Reg Jones Expert's View

By Reg Jones

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Ah, the eternal battle of the retirement systems. Which is best: CSRS or FERS? Well, the answer to that question would be worth a great deal if every employee could choose which to be in during an annual open season. But such is not the case. You are stuck where you are.

 

There were two open seasons years ago during which CSRS employees could switch to FERS—but not vice-versa—but there hasn’t been such an opportunity since, nor is there likely to be another one.

 

So the best you can do is sit back, cross your legs and reflect on some of the features CSRS and FERS share in common and those that make them different. The answer to which one would have better for you will flow from the features that are most important to you.

 

Retirement eligibility

The rules governing when you can retire on an immediate annuity are similar for CSRS and FERS but not identical. Both allow you to retire at age 62 with 5 years of service and age 60 with 20. However, under CSRS you can retire at age 55 with 30 years of service, while under FERS you can retire with 30 years of service when you reach your minimum retirement age, which ranges between 55 and 57 depending on your year of birth. Unique to FERS, is the MRA+10 provision, which allows you to retire at your MRA with as few as 10 years of service. However, if you do, your annuity will be reduced by 5 percent for every year you are under age 62 (age 60 if you have between 20 and 29 years of service). You can reduce or eliminate that penalty by postponing the receipt of your annuity to a later date.

 

Both CSRS and FERS have a provision that allows you to retire earlier than normal if offered an early retirement opportunity by your agency. The eligibility requirements for both are the same: age 50 with 20 years of service or at any age with 25. However, CSRS employees will have their annuities reduced by 2 percent for every year they are under age 55, while there is no age penalty under FERS.

 

Defined benefits

CSRS and FERS both provide defined benefits in the form of an annuity. In each case the amount of your annuity will be base on a formula. For CSRS it’s 0.015 x your high-3 x 5 years of service + 0.175 x your high-3 x 5 years of service + 0.02 x your high-3 x all remaining years of service. For FERS, it’s 0.01 x your high-3 x your years of service. It’s 0.011 x your high-3 x your years of service if you have at least 20 years of service covered by FERS and are at least age 62. Clearly, CSRS provides the higher level of annuity benefits, with FERS trailing behind.

 

Cost-of-living adjustments

Under CSRS, retirees receive COLAs regardless of the age at which they retire. FERS retirees only receive them when they reach age 62, unless they are special category employees, such as law enforcement officers, firefighters or air traffic controllers, or disability retirees. Further, the COLAs of FERS employees are generally smaller than those for CSRS employees. While CSRS retirees receive the full COLA adjustment based on the consumer price index, FERS employees only receive that up to 2 percent; between 2 and 3 percent, they receive, 2 percent; and above 3 percent, they receive the CPI minus 1 percent. Once more, CSRS is the big winner.

 

Thrift Saving Plan

The Thrift Savings Plan is the government’s version of the private sector’s 401(k). It lets you build up a retirement account through investments in a variety of different funds. And it’s here that FERS employees get their own back. They get contributions from the government; CSRS employees don’t. Here’s how that works. If you are a FERS employee, the government automatically contributes 1 percent of your base salary whether you contribute or not. If you do, your contributions are matched dollar for dollar for the first 3 percent you contribute, then 50 cents on the dollar for the next 2 percent.

 

In addition, up to several years ago, percentage of salary limits on investments applied and the percentages were higher under FERS, allowing FERS employees to stash away more for retirement tax-favored.

 

While the above are not all the ways in which CSRS and FERS are alike or different, they are the most important ones.