Federal Employees’ Retirement System: Summary of Recent Trends Katelin P. Isaacs Analyst in Income Security January 11, 2011 Congressional Research Service 7-5700 www.crs.gov 98-972 CRS Report for Congress Prepared for Members and Committees of Congress Federal Employees’ Retirement System: Summary of Recent Trends Summary This report describes recent trends in the number of civil service annuitants and the financial status of the Civil Service Retirement and Disability Fund (CSRDF). • In FY2006, 76% of civilian federal employees were enrolled in the Federal Employees’ Retirement System (FERS), which covers employees hired since 1984. Twenty-four percent were enrolled in the Civil Service Retirement System (CSRS), which covers only employees hired before 1984. • In FY2009, nearly 2.5 million people received civil service annuity payments. Eighty-five percent of these individuals received annuities earned under CSRS. • More than one-third of all federal employee annuitants and survivor annuitants reside in five states: California, Florida, Texas, Maryland, and Virginia. • The average civilian federal employee who retired in 2009 was 58.9 years old and had completed 27.4 years of federal service. • The average monthly annuity payment to workers who retired under CSRS in 2009 was $3,617. Workers who retired under FERS received an average monthly annuity of $1,242. Employees retiring under FERS had a shorter average length of service than those under CSRS. FERS annuities are supplemented by Social Security benefits and the Thrift Savings Plan (TSP). • At the end of FY2009, the balance of the CSRDF was $748 billion, an amount equal to more than 11 times the amount of outlays from the fund during 2008. The trust fund balance is expected to reach $806 billion by the end of FY2011. • From 1970 to 1985, the number of people receiving federal civil service annuities rose from fewer than 1 million to nearly 2 million, an increase of 105%. Between 1985 and 2009 the number of civil service annuitants rose by 539,000, an increase of 27%. • As of September 2008, civilian federal employment, including the Postal Service, totaled 2.8 million workers. This was 100,000 more than the number of employees in 2000, but 300,000 fewer than the number of employees in 1990. • Employees of the federal government are older on average than workers in the private sector. Fifty-eight percent of all federal employees were aged 45 or older in March 2009, and almost 25% were aged 55 or older. In contrast, only 42% of wage and salary workers in the private sector were aged 45 or older in 2007, and 18% were aged 55 or older. Congressional Research Service Federal Employees’ Retirement System: Summary of Recent Trends Contents Fundamentals of the Civil Service Retirement Programs .............................................................1 Retirement System Coverage of Current Federal Employees .......................................................2 Retirement System Coverage of Current Civil Service Annuitants ...............................................3 State of Residence of Civil Service Annuitants ............................................................................4 Average Age and Years of Service at Retirement .........................................................................5 Average Annuity Amounts under CSRS and FERS......................................................................6 Average Age at Retirement of New Federal Retirees, 1990 to 2009..............................................7 Total and Average Annuity Payments to Retirees and Survivors in 2009 ......................................8 Cost-of Living Adjustments under CSRS and FERS....................................................................9 Income and Expenditures of the Civil Service Retirement and Disability Fund .......................... 10 Recent Trends in the Balance of the Civil Service Retirement and Disability Fund .................... 12 Number of Civil Service Annuitants and Total Annuity Payments, 1970 to 2008........................ 13 Civilian Federal Employment, 1960 to 2008.............................................................................. 15 Age Distribution of Executive Branch Employees ..................................................................... 16 Tables Table 1. Retirement System Coverage of Federal Employees, by Fiscal Year ...............................3 Table 2. Retirement System Coverage of Civil Service Annuitants, FY2009 ................................3 Table 3. State of Residence of Civil Service Annuitants, 2009 .....................................................4 Table 4. Number, Average Age and Years of Service, and Average Annuity of Civil Service Annuitants Who Retired in 2009 ..................................................................................6 Table 5. Average Age at Retirement for New Federal Retirees, 1990 to 2009 ...............................8 Table 6. Average Monthly Annuity Payments to Retirees and Survivors in 2009 ..........................8 Table 7. Cost-of-Living Adjustments under CSRS and FERS ......................................................9 Table 8. Income and Expenditures of the Civil Service Retirement and Disability Fund, 2009-2011.............................................................................................................................. 