Order Code RL30631
CRS Report for Congress
Received through the CRS Web
Retirement Benefits for Members of Congress
July 31, 2000
Patrick Updated September 26, 2002
Patrick J. Purcell
Specialist in Social Legislation
Domestic Social Policy Division
Congressional Research Service ˜ The Library of Congress
Retirement Benefits for Members of Congress
Summary
Prior to 1984, neither federal civil service workers nor Members of Congress
paid taxes to Social Security, nor were they eligible for Social Security benefits.
Members of Congress and other federal employees were instead covered by a separate
separate pension plan called the Civil Service Retirement System (CSRS). The 1983
amendments to the Social Security Act (P.L. 98-21) required federal employees first
hired after 1983 to participate in Social Security. These amendments also required
all Members of Congress to participate in Social Security as of January 1, 1984,
regardless of when they first entered Congress. Because the CSRS was not designed
to coordinate with Social Security, Congress directed the development of a new
retirement plan for federal workers. The result was the Federal Employees’
Retirement System Act of 1986 (P.L. 99-335).
Members of Congress first elected in 1984 or later are covered automatically
under the Federal Employees’ Retirement System (FERS), unless they decline this
coverage. Those who already were in Congress when Social Security coverage went
into effect could either remain in CSRS or change their coverage to FERS. Members
are now covered under one of four different retirement arrangements:
!
!
!
!
!
!
Full coverage under both CSRS and Social Security;
The “CSRS Offset” plan, which includes both CSRS and Social
Security, but with CSRS contributions and benefits reduced by Social
Security contributions and benefits;
FERS plus Social Security; or
Social Security alone.
Congressional pensions, like those of other federal employees, are financed
through a combination of employee and employer contributions. All members pay
Social Security payroll taxes equal to 6.2% of the Social Security taxable wage base
($76,200 in 200084,900 in 2002). Members covered by FERS also pay 1.3% of full salary to the
Civil Service Retirement and Disability Fund. Members covered by CSRS Offset pay
pay 1.8% of the first $76,20084,900 of salary, and 8.0% of salary above this amount, into the
the Civil Service Retirement and Disability Fund. (An additional 0.45% of pay is being
deducted for FERS and CSRS in 2000from all Members’ pay until January 1, 2003, as required by Public LawP.L. 105-33).
Under both CSRS and FERS, Members of Congress are eligible for a pension
at age 62 if they have completed at least 5 years of service. Members are eligible for
a pension at age 50 if they have completed 20 years of service, or at any age after
completing 25 years of service. The amount of the pension depends on years of
service and the average of the highest 3 years of salary. By law, the starting amount
of a Member’s retirement annuity may not exceed 80% of his or her final salary.
As of October 1, 1998, 4132000, 409 retired Members of Congress were receiving federal
pensions based fully or in part on their congressional service. Of this number, 367 had
356
had retired under CSRS and were receiving an average annual pension of $50,616. Fortysix52,464.
Fifty-three Members had retired either with service under both CSRS and FERS or with
with service under FERS only. Their average annual pension was $46,908 in 1998932 in 2000.
Contents
Background on Congressional Pensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Retirement Plans Available to Members of Congress . . . . . . . . . . . . . . . . . . 2
Members First Elected Before 1984 . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Members First Elected Since 1984 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Age and Length-of-Service Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Retirement Under CSRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Retirement Under FERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Coordination of FERS Benefits with Social Security . . . . . . . . . . . . . . 4
Social Security Retirement Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Social Security Earnings Limit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
The Thrift Savings Plan: An Integral Component of FERS . . . . . . . . . 5
Required Contributions To Retirement Programs . . . . . . . . . . . . . . . . . . . . . 6
Total Payroll Deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Pension Plan Benefit Formulas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Pension Benefits under CSRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Pension Benefits under FERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Social Security Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Pensions for Members with Service Under Both CSRS and FERS . . . . . . . . 9
Retirement Benefits under the CSRS Offset Plan . . . . . . . . . . . . . . . . . . . . 910
Replacement Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Cost-of-Living Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
. 11
The Thrift Savings Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
List of Tables
Table 1. Replacement Rates for Members Retiring With an
Immediate Annuity . . . . . . . . . .11
Increase in allowable contributions to the TSP . . . . . . . . . . . . . . . . . . 12
List of Tables
Table 1. Replacement Rates for Members Retiring
with an Immediate Annuity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Retirement Benefits for
Members of Congress
Background on Congressional Pensions
The Civil Service Retirement Act of 1920 (P.L. 66-215) established a pension
system for federal employees in the executive branch of government. Coverage under
under the Civil Service Retirement System (CSRS) was extended to Congress in January
January 1942 by P.L. 77-411. That law was repealed just 2 months later in response to
to adverse public opinion. In 1946, P.L. 79-601 again extended CSRS coverage to
Congress, at the option of Members, with higher contributions and greater benefits
than those applicable to regular federal employees. In reference to that legislation,
S.Rept.Senate Report 79-1400 (May 31, 1946) stated that a retirement plan for Congress:
would contribute to independence of thought and action, [be] an inducement for
for retirement for those of retiring age or with other infirmities, [and] bring
into the
legislative service a larger number of younger Members with fresh
energy and
new viewpoints concerning the economic, social, and political
problems of the
Nation.
