FEDERAL EMPLOYEES | Wealthmark Advisors

FERS History

Most federal employees currently at retirement age are a part of the Federal Employee Retirement System (FERS), which was put into place for all employees who started working for the federal government after December 311983, and went into effect on January 11987.  It replaced the previous retirement plan called Civil Service Retirement System (CSRS).  Although these plans have similarities, we are going to focus on the more prevalent FERS program.  

FERS Overview

FERS is a hybrid program with the following major components:

  1. The FERS Basic Pension Benefit.  This benefit is calculated as a function of total years of service, multiplied by 1%, and then multiplied by the worker's average highest three years of pay.  This will provide the FERS basic pension amount.  There are other considerations we will review later, including minimum retirement age (MRA), years of service to be considered eligible for a benefit, cost of living adjustments, and other age-based factors in calculating your pension.  
  2. The FERS Annuity Supplement.  If a FERS participant is eligible for retirement before age 62, they may also be eligible for the FERS annuity supplement which can be collected until the participant reaches age 62. This supplement is meant to be a backfill for a participant's social security benefits which they are not eligible to receive until age 62.  The annuity supplement is calculated by taking the number of years of service, divided by 40, and then multiplied by one's social security benefit at age 62. 
  3. MRA: Determining your Minumum Retierment Age (MRA)

    Example: A FERS participant worked 30 years and is eligible to retire at age 57 according to the MRA table.  The participant's monthly social security benefit at age 62 would be $1,000.  The calculation would look like this.   (30/40) or .75 x $1,000 = $750/mo available from retirement until the end of the month which the participant turns age 62 or first becomes eligible for retirement. 
    1. This benefit will not have a cost-of-living adjustment.
    2. This benefit will also have an earnings test.  If the participant is receiving the FERS annuity supplement, their earnings will be reduced if they have earned income over $18,960 in 2021. 
    3. For every $2.00 of earnings over the limit, their benefit will be reduced by $1.00. 
  4. Social Security.  Participants in the FERS program contribute to social security during their time enrolled in FERS.  This means that at age 62 they will be eligible to receive social security similar to non-FERS employees.
  5. The Thrift Savings Plan (TSP).  ​TSP is tax-deferred retirement savings and investment plan that offers federal employees the same type of savings and tax benefits that many private corporations offer their employees under 401(k) plans. By participating in the TSP, federal employees have the opportunity to save part of their income for retirement, receive matching agency contributions, and reduce their current taxes.
    1. The match works like this:  
      1. Automatic 1% employer contribution
      2. Additional 1% employer match dollar for dollar up to 3%
      3. Additional 0.5% employer match on the next 2% for a total of 5% match
      4. So if a FERS participant contributes 5% to the TSP, they will receive a match of 5% for a total contribution of 10%
    2. The employee contributions may be made pre-tax or after-tax (Roth) up to an annual limit of $19,500 or $26,500 for employees over age 50.
  6. Investment Choices.  There are five investment choices FERS participants can make with their TSP funds, plus a series of LifeCycle funds (L-funds), with a target retirement date to help simplify participants decisions.    

*The information provided on this page is for illustrative purposes only. Actual performance and results will vary. This information does not constitute a recommendation as to the suitability of any investment for any person or persons having circumstances similar to those portrayed, and a financial advisor should be consulted”