Federal Employees’ Retirement System:
Benefits and Financing
Katelin P. Isaacs
Analyst in Income Security
January 30, 2014
Congressional Research Service
7-5700
www.crs.gov
98-810
Federal Employees’ Retirement System: Benefits and Financing
Summary
Most civilian federal employees who were hired before 1984 are covered by the Civil Service
Retirement System (CSRS). Federal employees hired in 1984 or later are covered by the Federal
Employees’ Retirement System (FERS). Both CSRS and FERS require participants to contribute
toward the cost of their pensions through a payroll tax. Employees who are covered by CSRS
contribute 7.0% of pay to the Civil Service Retirement and Disability Fund (CSRDF). They do
not pay Social Security taxes or earn Social Security benefits. Employees enrolled in FERS and
first hired before 2013 contribute 0.8% of their pay to the CSRDF. Employees enrolled in FERS
and first hired in 2013 contribute 3.1% of pay to the CSRDF. Employees enrolled in FERS and
first hired after 2013 contribute 4.4% of pay to the CSRDF. All employees enrolled in FERS
contribute 6.2% of wages up to the Social Security taxable wage base ($117,000 in 2014) to the
Social Security trust fund.
The minimum retirement age (MRA) under CSRS is 55 for workers who have at least 30 years of
service. The FERS MRA is 55 for employees born before 1948. The MRA for employees born
between 1953 and 1964 is 56, increasing to the age of 57 for those born in 1970 or later. Both
FERS and CSRS allow retirement with an unreduced pension at the age of 60 for employees with
20 or more years of service and at the age of 62 for employees with at least 5 years of service.
The Thrift Savings Plan (TSP) is a retirement savings plan similar to the 401(k) plans provided by
many employers in the private sector. In 2014, employees covered under either CSRS or FERS
can contribute up to $17,500 to the TSP. Employees aged 50 and older can contribute an
additional $5,500 to the TSP. Employees under FERS receive employer matching contributions of
up to 5% of pay from the federal agency by which they are employed. Federal workers covered
by CSRS also can contribute to the TSP, but they receive no matching contributions from their
employing agencies.
The Office of Personnel Management (OPM) estimates the cost of CSRS to be an amount equal
to 26.0% of employee pay. The federal government pays 19.0% of this amount and the other
7.0% is paid by employees. OPM estimates the cost of the FERS basic annuity at an amount
equal to 12.7% of pay. For FERS employees first hired before 2013, the federal government
contributes 11.9% of this amount and the other 0.8% is paid by employees. For FERS employees
first hired in 2013 or later, the federal government contributes 9.6% of this amount; employees
hired in 2013 pay the remaining 3.1% and employees hired after pay 4.4% (with the additional
sums above the cost of FERS going to pay down the CSRS unfunded liability). There are three
other employer costs for employees under FERS. Both the employer and employee pay Social
Security taxes equal to 6.2% of pay up to the maximum taxable amount; agencies automatically
contribute an amount equal to 1% of employee pay to the TSP; and agencies make matching
contributions to the TSP equal to up to 4% of pay.
At the end of FY2011, the CSRDF had an unfunded liability of $761.5 billion, consisting of a
$741.4 billion deficit for CSRS and a $20.1 billion deficit for FERS. Although the civil service
trust fund has an unfunded liability, it is not in danger of becoming insolvent. OPM projects that
the balance of the CSRDF will continue to grow through at least 2080, at which point it will hold
assets equal to more than 5.3 times total payroll and about 20 times total annual benefit payments.
This report also summarizes relevant legislation in the 113th Congress that would make significant
changes to federal benefits and financing, including P.L. 113-67, S. 18, S. 1678, and H.R. 3639.