11 Table 9. Income and Expenditures of the Civil Service Retirement Fund, 1990 to 2011............. 12 Table 10. Annuitants and Annuity Payments, 1970 to 2011 ........................................................ 15 Table 11. Civilian Federal Employment, 1960 to 2008............................................................... 16 Table 12. Age Distribution of Executive Branch Employees ...................................................... 17 Contacts Author Contact Information ...................................................................................................... 17 Acknowledgments .................................................................................................................... 17 Congressional Research Service Federal Employees’ Retirement System: Summary of Recent Trends Fundamentals of the Civil Service Retirement Programs The Civil Service Retirement System (CSRS) was established by P.L. 66-215 in 1920, 15 years before Congress created the Social Security system for workers in the private sector. Because CSRS was designed to provide both retirement and disability benefits, federal employees were excluded from participating in Social Security. State and local governments were permitted to bring their employees into the Social Security program in the early 1950s, and today about threefourths of state and local government employees are covered by Social Security. In the Social Security Amendments of 1983 (P.L. 98-21), Congress mandated participation in Social Security by all civilian federal employees initially hired on or after January 1, 1984. To coordinate federal employee retirement benefits with Social Security, Congress directed the development of a new federal employee retirement system with Social Security as the cornerstone. The result of this effort was the Federal Employees’ Retirement System (FERS) Act of 1986 (P.L. 99-335). The FERS is composed of three elements: (1) Social Security, (2) the FERS basic retirement annuity, and (3) the Thrift Savings Plan (TSP). All permanent federal employees hired after December 31, 1983, are enrolled in the FERS, as are employees who voluntarily switched from CSRS to FERS during “open seasons” in 1987 and 1998.1 Under FERS, workers who have completed at least 30 years of service can retire at the plan’s minimum retirement age. The minimum retirement age was 55 for workers born before 1948, and it is scheduled to rise to 57 for those born in 1970 or later. In 2011, the minimum retirement age is 56. Employees with 20 or more years of service can retire at the age of 60, and those with at least 5 years of service can retire at the age of 62. Federal employees and former employees who have completed at least 10 years of service can receive a reduced FERS annuity at the minimum retirement age. For those who choose this option, the FERS annuity is permanently reduced by 5% multiplied by the number of years between the worker’s age at retirement and age 62. For example, the FERS annuity of an employee who retires at the age of 56 with fewer than 30 years of service would be permanently reduced by 5% multiplied by six, or 30%. Under CSRS, the minimum retirement age is 55 for employees with 30 years of federal service, age 60 for those with 20 years of service, and 62 for employees with at least 5 years of service. CSRS has no provision for early retirement with a reduced benefit, except for special circumstances such as a reduction in force. Agencies undergoing a reduction in force can, with the approval of the Office of Personnel Management, offer retirement to employees aged 50 or older with 20 or more years of service or at any age with 25 or more years of service. An employee under CSRS who is offered and accepts an offer of voluntary early retirement has his or her retirement annuity permanently reduced by 2% multiplied by the number of years between the worker’s age at retirement and age 55. Under both CSRS and FERS, the amount of an employee’s retirement annuity is based on the average of the individual’s highest three consecutive years of basic pay multiplied by their years 1 P.L. 105-61 (October 10, 1997) authorized an open season to be held from July through December 1998. Congressional Research Service 1 Federal Employees’ Retirement System: Summary of Recent Trends of service and the rate at which benefits accrue for each year of service. 2 Under FERS, the accrual rate is 1% of basic pay for each year of service. Workers with 20 or more years of service who retire at the age of 62 or later are credited with an accrual rate of 1.1% for each year of service. For example, a worker under FERS who retires at 61 with 29 years of service will receive a FERS annuity equal to 29% of his or her high-three average pay. Delaying retirement by one year would increase the annuity to 33% of high-three average pay (30 X 1.1 = 33.0). Under CSRS, the benefit accrual rate increases with length of service. Workers accrue benefits equal to 1.5% of high-three average pay for each of the first 5 years of service; 1.75% for the 6th through 10th years of service, and 2.0% of high-three average pay for each year of service after the 10th year. This yields a pension equal to 56.25% of high-three average pay after 30 years of federal service under CSRS. Accrual rates are lower under FERS than under CSRS