The Social Security Amendments of 1983 (P.L. 98-21) required all federal
employees hired in 1984 or later to participate in Social Security. These amendments
also required all Members of Congress to participate in Social Security as of January
1, 1984, regardless of when they first entered Congress. The Civil Service Retirement
Retirement System, having been established in 1920, predated passage of the Social
Security Act
by 15 years. Requiring federal workers to participate in both CSRS and Social
Social Security would have duplicated some benefits and would have resulted in employee
employee payroll deductions for the two programs that in 20002002 would exceed 13%
of pay.
After mandating Social Security coverage of new federal employees
beginning in
1984, Congress directed the development of a new retirement plan for federal
federal workers with Social Security coverage as its foundation. The result of this
effort was
the Federal Employees’ Retirement System Act of 1986 (P.L. 99-335).
When theThe Federal Employees’ Retirement System (FERS) went into effect in
1987,
and employees first hired in 1984 or later were automatically enrolled in this plan.
Employees who had been in the federal government before 1984 were given the
option to remain in CSRS – without Social Security coverage – or to switch to FERS.
The options for Members of Congress differed from those available to other federal
employees, because the 1983 amendments required all Members of Congress to
participate in Social Security. Members first elected in 1984 or later were given the
option to enroll in FERS as well as being covered by Social Security, or to be covered
covered only by Social Security. Members who had been in Congress before 1984
could elect
to stay in CSRS in addition to being covered by Social Security; to elect coverage
coverage under an “offset plan” that integrates CSRS and Social Security; to elect coverage
CRS-2
coverage under FERS in addition to being covered by Social Security; or to be
covered only by
Social Security.1
Because of the uncertain tenure of congressional service, FERS was designed,
as CSRS had been, to provide a larger benefit for each year of service to Members of
of Congress and congressional staff than to most other federal employees. Members of
of Congress also become eligible for retirement annuities under CSRS and FERS at an
an earlier age and with fewer years of service than most other federal employees.
However, Members of Congress and congressional staff pay a higher percentage of
salary for their retirement benefits than do most other federal employees.
As of October 1, 1998, 4132000, 409 retired Members of Congress were receiving federal
pensions based fully or in part on their congressional service. Of this number, 367 had
356
had retired under CSRS and 4653 had retired either with service under both CSRS and
FERS or with service under FERS only. ThoseMembers who had retired under CSRS were,
on average, 75.5 years old and had 20.0had
completed, on average, 20.1 years of federal service. Their average
annual CSRS
annuity in 2000 was $52,464was $50,616. Those who had retired under FERS had an
average age of 68.3 years and 21.6completed,
on average, 21.1 years of federal service. Their average annual
retirement annuity was $46,908 in 1998in 2000
(not including Social Security) was $46,932. The average age of retired Members
of Congress receiving retirement annuities in 2000 was 76.1 for those who had
retired under CSRS and 69.6 for those who had retired under FERS.
Retirement Plans Available to Members of Congress
Members First Elected Before 1984. Members of Congress who were first
elected before 1984 may be covered under one of four retirement plans:
!
Dual coverage. This is full coverage by both CSRS and Social
Security.
!
CSRS Offset. This is coverage by CSRS and Social Security, but with
CSRS contributions and benefits reduced (“offset”) by the amount of
Social Security contributions and benefits.
!
FERS. This is comprised of the FERS basic annuity, Social Security,
and and
the Thrift Savings Plan (TSP).
!
Social Security only. This occurs if the Member declines other
coverage.
Members and other federal employees who were covered under CSRS had the
opportunity to switch to FERS during two 6-month “open seasons” in 1987 and
1998.
Members First Elected Since 1984. Members of Congress who were first
elected in 1984 or later are covered by the Federal Employees’ Retirement System
unless they decline this coverage, in which case they are covered only by Social
Security. FERS is comprised of three elements:
1
Under the “Offset Plan,” payroll deductions go partly to Social Security and partly to the
Civil Service Retirement and Disability Fund. In retirement, the individual’s CSRS pension
is reduced (“offset”) by the amount of his or her Social Security benefit.
