Retirement Programs

Civil Service Retirement System (CSRS) INTERIM

Covers employees first hired, rehired or converted to an appointment subject to retirement on or after January 1, 1984. CSRS Interim was a version of CSRS established pending the creation of the new retirement system. When the new system (FERS) was established on January 1, 1987, personnel offices were instructed to review the Official Personnel Folder of all employees covered under CSRS Interim to determine whether or not the employees, by law, were:

• Vested, meaning you had at least 5 years of creditable civilian service under the CSRS. If so, your retirement coverage would be either CSRS or CSRS Offset, or
• If you were not vested in CSRS, you would be covered automatically under FERS.

Civil Service Retirement System (CSRS) OFFSET

CSRS Offset is a version of CSRS established for employees who become subject to Old Age Survivors and Disability Insurance (OASDI), also known as FICA taxes, and have completed at least 5 years of creditable civilian service.

Generally, CSRS Offset coverage applies to employees rehired after a break of more than 365 days with 5 or more years of prior creditable civilian service as of:

• December 31, 1986, or
• As of the date of your last separation and you had at least 1 day of CSRS coverage or Foreign Service Retirement System coverage.
• Employees with at least a 4-day break in service have a 6-month opportunity to transfer to FERS.

Federal Insurance Contributions Act (FICA)

A Federal law that is monitored by the Social Security Administration that requires employees to pay social security tax on their earned income that provides future pension and other social security benefits. The Federal Insurance Contributions Act (FICA) establishes a Social Security and Medicare Tax on employers and employees. The employee's portion of the tax is deducted from the paycheck and then matched by the employer's portion of the tax. The tax applies to:

• Most employees on appointments specifically excluding them from any Federal retirement system coverage. For example, a temporary appointment not to exceed 1 year.
• Most employees first hired in Federal service before January 1, 1984 but were not covered under a Federal retirement system until after December 31, 1983, i.e. temporary employees and,
• Employees rehired after a break in service or break in CSRS coverage (covered service) of more than 365 days, which ended after December 31, 1983.
• Employees first hired on/or after January 1, 1984, with no prior federal employment.
• Employees covered under CSRS Offset and FERS.

Civil Service Retirement System (CSRS)

Covers most employees first hired prior to January 1, 1984.

Employees who have had a break in coverage of less than 1 year (365 days) also retain their CSRS coverage. However, if you have a break in service of at least 4 days, upon rehire you have a 6-month opportunity period to elect to transfer to FERS.

Federal Employees' Retirement System (FERS)

FERS became effective January 1, 1987 and covers most employees first hired on or after January 1, 1984.

Employees rehired after a break in service of more than 365 days with less than 5 years of creditable civilian service.

Employees who elected FERS coverage during transfer opportunities.

FERS is a retirement plan that provides benefits from three different sources: a Basic Benefit Plan, Social Security and the Thrift Savings Plan (TSP). Two of the three parts of FERS (Social Security and the TSP) can go with you to your next job if you leave the Federal Government before retirement. The Basic Benefit and Social Security parts of FERS require you to pay your share each pay period. Your agency withholds the cost of the Basic Benefit and Social Security from your pay as payroll deductions. Your agency pays its part too. Then, after you retire, you receive annuity payments each month for the rest of your life.

The TSP part of FERS is an account that your agency automatically sets up for you. Each pay period your agency deposits into your account amount equal to 1% of the basic pay you earn for the pay period. You can also make your own contributions to your TSP account and your agency will also make a matching contribution. These contributions are tax-deferred. The Thrift Savings Plan is administered by the Federal Retirement Thrift Investment Board.

Both CSRS and FERS retirement benefits are eligible for annual, automatic COLA. Cost-of-living adjustments (COLAs) for the Civil Service Retirement System (CSRS) and the Federal Employees Retirement System (FERS) are based on the rate of inflation as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). COLAs for both CSRS and FERS are determined by the average monthly CPI-W during the third quarter (July to September) of the current calendar year and the third quarter of the base year, which is the last previous year in which a COLA was applied. The “effective date” for COLAs is December, but they first appear in the benefits issued during the following January.