because employees under FERS also earn Social Security retirement benefits. For all federal workers enrolled in FERS, the agencies where they are employed contribute an amount equal to 1% of the employees’ basic pay to the TSP, even if the employees make no voluntary contributions to the TSP. In 2011, workers under FERS or CSRS can contribute up to $16,500 to the TSP.3 Workers aged 50 and older can contribute an additional $5,500 to the TSP. All contributions to the TSP are made on a pre-tax basis, and neither the employee’s contribution nor any investment earnings are taxed until the money is withdrawn from the account. In addition, the first 5% of employee pay contributed to the TSP generates agency matching contributions for workers under FERS.4 Workers who are under CSRS can contribute to the TSP, but they receive no matching contributions from their employing agencies. Retirement System Coverage of Current Federal Employees Because enrollment in CSRS has been closed to new entrants since 1984, the proportion of federal workers covered by FERS has been rising and coverage under CSRS has been declining. (See Table 1.) FY1995 was the first year in which a majority of civilian federal employees (51%) were enrolled in FERS. In FY2006, 75.6% of federal employees were enrolled in FERS. 2 High-three average pay is based on nominal (current) dollars rather than indexed (constant) dollars. Employee contributions to the TSP are subject to the annual limit on salary deferrals established under Internal Revenue Code § 402(g). 4 All employees covered by FERS receive “agency automatic contributions” of 1% of pay. Employee contributions are matched dollar-for-dollar on the first 3% of pay contributed and at $.50 on the dollar on the next 2% of pay contributed. Thus, the maximum agency contribution to the TSP is 5% of employee pay. 3 Congressional Research Service 2 Federal Employees’ Retirement System: Summary of Recent Trends Table 1. Retirement System Coverage of Federal Employees, by Fiscal Year Covered Active Employeesa FY2006 Percentage distribution FY2004 CSRS FERS 650,000 2,014,000 24.4 795,000 Percentage distribution FY2002 Percentage distribution FY2000 Percentage distribution FY1998 Percentage distribution FY1996 Percentage distribution FY1994 Percentage distribution Total 2,664,000 75.6 1,875,000 100 2,670,000 29.8 70.2 100 897,000 1,717,000 2,614,000 34.0 66.0 100 961,000 1,629,000 2,590,000 37.1 62.9 100 1,108,000 1,550,000 2,658,000 41.7 58.3 100 1,235,000 1,385,000 2,620,000 47.1 52.9 100 1,402,000 1,296,000 2,698,000 52.0 48.0 100 Source: Office of Personnel Management, Federal Civilian Workforce Statistics: The Fact Book, various years. a. Includes U.S. Postal Service. Does not include employees on leave without pay. Retirement System Coverage of Current Civil Service Annuitants Although the majority of current federal employees are enrolled in FERS, most retired federal workers and their surviving dependents receive benefits that were earned under CSRS. In FY2000, 82% of employee annuitants were receiving pension benefits that were accrued under CSRS, whereas just 18% had retired under FERS. (See Table 2.) The number of FERS annuitants is comparatively small because the FERS is still a relatively new program when compared with the average length of a worker’s career. The program was established by the Federal Employees’ Retirement System Act of 1986, and was made retroactive for all employees initially hired on or after January 1, 1984. Table 2. Retirement System Coverage of Civil Service Annuitants, FY2009 CSRS Employee annuitants Percentage Survivor annuitants Percentage Total annuitants Percentage FERS Total 1,540,830 337,425 1,878,255 82.0 18.0 100 569,720 33,494 603,214 94.4 5.6 100 2,110,550 370,919 2,481,469 85.1 14.9 100 Source: U.S. Office of Personnel Management. Congressional Research Service 3 Federal Employees’ Retirement System: Summary of Recent Trends State of Residence of Civil Service Annuitants More than 2.4 million people received civil service annuities in 2009, either as retired federal employees, surviving spouses, or surviving dependents. California had the largest number of annuitants with 214,207 and Vermont had the fewest with 4,315. Five states—California, Florida, Texas, Maryland, and Virginia—accounted for more than one-third of all civil service annuitants in 2009. (See Table 3.) Table 3. State of Residence of Civil Service Annuitants, 2009 State Alabama Number of Annuitants Percentage of National Total 58,434 2.3% Alaska 7,472 0.3% Arizona 52,242 2.1% Arkansas 24,834 1.0% California 214,207 8.6% Colorado 46,940 1.9% Connecticut 14,648 0.6% 8,759 0.4% 43,391 1.7% Florida 165,100 6.6% Georgia 80,977 3.2% Hawaii 24,677 1.0% Idaho 13,877 0.6% Illinois 66,401 2.7% Indiana 35,827 1.4% Iowa 20,245 0.8% Kansas 24,210 1.0% Kentucky 32,784 1.3% Louisiana 26,224 1.1% Maine 13,631 0.5% 152,662 6.1% Massachusetts 43,392 1.7% Michigan 41,947 1.7% Minnesota 27,534 1.1% Mississippi 25,143 1.0% Missouri 53,010 2.1% Montana 12,219 0.5% Nebraska 13,278 0.5% Nevada 21,409 0.9% Delaware District of Columbia Maryland Congressional Research Service 4 Federal Employees’ Retirement System: Summary of Recent Trends State Number of Annuitants Percentage of National Total New Hampshire 12,128 0.5% New Jersey 54,613 2.2% New Mexico 27,498 1.1% New York 95,673 3.8% North Carolina 70,223 