement age
Birth year	MRA
1947 or earlier	55 years
1948	55 years, 2 months
1949	55 years, 4 months
1950	55 years, 6 months
1951	55 years, 8 months
1952	55 years, 10 months
1953–1964	56 years
1965	56 years, 2 months
1966	56 years, 4 months
1967	56 years, 6 months
1968	56 years, 8 months
1969	56 years, 10 months
1970 or after	57 years
Source: Office of Personnel Management, "FERS," accessed June 30, 2016

In addition, employees may be eligible for immediate or deferred retirement. In this case, an employee must reach a minimum number of years of service to receive benefits, depending on the employee's age. The table below details the requirements for early or deferred retirement.

FERS immediate retirement requirements
Age	Years of service required
62	5
60	20*
MRA	30
MRA	10*
Note: Employees with under 20 years of service are not eligible for deferred retirement. For employees between 10 and 30 years of service, the employee's benefits are reduced by 5 percent for each year the employee is under age 62, unless the employee has at least 20 years of creditable service and does not receive benefits until age 60. Source: Office of Personnel Management, "FERS," accessed June 30, 2016

Employees may also be eligible for early retirement depending on their years of service in certain situations, such as voluntary reductions in force or major reorganizations. The table below details the requirements for early retirement.

FERS early retirement age
Age	Minimum years of service
50	20
Any	25
Source: Office of Personnel Management, "FERS," accessed June 30, 2016

Contributions

Employee

The contribution rate of a federal employee to FERS depends on the employee's position and agency, as well as the employee's start date, which determines whether the employee is covered under the FERS rate, FERS-RAE rate, or FERS-FRAE rate.

The standard employee contribution rate for FERS was 0.8 percent of salary, but the passage of the Middle Class Tax Relief and Job Creation Act of 2012 created a new category, FERS-RAE, or Revised Annuity Employees. The rate for these employees was 3.1 percent, and was applied to employees hired after the passage of the act. Later, the passage of the Bipartisan Budget Act of 2013 created another category, FERS-FRAE, or Further Revised Annuity Employees. Employees under this category contribute a rate of 4.4 percent.

Employees hired on or after January 1, 1987, but before January 1, 2013, are covered under FERS. Employees hired between January 1, 2013, and January 1, 2014, are covered under FERS-RAE. Those hired after January 1, 2014, are covered under FERS-FRAE.

In general, the later an employee was hired, the higher their contribution rate to FERS. The table below details the contribution rates for federal employees to FERS.

Contribution by employee to FERS as percentage of salary
Retirement coverage	Hire date	Employee contribution rate
FERS	January 1, 1987 – December 31, 2012	0.8%
FERS-RAE	January 1, 2013 – January 1, 2014	3.1%
FERS-FRAE	After January 1, 2014	4.4%
Source:Office of Personnel Management, "FERS-Revised Annuity Employee, FERS-RAE," accessed June 30, 2016 Source:Office of Personnel Management, "Federal Employees Retirement System- Further Revised Annuity Employees (FRAE)," accessed June 30, 2016

Employer

In addition to employee contributions, the federal government also contributes to FERS. As with employee contributions, the contribution rate depends on a number of factors, such as the employee's position and hire date. In a 2013 meeting, the Board of Actuaries of the Civil Service Retirement System recommended revised contribution rates for fiscal year 2016. The table below details the previous contribution rate as well as the contribution rate as of October 1, 2015, the start of fiscal year 2016, for each type of position.