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Contents
Background ...................................................................................................................................... 1
Origins of the Federal Civilian Retirement System ................................................................... 1
Two Types of Retirement Plans ................................................................................................. 2
Eligibility and Benefit Amounts Under FERS and CSRS ............................................................... 3
Retirement Age and Years of Service ........................................................................................ 3
Retirement Income Adequacy .......................................................................................................... 4
Replacement Rates .................................................................................................................... 4
Determinants of the Replacement Rate ............................................................................... 4
Salary Base .......................................................................................................................... 4
Accrual Rates ...................................................................................................................... 5
Replacement Rates for Federal Retirees ............................................................................. 5
Social Security and the “FERS Supplement” ...................................................................... 6
Cost-of-living Adjustments ....................................................................................................... 6
The Thrift Savings Plan ................................................................................................................... 6
TSP Investment Options ............................................................................................................ 7
TSP Withdrawal Options ........................................................................................................... 9
Employer and Employee Contributions to CSRS and FERS ........................................................ 10
Pension Funding in the Private Sector vs. the Federal Government ....................................... 10
Employee Contributions .......................................................................................................... 11
Employee Contributions from a Budgetary Perspective ................................................... 11
Employee Contributions in Actuarial Terms ..................................................................... 11
Financing Pension Benefits for Federal Employees ...................................................................... 13
Federal Trust Funds and Pre-Funding of Benefits ................................................................... 14
Investment Practices of Federal Trust Funds ........................................................................... 15
Enacted Legislation in the 113th Congress ..................................................................................... 16
P.L. 113-67, the Bipartisan Budget Act of 2013 ...................................................................... 16
Legislative Proposals in the 113th Congress .................................................................................. 17
S. 18, the Sequester Replacement and Spending Reduction Act of 2013 ................................ 17
S. 1678, the Public-Private Employee Retirement Parity Act ................................................. 17
H.R. 3639, the Provide for the Common Defense Act of 2013 ............................................... 18
Figures
Tables
Table 1. Minimum Retirement Age Under FERS ............................................................................ 3
Table 2. Government Matching Rate on TSP Contributions by FERS Participants ........................ 7
Table 3. Annual Rates of Return for Thrift Savings Plan Funds ...................................................... 8
Table 4. FERS Employee Contribution Rates by Date of Hire ...................................................... 17
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Federal Employees’ Retirement System: Benefits and Financing
Contacts
Author Contact Information........................................................................................................... 18
Acknowledgments ......................................................................................................................... 19
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Federal Employees’ Retirement System: Benefits and Financing
Background
Most civilian federal employees who were hired before 1984 are covered by the Civil Service
Retirement System (CSRS). Under CSRS, employees do not pay Social Security taxes or earn
Social Security benefits. Federal employees first hired in 1984 or later are covered by the Federal
Employees’ Retirement System (FERS). All federal employees who are enrolled in FERS pay
Social Security taxes and earn Social Security benefits. Federal employees enrolled in either
CSRS or FERS also may contribute to the Thrift Savings Plan (TSP); however, only employees
enrolled in FERS are eligible for employer matching contributions to the TSP.
Origins of the Federal Civilian Retirement System
Congress passed the Civil Service Retirement Act of 1920 (P.L. 66-215) to provide pension
benefits for civilian federal employees. In 1935, Congress created the Social Security system for
workers in the private sector. During the 1950s, Congress allowed state and local governments to
bring their employees into Social Security, and today about three-fourths of state and local
employees are covered by Social Security. Federal employees remained outside of Social Security
until Congress passed the Social Security Amendments of 1983 (P.L. 98-21). This law required all
civilian federal employees hired into permanent employment on or after January 1, 1984, to
participate in Social Security.
Enrolling federal workers in both CSRS and Social Security would have resulted in substantial
duplication of benefits and would have required employees to contribute more than 13% of pay to
the two programs. Consequently, Congress directed the development of a new retirement system
for federal workers with Social Security as its cornerstone. The new plan was designed to include
many features of the retirement plans of large employers in the private sector. The result of this
effort was the Federal Employees’ Retirement System Act of 1986 (P.L. 99-335), enacted on June
6, 1986. The FERS has three elements:
• Social Security,
• the FERS basic retirement annuity and the FERS supplement, and
• the Thrift Savings Plan.
The FERS covers federal employees initially hired into federal employment on or after January 1,
1984, and employees who voluntarily switched from CSRS during “open seasons” in 1987 and
1998.1 Former federal employees who had completed at least five years of service under CSRS
and were later rehired by the government after a break in service could either join FERS or
participate in the “CSRS offset plan.” Under the CSRS offset plan, 6.2 percentage points of the
employee’s payroll contribution and an equal share of the employer contribution are diverted
from CSRS to the Social Security trust fund. Later, the retiree’s CSRS annuity is reduced (offset)
by the amount of his or her Social Security benefit. Both CSRS and the CSRS offset program will
terminate with the death of the last worker or survivor still covered under that program, which the
Office of Personnel Management (OPM) estimates will occur around the year 2070.
