Publisher's Perspective

Today, FERS accounts for all but several percent of the federal workforce. It also probably accounts for the majority of retirees today. Image: r.classen/Shutterstock.com

Since its beginning, the Federal Employees Retirement System has been known as the “new” system, in comparison with the “old” Civil Service Retirement System.

Given that FERS turns 40 this year, it may be time to change that to “newer” or maybe just drop that comparison entirely. Regardless of whether you think 40 is when life begins or is when someone is over the hill, hitting that age makes one think about the past, the present and the future.

FERS was born in the era of Cabbage Patch Dolls, Commodore 64 computers and moonwalking. Changes to Social Security enacted in 1983 required among other things that all federal employees newly hired pay into that program starting in 1984. Then-current employees were allowed to stay in CSRS which didn’t (and still doesn’t) include Social Security.

Details were left for later. FERS existed mostly only on paper—apart from the Social Security contribution requirement—until 1987.

In the meantime, civil service leaders—prominently, Sen. Ted Stevens, R-Alaska, chair of the key Senate subcommittee—looked for ways to meet the goal of making FERS benefits about equal to those in CSRS overall. They ultimately did that by adding to the Social Security benefit a reduced federal annuity and employer contributions toward a new savings program to be called the Thrift Savings Plan.

(Incidentally, the TSP originally was envisioned as only for FERS employees. Somewhere along the line, CSRS employees also were made eligible, although without government contributions. That turned out to be probably the most valuable throw-in federal employee benefit of all time.)

In its early years, FERS was treated like an afterthought in the federal workplace. But with retirements and other turnover, it turned out to be only about a decade later that it covered the majority.

That started drawing attention to some of the anomalies in FERS, such as the inability to credit unused sick leave toward an annuity and the inability to buy back past service time after withdrawing retirement contributions at a break in service. In time, they were changed to make them consistent with CSRS.

Today, FERS accounts for all but several percent of the federal workforce. It also probably accounts for the majority of retirees today. As of the latest OPM numbers, through fiscal 2022, just under 50 percent of current retirees were drawing their benefits under FERS, and of new retirees 90 percent are under FERS.

What does that say about the future? There are still anomalies in FERS compared with CSRS, including two big ones related to inflation adjustments to annuities: that COLAS generally aren’t payable until age 62, and that those payments are reduced if the basic figure exceeds 2 percent.

Proposals to bring them in line with CSRS continue to circulate. With the majority of retirees now under FERS—as well as the vast majority of active employees—sponsors hope that translates into momentum for passage. But given the overall fiscal picture, and the amount of money potentially at stake, it’s hard to envision.

Meanwhile, fiscal conservatives are continuing to circulate proposals to take things in a different direction, for example to end the FERS civil service annuity for those hired after a future date and maybe—not necessarily—boost the government contribution toward the TSP for those new employees.

Also still in circulation are proposals to require FERS employees to pay more toward their retirement benefits—something that already has been done twice, both times affecting only new hirees—imposing a lesser benefit calculation for new retirees, and more.

And as in the early 1980, Social Security is need of a financial shore-up that inevitably will require slowing the rate of growth in benefits, increasing the program’s income, or more likely both. Unlike those times, whatever is done with Social Security will directly affect the large majority of current federal employees, not just those hired after some future date.

For the time being, go ahead and break out the funny turning-40 greeting cards and t-shirts. FERS is a good sport, it will play along. But please excuse it if it seems a bit distracted, contemplating what may lie ahead.

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