Employer contribution rate to FERS as a percentage of salary, fiscal year 2016
Position	Pre-FY16 rate	FY16 rate
Regular	13.2%	13.7%
Law Enforcement Officer	28.8%	30.1%
Air Traffic Controller	31.1%	31.8%
Military Reserve Technician	16.9%	17.3%
Customs and Border Protection Officer	28.8%	30.1%
Employees under section 303 of the CIA Act of 1964	18.9%	19.5%
Members of Congress	20.2%	20.8%
Congressional Employee	18.4%	19.1%
Congressional Employee - Capitol Police	18.4%	19.1%
Source: Office of Personnel Management, "Benefits Administration Letter," accessed June 30, 2016

Employer contribution rate to FERS-RAE as a percentage of salary, fiscal year 2016
Position	Pre-FY16 rate	FY16 rate
Regular	11.1%	11.9%
Law Enforcement Officer	26.5%	28.4%
Air Traffic Controller	28.9%	30.1%
Military Reserve Technician	15.0%	15.4%
Customs and Border Protection Officer	26.5%	28.4%
Employees under section 303 of the CIA Act of 1964	16.8%	17.8%
Members of Congress	11.1%	11.9%
Congressional Employee	11.1%	11.9%
Congressional Employee - Capitol Police	16.1%	17.3%
Source: Office of Personnel Management, "Benefits Administration Letter," accessed June 30, 2016

Employer contribution rate to FERS-FRAE as a percentage of salary, fiscal year 2016
Position	Pre-FY16 rate	FY16 rate
Regular	13.2%	13.7%
Law Enforcement Officer	28.8%	30.1%
Air Traffic Controller	31.1%	31.8%
Military Reserve Technician	16.9%	17.3%
Customs and Border Protection Officer	28.8%	30.1%
Employees under section 303 of the CIA Act of 1964	18.9%	19.5%
Members of Congress	20.2%	20.8%
Congressional Employee	18.4%	19.1%
Congressional Employee - Capitol Police	18.4%	19.1%
Source: Office of Personnel Management, "Benefits Administration Letter," accessed June 30, 2016

Thrift Savings Plan

Employees can also contribute to a Thrift Savings Plan (TSP). For all federal employees, the government contributes 1 percent of the employee's base pay to a TSP, regardless of whether the employee contributes. Employees enrolled in FERS may also receive employer matching contributions equal to 4 percent of pay in addition to the automatic 1 percent. Federal employees covered by CSRS are not eligible for matching contributions. The table below details employee contribution to TSP and matching government contributions.

Contribution to TSP, percentage of base pay
Employee contribution	Government contribution	Total
0.0%	1.0% (1% automatic)	1.0%
1.0%	2.0% (1% automatic, 1% matching)	3.0%
2.0%	3.0% (1% automatic, 2% matching)	5.0%
3.0%	4.0% (1% automatic, 3% matching)	7.0%
4.0%	4.5% (1% automatic, 3.5% matching)	8.5%
5.0% or higher	5.0% (1% automatic, 4% matching)	10.0%
Source: Congressional Research Service, "Federal Employees’ Retirement System: Benefits and Financing," July 15, 2015

Payments

Annuity

The annuity of a federal employee is calculated based on the employee's length of service, pension multiplier, and “high-3” average salary. The "high-3" system takes the highest average basic pay an employee earns during any three consecutive years of service. Typically, these are the last three years, but it may be an earlier period if basic pay was higher in that earlier period. Basic pay is the basic salary for a position and does not include overtime or bonuses. An employee's total annuity is calculated as his or her "high-3" salary, multiplied by years of service, multiplied by a pension modifier, which is typically 1 percent or 1.1 percent. The table below details the pension multiplier for employees covered by FERS, according to the Office of Personnel Management.

FERS annuity pension modifier
Age	Formula
Under age 62 at separation or retirement, or age 62 or older with less than 20 years of service	1.0%
Age 62 or older at separation with 20 or more years of service	1.1%
Source: Office of Personnel Management, "Computation," accessed June 30, 2016

For example, a 60-year old employee with a "high-3" of $60,000 who worked for the federal government for 25 years would calculate their annuity payment as follows: $60,000 multiplied by 25 multiplied by 1 percent, for a total of $15,000 a year in annuity payments.

