One of the greatest benefits of government work is generous retirement.
The federal service includes two systems, the Civil Service Retirement System and the Federal Employees Retirement System.
Because of the complexity of both systems, employees often have questions about the provisions of each one.
We also commonly get asked, CSRS vs. FERS: Which is better? So to help address questions about these programs, we’ll cover the essential characteristics of both systems.
What’s the Relationship Between CSRS and FERS?
Congress established the Civil Service Retirement System in 1920 with the passage of the Federal Employees’ Retirement Act.
At the time, the government was looking for ways to attract and retain skilled workers, and retirement benefits were seen as an important part of that effort.
Originally, federal employees had to contribute to their own retirement accounts, but the government also contributed to those accounts.
On top of that, all CSRS retirement benefits used a unique formula that took into account an employee’s length of service and highest average salary.
Over the years, the CSRS underwent a number of changes, including the addition of survivor benefits and disability benefits.
However, by the 1980s, the system was facing a number of financial challenges.
Many of the retirement benefits promised under the system had become unsustainable, and there were concerns about the long-term viability of the program.
In response to these challenges, Congress passed the Federal Employees Retirement System Act of 1986, which established the FERS.
Congress intended FERS to be more cost-effective and sustainable over the long term. FERS did not go into effect immediately. Instead, it only began to come into effect after 1984.
Between the years of 1984 and 1987, employees could choose which retirement plan to join. All federal employees entering federal service after 1986 had to use FERS.
Despite the creation of the FERS system, the CSRS continues to be a significant part of the federal retirement landscape.
Many federal employees who were hired before 1984 still receive coverage under CSRS, so the system remains an important source of retirement benefits for millions of Americans.
How Do the Federal CSRS vs. FERS Compare in Retirement Benefits?
Under CSRS, retirement pay is based on a federal employee’s highest three consecutive years of salary, known as the “high-three” average salary.
The retirement annuity is calculated by multiplying the high-three average by a percentage factor, which changes depending on the employee’s length of service.
The percentage factor is 1.5% for the first five years of service, 1.75% for the next five years, and 2.0% for each year of service after 10 years.
Under FERS, retirement pay is composed of three parts: a basic benefit, a Social Security benefit, and a Thrift Savings Plan (TSP) benefit.
The basic benefit implements a similar formula to the CSRS’s “high-three” system. However, the percentage factor is lower, usually around 1%.
The Social Security benefit is based on the employee’s earnings history and the age at which they begin receiving benefits.
Finally, there is the TSP, which functions like a 401k or another investment plan. Both the employee and the government contribute to the TSP over time.
Meanwhile, the employee can invest their TSP funds in one of several investment opportunities. When the employee retires, they can enjoy those contributions and any returns on those investments.
CSRS vs. FERS: Additional Differences and Similarities
In several ways, the CSRS was a more generous retirement system than FERS. For instance, under CSRS, all retirees received cost-of-living adjustments, even if they retired young.
FERS retirees usually receive a cost-of-living adjustment only if they retire at 62 or later.
However, there are some similarities. Both CSRS and FERS offer benefits such as health insurance, life insurance, and survivor benefits.
However, FERS benefits are often less generous than CSRS retirement benefits. For instance, CSRS allows all retirees to receive the same retirement annuity as long as they retire at 55 or later.
On the other hand, FERS reduces your retirement annuity for anyone retiring below the age of 62.
Disability retirement under CSRS is 40% of the employee’s “high-three” salary. Under FERS, the disability retirement is 1.0% or 1.1% of your high-three salary for each year of federal service you have.
Thus, an employee would receive less in disability retirement benefits under FERS unless they have over 40 years of federal service.
Still Curious About CSRS vs. FERS? We Can Help You with Any Federal Employment Need
While you might have a general idea of federal employment retirement plans based on this article, it’s understandable if you have additional questions.
To get accurate answers, it’s best to seek out a knowledgeable employment lawyer sooner rather than later.
An adept federal employment attorney can explain which retirement system you are under and how that affects your financial future.
If your agency has made some kind of mistake, an attorney can intervene on your behalf and help you file a claim. However, it’s crucial to find the right attorney to ensure the best chances of success.
For experienced and reliable legal representation, look no further than the Federal Employment Law Firm of Aaron D. Wersing, PLLC.
Our team of legal professionals is experienced in all types of federal employment matters, including FERS and CSRS issues.
We are committed to safeguarding your rights as a federal employee and ensuring you are rightfully compensated for your federal service.
To schedule a free initial consultation, call us today at 866-612-5956. You can also schedule an appointment with us online and read about our previous successes.