Why Deferred Retirement Is Important
Why is this such a big deal? Well, for starters, you may not pay all that much for your FERS basic benefit plan. In looking at my paystub, I contribute $37.47 per pay period towards my FERS retirement. . Getting a refund would mean that Id be giving up 95% of that money.
.” rel=”nofollow”> if you were hired after 2013, you are contributing a lot more towards your FERS pension each pay period than I am.)
Financing Pension Benefits For Federal Employees
As of September 30, 2017, the CSRDF had net assets of $908.7 billion available for benefit payments under both CSRS and FERS. At the same time, the civil service trust fund had an unfunded actuarial liability of $968.1 billion, with $812.5 billion in unfunded liability attributable to CSRS and $155.6 billion in unfunded liability attributable to FERS.31 Federal law has never required that employee and agency contributions must equal the present value of benefits that employees accrue under the CSRS. In contrast, the FERS Act requires that the benefits accrued each year by employees must be fully funded by contributions from employees and their employing agencies.
Curious To Learn More About Fers Survivor Benefits
It is very difficult it is to lose a spouse. We understand that sorting out financial matters is probably the last thing you want to deal with when your spouse passes away.
On top of that, the world of federal retirement survivor benefits is often difficult to navigate on your own. If your deceased spouse was a federal employee, we can help ensure that you obtain the benefits that they intended you to have.
Here at the Federal Employment Law Firm of Aaron D. Wersing, PLLC, we are dedicated to assisting with all kinds of federal employment matters.
We care about all of our clients, and we are passionate about ensuring that they obtain the compensation they deserve.
We have many years of experience successfully helping our clientsas our client reviews show. Together, we can work with you to help maximize your FERS survivor benefits.
Many people wrongly believe that hiring an attorney will cost them a small fortune. However, we dont want money problems to prevent people from reaching out and consulting us.
Thats why all of our initial consultations are free. Dont lose out on obtaining the federal retirement benefits you rightfully deserve. Contact us today.
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Voluntary Early Retirement Authority
Occasionally, the federal government will try to reduce its workforce through attrition. When they do this, they typically offer two different programs: buy outs and early outs .
A VSIP is a cash payment of up to $25,000 to quit. This does not affect other retirement benefits. So if you had 10 years of service, you would still be eligible for a normal deferred retirement. Typically, VSIPs are an incentive for people who can already retire to leave.
On the other hand, a VERA is an incentive the federal government offers employees to reduce the workforce through early retirement. It allows certain employees to retire before their MRA with full retirement benefits. To be eligible for a VERA you need
- 25 years of service OR
- 20 years of service and be 50 years old
Your workplace may not offer a VERA when youre ready to retire.
Compared to deferred and postponed retirements, VERAs are much more generous.
- Employees who take a VERA can keep their FEHB.
- Annuity payments begin immediately upon separation.
- Annuity = 1%
It is important to note however that you cannot plan to take a VERA. Your workplace may not offer a VERA when youre ready to retire. Also, even if your workplace offered a VERA, they might not approve it for your position if you have a critical job.
Leg #1 Your Basic Fers Pension
Sometimes people will call your FERS pension a FERS annuity. Even OPM calls it an annuity. But to avoid confusion with other annuities were going to be using the term pension when we talk about your FERS retirement.
Every pay period, the government takes out a small portion of your pay to put towards your FERS pension. For most FERS, it is 0.8% of your basic pay. But your pension is not based on this amount.
Your FERS pension is a defined benefit program. Defined Benefit means the amount you *get* is defined or fixed. It doesnt matter how much money you contributed the monthly income from your pension will be a fixed amount based on certain factors.
Once you retire, you can receive a basic monthly pension for the rest of your life.
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How Federal Retirement Eligibility Is Calculated
Like many retirement systems, FERS uses the “Rule of 80.” This states that an employee must reach a combined 80 years when adding age and federal service to be eligible for retirement.
Let’s say an employee begins federal service right after college at age 22. After 29 years of service, they reach age 51. The employee has satisfied the rule of 80, but hasn’t yet reached the minimum retirement age. At an MRA of 57, the employee has six more years left until retirement eligibility.
Assuming this employee wants to retire as soon as they’re eligible to do so, FERS gains six more years of retirement contributions from them and forgoes six years of annuity payments by forcing them to wait until age 57.
Retirement can be tempting at age 51. An employee can decide to do something different and still have enough time left to make a real career out of it. Retirement is still tempting at age 57, but many employees choose to ride out federal service until retiring sometime in their early 60s.
The Social Security Administration allows citizens to take early retirement at age 62, so this is a popular retirement age among public servants at all levels of government as well.