CRS-3
unless they decline this coverage, in which case they are covered only by Social
Security. FERS is comprised of three elements:
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Social Security,
!
the FERS basic annuity, a monthly pension based on years of service
and and
the average of the 3 highest consecutive years of basic pay,
!
the Thrift Savings Plan (TSP), into which participants can deposit up
to 10 to
12% of base pay before taxesin 2002 while receiving employer matching
contributions contributions
of up to 5% of pay.
Members who enter Congress with at least 5 years of previous federal
employment covered by CSRS can choose to participate in the CSRS Offset plan
rather than FERS.
Age and Length-of-Service Requirements
Members become vested in (legally entitled to) pension benefits under CSRS or
or FERS after 5 years of service. The age and service requirements for retirement
eligibility are determined by the plan under which a Member is covered at the time of
of retirement, regardless of whether he or she has previous service covered under a
different plan.2 Depending on a Member’s age and years of service, a pension can be
be taken immediately upon retirement or only on a deferred basis. Likewise, the
Member’s age and years of service, as well as the starting date of the annuity, will
determine whether he or she is eligible for a full pension or a reduced pension.
Retirement Under CSRS. Four retirement scenarios are possible for Members
Members covered by CSRS or the CSRS Offset Plan:
Retirement with an immediate, full pension is available to Members age
60 or
over with 10 years of service in Congress, or age 62 with 5 years of
civilian civilian
federal service, including service in Congress.
Retirement with an immediate, reduced pension is available to Members
ages ages
55 to 59 with at least 30 years of service. It is also allowed if the
Member Member
separates for a reason other than resignation or expulsion after
having having
completed 25 years of service, or after reaching age 50 and with 20
years of
service, or after having served in nine Congresses.3
2
In general, active duty military service can be counted toward retirement eligibility (but cannot be
counted , but not
toward 5 -year vesting). However, in. In order for military service to count toward the
amount of one’s
retirement annuity, the individual must make a deposit to the Civil Service
Retirement and
Disability Fund in the amount that would have been withheld if retirement
deductions had
been made during the person’s years of military service, plus accrued interest on this
amount.
3
The pension is reduced by 1/12 of 1% for each month not in excess of 60 months, and 1/6
of 1% for each month in excess of 60 months that the Member is under age 60 at the date of
of separation. Reasons for separation “other than resignation or expulsion” include both
choosing not to seek re-election and not winning re-election.
CRS-4
Retirement with a deferred, full pension is available if the Member leaves
Congress before reaching the minimum age required to receive an
immediate,
unreduced pension and delays receipt until reaching the age at
which full
benefits are paid. A full pension can be taken at age 62 if the
Member had 5
through 9 years of federal service, or at age 60 if the
Member had at least 10
years of service in Congress. At the time of
separation, the Member must leave
all contributions in the plan in order to
be eligible for the deferred pension.
Retirement with a deferred, reduced pension is available to a Member at
age age
50 if he or she retired before that age and had at least 20 years of
federal service,
including at least 10 years as a Member of Congress.
Retirement Under FERS. There are four possible retirement scenarios for
Members who are covered by FERS:
Retirement with an immediate, full pension is available to Members at
age 62
or older with at least 5 years of federal service; at age 50 or older
with at least
20 years of service; and at any age to Members with at least
25 years of service.
Retirement with an immediate, reduced pension is available at age 55 to
Members born before 1948 with at least 10 years of service. The minimum
age age
will increase to 56 for Members born from 1953 through 1964 and to
57 for
those born in 1970 or later.
Retirement with a deferred, full pension is available at age 62 to former
Members of Congress with at least 5 years of federal service.
Retirement with a deferred, reduced pension is available at the minimum
retirement age of 55 to 57 (depending on year of birth) to a former Member
who who
has completed at least 10 years of federal service. The pension
annuity will be
permanently reduced if it begins before age 62.4
Coordination of FERS Benefits with Social Security. The FERS basic
annuity was designed to supplement Social Security retirement benefits. FERS
retirees under age 62 who retire with an unreduced pension are eligible for a
temporary supplement to their FERS pension to fill in until Social Security eligibility
is reached at age 62. The supplement is an amount estimated to equal the Social
Security benefits accrued from federal service, and is paid from the time of retirement
until age 62. The FERS supplement ends at age 62 regardless of whether the
individual applies for Social Security at that time. Like Social Security benefits paid
before the full retirement age (currently 65), the supplement reduced if the retiree
has earnings above a specified annual limit. This “FERS supplement” is payable to
Members who retire at ages 55 to 57 (depending on year of birth) or older with at
4
The pension is reduced by 5% for each year the Member is under age 62 when the pension
begins (unless the Member hadhe or she has completed 20 or more years of service).
CRS-5
least 20 years of service. A former Member with at least 20 years of service also may
begin to draw the supplement upon reaching age 55-57.5
Social Security Retirement Benefits. Since January 1, 1984, all Members of
of Congress have been required to pay Social Security taxes. The laws governing
payment of Social Security taxes and eligibility for Social Security benefits apply to
Members of Congress in the same way they apply to any other covered worker.