1 The open season held from July through December 1998 was authorized by P.L. 105-61, enacted on October 10,
1997.
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Two Types of Retirement Plans
Employers establish retirement plans both to help them attract workers with valuable skills and to
enable older workers to retire without facing the prospect of inadequate income. Employers must
balance the goals of providing adequate retirement income with controlling the cost of the
retirement plan. For employers in the private sector, another important consideration is the
regulatory environment in which their retirement plans must operate. Private-sector retirement
plans must comply with the relevant provisions of federal law, including the Employee
Retirement Income Security Act (ERISA), the Age Discrimination in Employment Act (ADEA),
and the Internal Revenue Code.
Retirement programs generally can be classified as either defined benefit (DB) plans or defined
contribution (DC) plans. In a defined benefit plan, a worker’s retirement benefit is typically paid
as a life annuity based on years of service and average salary. A defined contribution plan is much
like a savings account maintained by the employer on behalf of each participating employee. The
employer and/or employee contribute a specific dollar amount or percentage of pay into an
account, which is usually invested in stocks and bonds. When the worker retires, he or she
receives the balance in the account, which is the sum of all the contributions that have been made
plus interest, dividends, and capital gains (or losses), net of fees and expenses. The retiring
worker usually has the choice of receiving these funds as a series of payments over a period of
years or as a lump sum.
An important difference between the two types of retirement plans is that in a defined benefit plan
it is the employer who bears the financial risk, whereas in a defined contribution plan it is the
employee who bears the financial risk. In a defined benefit plan, the employer promises to
provide retirement benefits in the form of a life annuity or its actuarial equivalent.2 To pay the
promised benefit, the employer must make contributions to a pension fund, which is invested in
stocks, bonds, and other assets. The employer’s contributions plus the expected investment
earnings on the contributions must be sufficient to pay the pension benefits that workers have
earned under the plan. The employer is at risk for the full amount of retirement benefits that have
been earned by employees. If the pension plan is underfunded, the employer must make
additional contributions so that the promised benefits can be paid.
In a defined contribution plan, the employee bears the investment risk. If the contributions to the
plan have been insufficient or if the securities in which the contributions have been invested lose
value or appreciate too slowly, the employee might reach retirement age without the financial
resources needed to maintain his or her desired standard of living in retirement. If this occurs, the
worker might have little choice but to delay retirement.
CSRS is a DB plan that provides a standalone annuity. FERS includes both DB and DC plan
elements (i.e., the FERS annuity and the TSP, respectively).
2 The actuarial equivalent of a life annuity is a lump-sum payment that could purchase an annuity of equal value,
assuming a certain interest rate and life expectancy.
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Eligibility and Benefit Amounts Under FERS and
CSRS
Under both CSRS and FERS, the date of an employee’s eligibility to retire with an annuity
depends on his or her age and years of service. The amount of the retirement annuity is
determined by three factors: the number of years of service, the accrual rate at which benefits are
earned for each year of service, and the salary base to which the accrual rate is applied.3
Retirement Age and Years of Service
Under CSRS, a worker with at least 30 years of service can retire at the age of 55; a worker with
at least 20 years of service can retire at the age of 60; and a worker with 5 or more years of
service can retire at the age of 62.
Federal employees are fully vested in the FERS basic retirement annuity after five years of
service. The FERS minimum retirement age (MRA) for an employee with 30 or more years of
service was 55 for workers born before 1948. The MRA under FERS began to increase in 2003
for workers born after 1947. The MRA for employees born between 1953 and 1964 is 56. It will
increase to 57 for those born in 1970 or later. (See Table 1.) A worker who has reached the
minimum retirement age and has completed at least 30 years of service can retire with an
immediate, unreduced annuity. A worker with 20 or more years of service can retire with an
unreduced annuity at age 60, and a worker with at least 5 years of service can retire at age 62.
Table 1. Minimum Retirement Age Under FERS
Year of Birth
Minimum Retirement Age
1947 or earlier
55 years
1948
55 years, 2 months
1949
55 years, 4 months
1950
55 years, 6 months
1951
55 years, 8 months
1952
55 years, 10 months
1953 to 1964
56 years
1965
56 years, 2 months
1966
56 years, 4 months
1967
56 years, 6 months
1968
56 years, 8 months
1969
56 years, 10 months
1970 or later
57 years
Source: U.S. Office of Personnel Management.