Law Enforcement Officers And Firefighters
Employees designated as federal law enforcement officers or firefighters pay an extra one-half percent salary deduction under either CSRS/CSRS Offset or FERS. They are eligible to retire earlier than other employees and receive benefits under an enhanced formula.
Generally, a law enforcement officer is an employee whose primary duties are the investigation, apprehension or detention of individuals suspected or convicted of offenses against federal criminal laws. The definitions differ somewhat between CSRS and FERS, with those under FERS being more stringent.
Note: Eligibility for Customs and Border Protection officers began July 6, 2008. Officers hired on or after that date fall under the law enforcement retirement provisions and are subject to mandatory retirement at age 57 with 20 years of service. Officers employed as of that date are not subject to mandatory retirement. They had a choice of not joining the law enforcement system. Those who opted out remain under standard contribution, eligibility and benefit calculation rules. Those who did not opt out will receive a mixed annuity at retirement, with service prior to that date calculated under standard rules and service afterward calculated under the LEO formula.
A firefighter is a person whose duties are primarily to perform work directly connected with the control and extinguishing of fires or the maintenance and use of firefighter apparatus and equipment.
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Employee And Employer Contribution Amounts
Actuaries calculate the cost of defined benefits pension plans in terms of “normal cost.” The normal cost of a pension plan is the level percentage of payroll that must to be set aside each year to fund the pension benefits that participants have earned. Normal cost is based on estimates of attrition and mortality among the workforce, future interest rates, salary increases, and inflation.
Contributions from employees and their employing agencies meet about 38% of the normal cost of CSRS . The remaining 62% of the cost of CSRS is paid from the interest earned by bonds held by the retirement and disability trust fund, special contributions by the U.S. Postal Service for retired postal workers, and transfers from the general revenues of the U.S. Treasury. If each federal agency were to pay the full cost of CSRS benefits on an accrual basis, as is done under FERS, they would contribute an amount equal to 29.6% of payroll. This represents the dynamic normal cost of CSRS minus the required employee contribution of 7.0% of pay.
Resources To Help You With Your Retirement Plan
If you are looking for more information on FERS, CSRS or any of the plan specifics, there are several resources available. You can find guides on withdrawing funds, for example, and calculators to compute your benefits.
- CSRS/FERS Handbooks: The OPM provides a list of documents that go over every aspect of CSRS and FERS, including refunds, spouse, former spouse and childrens benefits and computation of benefits.
- FEGLI Calculator: Determine the cost of your premiums and face value of the life insurance plan you selected using this calculator.
- FAQS: Thrift Savings Plan: If you need to make a change to your TSP account or withdraw funds, learn how to do so.
- Retirement Service: My Annuity and Benefits: Learn how to withdraw money from your TSP and who to contact if you have specific questions about the plan.
- Social Security Benefits for Federal Workers: A small number of workers hired before a certain date might be ineligible for Social Security. This page details who may not be eligible.
About the Author
Cheryl Wagemann has more than seven years of experience creating content for digital and print media companies. She most recently covered economics and banking terms for The Balance and previously was the shopping editor at Finder, where she developed a love for personal finance. Prior to that, roles ranged from a Samsung copywriter to a local news editor. Cheryl is currently also an updates editor for Byrdie, a Dotdash vertical.
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Annuity Insurance Social Security & Medicare
FERS and CSRS federal employee retirement benefits are generous, however they will cost you retirement dollars, especially for health and life insurance coverage. Uncle Sam will continue federal employee’s health benefits, as long as you were enrolled in the program for the last five years of your service, however you must pay the same monthly amount that you paid while working. You can also continue life insurance coverage and if you participated in the Thrift Savings plan you have many withdrawal options to consider.
Retirement benefits and insurance options for federal employees include your basic annuity, Social Security in many cases, Social Security Offset for certain FERS retirees, Medicare, Thrift Savings Plan withdrawals, and numerous insurance options that you can opt to carry into retirement.
Congress Guts Federal Retirement Benefits
- Likelihood of occurring: 3/10
- Desirably of outcome: 1/10
If youve gotten to this point in the post you understand why I dont want to retire early.
But what if Congress gutted federal retirement benefits?
The biggest reason to stay in a federal job after reaching financial independence is to keep FEHB for life. If Congress gets rid of that benefit, there is little reason to stay in a federal job.
Over my nearly 20 years of federal service, Congress has often debated changes to the FERS retirement system. There are almost always proposals to change the annuity formula or get rid of the FERS supplement.
If the FEHB or FERS supplement were eliminated, so would the incentive to stay until MRA.
I am not aware of proposed changes to FEHB. However, if Congress cut FEHB, it would be bittersweet. On one hand, Id no longer have golden handcuffs keeping me tied to my desk. On the other hand, Id lose a major benefit.
In other words, if the FEHB or FERS supplement were eliminated, there would be no incentive to stay until MRA.
