What Are the Differences Between FERS and CSRS?
CSRS is being phased out but some employees are still in the system
The U.S. government maintains two retirement systems for its employees—the Federal Employees Retirement System and the Civil Service Retirement System. Retirement systems are common at all levels of government. Employees, and often employers as well, contribute money to the employees’ retirement funds and retirees draw monthly income from the system.
There are several significant differences between these two systems.
CSRS Is No Longer an Option
All federal workers had the option to convert from CSRS to FERS when FERS was first created in 1987. Now all federal employees are automatically enrolled in FERS—they don't have the choice of electing CSRS instead.
This is not to say that no federal employees have CSRS, however. CSRS is still available to federal workers who were in the CSRS system before 1987 and who chose to remain with CSRS in lieu of switching to FERS at that time. Their benefits were not terminated with the introduction of FERS.
FERS is intended to fully succeed CSRS when the CSRS beneficiaries eventually die off.
One Component Vs. Three Components
CSRS was established on January 1, 1920, and it's a classic pension plan similar to those established during the same time period among labor unions and large companies. Employees contribute a certain percentage of their pay. When they retire, they receive an annuity sufficient to maintain a standard of living similar to what they experienced during their working years.
Assuming the worker has at least 30 years in federal service, the CSRS benefit is generally sufficient to provide a comfortable lifestyle even without Social Security or any retirement savings. It's indexed for inflation.
A FERS employee has a smaller pension, one not intended to fully fund his retirement on its own. He also gets a thrift savings plan and Social Security to fund his retirement in addition to the pension program.
The thrift savings plan is similar to a 401(k) so it's possible that a FERS employee can come up short in retirement if she doesn't handle the plan efficiently. But having the TSP gives FERS employees more control over and flexibility with their retirement plans. FERS workers typically retire with double the savings that CSRS workers accumulate, although CSRS employees do have superior pension benefits.
Cost of Living Adjustments
Older employees who have had CSRS received cost of living adjustments from the start. The FERS adjustment is stingier and not available until the employee reaches age 62. The COLA is equivalent to that given to military retirees and Social Security recipients.
It's generally accepted that the FERS plan has the edge here, at least for employees who have passed 18 months of service. Benefits are slightly greater and, of course, CSRS employees are not generally entitled to Social Security disability because they don't have sufficient Social Security credits.
Survivors of CSRS employees are entitled to survivor benefits of 55 percent of the initial unreduced CSRS benefit. This drops to 50 percent for FERS survivors—after a 10 percent reduction. FERS survivors would typically receive Social Security survivor benefits as well, however, and would presumably inherit the balance remaining in the thrift savings plans as well.
The Size of Annuity Payments
Because FERS has three components, these components each offer retirees less money. The annuity payment for CSRS retirees is designed to be their only income whereas FERS retirees have the annuity, the thrift savings plan, and Social Security benefits.
Thrift Savings Plan Rules
The U.S. government contributes an amount equal to 1 percent of each FERS employee’s contribution to his thrift savings account. FERS employees can contribute more and the U.S. government will match those contributions up to a certain percentage.
CSRS employees can participate in the thrift savings plan but they receive no additional money from the federal government if they elect to do so. That 1 percent helps the government to ensure that FERS employees achieve a retirement that's comparable to that of CSRS employees. It's vested after three years of service and it does not automatically close upon retirement, forcing a transfer of funds.
The Amount Taken from Salaries
CSRS employees contribute between 7 and 9 percent of their salaries to the system, and FERS employees contribute a comparable amount when Social Security is factored in. Federal employees hired before or during 2012 contribute 8 percent, and employees hired after 2012 contribute 3.1 percent.
The Social Security tax rate, also called Old Age, Survivors and Disability Insurance or OASDI, is 5.3 percent. FERS employees can contribute more if they choose by using the thrift savings plan.
Earliest Retirement Age
CSRS employees can retire as young as 55 years of age, but FERS employees who began their careers during or after 1970 must wait until age 57. Older FERS employees can retire a little earlier depending on when they began their careers.
The Bottom Line
It's no longer really necessary to weigh all these pros and cons now that you can no longer elect CSRS benefits. It can help you to plan your retirement a bit more effectively, however, if you're passing 30 years of service but not ready to retire quite yet.