2.8% North Dakota 6,178 0.2% Ohio 73,799 3.0% Oklahoma 48,687 1.9% Oregon 32,643 1.3% Pennsylvania 106,716 4.3% Rhode Island 8,628 0.3% South Carolina 43,001 1.7% South Dakota 9,759 0.4% 44,756 1.8% Texas 163,319 6.5% Utah 34,809 1.4% 4,315 0.2% 139,413 5.6% Washington 64,630 2.6% West Virginia 16,997 0.7% Wisconsin 26,037 1.0% Wyoming 5,622 0.2% 42,318 1.7% Tennessee Vermont Virginia U.S. Territories and other countries Total 2,497,236 100% Source: Office of Personnel Management. Average Age and Years of Service at Retirement More than 87,907 civilian federal employees (including U.S. Postal Service employees) retired during FY2009. (See Table 4.) Of this number, 57,854 (66%) were normal retirements5 and another 12,624 (14%) were voluntary early retirements. Under CSRS, normal retirement can occur as early as age 55 for an employee with 30 years of service. Under FERS, the minimum retirement age is currently 56, and it will increase to 57 for workers born in 1970 or later. Under both programs, normal retirement can be taken at age 60 with 20 years of service or age 62 with five years of service. The average age of workers taking voluntary, normal retirement in 2009 was 60.2 for employees under CSRS and 63.2 for those under FERS. Workers taking normal 5 Normal retirements include all retirements except disability retirements, voluntary early retirements, involuntary retirements, and special provision retirements. Congressional Research Service 5 Federal Employees’ Retirement System: Summary of Recent Trends retirement under CSRS in 2009 had completed an average of 34.8 years of service, whereas those retiring under FERS had an average of 20.2 years of service. More than 12,000 federal employees took voluntary early retirement in 2009. These workers were younger on average (54.0 years old for CSRS employees; 54.8 years old for FERS employees) than those who took normal retirement, and their average length of service (30.0 years for CSRS employees; 24.4 years for FERS employees) was less than that of those who took normal retirement. Approximately 10% of all retirements among federal employees in 2009 were taken for reasons of disability. CSRS disability retirees were, on average, 53.3 years old with 27 years of service. The average age of FERS disability retirees, who had 15 years of service, was 50.5. Involuntary retirements (such as those resulting from agency down-sizing) accounted for 1.8% of all retirements by federal employees in 2009. Average Annuity Amounts under CSRS and FERS The average monthly annuity among civilian federal employees who retired under CSRS in 2009 was $3,619, whereas new FERS annuitants received an average annuity of $1,242 per month. Employees retiring under CSRS received larger annuities than those covered by FERS both because of their longer average length of service and because CSRS was designed to provide an adequate retirement income from a single source. FERS was designed to provide a smaller annuity than CSRS for any given length of service and level of compensation because federal employees under FERS participate in Social Security and they also can elect to save for retirement on a pre-tax basis with agency matching contributions through the TSP.6 Employees enrolled in FERS who retire at the minimum retirement age or older with 30 years of federal service also receive a supplement to their FERS annuity between their retirement date and age 62. The supplement is equal to the Social Security benefit that they earned while employed by the federal employment and enrolled in FERS. Employees who retire at age 60 or 61 with 20 or more years of service also receive this supplement. The FERS supplement terminates at age 62, regardless of whether the individual applies for Social Security at that age. Table 4. Number, Average Age and Years of Service, and Average Annuity of Civil Service Annuitants Who Retired in 2009 Civilian Federal Retirements Normal Retirements Number Average age at retirement Average years of service Average monthly annuity Disability Retirements Number Average age at retirement Average years of service CSRS FERSa Average or Total 37,635 60.2 34.8 $3,891 20,219 63.2 20.2 $1,086 57,854 61.2 29.7 $2,969 1,413 53.3 27.0 7,576 50.5 15.0 8,989 50.9 16.9 6 In 2011, federal employees can contribute up to $16,500 of pay (pre-tax) to the TSP. Employees enrolled in FERS receive matching contributions up to a maximum of 5% of pay. Employees enrolled in CSRS do not receive matching contributions. For more information on the TSP, see CRS Report RL30387, Federal Employees’ Retirement System: The Role of the Thrift Savings Plan, by Katelin P. Isaacs. Congressional Research Service 6 Federal Employees’ Retirement System: Summary of Recent Trends Civilian Federal Retirements Average monthly annuity Involuntary Retirements Number Average age at retirement Average years of service Average monthly annuity Voluntary Early Retirements Number Average age at retirement Average years of service Average monthly annuity Special Provision Retirements Number Average age at retirement Average years of service Average monthly annuity Total Retirements in 2009b Number Average age at retirement Average years of service Average monthly annuity CSRS FERSa Average or Total $2,341 $1,379 $1,530 982 56.8 30.4 $3,412 605 56.8 24.8 $1,456 1,587 56.8 28.3 $2,666 7,686 54.0 30.0 $2,584 4,938 