Thrift Savings Plan payments

The value of a Thrift Savingts Plan at retirement depends on a number of factors, such as how much the employee contributed, how long he or she contributed, and the investment earnings of the TSP funds. Participants in TSP may choose from among five funds in which to invest their contribution. According to the Congressional Research Services, the funds are as follows:

“	The “C” fund invests in a stock market index fund that replicates the Standard and Poor’s 500 Index of 500 large to medium-sized U.S. companies. The “F” fund invests in bonds in the same proportion as they are represented by the Barclays Capital U.S. Aggregate Bond Index. The “G” fund invests in U.S. government securities and pays interest equal to the average rate of return on government securities with maturities of four years or more. The “S” fund invests in a stock index fund that tracks the Dow Jones U.S. Completion Total Stock Market Index of small to medium-sized U.S. companies not included in the “C” Fund. The “I” fund invests in a stock index fund that replicates the Morgan Stanley Capital International EAFE (Europe, Australasia, Far East) Index.	”
—Congressional Research Service

The table below details the return rates for each fund, from 1988 to 2014.

FERS investment earnings, 1988-2014
Year	G Fund	C Fund	F Fund	S Fund	I Fund
1988	8.80%	11.80%	3.60%	20.50%	26.10%
1989	8.80%	31.00%	13.90%	23.90%	10.00%
1990	8.90%	-3.20%	8.00%	-13.60%	-23.60%
1991	8.10%	30.80%	15.70%	43.50%	12.20%
1992	7.20%	7.70%	7.20%	11.90%	-12.20%
1993	6.10%	10.10%	9.50%	14.60%	32.70%
1994	7.20%	1.30%	-3.00%	-2.70%	7.80%
1995	7.00%	37.40%	18.30%	33.50%	11.30%
1996	6.80%	22.80%	3.70%	17.20%	6.10%
1997	6.80%	33.20%	9.60%	25.70%	1.50%
1998	5.70%	28.40%	8.70%	8.60%	20.10%
1999	6.00%	21.00%	-0.80%	35.50%	26.70%
2000	6.40%	-9.10%	11.70%	-15.80%	-14.20%
2001	5.40%	-11.90%	8.60%	-2.20%	-15.40%
2002	5.00%	-22.10%	10.30%	-18.10%	-16.00%
2003	4.10%	28.50%	4.10%	42.90%	37.90%
2004	4.30%	10.80%	4.30%	18.00%	20.00%
2005	4.50%	5.00%	2.40%	10.50%	13.60%
2006	4.90%	15.80%	4.40%	15.30%	26.30%
2007	4.90%	5.50%	7.10%	5.50%	11.40%
2008	3.80%	-37.00%	5.50%	-38.30%	-42.40%
2009	3.00%	26.70%	6.00%	34.90%	30.00%
2010	2.80%	15.10%	6.70%	29.10%	7.90%
2011	2.50%	2.10%	7.90%	-3.40%	-11.80%
2012	1.50%	16.10%	4.30%	18.60%	18.60%
2013	1.90%	32.50%	-1.70%	38.40%	22.10%
2014	2.30%	13.80%	6.70%	7.80%	-5.30%
Average 1988-2014	5.40%	12.00%	6.80%	13.40%	7.50%
Source: Congressional Research Service, "Federal Employees’ Retirement System: Benefits and Financing," July 15, 2015

Recent legislation

The following is a list of recent pension policy bills that have been introduced in or passed by the United States Congress. To learn more about each of these bills, click the bill title. This information is provided by BillTrack50 and LegiScan.

Note: Due to the nature of the sorting process used to generate this list, some results may not be relevant to the topic. If no bills are displayed below, then no legislation pertaining to this topic has been introduced in the legislature recently.

News

This section links to a Google news search for the term "FERS + federal + pensions"

Federal public pensions news feed

See also

• Public pension health by state
• Pension terms and definitions

External links

• Thrift Savings Plan
• Office of Personnel Management, FERS
• Office of Personnel Management, CSRS

Footnotes

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