Who’s on FERS?

As Mr. Causey remains "On Assignment" we thought some light beach-type reading might be in order. Grab a chilled beverage and relax a little, knowing this two-part series could help you avoid a major problem later in your career. sk

Ever feel like you don’t belong? That may be because you were placed in the wrong retirement system. It happens.

So we asked benefits expert Bob Braunstein to explain how it happens and has it happened to you. Suffice to say it’s complicated which is why this will be a two-parter.

Here’s part one:

Do you think you may be in the wrong Federal retirement plan? Should you be in CSRS instead of FERS? Should your coverage be CSRS instead of CSRS-Offset. Or do you think your retirement plan should be FERS? The best way to determine whether you are in the correct retirement plan is to understand the history of Federal retirement programs – in other words, how CSRS, CSRS Offset and FERS came into being.

A Brief History of Federal Retirement Programs

The Federal Retirement Program began in 1920 with the establishment of the Civil Service Retirement System or CSRS. CSRS is a defined benefit or pension system which stood alone until the mid-1980s. Despite passage of the Social Security Act of 1935, CSRS employees only contribute to the CSRS Retirement Fund and to this day do not pay Social Security taxes on their earned Federal income. As such, most are ineligible for Social Security benefits and rely on their CSRS annuities as their primary sources of income in retirement.

The landscape of Federal retirement changed dramatically in 1983 with the passage of the Social Security Amendments Act. This act required all new employees coming to work for the Federal government on or after January 1, 1984, to pay both Federal retirement and Social Security contributions. It also required former Federal employees, who returned to service on or after January 1, 1984 after a service break of more than one year, to pay both Social Security and Federal Retirement contributions. Initially, the retirement program covering employees in these situations was a “hybrid” of CSRS known as CSRS Interim.

    The FERS Program

    The CSRS Interim program remained in effect until the establishment of the Federal Employees Retirement System or FERS on January 1, 1987.

    FERS is a more flexible retirement system which includes three tiers of income: a pension system similar to CSRS (but less financially robust), a full Social Security component, and a government-matched defined contribution program known as the Thrift Savings Plan (which is similar to 401(k) plans in the private sector). FERS covers most Federal employees and automatically includes all whose first Federal appointment was on or after January 1, 1984. FERS also covers others who elected to transfer to the program from CSRS and other Federal retirement plans during two subsequent open enrollment opportunities.

    The CSRS Offset Program

    Former Federal employees who had returned to Federal service on or after January 1, 1984 after a service break of more than one year who also had at least five years of CSRS covered service prior to the commencement of FERS, were placed in a CSRS successor plan known as CSRS Offset unless they elected to transfer to the FERS program. Like their FERS counterparts, CSRS Offset employees are compelled to pay both Social Security and Federal retirement contributions but are otherwise subject to the more generous annuity rules of CSRS (minus an offset amount at age 62). And like their CSRS counterparts, CSRS Offset employees can contribute to the TSP program but receive no matching funds from the government for these contributions. Bob Braunstein

Tomorrow’s column: So you’re in the wrong system, now what?

To reach me: mcausey@federalnewsradio.com

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