Retirement with full benefits. The “full retirement age” under Social
Security Security
is currently 65. Forty quarters of covered employment are
required to be
eligible for retired worker benefits.6 Under current law, the
age for full benefits
will gradually increase, beginning with people born in
1937, until it reaches age
67 for those born in 1960 or later.
Retirement with reduced benefits. The earliest that retired worker benefits
can can
be taken under Social Security is age 62. Benefits taken at 62 are
permanently permanently
reduced to approximately 80% of the full benefit that would
be payable at age
65. Reduced Social Security benefits still will be
available at age 62 after the
age for full benefits has been raised to 67;
however, the monthly benefit paid at
62 then will be only 70% of the
amount that would be paid if benefits were
deferred until age 67.
Social Security Earnings Limit. Social Security benefits are reduced for
beneficiaries under age 65 who have earnings from paid employment that exceed
thresholds that are defined in statute. In 20002002, Social Security beneficiaries under age
age 65 are subject to a reduction in benefits if their annual earnings exceed $10,080 ($840
11,280
($940 per month). The earnings threshold is adjusted annually for average wage
growth in
the U.S. economy. Beneficiaries under age 65 lose $1 in benefits for every
$2 in
earnings above the threshold. Retirees age 65 or older receive full benefits regardless
regardless of earnings.
The Thrift Savings Plan: An Integral Component of FERS. The Thrift
Savings Plan (TSP) is a defined contribution retirement plan similar to those
authorized under Section 401(k) of the tax code for employers in the private sector.
For all federal employees covered by FERS, their employing agency contributes an
amount equal to 1% of base pay to the TSP, whether or not the employee chooses to
contribute anything to the plan. EmployeesIn 2002, employees covered by FERS can make voluntary
voluntary contributions of as much as 1012% of pay up to an annual limit that is set each year by
defined in section 402(g) of the Internal Revenue Service ($10,500 in 2000Code ($11,000 in 2002). Employee
contributions of up to 5%
of pay are matched by the employing agency.
Contributions are made on a pre-tax
basis, and neither the contributions nor
investment earnings that accrue to the plan are
taxed until the money is withdrawn from the account. Employees covered by CSRS.
5
Members, former Members, and Congressional staff can receive an unreduced annuity (and
the FERS supplement) with at least 20 years of service, provided they have reached the
minimum retirement age of 55 to -57. Regular civil servantsfederal employees must complete at least 30 years
years of service and reach the minimum retirement age of 55 to -57 before they are eligible to receive
receive an unreduced pensionretirement annuity and the FERS supplement.
6
Fewer quarters of covered employment are required for individuals born before 1929.
CRS-6
Employees covered by CSRS can participate in the TSP, but their contributions are
limited to 57% of pay in 2002, and they
receive no employer matching contributions.
(See page 11 for more information on
the Thrift Savings Plan.)
Required Contributions To Retirement Programs
CSRS. Regular federal employees covered by CSRS contribute 7.0% of pay to
to the Civil Service Retirement System. Their employing agencies contribute a further
further 7.0% of payroll to the CSRS on behalf of these workers. Members of
Congress who
are covered by CSRS are required to contribute 8.0% of salary to the
plan, and the
Congress of the United States makes an employer contribution of 8.0%
of payroll on
their behalf.
CSRS Offset. A Member of Congress who is covered by the CSRS Offset plan
plan contributes 1.8% of pay up to the Social Security taxable wage base ($76,200 in
200084,900
in 2002), and 8.0% of pay above this amount, to the CSRS.
FERS. Regular federal employees contribute 0.8% of pay to the Federal
Employees’ Retirement System and their employing agencies contribute an amount
equal to about 11% of pay.7 Members of Congress and congressional staff pay 1.3%
of salary for FERS coverage, and the Congress pays approximately 11% of payroll
as the employer contribution for Members and congressional staff covered by FERS.
Temporary Increase in Employee Contributions to CSRS and FERS. Under
Under the terms of the Balanced Budget Act of 1997 (P.L. 105-33), contribution rates for
all federal employees covered by either CSRS or FERS, including Members of
Congress,employee
contributions under CSRS and FERS rose by 0.25% in January 1999 and by a further
0.15% on January 1, 2000.
Employee contribution rates will increase were scheduled to increase
by another 0.10% in 2002on January 1, 2001. Employee
contributions willwere then revert to
the 1998 levels after December 31, 2002. The increases
in employee contributions
to CSRS and FERS were adopted as a deficit-reduction
measure. Pension benefits
accrued by federal workers will not increasewould not have increased as a result of
the temporarily
higher employee contributions to CSRS and FERS mandated by the
Balanced Budget Act.
