The Federal Employees’ Retirement System (FERS) provisions for the retirement benefits of US federal employees. 

The FERS plan succeeds the Civil Service Retirement System (CSRS). This plan became functional in the US in 1987. Similarly, the CSRS has been a public pension fund for federal employees since 1920. 

Employees who joined US federal services after 1983 were automatically enrolled in the FERS plan. 

The total number of federal employees in the US is just under 3 million. 98.4 percent of these employees are covered by the FERS plan. In contrast, only 1.6 percent of civilian federal (CSRS) employees are left in the US. 

The FERS plan consists of three different retirement components: the basic benefit, social security, and the thrift savings plan (TSP). 

It is pivotal for federal employees to understand the eligibility for pension and social security plans. Some key considerations include – 

  • The Social Security benefits plan under the FERS acts as a boundary against financial markets. This plan adjusts the cost of living for federal employees every year. 
  • This is a source of retirement security for lower-income bracket employees within the US federal government. 
  • Social security benefits are a human right for all federal employees within the FERS plan. 
  • It offers supplemental income to disabled retirees and federal employees to live independently. 

If they are part of the FERS plan, federal employees will qualify for both pension and social security benefits after retirement. 

Let us thoroughly review the unique rules and conditions for federal employees to receive both retirement benefits.

Overview of Pension Plan for Federal Employees

The basic benefit plan is a part of the FERS component that is also known as the pension plan for federal employees. This is a contribution plan in which the employee contributes a part of their salary into the pension account while the federal government adds another portion. Employees receive the basic benefits money upon retirement from services. There are two types of federal government employee pension plans. These are the CSRS and FERS plans. Take a look into the functions of the pension plans – 

  • Civil Service Retirement System (CSRS) – This is the primitive retirement plan for federal employees in the US. The different components of retirement benefits within this plan include basic pension annuity, survivor’s annuity, thrift savings plan, social security annuity from non-federal earnings, and payroll tax contributions. 
  • Federal Employees’ Retirement System (FERS) – This is the active retirement plan for all federal employees in the US. Different components of retirement benefits within the FERS plan include basic benefits (annuity payments), social security benefits upon 10 years of social security tax payment, thrift savings plan (TSP), health insurance, and special annuity supplement. 

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Federal Employees’ Eligibility to Receive Pension

Learn about the different eligibility criteria to receive a pension from CSRS and FERS plans – 

  • CSRS – Employees can retire at the age of 55 with 30 years of federal services to receive the annuity payments or pension from the federal government. Otherwise, employees can retire at the age of 60 years with 20 years of federal service to be eligible to receive pension benefits. Moreover, federal employees with only 5 years of service tenure can receive their pension provided they retire at the age of 62 years.
  • FERS – The same retirement rules apply to employees within the FERS plan to receive their retirement benefits. Additional criteria to receive an unreduced pension include maximum years of service at their minimum retirement age.

CSRS vs. FERS

Here are the primary differences between the two types of retirement plans for federal employees in the US – 

Differences Civil Service Retirement System Federal Employees’ Retirement System
Eligibility All federal employees were covered under the CSRS pension plan from 1920-1986. The CSRS plan is about to be obsolete soon. Federal employees joining services after 1983 are registered with the FERS plan. All new federal employees are enrolled in this plan as well.
Annuity This plan offers more annuity money than the FERS plan. Moreover, CSRS retirees are eligible to receive the same annuity amount whether they retire at age 55 years or more. Retirees within the FERS plan get reduced annuity if they retire at age 55 or before.
Social Security CSRS employees are ineligible to receive social security benefits. FERS employees get social security benefits but have to pay social security taxes too.
Thrift Savings Plan Restricted participation in the TSP plan for CSRS employees. No restriction on TSP participation.
Retirement Age Employees within the CSRS plan can retire at the age of 55 years. Contrarily, FERS employees need to maintain service tenure based on their birth years which fall between 56-60 years.
Cost-of-living Adjustments CSRS retirees get this type of allowance regardless of their retirement age. FERS employees need to retire at the age of 62 or later to receive the cost-of-living adjustments.
Disability Retirement Disabled federal employees within the CSRS plan get 40 percent retirement benefits of the average 3-year-highest basic pay salary.
Disabled employees within the FERS plan get only 1 or 1.1 percent of the average 3-year-highest salary.

