The Federal Employees’ Retirement System (FERS) provisions for the retirement benefits of US federal employees. 

The FERS plan succeeds the Civil Service Retirement System (CSRS). This plan became functional in the US in 1987. Similarly, the CSRS has been a public pension fund for federal employees since 1920. 

Employees who joined US federal services after 1983 were automatically enrolled in the FERS plan. 

The total number of federal employees in the US is just under 3 million. 98.4 percent of these employees are covered by the FERS plan. In contrast, only 1.6 percent of civilian federal (CSRS) employees are left in the US. 

The FERS plan consists of three different retirement components: the basic benefit, social security, and the thrift savings plan (TSP). 

It is pivotal for federal employees to understand the eligibility for pension and social security plans. Some key considerations include – 

• The Social Security benefits plan under the FERS acts as a boundary against financial markets. This plan adjusts the cost of living for federal employees every year. 
• This is a source of retirement security for lower-income bracket employees within the US federal government. 
• Social security benefits are a human right for all federal employees within the FERS plan. 
• It offers supplemental income to disabled retirees and federal employees to live independently. 

If they are part of the FERS plan, federal employees will qualify for both pension and social security benefits after retirement. 

Let us thoroughly review the unique rules and conditions for federal employees to receive both retirement benefits.

The basic benefit plan is a part of the FERS component that is also known as the pension plan for federal employees. This is a contribution plan in which the employee contributes a part of their salary into the pension account while the federal government adds another portion. Employees receive the basic benefits money upon retirement from services. There are two types of federal government employee pension plans. These are the CSRS and FERS plans. Take a look into the functions of the pension plans – 

• Civil Service Retirement System (CSRS) – This is the primitive retirement plan for federal employees in the US. The different components of retirement benefits within this plan include basic pension annuity, survivor’s annuity, thrift savings plan, social security annuity from non-federal earnings, and payroll tax contributions. 

• Federal Employees’ Retirement System (FERS) – This is the active retirement plan for all federal employees in the US. Different components of retirement benefits within the FERS plan include basic benefits (annuity payments), social security benefits upon 10 years of social security tax payment, thrift savings plan (TSP), health insurance, and special annuity supplement. 

Read Also: Pension & Thrift Savings Plan: A Full Guide For Federal Employees

Federal Employees’ Eligibility to Receive Pension

Learn about the different eligibility criteria to receive a pension from CSRS and FERS plans – 

• CSRS – Employees can retire at the age of 55 with 30 years of federal services to receive the annuity payments or pension from the federal government. Otherwise, employees can retire at the age of 60 years with 20 years of federal service to be eligible to receive pension benefits. Moreover, federal employees with only 5 years of service tenure can receive their pension provided they retire at the age of 62 years.
• FERS – The same retirement rules apply to employees within the FERS plan to receive their retirement benefits. Additional criteria to receive an unreduced pension include maximum years of service at their minimum retirement age.

CSRS vs. FERS

Here are the primary differences between the two types of retirement plans for federal employees in the US – 

A federal employee will qualify to receive social security benefits based on their work history if – 

• The MRA for employees to get this benefit is 62 years. 
• When the employee has contributed to social security for at least 10 years through payroll deductions. 
• If the employee has more than 40 social security credits. (NOTE: It is possible to earn up to 4 social security credits in 1 year through social security tax contributions)

FERS allows contributions to social security, TSP, and pension plans. Employees are automatically eligible to withdraw social security benefits if they have enough service hours or social security credits. Moreover, FERS retirees get a special retirement supplement depending on their eligibility to receive social security benefits on the day of retirement. 

The CSRS started 15 years before the Social Security system. Employees within the CSRS plan were excluded from social security benefits from 1935 as they were already integrated into a comprehensive retirement plan. Furthermore, CSRS employees are ineligible to get social security benefits because CSRS does not allow social security contributions. Moreover, employees cannot earn social security credits through CSRS employment. 