In the 106th Congress, H.R. 2631 (Davis/VA) and S. 1472 (Sarbanes) would
repeal the increases in employee contributions mandated by the Balanced Budget Act.
The President’s proposed budget for FY2001 includes a legislative initiative to repeal
the increase in employee contributions required by the BBA. Repeal of the increased
contributions to FERS and CSRS also has been included in H.R. 4871 and S. 2900,
the House and Senate appropriations bills for FY2001 for the Treasury Department,
Postal Service, and Civil Service. H.R. 4871, however, would require Members of
Congress to continue paying the higher contribution rates mandated by the Balanced
Budget Act until the scheduled expiration date of December 31, 2002 Balanced Budget
Act. The higher contribution rates mandated by the Balanced Budget Act were
repealed for all federal employees except Members of Congress by P.L. 106-346, the
FY2001 Department of Transportation and Related Agencies Appropriations Act.
Social Security Payroll Taxes. All Members of Congress pay Social Security
Security payroll taxes, regardless of their other retirement plan coverage. In 2000, the Social
7
The employer contribution to FERS varies slightly from year to year based on estimates of
the actuarial cost of the program made by the Office of Personnel Management.
CRS-7
2002,
the Social Security tax rate of 6.2% is appliedapplies to gross wages up to $76,20084,900. The Social
Security taxable wage base is adjusted each year for wage growth in the economy.8
Members of Congress, like all other workers covered by Social Security, pay
Medicare Hospital Insurance taxes on all earnings at a rate of 1.45% of pay in 2000.2002.
7
The employer contribution to FERS varies slightly from year to year based on estimates
of the actuarial cost of the program made by the U.S. Office of Personnel Management.
8
Social Security taxes are levied on gross wages. They are not deducted for purposes of
determining adjusted gross income. Contributions to the Thrift Savings Plan (TSP) are
deducted in determining AGI.
CRS-7
Total Payroll Deductions. Total payroll deductions for federal retirement
programs depend on the combination of programs by which a Member is covered.
The required payments are exclusive of any voluntary investments in the Thrift
Savings Plan (TSP). These are the required contributions in 20002002, including the
additional contributions to CSRS and FERS mandated by the Balanced Budget Act9Act:
Dual Coverage. Members with full CSRS coverage plus Social Security
contribute 14.67% of the first $76,20084,900 of salary (8.45% to CSRS plus 6.2%
to Social
Security). They pay 8.45% to CSRS on salary above $76,20084,900.
CSRS Offset. Members in the CSRS Offset Plan pay 6.2% to Social
Security Security
and 2.23% to CSRS on the first $76,20084,900 of salary. They pay 8.4%
5% to CSRS on salary
above $76,20084,900.
FERS. Members covered by FERS pay 6.2% to Social Security and 1.7%
to 8% to
FERS on the first $76,20084,900 of salary. They pay 1.78% to FERS on salary
above $76,200 above
$84,900.
Social Security. All Members pay 6.2% of their first $76,20084,900 in gross
wages wages
to Social Security. The taxable wage base of $76,20084,900 is indexed to
national average
wage growth and is adjusted annually.
Pension Plan Benefit Formulas
Pension benefits under both CSRS and FERS are computed according to: (1)
the retiree’s average annual salary for the 3 consecutive years of highest pay (known
as “high-3"” salary); (2) the number of years of service covered by the pension plan;
and, (3) the”accrual rate” at which benefits accumulate for each year of service. The
pension is the product of these factors, expressed as:
High-3
Salary
X
Years of
Service
X
Accrual
Rate
Accrual
X Rate
=
Annual
Pension
Pension Benefits under CSRS. The accrual rate for each year of congressional
congressional service covered by CSRS is 2.5%. Therefore, the CSRS pension
equals:
High-3
Salary
X
Years of
Service
X
.025
=
CSRS
Pension
8
Social Security taxes are levied on gross wages. They are not deducted for purposes of
determining adjusted gross income, as are contributions to the Thrift Savings Plan (TSP).
9
The schedule of increased contributions required by the BBA is described on page 6.
CRS-8
For example, after 26 years of congressional service and a high-3 salary of
$138,233average salary
of $145,467, the initial annual CSRS pension for a Member retiringwho retires in December 2000
2002 at the end of the 106th107th Congress would be10:
$138,233
x
26
x
.025
=
$89,851
Federal law states thatbe:9
$145,467
9
x
26
x
.025 = $94,553
Base pay for Representatives and Senators was $141,300 in 2000, $145,100 in 2001, and
$150,000 in 2002. Pay for House and Senate leadership positions is higher.