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Benefits of the FERS Plan

FERS retirees get a combination of retirement benefits including – 

  • The minimum retirement age for FERS employees is 56 years. However, it is mandatory to complete 30 years of federal services to receive the basic benefits or pension from the FERS plan. The benefit is calculated with 1 or 1.1 percent of the highest 3-year salary and number of service years. Moreover, FERS employees get cost-of-living adjustments as well. Nevertheless, this benefit amount is quite low compared to what CSRS employees receive. 
  • Federal employees enrolled in the FERS plan can get Social Security benefits if they have paid Social Security taxes through payroll deductions for 10 years or more during active service. The calculation of benefits depends on the highest earning during their service term and the age at which they start receiving the social security benefits. Employees who retire before the age of 66 or 67 years depending on the birth date will get reduced social security benefits. On the contrary, waiting until the age of 70 years ensures full benefits. Furthermore, FERS employees receive full social security benefits when they retire at the MRA with a maximum service term. 
  • TSP and special retirement supplement are additional retirement benefits within the FERS plan. This plan allows FERS employees to generate an additional source of income after retirement. 

Pension Plan Benefits Under CSRS Plan

Retirees from the CSRS plan can get different types of retirement benefits. The choices include voluntary, disability, deferred, and discontinued service. 

Here is an in-depth insight into each of these benefits – 

1) CSRS Disability Retirement – Employees within the CSRS plan need to provide evidence for a disabling medical condition that makes it impossible to continue federal services. Furthermore, the employer needs to confirm that they cannot accommodate the employee within any position of their existing pay grade. However, federal employees need to serve for at least 5 years within a federal organization to receive this type of benefit. They can get up to 40 percent pension of their average basic 3-year-highest salary from this type of retirement. 

2) Optional Retirement – This type of retirement is effective based on the federal employee’s age and years of service. To get voluntary retirement benefits, federal employees get the following options – 

  • Retirement at the age of 55 years with 30 years of service. 
  • Retirement at the age of 60 years with 20 years of service. 
  • Retirement at the age of 62 with a minimum of 5 years of service. 

The benefit calculation is done based on the highest average salary for 3 years. Early-out option is given to federal employees from organizations that are restructuring or downsizing. 

3) Discontinued Service Retirement – This type of retirement benefit is given to federal employees who have to go through involuntary retirement due to external reasons including downsizing or shutdown. Employees who are 50 years old can choose this type of retirement with a minimum of 20 years of service. Similarly, employees can retire at any age with 25 years of service to receive this type of retirement benefit. The calculation for the retirement benefits is similar to the formula used for voluntary or optional retirement. It is crucial to note that employees will get a 2 percent deduction from their annuity payment if they retire before the age of 55 years. 

4) Deferred Retirement – Federal employees with at least 5 years of service can retire from services before fulfilling the maximum service tenure or before reaching the minimum required age (MRA). However, the employees can receive benefits from this type of retirement only when they reach the age of 62 years. The benefit calculation formula is similar to the optional retirement category. Moreover, there are no survivor or health benefits from this type of retirement compared to employees who retire from active services. 

Complete Overview of Social Security Benefits for Federal Employees

A federal employee will qualify to receive social security benefits based on their work history if – 

  • The MRA for employees to get this benefit is 62 years. 
  • When the employee has contributed to social security for at least 10 years through payroll deductions. 
  • If the employee has more than 40 social security credits. (NOTE: It is possible to earn up to 4 social security credits in 1 year through social security tax contributions)

FERS allows contributions to social security, TSP, and pension plans. Employees are automatically eligible to withdraw social security benefits if they have enough service hours or social security credits. Moreover, FERS retirees get a special retirement supplement depending on their eligibility to receive social security benefits on the day of retirement. 

The CSRS started 15 years before the Social Security system. Employees within the CSRS plan were excluded from social security benefits from 1935 as they were already integrated into a comprehensive retirement plan. Furthermore, CSRS employees are ineligible to get social security benefits because CSRS does not allow social security contributions. Moreover, employees cannot earn social security credits through CSRS employment. 

Methods for Federal Employees To Receive Both Pension and Social Security Benefits

Navigate through the unique rules for federal employees to receive both pension and social security benefits – 