All CSRS retirees and survivors receive COLAs. Under FERS, however, nondisabled retirees under the age of 62 do not receive COLAs. Survivors and disabled retirees are eligible for COLAs under FERS regardless of age. CSRS pays a COLA that is equal to the percentage change in the CPI-W during the measurement period, but COLAs under FERS are limited if the rate of inflation is greater than 2.0%. If the rate of inflation during the measurement period is between 2.0% and 3.0%, the COLA under FERS is 2.0%. If inflation is greater than 3.0%, then the COLA for FERS benefits is equal to the CPI-W minus one percentage point.

Congress passed the first law requiring automatic COLAs for federal civil service retirement benefits in 1962, and it has adjusted either the formula by which they are calculated or the date on which they take effect more than 10 times since then.

Section 8312 of Title 5 of the U.S. Code provides that a federal employee, including a Member of Congress, may not receive a retirement annuity for any period of federal service if that individual is convicted of certain offenses that were committed during the period of service when the annuity was earned. In general, the crimes that would lead to forfeiture of a federal retirement annuity under this provision of law are limited to acts of treason or espionage.

The basic retirement annuity under both CSRS and FERS is determined by multiplying three factors: the salary base, the accrual rate, and the number of years of service. This relationship is shown in the following formula:
Annual Pension Amount = salary base x accrual rate x years of service

Under both CSRS and FERS, salary base is defined as the average of the highest three consecutive years of basic pay, or “high-three” pay.

CSRS accrual rates increase with length of service. CSRS pensions equal 1.5% of high-three average pay for each of the first five years of service, 1.75% for the sixth through 10th years, and 2.0% for each year of service after the 10th year. This formula yields a replacement rate of 56.25% for a worker who retires with 30 years of service. Under current law, CSRS initial pension amounts are capped at 80% of high-three pay—although they may be subsequently increased by cost-of-living adjustments (COLAs).

Under FERS, workers accrue retirement benefits at the rate of 1% per year, or, if a FERS employee has at least 20 years of service and works until at least age 62, then the FERS accrual rate is 1.1% for each year of service. FERS accrual rates are lower than those under CSRS because employees under FERS pay Social Security payroll taxes and earn Social Security retirement benefits.

Some employees under FERS may be eligible for the FERS annuity supplement, which is paid to workers who retire at the age of 55 or older with at least 30 years of service or at the age of 60 with at least 20 years of service. This annuity supplement is equal to the estimated Social Security benefit that the individual earned while employed by the federal government and is paid only until the age of 62 (regardless of whether the retiree chooses to apply for Social Security retired worker benefits at 62 years old). The FERS annuity supplement, like the basic retirement annuity, is administered by the Office of Personnel Management (OPM).

If you are currently enrolled in a Federal Health Benefit program and join a Medicare Advantage (MA) Plan, you can temporarily suspend your Federal Employees Health Benefit (FEHB) enrollment and stop paying two sets of premiums. Under the suspend option, you pay the Part B premium and sometimes an extra premium from the Medicare Advantage plan (usually only a few hundred dollars per year and often nothing). If you decide you want to return to your FEHB program, you can switch from Medicare Advantage during a future Open Season and rejoin the FEHB plan just as if you had never left.

Suspending your FEHB enrollment generates substantial savings because you'll pay one premium instead of two. How much you'll save depends on the MA plan's precise benefits to Medicare enrollees and whether it charges an extra premium.

Most MA plans are comparable to FEHB plans in hospital and medical benefits. Still, the prescription drug benefits will be better than the FEHB program because the plans have a coverage gap where you are responsible for all or most drug costs until you reach a catastrophic limit. Additionally, FEHB plans have better catastrophic cost protection than MA plans. MA plans have separate catastrophic protection limits for medical and drug costs that, taken together, are, in almost all cases, several thousand dollars a year more than the protection limits in FEHB plans.

Important note: You cannot suspend your FEHB enrollment and join one of the FEHB Medicare Advantage plans. Those plans require you to be enrolled in the FEHB plan to enroll in the Medicare Advantage plan option. Reminder to never cancel your FEHB, you may suspend; otherwise, you will never get it back!

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