CRS-8
Federal law limits the maximum CSRS pension that may be paid at the start
of of
retirement isto 80% of the Member’s final annual salary (5 U.S.C. § 8339(f)). To
receive an initial pension equal to 80% of final salary, a Member must complete 32
years of congressional service covered by CSRS (32 x .025 = .80). The smallest
starting pension under CSRS is 12.5% of high-3 salary for a Member with 5 years
service. (A
pensionPensions based on less than 10 years of service cannot be paidbegin before age 62).
Most Members who entered Congress before 1984 and who chose to stay in the
CSRS elected the “CSRS offset” plan, described on page 9. When a Member who
has retired under the offset plan is age 62 or over, the CSRS pension is reduced by
the amount of Social Security benefits that he or she earned during congressional
service. In the example above, the offset would be approximately $6,950 in 200110,800 in 2003.
Pension Benefits under FERS. The accrual rate for congressional service
covered by FERS is 1.7% for the first 20 years and 1.0% for each year beyond the
20th. The basic retirement annuity under FERS is equal to:
[
High-3
x .017 x
Salary
Years of
Service
through
20
Years of
High-3
Annual
x .01 x Service over =
Salary
Pension
20
][
+
]
Members who began congressional service before 1984 and who elected to join
FERS will receive credit toward that programunder FERS from January 1, 1984, forward. Thus,
at the
close of the 106th107th Congress in 2000December 2002, FERS participants will have had a
maximum of 1719 years inof service under FERS. Nevertheless, as an example of the
difference in
benefits between FERS and CSRS, assume that a Member retiresretired at the
end of 2000
20002 with a full 26-year career under FERS. After 26 years of congressional service
service covered under FERS and a high-3 average salary of $138,233145,467, the
hypothetical initial annual
FERS pension in 20012003 would be:
[$138,233145,467 x .017 x 20] + [$138,233145,467 x .01 x 6] = $55,29358,186
There is no maximum pension under FERS. (It would take 66 years of service
under FERS to reach the 80% maximum permissible under CSRS.) The smallest
The smallest unreduced FERS
pension is 8.5% of high-3 salary with 5 years of service (.017 x
5 years), payable at
which is payable no earlier than age 62. A Member with 10 years of service
who takes a FERS pension at the earliest
allowable age of 55 willwould receive a
reduced pension equal to 11% of high-3 salary
(.017 x 10 years, reduced by .05 times
the 7-year difference between the individual’s
age at retirement and age 62).
10
Base pay for Representatives and Senators was $136,700 in 1998 and 1999. Base pay in
2000 is $141,300. Pay for House and Senate leadership positions is higher.
CRS-9 age at retirement and age 62).
Social Security Benefits. Social Security benefits are determined by a formula
formula based on earnings in all Social Security-covered employment. The benefit structure
structure of Social Security was designed to replace a higher proportion of earnings
for lower
- paid workers than for the higher -paid. For example, the initial benefit payable to a
worker retiring in 2000 at age 65 after having earned the federal minimum wage for
his or her entire career is $631 per month, or $7,572 per year. This is equivalent to
about 71
payable to a low-wage worker retiring at age 65 in 2002 is $682 per month, or $8,184
CRS-9
per year.10 This is equivalent to about 76% of the annual earnings of a worker
employed year-round, full-time at the
minimum wage in 20002002.11 For a worker whose
earnings each year were equal to or
greater than the Social Security maximum taxable
wage base for that year, the initial
benefit paid to a new retiree at age 65 in 2000 is $1,4332002 is
$1,660 per month, or $17,196 per
19,920 per year. This is equal to about 2324% of the maximum
taxable wage base of $76,200 in
200084,900 in 2002. It would represent a still smaller percentage
of the annual wages of workers
whose earnings exceeded the taxable wage base.
Pensions for Members with Service Under Both CSRS and
FERS
Members who were participating in CSRS when the FERS plan went into effect
in 1987 could elect to leave CSRS and join FERS during a 6-month “open season”
in 1987.12 Members who switched to FERS are entitled to a CSRS pension for the
years before 1984, provided that they had completed at least 5 years of service under
CSRS by December 31, 1983. Their service from January 1, 1984 onward is covered
under FERS. When these Members retire, their pension is computed using the CSRS
formula for the CSRS-covered years and the FERS formula for the years covered by
FERS. The same high-3 salary is used in both formulas, which is generally the salary
earned in the 3 years preceding retirement. The two pension amounts (CSRS and
FERS) are then added together. For Members who switched from CSRS to FERS,
FERS rules govern the age and years of service for retirement eligibility.
