Federal Employee Retirement System (FERS): Meaning, How It Works

Jeanette Beebe is an experienced journalist, fact-checker, and audio producer covering personal finance, retirement, science, business, medicine, technology, and the arts. Her reporting has appeared in Investopedia, Time Health, Scientific American, Popular Science, AARP, Fast Company, and elsewhere.

What Is the Federal Employees Retirement System (FERS)?

The term Federal Employees Retirement System (FERS) refers to a retirement plan for U.S. federal civilian employees. FERS is a defined-benefit plan that replaced the Civil Service Retirement System (CSRS). Employees are automatically enrolled in the program and receive retirement benefits from three different sources. Benefit eligibility is determined by a worker's age and the number of years of service.

Key Takeaways

• The Federal Employees Retirement System (FERS) is a defined-benefit retirement plan for civilian employees of the federal government.
• The program went into effect in 1987 and replaced the Civil Service Retirement System (CSRS).
• The plan provides benefits from three different sources, including a basic annuity, Social Security, and the Thrift Savings Plan (TSP).
• Employees are required to pay their share each pay period for the basic annuity and Social Security parts.
• The program outlines minimum retirement ages based on an employee's year of birth.
• The Social Security and TSP portions are portable after leaving government service.
  

Understanding the Federal Employees Retirement System (FERS)

Just like the employees of some small businesses and most large corporations, federal government workers are able to save money through retirement savings plans under a program called the Federal Employees Retirement System (FERS). The program went into effect in 1987 for all federal employees hired by the government after Dec. 31, 1983, and replaced the Civil Service Retirement System (CSRS) program.

The FERS is a defined-benefit plan, which means retirement benefits are determined by an employee's salary and years of service. The benefits are structured as annuities and paid out to retired employees monthly. Eligibility and payment amounts are based on age, years of service, and contributions to the plan.

The program's benefits are paid out through Social Security benefits, a basic benefit plan for which the employee contributes a nominal amount, and the Thrift Savings Plan (TSP), which is made up of automatic government contributions, voluntary employee contributions, and matching government contributions.

According to the Brookings Institution, FERS costs the government between 21.2% and 25.4% of payroll, and Social Security benefits and TSP benefits can follow an employee after government service. Social Security and the basic annuity plan mandate employee contributions, whereas employee contributions to the TSP are voluntary.

The basic benefit plan has four categories of benefits when they are paid out. According to the U.S. Office of Personnel Management, they include:

1. Immediate: This benefit begins within 30 days from when you retire. You are eligible if you are 62 with five years of service, or if you are 60 with 20 years of service. If you wait until your minimum retirement age and have between 10 and 30 years of service, your benefit drops by 5% for each year until you turn 62. Those with 20 years of service only have to wait until 60 to get the full benefit.
2. Early: This option is only "available in certain involuntary separation cases and in cases of voluntary separations during a major reorganization or reduction in the workforce." You must either have 25 years of service or, if you're over 50, 20 years of service.
3. Deferred: Eligibility for delayed benefit payments depends on how many years of service you have under your belt. You must have completed five years of service if you're 62. Your benefit is reduced by 5% much in the same way as the immediate retirement option above.
4. Disability: This benefit option plan pays individuals with at least 18 months of service who become disabled while employed in a FERS-eligible position. Your disability "must be expected to last at least one year." Your employing agency must attest that it cannot accommodate your condition and that you have been considered for other similar, internal positions.
   

Participants in the Federal Employees Retirement System (FERS) are vested after five years of service.

The table below lists the minimum retirement age based on your year of birth:

How Many Years of Service Is Required for FERS?

Five years of service is required for FERS. That's the vesting period. That's the minimum to receive benefits.

Is a FERS Pension a Qualified Retirement Plan?

Yes, a Federal Employees Retirement System (FERS) pension is a qualified retirement plan. The Civil Service Retirement System (CSRS) pension and the Thrift Savings Plan (TSP) are qualified retirement plans, too.

How Are CSRS and FERS Different?

"Participants accrue benefits in the defined benefit plan at slower rates than in CSRS," according to a Brookings Institution report. "After the most recent FERS reforms, workers accrue a benefit equal to 1% per year of service, or 1.1 % for workers retiring at age 62 or later with 20 or more years of service."

The Bottom Line

Civil Service Retirement System (CSRS) benefits were never fully funded by employer and employee contributions and the fund had an unfunded liability. According to a Congressional Research Service report, the unfunded liability was $915 billion in 2018.

However, the unfunded liability of the Civil Service Retirement and Disability Fund will not continue to rise in the future. As the report notes, "actuarial estimates indicate that the unfunded liability of the CSRS does not pose a threat to the solvency of the trust fund. There is no point over the next 80 years at which the assets of the Civil Service Retirement and Disability Fund are projected to run out."