Recently a World War II veteran named Tom Moore sought to raise the equivalent in British pounds of a few thousand dollars for Coronavirus relief by taking 100 laps of his garden to mark his 100th birthday. He ended up raising more than $40 million and received not only an honorary promotion from captain to colonel but also a knighthood.
Within days of his birthday a federal employee benefit also turned 100 and the milestone was noticed by almost no one even though it has underpinned the federal workforce for that entire period: a defined benefit retirement annuity in which there is a payout for life upon meeting certain qualifications.
Nothing stays the same for 100 years, of course. Since the Civil Service Retirement System was created in 1920 the benefit formula involving service time and salary changed a number of times, and in the early 1980s the CSRS was closed to new entrants, with the Federal Employees Retirement System being created for those newly hired from that time.
FERS also is a defined benefit program, although one less generous than that under CSRS, but with Social Security coverage and employer contributions to the Thrift Savings Plan designed to more or less make up the difference. The TSP, in contrast, is a defined contribution program, in which there is no guarantee of any particular payout at the end, but rather an account that varies according to how much the employee invests and the returns on those investments.
When CSRS hit its century mark there was not a peep out of the Office of Personnel Management, for example. But the milestone did not go completely unnoticed. The American Federation of Government Employees had this to say:
“The defined benefit annuities created by the Civil Service Retirement Act of 1920 gave federal workers the ability to retire with financial security, and it ultimately led to the creation of the Social Security Act for all workers in 1935.
“Federal employees hired today still rely on defined benefit payments as a critical component of their overall retirement plan, which now also includes Social Security and tax-favored retirement savings accounts. These benefits not only provide income security to federal retirees – they ensure that federal agencies are able to recruit, retain, and recognize the most qualified employees to carry out the government’s essential functions.”
All very true, and very much worth noting even as CSRS now covers only about one in 20 active employees. CSRS still is the major system among those retired, however, and likely will remain so for a number of years. As of the end of fiscal 2018, in September of that year, there were more than 1.3 million CSRS retirees compared with above 800,000 FERS retirees.
Employee polls consistently show retirement benefits atop the most valued to them—in the most recent poll, in 2017, 94 percent deemed those benefits important or extremely important to them—and with good reason. The average CSRS monthly annuity for all retirees is almost $3,300 and under FERS it’s almost $1,200; among new retirees, the figures are about $5,000 and $1,800.
Further, CSRS benefits are fully inflation-protected; FERS has a complex arrangement that can yield either full or partial protection, depending on the level of inflation, and generally only for those past age 62.
Also, there’s survivor benefits, also paid for life, currently being paid to more than 440,000 survivors of CSRS retirees and 70,000 of FERS retirees, averaging about $1,650 and $600 a month, respectively.
However, this anniversary isn’t so much about the differences between the two as the fact that they even exist and they continue to be provided to newly hired employees. This is a time when many other employers have replaced such plans, if at all, with defined contribution plans, at least for employees hired after a certain date.
State and local governments have largely resisted the trend, with 86 percent still offering a defined benefit program. But in the private sector, just 17 percent of employees now have access to one, according to a recent Congressional Research Service report.
Further, the smaller the employer, the less likely it is to offer such a plan—among those with fewer than 50 employees, for example, the rate is just 6 percent and among those with between 50 and 99, it’s just 11 percent. Further, lower-paid private sector employees—for whom such a benefit would be the most helpful—are the least likely than to have such a plan available to them: among those in the lowest-paid 25 percent, it’s just 5 percent and in the second-lowest, just 12 percent.
When workers without a defined benefit plan retire, Social Security is now available to them, which wasn’t the case when the CSRS program was created in 1920. But apart from that, they are pretty much where federal employees were more than 100 years ago: having to depend for their retirement on what they personally have saved.