54.8 24.4 $1,094 12,624 54.3 27.8 $2,001 1,535 54.4 30.6 $5,867 1,692 53.6 24.9 $3,411 3,227 54.0 27.6 $4,579 50,608 58.9 33.1 $3,619 37,299 58.8 19.6 $1,242 87,907 58.9 27.4 $2,610 Source: CRS analysis of data from the Office of Personnel Management. a. Employees covered by FERS also participate in Social Security. In January 2011, the average monthly Social Security benefit for workers retiring at age 62 was $1,140. b. Includes other, unclassified retirements that are not shown separately. Average Age at Retirement of New Federal Retirees, 1990 to 2009 In 2009, the average age of federal employees taking normal retirement was 61.2, almost the same as in 1990. (See Table 5.) The average age for all retirements in 2009 was 58.9, also the same as in 1990. Federal agencies undergoing a major reorganization can request permission from the Office of Personnel Management to offer their employees voluntary early retirement or voluntary separation incentive payments (“buyouts”). Under voluntary early retirement, an employee with 20 or more years of service can retire as early as age 50. Voluntary separation incentives are cash payments of up to $25,000 (before taxes) offered to employees who retire or otherwise separate from federal employment voluntarily. Because these incentives are generally offered to retirees who have not yet reached the combined age and years of service that are required for normal retirement, they tend to reduce the average age of employees who retire in any given year. Congressional Research Service 7 Federal Employees’ Retirement System: Summary of Recent Trends Table 5. Average Age at Retirement for New Federal Retirees, 1990 to 2009 All Retirements Normal Retirements Normal Retirements as a Percentage of All Retirements 1990 59.4 61.3 79.0 1994 58.1 61.8 56.8 1998 57.6 61.5 57.1 2002 58.1 60.6 67.6 2006 59.1 61.0 73.1 2007 59.4 61.1 75.6 2009 58.9 61.2 65.8 Average Age at Retirement Fiscal Year Source: Office of Personnel Management. Note: Normal retirements include all retirements except disability retirements, voluntary early retirements, involuntary retirements, and special provision retirements. Total and Average Annuity Payments to Retirees and Survivors in 2009 The Civil Service Retirement and Disability Fund (CSRDF) paid annuities to 1.88 million retired federal employees and 603,214 survivor annuitants in FY2009. Of these beneficiaries, 2.111 million (85%) received benefits earned under CSRS and 370,919 (15%) received benefits under FERS. Employee annuitants under CSRS received an average monthly annuity of $2,899. Survivors of CSRS annuitants received an average monthly CSRS annuity of $1,360. Employee annuitants under FERS received payments, averaging $1,051 per month and the average survivor benefit under FERS was $440. As was noted earlier, FERS benefits are smaller than those under CSRS both because employees retiring under FERS had fewer years of service than workers who retired under CSRS, and because FERS benefits are intended to be supplemented by Social Security and the TSP.7 Table 6. Average Monthly Annuity Payments to Retirees and Survivors in 2009 (in thousands of dollars) Retired Employees Annuitants Percentage of Total CSRS FERS 1,540,830 337,425 All Retirees and Survivors 1,878,255 82.0 12.0 Mean monthly annuity $2,899 $1,051 $2,567 Median monthly benefit $2,534 $766 $2,255 569,720 33,494 603,214 Survivor Annuitants Percentage of Total Mean monthly benefit 100 94.4 5.6 100 $1,360 $440 $1,309 7 In December 2009, the average monthly Social Security benefit among all retired workers was $1,164. The average monthly benefit for a nondisabled surviving spouse was $1,124. Congressional Research Service 8 Federal Employees’ Retirement System: Summary of Recent Trends Median monthly benefit Total Annuitants Percentage of Total All Retirees and Survivors CSRS FERS $1,206 $341 $1,163 2,110,550 370,919 2,481,469 85.1 14.9 100 Source: Office of Personnel Management, Statistical Abstract of Federal Employee Benefits Program. Cost-of Living Adjustments under CSRS and FERS Cost-of-living adjustments (COLAs) for both CSRS and FERS are based on the rate of inflation as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPIW). COLAs are determined by the percentage change in the average monthly CPI-W during the third quarter (July to September) of the current calendar year compared to the third quarter of the last year in which a COLA was applied. If consumer prices as measured by the CPI-W do not increase between the third quarter of the base year and the third quarter of the current calendar year, there is no COLA for annuities paid under CSRS or FERS. The “effective date” for COLAs is December, but they first appear in benefit checks issued in January. Under FERS, COLAs are paid only to retired workers who are 62 or older and to disabled and survivor beneficiaries of any age. COLAs paid under FERS are less than the rate of inflation whenever the increase in the CPI-W is greater than 2.0%. If the rate of inflation during the measurement period is between 2.0% and 3.0%, the FERS COLA is 2.0%. If inflation is greater than 3.0%, then the COLA for FERS benefits is equal to the CPI-W minus one percentage point.8 From the third quarter of 2008 (the last year in which a COLA was applied) to the third quarter of 2010, the CPI-W fell by 0.6%. Therefore, there is no automatic