Those who have been around the government long enough to remember the creation of the FERS system likely can remember the snickering that came along with that effort.
FERS, an outgrowth of Social Security reforms of the early 1980s that were designed to get more people paying into that system, was born as the poor distant cousin of the CSRS system, which had been in place by that time for six decades.
That meant that by definition, every federal and postal employee at the time, as well as every retiree, was under CSRS. Not surprisingly, they looked down at FERS, with its Social Security component, its inferior civil service benefit, and its reliance on a new, dubious philosophy of having employees save for their own retirement through some new contraption to be called the Thrift Savings Plan.
The general expectation was that CSRS would be the dominant of the two programs for the lifetime of everyone in government at the time. Given two chances to switch to FERS, and given substantial encouragement from the government both times to do so, only low single digit percentages of CSRS employees changed systems.
However, some people saw which way the wind was blowing. They realized that every employee hired starting in 1984 and after would be put under FERS, meaning that as employees retired or left government for other reasons, their replacements would be under that system. They even predicted that a day would come when – gasp – the FERS population would outnumber the CSRS population.
Much to the shock of the snickering group, that day in fact arrived in 1995, only about a decade after FERS formally got off the ground. Today, the FERS population makes up more than 80 percent of the active employee population. CSRS people still make up the large majority of retirees, again above 80 percent, but longer-term that will change too as more FERS employees become eligible to retire.
Some recent data from the Defense Department, the largest agency, tell the tale. At DoD, less than 11 percent of employees now are under CSRS, with the rest under FERS. Of the CSRS population, 59 percent is currently eligible for optional retirement. In five years, 94 percent will be eligible for optional retirement.
Those figures don’t include the impact of potential early retirement offers, which agencies have been making in increasing numbers lately and which appear likely to continue or even grow in the foreseeable future.
Among FERS employees, only 6 percent currently are eligible to retire and only 20 percent will be eligible in five years, again under standard age and service combinations. So, the retirements ahead will be predominantly of CSRS employees, who will be replaced by new FERS employees.
Being eligible to retire and actually retiring are two separate things, of course. And the data do show that over the last five years, employees have tended to stick around longer than they did before. Where the average retiree in 2007 had 26.65 years of service and was 58.93 years old, in 2012 the averages are 28.56 and 60.47, respectively—about a two-year delay.
But the simple demographics show that before long, the CSRS portion of the federal workforce will be little more than a remnant.
What does this mean? Well, it gets back to the warnings that those far-sighted persons sounded nearly three decades ago. CSRS with its superior benefits—a more generous annuity calculation for those about to retire and more generous COLA benefits for those already retired—is increasingly looking like a sweet deal for a small, favored minority. And in today’s budget and political environment, that’s a bad thing to be.