The Federal Employee Retirement System, or FERS, is a retirement plan that is provided to all U.S. civilian employees. Anyone who works for the judicial, legislative or executive branch of the federal government can receive FERS. However, it does not apply to employees of state and local governments or military personnel.
FERS was instituted in 1987 as a replacement for the Civil Service Retirement System, or CSRS. Those who began working for the federal government prior to 1987 may fall under CSRS if they chose to remain with the program rather than switching to FERS at the time of its introduction. CSRS is more of a classic pension plan, while FERS is a three-tiered program.
What Benefits Are Included In FERS?
Employees who fall under FERS obtain their retirement benefits from three sources: the FERS Basic Benefit Plan, Social Security, and a Thrift Savings Plan.
FERS Basic Benefit Plan
The Basic Benefit Plan of FERS is a pension that provides employees with a set amount of money that depends on the length of their service as well as a metric known as the high three average. This is the highest three consecutive years of service during their employment.
It will typically be the last three years the employee worked for the government, but it could be drawn from a different period in their employment if, for example, they held a higher-paying position at an earlier point in their career.
The amount of money that employees have contributed to the plan is not a factor in determining how much it pays. Instead, the calculation uses the employee’s base salary; overtime, bonuses and other payments are not included.
Typically, on an annual basis, employees will receive a form indicating their years of creditable service. The agency the employee works for will add a 1% multiplier to their high three, and those who have at least 20 years of service and are aged 62 or older will be assigned a multiplier of 1.1%.
The formula multiplies the employee’s high three salary by their years of service and the pension multiplier to arrive at their annual pension benefit. The basic benefit is often referred to as the monthly annuity.
Social Security
With FERS, employees will pay into Social Security at the same rate that private employees do. Anyone who pays into Social Security must pay 6.2% of their earnings, and the agency will match their contribution.
Thrift Savings Plan
The Thrift Savings Plan, or TSP, component of FERS can be thought of as being similar to a 401K plan as it offers the same types of tax benefits. During each pay period, the employee’s agency will deposit 1% of their basic pay into their TSP. Employees also have the option of paying additional contributions if they wish, and their agency will match it up to 5% of their pay.
Similarly to a 401K plan, each employee can choose how their funds are invested. They will be provided with a list of options when they set up the TSP. The contributions are tax-deferred and are administered by the Federal Retirement Thrift Investment Board.
There is no specific calculation for determining how much money employees can expect to receive from a TSP because it does not function in the same way as a pension. Instead, their earnings are based on the amount they contribute, the funds they choose and the market conditions that influence these investments.
Receiving Benefits From FERS
Five years ahead of a federal worker’s projected retirement date, the Office of Personnel Management (OPM) will provide them with information outlining how they can prepare for their retirement. Two months ahead of their retirement date, they will be asked to complete an application form found on the OPM website. The benefits should begin paying out shortly after the employee’s retirement date.
To be eligible for retirement, employees must reach the minimum retirement age, which ranges between 55 to 57 depending on their year of birth if they have at least 30 years of service. If they cannot meet these criteria, they can also be eligible at age 62 with five years of creditable service or at age 60 with 20 years of creditable service.
Employees with 10 years of service who have reached their minimum retirement age may be eligible for early retirement, but those who choose this option will see their basic benefit permanently decrease by 5% for each year that they retire prior to turning 62.
Request A Consultation With A Reputable Family Law Attorney
It can be difficult to predict how a divorce will affect your federal benefits making it important to have access to a knowledgeable legal team. To find out more about how federal benefits and other assets are handled in a divorce, or to speak to a Maryland divorce attorney, contact the experienced team at Milstein Siegel today to schedule a consultation.
