FERS basics

In short

A friend of mine spent thirty years at a federal agency and told me she never once read her retirement statement. You have probably seen the same envelope pile up. FERS, the Federal Employees Retirement System, is the plan that covers most federal civilian workers hired since 1984, and it has three parts. You get a monthly pension, a savings plan called the Thrift Savings Plan, and Social Security. Look at your pay stub and find the line for FERS. Then open your TSP account and check that you are getting the full agency match. Finally, ask your personnel office for a benefits estimate. Ten minutes on each will tell you more than a year of worry.

The whole of it

What it is

I once watched an old postal clerk explain his retirement to a young hire using three coffee cans. One can held his pension, one held his savings, and one held his Social Security. He said a wise person keeps an eye on all three. That is the heart of FERS, and I have never heard it put better.

If you are holding a federal job offer or a fresh appointment letter, you are probably covered by FERS. The system applies to most civilian employees hired since 1984, and it took over from an older plan for people who started later. Some groups, such as certain law enforcement officers, firefighters, and air traffic controllers, have their own rules. Military service members have a separate retirement system, though military time can sometimes count toward a federal civilian pension when you buy it back. Check with your agency before you count on it.

The three parts work together. The basic benefit is a pension paid for life. The Thrift Savings Plan is a workplace savings account much like a 401(k). Social Security is the same program most Americans pay into. None of them is meant to carry the whole load alone.

How it works

A neighbor of mine liked to say that a pension is just a paycheck that keeps coming after you stop working. That is a fair way to see it. The FERS basic benefit is figured from your years of service and your high 3, which is the average of your highest paid three years in a row.

The plain formula is simple. You multiply your years of service by a percent, and then multiply that by your high 3. For most people the percent is 1 percent of high 3 for each year. If you retire at age the current figure, which the official source publishes each year or later with at least 20 years of service, the percent is the current figure, which the official source publishes each year for each year instead. The Office of Personnel Management, often called OPM, sets out the official rules and percents on its retirement pages.

You also pay in. A part of every paycheck goes toward the FERS basic benefit, and the rate depends on when you were hired. Your pay stub shows it. Your agency does not send that money away. It helps fund the pension you will draw later.

Now the savings side. Through the Thrift Savings Plan, or TSP, you choose how much of your pay to set aside. Your agency puts in 1 percent of your pay whether or not you contribute. It also matches part of what you put in. The match follows a set schedule, and the schedule is printed on the TSP website. Miss the match and you leave free money on the table.

The annual limit on what you may put in is set by law and changes by year. For this year it is the current figure, which the official source publishes each year. Catch up contributions for people at or past a certain age are also allowed, and that age and amount are given at the current figure, which the official source publishes each year.

Retirement timing matters too. Your minimum retirement age, called the MRA, depends on your birth year. The rule for it is at the current figure, which the official source publishes each year. If you leave before that age, the pension may start later or be reduced. Small point, big effect.

The numbers, and where to find yours

I once asked a retired warehouse supervisor where he kept his important papers. He laughed and said in a shoebox. You can do better, and the good news is that the numbers you need are close at hand.

Your years of service appear on your Standard Form 50, the personnel action form your agency keeps. Your high 3 comes from your pay records. Your FERS contribution rate shows on your leave and earnings statement. Your TSP balance, your contribution choices, and your agency match are all on your TSP account page at tsp.gov.

For an estimate of your pension, ask your human resources office or your agency benefits specialist. OPM also publishes guides on its retirement pages. The Social Security Administration lets you see your own earnings record and projected benefit once you make a my Social Security account at ssa.gov. Get all three and put them in one folder.

The FERS supplement is worth a note here. People who retire before Social Security age may get a temporary payment that bridges the gap. Whether you qualify depends on your retirement type. Ask OPM or your agency about it before you set a date.

A worked example

A woman named Denise works for a federal agency and earns 52,000 dollars a year. She has 25 years of service. She plans to retire at age 62, which is past the age for the higher percent, and she has more than 20 years in. So her percent is 1.1 for each year of service. Her high 3 is 52,000 dollars because her pay has been steady for her last three years.

Here is her pension. She multiplies 25 years by 1.1 percent, which gives 27.5 percent. Then she multiplies 27.5 percent by 52,000 dollars. That comes to 14,300 dollars a year. Divide by 12 and you get about 1,192 dollars a month, before any tax or deductions.

Now her TSP. Suppose Denise puts in 5 percent of her pay. Five percent of 52,000 dollars is 2,600 dollars a year. Her agency adds its automatic 1 percent, which is 520 dollars. Then it matches her contribution as the schedule allows. If the match on her first 5 percent works out to 4 percent of pay, that is another 2,080 dollars. So in one year, 2,600 dollars from Denise plus 520 dollars plus 2,080 dollars from the agency comes to 5,200 dollars. Her own money is only half of that. She would not want to give up the other half.

Denise checks these figures against the schedule on tsp.gov, because her real match may differ from this plain example. Good habit. She also asks OPM for her official estimate. The pension figure above leaves out details like unused sick leave and deductions for a survivor benefit.

Where it goes wrong

A man I know retired early and was surprised to learn his pension was smaller than he had guessed. He did not lie to himself on purpose. He simply never checked. That is a easy way to get hurt here.

Retiring before your MRA, or before you have enough service, can cut or delay your pension. Contributing too little to the TSP and missing the agency match costs real money. Taking a loan or a withdrawal from your TSP can shrink your future balance and may bring taxes and penalties. Forgetting to name a beneficiary on your accounts can leave your family waiting on paperwork they did not need.

Some people also assume that military time counts automatically. It may not. A buy back of military service needs a deposit, and it must be done by the rules OPM sets. Others overlook the survivor benefit choice, which lowers the pension in exchange for income to a spouse after you are gone.

One more thing. Do not lean on a coworker's memory of the rules. Rules change, and your case is your own. Ask your agency benefits office, read the OPM retirement pages, and keep the answers in writing.

Questions to answer before you leave this page

Do you know which retirement system covers you, and have you confirmed it with your personnel office? Have you found your years of service on your Standard Form 50, and do you know your minimum retirement age? Are you putting enough into your TSP to earn the full agency match, and have you read the match schedule at tsp.gov? Have you looked up your high 3 and done the pension math with your own numbers? Have you made a my Social Security account to see your earnings record? Have you thought about whether a survivor benefit fits your family? And have you named beneficiaries on every account you hold?