Federal Employee Retirement System (FERS), unless you were hired before 1984 and grandfathered into CSRS. One of our specialties is helping federal employees understand their benefits, so in this article, we will cover some of the common areas that come up in conversation when we meet with our clients. As I outlined in my video, there are three layers to what I call the “FERS Pyramid”: your pension, the Thrift Savings Plan (TSP), and Social Security benefits. Federal employees with over 30 years of service, or 20 years of service by age 60, can generally also qualify for the FERS Special Retirement Supplement. Here, we will break down the main components.
FERS Pension Benefit
The foundation of your FERS package is the pension. Your pension benefit is determined by your years of creditable service and your “high-3.” The term “high-3” refers to the highest-earning 36-month consecutive period of your career, excluding overtime, bonuses, shift differentials, and allowances. In general, your benefit amount is your high-3 times your years of creditable service, times an additional multiplier (for most employees, 1% if you retire before age 62, or 1.1% if you retire after age 62, with different multipliers for employees in certain special categories). (1) Continuing to work for an additional year or two can substantially increase your retirement benefit in many cases.
Deduction for Your FERS Pension Cost
Your FERS pension comes at a cost, which depends on when you were hired. If you were hired before January 1, 2013, you are paying 0.8% of your base pay for your FERS benefit. If you were hired during the year 2013, you are paying 3.1%. If you were hired on or after January 1, 2014, you are paying the maximum rate of 4.4%. Your pension deduction is listed on your Leave and Earnings Statement (LES).
FERS Pension Eligibility
Federal employees must generally have at least 10 years of creditable service in order to retire at their minimum retirement age (MRA) and receive pension benefits. The MRA for employees born in 1970 or after is 57, with the MRA decreasing for older employees. Employees with fewer than 10 years of service but at least 5 must wait until age 62 to begin drawing a pension. If you become disabled due to an injury on the job as a federal employee, you may be able to retire and receive pension benefits with as little as 18 months of service at any age. (2)
TSP is similar to a private-sector 401(k) plan in many respects, but with an automatic 1% contribution from your agency regardless of whether you contribute. In addition to the automatic 1%, your agency will match your contributions dollar for dollar up to 3% of your gross pay, with additional matching on half of the next 2%. If you contribute 5% of your gross pay, your TSP account will be funded at 10%. You can make additional contributions, up to the annual IRS limit ($19,500 in 2021 with additional catch-up contributions of $6,500 for employees 50 and older), but there is no additional matching for contributions above 5%. TSP allows both traditional (tax-deferred) and Roth contributions. (3)
Buying Back Military Time
Since many federal employees served in the Armed Forces for a portion of their careers, FERS offers the option to count your military service as part of your creditable service, in exchange for a deposit. Your deposit amount is based on your military earnings. Under USERRA (the Uniformed Services Employment and Reemployment Rights Act), federal employees who leave civilian service for military deployment and later return to civilian service can buy back time served in deployment, and the deposit cannot exceed what they would have paid, had he or she remained in civilian employment, hence no one can be penalized for being deployed. Personally, I have run calculations for numerous clients to determine if it is worthwhile to buy back military time, and in every case I have analyzed, I found the buyback worthwhile.
Still Have Questions?
Calculating FERS benefits can be confusing, and there are a lot of mistakes that we’ve seen people make when trying to figure it all out by themselves, which is why we offer a no-cost FERS analysis. If you’d like to discuss how we at Bridgerland Financial can help you make the most of your federal retirement benefits, schedule an appointment online or reach out to us at firstname.lastname@example.org or (435) 535-1630.
David Packer is founder and financial advisor at Bridgerland Financial, an independently managed financial firm in Utah. With 20 years of industry experience, David serves his clients by helping them bridge the gap between their working years and their retirement. He provides tailored, comprehensive financial plans to his business owner and individual clients so they can retire with confidence. David has a bachelor’s degree in finance and holds the Chartered Retirement Planning Counselor℠ (CRPC®) credential. Outside of the office, David loves to spend time with his wife and five kids and stay involved in his community. He currently serves on the board of directors of the Cache Valley Chamber of Commerce. He and his wife, Melonie, spent years as foster parents and eventually adopted their foster children. David loves playing and watching all kinds of sports, including officiating high school sports, and won’t turn down a good board or card game. Learn more about David by connecting with him on LinkedIn. ____________