In order to end up equal to, or ahead of, CSRS retirees, FERS employees need to contribute to the TSP. Image: Hyejin Kang/Shutterstock.com
This April will mark the 37th birthday of the Thrift Savings Plan. It was on April 1, 1987, that the TSP came into being with only one fund available – the G fund. Other funds were added in 1988 (C and F), 2001 (S and I), and 2005 (L). Recently the L Funds were expanded, and a mutual fund window was introduced.
FERS is older than the TSP by a full three months, having celebrated its 37th birthday on January 1, 2024. Beginning that day, all newly hired federal employees were covered by FERS.
A recent article in another federal newsletter erroneously claimed that FERS was now 40 years of age. True, it was 40 years ago on January 1, 1984, that all newly hired federal employees had to be covered by Social Security. And it was 40 years ago that the CSRS system stopped accepting new members. But Congress didn’t create FERS until later, making it effective on 1/1/87. During the three-year interim period, new hires didn’t know what their retirement system would look like, only that Social Security would be a part of it.
For most people, 40, or even 37, years represents a full career. Therefore, almost all of the readers of this article who belong to the CSRS retirement system are retirees. In fact, CSRS retirees outnumber FERS retirees. There are very few active employees who are covered by CSRS (we salute you!).
What Congress did when they created FERS was to shift part of the burden of saving for retirement to the employees themselves, rather than having the employer (Uncle Sam) do most of the heavy lifting in the area of retirement savings.
Under CSRS before 1987, there were mandatory 7% payroll deductions for a future annuity. These deductions were matched by a 7% contribution from Uncle Sam. These contributions resulted in an annuity that was calculated at 1.5% for the first five years of service, 1.75% for the next five years of service, and 2% for all remaining years of service. After 30 years of service, a CSRS retiree would have an annuity of 56.25% of their high-three years of service. After 41 years and 11 months of service, the annuity would max out at 80%
The FERS rules provided for an 0.8% employee contribution (raised for those hired in or after 2013 and 2014), with government contributions being significantly higher, and calculation factors of 1% per year of service, or 1.1% if the employee is at least age 62 and has more than 20 years of service at retirement. This turns out to be 30% or 33% of the high three. FERS employees do contribute to Social Security and can receive benefits as early as 62. More often than not, the CSRS retiree ends up with more from their annuity than the FERS employee does from the combination of their annuity and Social Security.
In the CSRS and FERS figures in the two preceding paragraphs, the numbers are for “regular” employees, not for special category employees such as law enforcement officers and firefighters.
In order to end up equal to, or ahead of, CSRS retirees, FERS employees need to contribute to the TSP. Back in the 1986 open season for FERS, OPM estimated that FERS employees would need to set aside 4% to 5% of their salary in the TSP to end up with a retirement income stream similar to that of a CSRS retiree. Here’s where the burden shifts to the employee. Serious and frugal FERS employees can end up better off in retirement than their CSRS predecessors. There’s a choice here – if you want a comfortable retirement, “It’s Up to You”, as Ricky Nelson sang in 1963 (24 years before the TSP’s birthday).
John Grobe, President of Federal Career Experts, is an expert in the area of federal employee retirement and benefits. This expertise comes from his 26 year federal career in which he managed the retirement program in a 3,500-employee office of a large federal agency.
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See also,
Legal: How to Challenge a Federal Reduction in Force (RIF) in 2025
The Best Ages for Federal Employees to Retire
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Primer: Early out, buyout, reduction in force (RIF)
Retention Standing, ‘Bump and Retreat’ and More: Report Outlines RIF Process