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Employee Contributions And Other Sources Of Funding25
Employee contributions are revenues of the federal government. These revenues reduce the proportion of pension costs that must be borne by the public. In FY2017, employee contributions to CSRS and FERS totaled an estimated $3.9 billion, equal to 3.8% of the total income of the CSRDF.26 The other major sources of revenue to the CSRDF are agency contributions, contributions of the U.S. Postal Service on behalf of its employees, interest on the federal bonds held by the fund, and transfers from the general revenues of the U.S. Treasury. These transfers are necessary because the costs of the older of the two federal retirement programs, the CSRS, are not fully covered by employee and agency contributions. FERS benefits are required by law to be fully funded by the sum of contributions from employees and their employing agencies and the interest earnings of the CSRDF.
What Requirements Must You Meet To Keep Fehb After You Retire
A federal employee retiree had to have been enrolled in FEHB with active coverage at the date of their retirement to qualify for FEHB in retirement. And they must have been covered by the FEHB program for five years before retiring.
Those with less than five years of coverage may still qualify if they were continuously covered by the FEHBor enrolled as a family memberfrom the first time they qualified to enroll in the program.
Most federal employees are eligible for FEHB, but you must elect for coverage.
If you were not continuously enrolled in your own FEHB program, but a family member was continuously enrolled, you may qualify under that family member’s plan. The five-year rule still applies, but the time spent on the family member’s plan may count toward the five years.
If you had a break in service during the five-year vetting period, be sure to ask about your eligibility. Breaks in service may not prevent you from meeting the the five-year rule.
If you are unsure whether you can receive FEHB coverage, check out the eligibility website set up by the U.S. Office of Personnel Management that lists categories of workers who are included and excluded. For example, you are not eligible if you were first employed by the government of Washington, D.C., unless one of four specific exceptions applies. You are also not eligible if you are paid on a fee or contract basis.
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How To Get Help
Thinking about death is difficult, but its crucial to plan for your familys wellbeing. If youre a federal employee with questions about your benefits, please reach out. Were financial planning experts with deep knowledge of the FERS system, and can help you with anything from designating your beneficiaries to helping you choose the right insurance coverages for your financial situation.
If you are a surviving spouse of a federal employee, were here for you, too. This Survivors Planning Checklist will help you stay organized as you complete all the necessary paperwork. If you need additional help navigating the complex federal benefits system, get in touch today. We can help you make sure you understand what youre entitled to and help you through this difficult time.
Example: Ineligible Break In Coverage
Jeff began working as a federal employee in 2011, but after a year, he elected to cancel his FEHB coverage. He left his federal position in early 2013, but he decided to return later that year. He was rehired and again became eligible for FEHB benefits. This time, Jeff elected to enroll in FEHB and remained enrolled. Jeff retired in 2017, but since he had elected to cancel his coverage during his first stint as a federal employee, he didn’t meet the five years of continuous coverage rule. Jeff did not qualify for FEHB in retirement.
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Mandatory And Special Retirements
There are some federal occupations where there are mandatory retirement ages. Law enforcement officers , firefighters, and nuclear weapon couriers are required to retire at age 57. Air Traffic Controllers must retire at age 56. Because of this, they have different eligibility requirements. They can take a full, unreduced FERS annuity at age 50 with 25 years of service, or at 55 with 20 years. FERS employees who retire under these special provisions get to use a different multiplier in their retirement calculation: 1.7% for the first 20 years of service and 1% for any subsequent service. However, they do have to contribute .5% more to FERS each paycheck than regular FERS employees. The SRS was also created for these individuals, so naturally they are eligible for the social security supplement. In fact, if a federal LEO, firefighter, or ATC retires before reaching their MRA , their SRS payments are not subject to any earnings test reductions until reaching that age.
Pension Funding In The Private Sector Versus The Federal Government
In the private sector, employers are required by the Employee Retirement Income Security Act of 1974 ” rel=”nofollow”> P.L. 93-406) to pre-fund the benefits that workers earn under defined benefit plans. Pre-funding of future pension obligations is required because there is always the possibility that a firm could go out of business. A firm that closes down will no longer have revenues to pay its pension obligations, and if these obligations were not fully funded, retirees and employees of the firm would lose some or all of their pension benefits. Private-sector employers with defined benefit pensions are required to pay premiums to the Pension Benefit Guaranty Corporation , which insures the pensions of workers whose employer terminates a pension plan that has unfunded liabilities. For plans that terminate in 2019, the PBGC guarantees a maximum annual benefit of approximately $67,295 for a worker retiring at the age of 65. The maximum benefit is lower for workers who retire before the age of 65. The PBGC does not insure federal, state, or local government pensions. The ultimate guarantors of government pensions are the taxpayers.21
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