  • Automatic enrollment of federal employees assigned to duties after 1983 into the FERS plan. They contribute to both pension and social security plans to get both types of benefits. 
  • CSRS employees are not eligible for automatic enrollment into the social security benefits as it is a component of the FERS plan. However, separation from federal services or conversion into the FERS plan will make them eligible to get both types of retirement benefits. 
  • Federal employees need to accumulate 40 social security credits which is equivalent to 10 years of service to get social security benefits. CSRS employees need to cover this through non-federal jobs while FERS employees can earn such credits through federal employment years of service. 
  • The windfall elimination provision reduces the social security benefits for employees who receive a pension from employment that is not covered by social security. 
  • The social security benefits could be reduced to half based on the number of years covered within social security employment. 
  • No WEP reductions from social security benefits of employees who served 30 years or more within social security-based employment. 
  • The Government Pension Offset impacts the survivor benefits of CSRS retirees. The social security benefits are reduced by 2/3rd of the pension amount. 
  • FERS employees are not affected by the GPO rules. 
  • Eligibility of FERS employees to claim both social security and pension benefits at the normal age. Claiming any of these benefits before the MRA could reduce the benefits. 
  • CSRS employees must consult with federal pension advisors to determine the best retirement age to receive both unreduced pension and social security as the government pension offset and windfall elimination provision significantly affects the benefit amount. 
  • FERS employees with 30 years of service and retirement before the age of 62 years are eligible to get a special retirement supplement equivalent to the social security benefits. However, it is important to remember that the benefit will dissipate once the retiree reaches the eligible age to get social security benefits, 62 years. 

CSRS Employee’s Eligibility for Social Security Benefits

CSRS employees can enjoy both retirement and social security benefits under the following conditions – 

  • Work part-time during off hours on jobs that are covered by social security. 
  • A $1,640 social security tax contribution is equivalent to 1 Social Security credit in 2024. CSRS employees need to earn at least 40 such credits at the time of retirement to be eligible to receive social security benefits. 
  • CSRS retirees can work in the private sector or pick a local or state government job after separating from federal services to accumulate the number of credits to receive social security benefits. 
  • Federal employees who have started their own businesses can earn social security benefits as they pay both the employee and employer’s portion of the tax. 
  • Federal employees who worked in the private sector before joining federal services may already have a portion of social security credits in their account. Gathering the remaining portion of the credit allows them to get complete social security benefits. 
  • If a spouse of the federal employee is eligible for Social Security, the employee can get the Social Security survivor benefits regardless of their Social Security credit count. 
  • The Windfall elimination provision significantly reduces the Social Security benefits of CSRS employees who earn extra Social Security credits through non-federal jobs.

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Key Factors To Consider During Pension and Social Security Combination

Look into the key factors for federal employees to combine pension and social security benefits to maximize overall retirement income – 

  • Age and Eligibility  – The age threshold for federal employees to receive pension benefits is retirement at 62 years with a minimum of 5 years of service under the FERS plan and retirement at the age of 55 years with 30 years of federal service within the CSRS plan. Social Security benefits are available for federal employees from the age of 62 years. Nevertheless, retiring at the age of 66 or 67 years gives full social security benefits to federal employees. Furthermore, federal employees need to determine the best time to receive pension and social security benefits. Assessing their retirement age, family requirements, and individual goals will help to identify the best age to get the retirement benefits separately or combined.
  • Maximize Retirement Income – Delaying the claim of social security benefits until the age of 70 years allows federal employees to get maximum social security benefits. Combining pensions with delayed social security grants enhances retirement income significantly. However, federal employee needs to solely rely on pension income and wait for a long time if they want to maximize their social security benefits. It is ideal to utilize TSP and other contribution plans during this time to balance retirement income.

Steps To Get Combined Benefits

The following steps help employees to maximize their federal government retirement benefits – 

  • Consulting with financial advisors for federal employees helps to explore the complex rules related to retirement benefits. They provide appropriate strategies to maximize retirement income by combining social security, pensions, and a thrift savings plan (TSP). Additionally, they offer constant guidance related to the retirement age, tax considerations, and additional retirement components. Furthermore, financial experts are equipped with the latest resources to help federal employees gain clarity on their retirement and income options.
  • Federal employees can visit the official Office of Personnel Management website to access online calculators such as the FERS retirement, social security estimator, and TSP calculator to calculate the overall retirement income. These calculators enable employees to input different dates and ages to compare retirement income at different life stages.

Takeaway

Making early retirement plans will help federal employees to maximize their source of revenue in the long run. 

Understanding federal retirement options ensures financial stability. 

Since FERS and CSRS plans have different eligibility criteria, and supplementary plans, keeping a note of the following points can help federal employees considerably – 

  • Streamlined retirement strategies ensure maximum benefits and returns in old age. 
  • The retirement benefits vary based on the timing and age of retirement. 
  • It helps to make informed decisions related to family, personal goals, financial requirements, and medical expenses. 
  • Allows federal employees to prevent tax penalties and reductions. 

Talk to our financial experts from PSR Assurance to create a personalized retirement strategy for maximum benefits.