For example, the pension for a Representative or Senator retiring in 2000 at the
end of the 106thwho retires in
December 2002 at the end of the 107th Congress with a total of 26 years of service (9
(7 years covered under
CSRS and 1719 years covered under FERS) and a high-3 salary
of $138,233 would be:
+
$138,233145,467 x .025 x 9 = $31,1027 = $ 25,456 (CSRS)
$138,233145,467 x .017 x 17 = $39,94919 = $ 46,986 (FERS)
Total pension = $71,05172,442
Retirement Benefits under the CSRS Offset Plan
Members who were participating in CSRS before January 1, 1984 and chose not
to switch to FERS could elect either to have full coverage under both CSRS and
Social Security or to stay in CSRS and have their CSRS contributions and benefits
reduced (“offset”) by the amount of Social Security taxes paid and Social Security
benefits received. New Members who enter Congress with at least 5 years of
previous civilian federal employment that was covered under CSRS also may join the
CSRS Offset plan. Under this plan, a Members pays 6.2% of salary up to the Social
Security taxable maximum ($84,900 in 2002) to Social Security and 1.8% of salary
10
For illustrative purposes, the Social Security Administration defines a “low-wage” worker
as one who earns 45% of the national average wage.
11
12
$5.15 per hour X 40 hours per week X 52 weeks = $10,712. 7,572/$8,184/$10,712 = .707764.
P.L. 101105-61, enacted on October 10, 1997, authorized a second open season from July
through December 1998 during which employees covered by CSRS could switch to FERS.
CRS-10
Security taxable maximum ($76,200 in 2000) to Social Security and 2.2% of salary
up to this earnings level to CSRS. When annual earnings reach the maximum amount
amount taxable under Social Security, the Member pays 8.40% of salary for the rest
of the year
to CSRS. During retirement, the individual’s CSRS pension is reduced
by the amount
of the Social Security benefit that is attributable to their federal
service. The
reduction in the CSRS annuity begins at age 62 whether or not the
retiree actually
begins to draw Social Security at that time.
As an example of the CSRS offset plan, assume that a Representative or Senator
retires at the end of the 106th107th Congress with 26 years of congressional service.
According to the illustration of CSRS pensions on page 78, this Member’s initial
retirement annuity would be $89,85194,553. However, if he or she were age 62 or over, this
amount would be reduced by approximately $6,95010,800, representing the amount of
Social Security benefits earned from congressional service from January 1, 1984
through December 31, 20002002.
Replacement Rates
The adequacy of pension plans is often evaluated by comparing the benefits paid
at the time of retirement with pre-retirement wages. The initial annual pension is
computed as a percentage of final annual pay to derive the “replacement rate.” This
is the proportion of pre-retirement wages replaced by the pension. In both CSRS and
FERS, pensions are based on the average of the highest 3 consecutive years of
earnings, which are usually the final 3 years before retirement.
Table 1 shows the percentage of high-3 average pay replaced by a congressional
pension for Membersa Member retiring with an immediate pension under CSRS or FERS at
specified ages and years of service. (Note that because FERS is still a relatively new
system, no one will have completed 20 years of service under that plan until 2004, and
and no one will have completed 30 years under FERS until 2014.)
Table 1. Replacement Rates for Members Retiring
With an with an
Immediate Annuity
Age 50, 20 years in Congress
Age 55, 30 years in Congress
Age 60, 10 years in Congress
Age 62, 5 years in Congress
CSRS
42.5%
75.0%
25.0%
12.5%
FERS
34.0%
44.0%
15.3%
8.5%
Cost-of-Living Adjustments. CSRS annuities are adjusted for inflation once
once each year on the same schedule and by the same percentage as Social Security
benefits. These “cost-of-living adjustments,” or COLAs, are based on the rate of
increase in the Consumer Price Index for Urban Wage Earners (CPI-W). CSRS
annuities and Social Security benefits are increased each January by the percentage
change in the CPI-W over the 12-month period ending on the preceding September
30. FERS annuities also are adjusted for inflation, but as a cost-control measure,
Congress has mandated that FERS annuities will increase by less than the percentage
change in the CPI-W whenever the annual rate of increase in that index exceeds 2.0%.
CRS-11
CRS-11
2.0%. If the CPI-W rises by 2% or less, FERS annuities are increased by the same
percentage as the increase in the CPI. If the CPI rises by 2.1% to 3%, FERS annuities
annuities are increased by 2%. If the CPI rises by more than 3%, FERS annuities are increased
increased by one percentage point less than the rate of increase in the CPI.
Initial CSRS annuities may not exceed 80% of a Member’s final pay. Over
time,
however, if Congressional pay were to remain unchanged, a retired Member’s CSRS
CSRS pension could exceed the nominal amount of his or her final pay.
Nevertheless,
because COLAs merely prevent the purchasing power of an annuity
from being
eroded by inflation, the real value of a CSRS pension does not increase
or decrease
during retirement, provided that the price index on which the COLA is
based is an
accurate measure of the rate of inflation.