COLA under either CSRS or FERS in January 2011. (See Table 7.) Table 7. Cost-of-Living Adjustments under CSRS and FERS (in percent) Date Paid CSRS COLA FERS COLA Change in CPI from 3rd Qtr to 3rd Qtr January 1990 4.7% 3.7% 4.7% January 1991 5.4 4.4 5.4 January 1992 3.7 2.7 3.7 January 1993 3.0 2.0 3.0 April 1994 2.6 2.0 2.6 April 1995 2.8 2.0 2.8 April 1996 2.6 2.0 2.6 January 1997 2.9 2.0 2.9 January 1998 2.1 2.0 2.1 8 Workers who switched from CSRS to FERS receive a COLA that is weighted by the proportion of their federal service that was spent under each retirement system. Congressional Research Service 9 Federal Employees’ Retirement System: Summary of Recent Trends Date Paid CSRS COLA FERS COLA Change in CPI from 3rd Qtr to 3rd Qtr January 1999 1.3 1.3 1.3 January 2000 2.4 2.0 2.4 January 2001 3.5 2.5 3.5 January 2002 2.6 2.0 2.6 January 2003 1.4 1.4 1.4 January 2004 2.1 2.0 2.1 January 2005 2.7 2.0 2.7 January 2006 4.1 3.1 4.1 January 2007 3.3 2.3 3.3 January 2008 2.3 2.0 2.3 January 2009 5.8 4.8 5.8 January 2010 0.0 0.0 -2.1 January 2011 0.0 0.0 -0.6 Source: Office of Personnel Management. Income and Expenditures of the Civil Service Retirement and Disability Fund The CSRDF began FY2009 with a balance of $723.2 billion. By law, these assets are invested in special-issue U.S. Treasury bonds. The balance of the trust fund represents budget authority available to pay benefits under both CSRS and FERS. The fund’s year-end 2009 balance of $748.2 billion was more than 11 times the value of the CSRS and FERS annuities paid from the fund that year. The CSRDF receives income from several sources. Some of the fund’s income results from cash transactions. Other income comes from intra-governmental transfers. The largest cash transaction ($3.5 billion in 2009) consists of employee contributions to CSRS and FERS. These contributions are equal to 7.0% of base pay under CSRS and 0.8% of base pay under FERS.9 Smaller cash payments are received from the District of Columbia to finance retirement benefits for its employees and from additional cash contributions made by federal workers. These usually are former federal employees who are returning to government service and who had previously withdrawn their retirement contributions under CSRS. The civil service retirement trust fund’s largest sources of income are (1) interest payments on the U.S. Treasury bonds it holds, (2) annual payments from the general fund of the Treasury to make up for the insufficient funding of benefits accrued under CSRS, and (3) payments from federal agencies and the Postal Service on behalf of their employees. Agency contributions under CSRS are equal to 7.0% of payroll, and are supplemented by transfers from the general fund of the 9 Under the Balanced Budget Act of 1997 (P.L. 105-33), employee contribution rates under CSRS and FERS rose by 0.25% in January 1999 and by a further 0.15% in January 2000. They were scheduled to increase by another 0.1% in January 2001 before reverting to their previous levels—7.0% under CSRS and 0.8% under FERS—after December 31, 2002, but the increased contributions were repealed by P.L. 106-346. Congressional Research Service 10 Federal Employees’ Retirement System: Summary of Recent Trends Treasury equal to approximately 10% of payroll. Agency contributions to FERS are required by law to be equal to the full actuarial cost of the program minus employee contributions. Agency contributions to FERS were equal to 11.2% of pay in 2009. These agency contributions recently increased to 11.7% of pay, as of October 1, 2010. These three sources of income are intragovernmental transfers that increase the fund’s budget authority, as recorded in the accounts of the U.S. Treasury. The fund receives Treasury bonds as a record of this budget authority, which it redeems periodically as annuity payments come due.10 Expenditures from the CSRDF consist mainly of payments to retired federal employees and their surviving dependents. Annuity payments totaled $67.6 billion in 2009. Payments to the estates of decedents and payments to separating employees accounted for another $293 million. The administrative expenses of the fund were $142 million, or 0.21% of expenditures. Table 8. Income and Expenditures of the Civil Service Retirement and Disability Fund, 2009-2011 (in millions of dollars) FY2009 FY2010 (est.) FY2011 (est.) $723,194 $748,195 $777,178 $3,459 $3,776 $3,602 $38 $27 $26 $586 $575 $584 Agency contributions $17,368 $16,848 $17,555 Postal Service (total) $2,955 $3,937 $4,208 Interest on securities $36,538 $41,512 $41,824 General fund receipts $31,422 $32,050 $33,150 Re-employment offset $44 $46 $46 $93,061 $99,323 $101,469 Employee and survivor annuities -$67,618 -$69,956 -$72,169 Refunds and payments to estates -$293 -$282 -$278 Administration -$142 -$95 -$103 Total expenditures from the fund -$68,060 -$70,340 -$72,557 Ending balance $748,195 $777,178 $806,090 Beginning balance Income to the fund Cash transactions: Employee contributions District of Columbia Other employee deposits Intragovernmental transfers: Total income to the fund Expenditures from the fund Source: U.S. Office of Management and Budget, Budget of the United States Government, FY2011. 