Navigate through the unique rules for federal employees to receive both pension and social security benefits – 

• Automatic enrollment of federal employees assigned to duties after 1983 into the FERS plan. They contribute to both pension and social security plans to get both types of benefits. 
• CSRS employees are not eligible for automatic enrollment into the social security benefits as it is a component of the FERS plan. However, separation from federal services or conversion into the FERS plan will make them eligible to get both types of retirement benefits. 
• Federal employees need to accumulate 40 social security credits which is equivalent to 10 years of service to get social security benefits. CSRS employees need to cover this through non-federal jobs while FERS employees can earn such credits through federal employment years of service. 
• The windfall elimination provision reduces the social security benefits for employees who receive a pension from employment that is not covered by social security. 
• The social security benefits could be reduced to half based on the number of years covered within social security employment. 
• No WEP reductions from social security benefits of employees who served 30 years or more within social security-based employment. 
• The Government Pension Offset impacts the survivor benefits of CSRS retirees. The social security benefits are reduced by 2/3rd of the pension amount. 
• FERS employees are not affected by the GPO rules. 
• Eligibility of FERS employees to claim both social security and pension benefits at the normal age. Claiming any of these benefits before the MRA could reduce the benefits. 
• CSRS employees must consult with federal pension advisors to determine the best retirement age to receive both unreduced pension and social security as the government pension offset and windfall elimination provision significantly affects the benefit amount. 
• FERS employees with 30 years of service and retirement before the age of 62 years are eligible to get a special retirement supplement equivalent to the social security benefits. However, it is important to remember that the benefit will dissipate once the retiree reaches the eligible age to get social security benefits, 62 years. 

CSRS employees can enjoy both retirement and social security benefits under the following conditions – 

• Work part-time during off hours on jobs that are covered by social security. 
• A $1,640 social security tax contribution is equivalent to 1 Social Security credit in 2024. CSRS employees need to earn at least 40 such credits at the time of retirement to be eligible to receive social security benefits. 
• CSRS retirees can work in the private sector or pick a local or state government job after separating from federal services to accumulate the number of credits to receive social security benefits. 
• Federal employees who have started their own businesses can earn social security benefits as they pay both the employee and employer’s portion of the tax. 
• Federal employees who worked in the private sector before joining federal services may already have a portion of social security credits in their account. Gathering the remaining portion of the credit allows them to get complete social security benefits. 
• If a spouse of the federal employee is eligible for Social Security, the employee can get the Social Security survivor benefits regardless of their Social Security credit count. 
• The Windfall elimination provision significantly reduces the Social Security benefits of CSRS employees who earn extra Social Security credits through non-federal jobs.

Read More: Best Federal Retirement Consultant in Florida

Look into the key factors for federal employees to combine pension and social security benefits to maximize overall retirement income – 

• Age and Eligibility  – The age threshold for federal employees to receive pension benefits is retirement at 62 years with a minimum of 5 years of service under the FERS plan and retirement at the age of 55 years with 30 years of federal service within the CSRS plan. Social Security benefits are available for federal employees from the age of 62 years. Nevertheless, retiring at the age of 66 or 67 years gives full social security benefits to federal employees. Furthermore, federal employees need to determine the best time to receive pension and social security benefits. Assessing their retirement age, family requirements, and individual goals will help to identify the best age to get the retirement benefits separately or combined.
• Maximize Retirement Income – Delaying the claim of social security benefits until the age of 70 years allows federal employees to get maximum social security benefits. Combining pensions with delayed social security grants enhances retirement income significantly. However, federal employee needs to solely rely on pension income and wait for a long time if they want to maximize their social security benefits. It is ideal to utilize TSP and other contribution plans during this time to balance retirement income.

The following steps help employees to maximize their federal government retirement benefits – 

• Consulting with financial advisors for federal employees helps to explore the complex rules related to retirement benefits. They provide appropriate strategies to maximize retirement income by combining social security, pensions, and a thrift savings plan (TSP). Additionally, they offer constant guidance related to the retirement age, tax considerations, and additional retirement components. Furthermore, financial experts are equipped with the latest resources to help federal employees gain clarity on their retirement and income options.
• Federal employees can visit the official Office of Personnel Management website to access online calculators such as the FERS retirement, social security estimator, and TSP calculator to calculate the overall retirement income. These calculators enable employees to input different dates and ages to compare retirement income at different life stages.

Making early retirement plans will help federal employees to maximize their source of revenue in the long run. 

Understanding federal retirement options ensures financial stability. 

Since FERS and CSRS plans have different eligibility criteria, and supplementary plans, keeping a note of the following points can help federal employees considerably – 

• Streamlined retirement strategies ensure maximum benefits and returns in old age. 
• The retirement benefits vary based on the timing and age of retirement. 
• It helps to make informed decisions related to family, personal goals, financial requirements, and medical expenses. 
• Allows federal employees to prevent tax penalties and reductions. 

Talk to our financial experts from PSR Assurance to create a personalized retirement strategy for maximum benefits.