The Thrift Savings Plan
The Thrift Savings Plan (TSP) is a tax-deferred investment program through
which federal employees can save money to supplement their pension income.13 The
TSP is open to participants in both CSRS and FERS, but in consideration of the
smaller pensions paid by FERS, Congress has authorized more generous incentives
for workers covered by FERS to save for retirement through the TSP. In 2002, FERS
participants may invest up to 1012% of their salary in the TSP, subject to a maximum
($10,500 in 200011,000) that is indexed to inflation. Individuals covered by FERS who
invest in
the TSP also receive a matching contribution from their employing agency
on the
first 5% of pay that they invest in the plan. CSRS participants may invest up
to 5% to 7%
of their gross salary to the TSP ($7,06510,500 for Representatives and Senators in
2000), 2002),
but they receive no employer matching contributions.
The government automatically deposits into the TSP an amount equal to 1.0%
of basic pay on behalf of all employees enrolled in FERS, regardless of whether the
individual voluntarily invests additional sums. Members of Congress and
congressional staff become vested in this 1.0% “agency automatic contribution,” plus
any investment earnings on it after completing 2 years of service. All participants in
FERS are immediately vested in their own contributions and in government matching
contributions to the TSP, as well as any investment earnings on these contributions.
Contributions to the TSP are made on a pre-tax basis, and neither the contributions
nor the investment earnings are taxable until money is withdrawn from the plan.
Employees who leave federal service before age 55 can continue to defer taxes
on their accounts either by leaving the money in the TSP or by transferring all or part
of these funds to an Individual Retirement Account (IRA) or other eligible retirement
arrangement, such as a 401(k) plan. Withdrawals from the TSP before age 55 are
subject to a 10% tax penalty unless they are in the form of a life annuity or in a series
13
For a more thorough description of the Thrift Savings Plan, seeSee CRS Report RL30387,
Federal Employees’ Retirement System: Role of the Thrift Savings Plan, by Patrick Purcell.
CRS-12
of payments based on the individual’s remaining life expectancy.14 At retirement,
participants may withdraw money from their TSP accounts in any of three ways:
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They can receive their account balance in a single payment;
They can receive a series of monthly payments. (Payments may be
for a
fixed number of months or a fixed dollar amount. Monthly
payments also
can be based on an IRS life expectancy table.); or
They can purchase a life annuity.
All withdrawals from the TSP are subject to the federal income tax, and
withdrawals before age 55 that are not made on a schedule based on remaining life
expectancy are subject to a 10% tax penalty. Participants who have separated from
federal service must make an election for withdrawing funds from the TSP no later
than February 1 of the year following the year in which the later of two events occurs:
(1) the individual turns 65, (2) the individual reaches the 10th anniversary of the first
contribution to his or her account. Separated employees must begin withdrawals no
later than age 70½, at which time the TSP will begin to distribute funds to the
participant automatically if he or she has not yet made a withdrawal election. Until
an employee separates from the federal government, he or she can continue to
contribute to the TSP, regardless of age.
Increase in allowable contributions to the TSP. P.L. 106-554, the
FY2001 Appropriations Act for the Departments of Labor, Health and Human
Services, and Education, increased the maximum allowable employee contribution
to the TSP. The maximum permissible salary deferral will rise by 1 percentage point
each year for 5 years. The percentage-of-pay limits on contributions to the TSP then
will be eliminated, and employee contributions will be subject only to the limits
applicable under section 402(g) of the Internal Revenue Code. Beginning in July
2001, employees covered by FERS could contribute up to 11% of pay to the TSP,
and employees covered by CSRS could contribute up to 6% of pay to the TSP. The
maximum permissible contribution will rise by 1 percentage point each fiscal year
until reaching 15% for FERS and 10% for CSRS in FY2005. In fiscal year 2006, the
percentage-of-pay limits will be eliminated, but, the contribution limits under IRC
§ 402(g) will continue to apply.
In 2002, the limit on annual elective deferrals under Section 401(k) plans,
Section 403(b) annuities, simplified employee pensions (SEPs), and the federal Thrift
Savings Plan is $11,000. The Economic Growth and Tax Relief Reconciliation Act
of 2001 (P.L. 107-16) amended section 402(g) of the Internal Revenue Code to
increase this limit by $1,000 each year until it reaches $15,000 in 2006. In years after
2006, the annual limit on salary deferrals under §402(g) will be indexed for inflation
in $500 increments.
14
Individuals who separate from federal service before age 55 can receive monthly
payments
14
Individuals who separate from federal service before age 55 can receive monthly payments
based on life expectancy without a tax penalty and withdraw the remaining
balance at age
59½ in a lump sum. If life annuity payments are elected, remaining the individual elects a life annuity, remaining
undistributed amounts
may not cannot later be withdrawn later as a lump sum.