Federal Employee Retirement System (FERS)

FERS Basics: What is FERS?

The Federal Employees Retirement System (FERS) is a defined benefit plan that provides a lifelong payment (annuity) to eligible federal employees when they retire. FERS became effective January 1, 1987, and retroactive to employees hired after January 1, 1984. FERS has three main components:

• Basic benefits (FERS Annuity) – administered by the Office of Personnel Management
• Thrift Savings Plan – administered by the Federal Retirement Thrift Savings Board
• Social Security Benefits – administered by the Social Security Administration

There are contributions that both the employee and the agency make. However, most of the contributions are made by the agency on the employee’s behalf. These contributions are mandatory, and the amount contributed is defined by law.

FERS employee contributions:

• 0.8% (FERS) of their salary for employees hired before 2013
• 3.1% (FERS-RAE) of their salary for employees hired on January 1, 2013
• 4.4% (FERS-FRAE) of their salary for employees hired on January 1, 2014

Retirement Eligibility

Eligibility for an immediate FERS annuity requires that age and service timelines are met. The requirements to be eligible for a full, unreduced pension are:

• Age 62 with 5 years of service
• Age 60 with 20 years of service
• Minimum Retirement Age (MRA) with 30 years of service

The Minimum Retirement Age varies according to the employee’s year of birth, as indicated on the following schedule:

High-Three Average Pay

The high-three average pay is determined by using any period of three consecutive years of service when the employee received the greatest amount of compensation during their career. Most employees equate their last 36 months of working as their “high-three.” However, this is not always the case.

Computation for FERS Annuity

Use the following calculations to determine annuity:

Basic calculation

Take the “High-three salary” x years of service x 1%

Example:

Age: 58
High-3: $82,000
Service: 30 years
$82,000 x 30 x 1% = $24,600 annually before taxes

Enhanced Calculation

Take the “High-three salary” x years of service x 1.1%*
*For those with 20 years of service or more and retiring at the age of 62 or later

Example:

Age: 63
High-three: $82,000
Service: 35 years
$82,000 x 35 x 1.1% = $31,570 annually before taxes

A 10% increase for the enhanced formula may seem like little, but it can dramatically change the trajectory of retirement over many years.

Other types of FERS Retirement?

There are other ways to retire in the Federal Employees Retirement System (FERS) Basic Benefit Plan. Each has its own particular set of rules and calculations.

• Immediate
• Early
• Deferred
• Disability
• Special Provisions (Special Category Employees)

Understanding the features and benefits, as well as limitations of each of the plans, is critical for a federal employee’s long-term financial security.