10 See CRS Report RL30023, Federal Employees’ Retirement System: Budget and Trust Fund Issues, by Katelin P. Isaacs. Congressional Research Service 11 Federal Employees’ Retirement System: Summary of Recent Trends Recent Trends in the Balance of the Civil Service Retirement and Disability Fund Between 1990 and 2009, the balance of the CSRDF rose from $236 billion to $748 billion, an increase of 217%. (See Table 9.) The balance of the fund has been rising partly because the civil service retirement programs are in a long-term transition from pay-as-you-go financing under CSRS to advance-funding under FERS. Until 1969, CSRS benefits were funded on a pay-as-you-go basis with a small reserve equal to about one year of benefit payments to meet unexpected contingencies. Employee contributions and agency contributions were less than the actuarial value of the benefits that were accrued each year by federal employees. In 1969, P.L. 91-93 mandated annual payments to the fund from the general revenues of the U.S. Treasury to make up most of this shortfall.11 When Congress passed the legislation that created FERS in 1986, the law required that the full actuarial value of benefits accrued each year by federal employees under FERS (including the value of future COLAs) must be funded by the sum of employee and agency contributions. The Office of Personnel Management estimates that at some time in the 21st century, the trust fund will reach a steady state in which it holds sufficient budget authority to finance about 18 to 20 years of retirement and disability benefits. Table 9. Income and Expenditures of the Civil Service Retirement Fund, 1990 to 2011 (in billions of dollars) Fiscal Year 1990 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007a 2008 2009 2010b 2011b CSRDF Income CSRDF Expenditures Ending Balance $52.2 65.7 66.6 70.2 72.2 74.5 76.0 77.9 80.1 78.4 82.4 83.7 87.2 89.9 90.9 93.1 93.3 101.5 -$31.1 -38.4 -39.8 -41.7 -43.1 -43.9 -45.2 -47.4 -49.0 -50.4 -52.3 -54.8 -58.3 -78.4 -63.9 -67.6 -70.2 -72.4 $235.6 366.2 393.0 421.5 450.6 481.2 512.0 542.5 573.6 601.6 631.7 660.6 689.5 701.0 728.0 748.2 777.2 806.1 11 The Office of Management and Budget has estimated that employee and agency contributions and the transfers from the general fund are sufficient to meet all of the actuarial costs of CSRS except for the increase in benefits represented by COLAs. Congressional Research Service 12 Federal Employees’ Retirement System: Summary of Recent Trends Source: Office of Management and Budget, Budget of the United States Government, various years. a. Expenditures for 2007 include a $23 billion payment to the Postal Service Retiree Health Fund. b. Data for 2010 and 2010 are estimated. Number of Civil Service Annuitants and Total Annuity Payments, 1970 to 2008 The number of people receiving civil service annuity payments has risen more than 160% since 1970, but the rate of increase has slowed since 1985. (See Congressional Research Service 13 Federal Employees’ Retirement System: Summary of Recent Trends Table 10.) The rapid rise in the number of civil service annuitants from less than 1 million in 1970 to approximately 2 million in 1985 resulted from the increase in federal employment that occurred between 1940 and 1955. Throughout the 1930s, civilian federal employment (including postal employees) was less than 1 million. The first year in which there were more than 1 million people in the federal workforce was 1940. By 1955, civilian federal employment had reached 2.4 million. After 1955, civilian federal employment increased much more slowly. It reached nearly 3 million in 1970, due in part to the war in Vietnam and the creation of such large-scale social programs as Medicare and Medicaid in the 1960s. The slower but still steady increase in the number of federal employees in the years between 1955 and 1970 had as one of its consequences the steady increase in the number of civil service annuitants in the years since 1985. Between 1985 and 2008, the number of civil service annuitants rose from just under 2 million to almost 2.5 million. Expenditures for civil service annuities have grown by a greater percentage than the number of annuitants because they are affected not only by the number of people employed by the federal government, but also by increases in average life-span, growth in real wages, and inflation. Costof-living adjustments—which have been applied to civil service annuities since 1962—increase the nominal value of civil service annuities, but do not increase in the real value of these annuities. COLAs are intended to keep purchasing power from eroding due to the effects of inflation. 12 Under current law, the real value of a civil service annuity either remains constant (CSRS) or declines (FERS) during retirement.13 Therefore, the increase in the real value of annuities has been the result of increases in the average value of the “high-three” average pay on which these annuities are based. Rates of increase in the high-three average pay of retiring federal employees are in turn affected by (1) adjustments to pay for each grade-and-step level, (2) special pay increases such as locality pay adjustments, (3) the distribution of federal employees among various grade-and-step levels over time, and (4) average length of service (because each additional year of service tends to increase the high-three average pay). The average real value of civil service annuities per annuitant can be expected to decline in the future as a growing number of new retirees will be workers who were enrolled in FERS rather than CSRS. FERS annuities are smaller than CSRS annuities, but they are supplemented by Social Security benefits and the TSP. 12 Federal tax revenues increase each year partly as a result of inflation. Income tax brackets are indexed in recognition of increases in personal income that result solely from inflation. 13 Some CSRS COLAs in the 1970s exceeded the rate of inflation because P.L. 91-93, enacted in 1969, called for COLAs of “CPI plus one percentage point.” The additional one percentage point was repealed by P.L. 94-440, enacted in 1976. Congressional Research Service 14 Federal Employees’ Retirement System: Summary of Recent Trends Table 10. Annuitants and Annuity Payments, 1970 to 2011 Year Total Annuitants (thousands) Payments in Nominal Dollars (millions) Payments in Constant 2009 Dollars (millions) 1970 962 $2,746 $15,183 1975 1,391 7,048 28,104 1980 1,675 14,662 38,173 1985 1,971 23,012 44,881 1990 2,143 31,036 50,942 1995 2,311 38,319 53,941 2000 2,372 45,072 56,152 2001 2,380 47,244 57,229 2002 2,383 48,838 58,239 2003 2,290 50,248 58,585 2004 2,404 52,048 59,110 2005 2,423 54,593 59,968 2006 2,449 57,809 61,517 2007 2,463 60,860 62,970 2008 2,471 63,432 63,205 2009 2,510 67,618 67,618 2010a 2,533 69,956 68,584 2011a 2,557 72,169 69,571 Source: Office of Personnel Management and Office of Management and Budget. Note: Depending on the day that the fiscal year begins, a year can have 11, 12, or 13 payments. a. Estimated number of annuitants and nominal outlays from the Budget of the United States. Civilian Federal Employment, 1960 to 2008 Between 1990 and 2006, the number of civilian federal employees (including the U.S. Postal Service, which participates in both CSRS and FERS) fell from 3.1 million to 2.7 million. (See Table 11.) Civilian federal employment outside the Postal Service fell from 2.31 million in 1990 to 1.94 million in 2006, a decline of 16%. From 2006 to 2008, total federal employment rose from 2.7 million to 2.8 million. Non-postal employment rose from 1.88 million to 1.96 million. Employment in the judicial branch (34,000) exceeded employment in the legislative branch (31,000) in 2006. From 1980 to 2008, employment in the legislative branch declined from 40,000 employees to 31,000 employees. Over the same period, employment in the judicial branch rose from 15,000 to 34,000 employees. Congressional Research Service 15 Federal Employees’ Retirement System: Summary of Recent Trends Table 11. Civilian Federal Employment, 1960 to 2008 (Total employment, in thousands, as of September 30 each year) Year Legislative Branch Judicial Branch Executive Branch Postal Service Total 1960 23 5 1,808 563 2,399 1965 26 6 1,901 596 2,529 1970 31 7 2,203 726 2,967 1975 39 10 2,149 699 2,897 1980 40 15 2,161 660 2,876 1985 39 18 2,252 750 3,059 1990 38 24 2,250 817 3,129 1995 33 29 2,012 845 2,919 2000 31 32 1,778 861 2,702 2005 31 34 1,872 764 2,701 2006 29 34 1,880 757 2,700 2007 31 34 1,888 802 2,755 2008 31 34 1,960 775 2,800 Source: Office of Personnel Management. Age Distribution of Executive Branch Employees Employees of the federal government are older on average than workers in the private sector. Forty-two percent of employees in the executive branch were under age 45 in March 2009. Thirty-four percent were between the ages of 45 and 54, and 24% were aged 55 or older. (See Table 12.) In contrast, according to data collected by the Bureau of the Census, 58% of wage and salary workers in the private sector aged 21 and older were under age 45 in 2007. Twenty-three percent of private sector employees were aged 45 to 54, and 19% were aged 55 and older.14 Under CSRS, an employee with 30 or more years of service can retire with an immediate, unreduced annuity at age 55. The minimum retirement age under FERS is 56. In both CSRS and FERS, an employee with 20 or more years of service can retire at 60. About one in three federal employees will reach age 55 within 10 years, but not all of them will have 30 years of service at that age. Of those who have 30 or more years of service, not all will retire as soon as they are eligible. The average age among all federal employees who retired in 2009 was 59. The average among those who took normal retirement—as opposed to early retirement or disability retirement—was 61.15 14 CRS analysis of data from the Current Population Survey. Based on wage and salary workers employed in the private sector. 15 Retirements other than normal retirements include disability retirements, voluntary early retirements, involuntary retirements, special retirements for law enforcement officers and firefighters, and other unclassified retirements. Congressional Research Service 16 Federal Employees’ Retirement System: Summary of Recent Trends Table 12. Age Distribution of Executive Branch Employees (Employees in thousands, as of March, 2009) Under Age 45 45 -49 50 -54 55 -59 60 -64 65 or older Total Number of employees 822 325 338 275 151 60 1,971 Percent 41.7 16.5 17.1 14.0 7.7 3.0 100% Age Source: U.S. Office of Personnel Management. Author Contact Information Katelin P. Isaacs Analyst in Income Security kisaacs@crs.loc.gov, 7-7355 Acknowledgments This report was originally prepared by former CRS Specialist Patrick Purcell. Please direct any inquiries to the listed author. Congressional Research Service 17