3 This report describes basic retirement benefits for federal employees under CSRS and FERS. Both programs also
provide for disability retirement, benefits for surviving dependents, and benefits for former spouses. These benefits are
described in three other CRS reports: CRS Report RS22838, Disability Retirement for Federal Employees; CRS Report
RS21029, Survivor Benefits for Families of Civilian Federal Employees and Retirees; and CRS Report RS22856,
Retirement and Survivor Annuities for Former Spouses of Federal Employees.
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Federal Employees’ Retirement System: Benefits and Financing
Under FERS, an employee can retire with a reduced benefit at the minimum retirement age if he
or she has completed at least 10 years of service. The retirement benefit is permanently reduced
by 5% multiplied by the difference between 62 and the retiree’s age at the time the annuity
begins. For example, an employee with at least 10 years of service who retires at 56 would
receive a pension benefit that is reduced by 30% below the amount that would be paid to an
individual with the same salary and years of service who retired at the age of 62.
Retirement Income Adequacy
Replacement Rates
A commonly used measure of retirement income adequacy is the percentage of pre-retirement
income replaced by pension income. This measure—the replacement rate—is expressed by the
following ratio:
annual retirement
benefits
annual pre - retirement earnings
Replacement rates usually are based on the sum of the employee’s pension benefit and Social
Security benefit. Because retirees do not have the expenses that are associated with having a job,
most people are able to maintain their previous standard of living with less income than they had
while working. Although there is no fixed rule about what comprises an adequate replacement
rate, most pension analysts believe retirement income should replace at least 70% to 80% of pre-
retirement income.4 Workers who had low-wage jobs generally need a replacement rate near the
high end of this range because a higher proportion of their income is expended on non-
discretionary items, such as food, clothing, shelter, health care, and taxes.
Determinants of the Replacement Rate
The basic retirement annuity under both CSRS and FERS is determined by multiplying three
factors: the salary base, the accrual rate, and the number of years of service. This relationship is
shown in the following formula:
Pension Amount = salary base x accrual rate x years of service
Salary Base
In both CSRS and FERS, the salary base is the average of the highest three consecutive years of
basic pay.5 This is often called “high-three” pay.
4 U.S. Government Accountability Office, Federal Pensions: Thrift Savings Plan Has Key Role in Retirement Benefits,
HEHS-96-1, October 1995.
5 This calculation is based on nominal or “current dollars” rather than indexed or “constant dollars.”
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Accrual Rates
The accrual rate is the pension benefit earned for each year of service, expressed as a percentage
of the salary base. Under FERS, workers accrue retirement benefits at the rate of 1% per year; or,
for employees in FERS who have at least 20 years of service and who work until age 62, the
accrual rate is 1.1% for each year of service. For example, a worker under FERS who retires at 61
with 29 years of service would receive an 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).
CSRS pension accrual rates increase with length of service. CSRS pensions equal 1.5% of high-
three average pay for each of the first 5 years of service, 1.75% for the 6th through 10th years; and
2.0% of high-three average pay for each year of service after the 10th year. This formula yields a
replacement rate of 56.25% for a worker who retires with 30 years of service. FERS accrual rates
are lower than the accrual rates under CSRS because employees under FERS pay Social Security
payroll taxes and earn Social Security retirement benefits.
Some Members of Congress, some congressional staff, all federal law enforcement officers, all
firefighters, and all air traffic controllers accrue benefits at higher rates under both CSRS and
FERS than do other federal employees. Under CSRS, all Members of Congress and all
congressional staff accrue benefits at the rate of 2.5% for each year of service. This results in a
replacement rate of 75% after 30 years of service. All law enforcement officers and all firefighters
enrolled in CSRS accrue benefits at the rate of 2.5% for each of their first 20 years of service and
2.0% for each year thereafter.
Under FERS, Members of Congress and congressional staff first covered by FERS before 2013
accrue pension benefits at the rate of 1.7% per year for their first 20 years of service and 1.0% for
each year of service after the 20th year. All law enforcement officers, all firefighters, and all air
traffic controllers also accrue pension benefits at the rate of 1.7% per year for their first 20 years
of service and 1.0% for each year of service after the 20th year. These accrual rates yield a pension
equal to 34% of the FERS salary base after 20 years of service and 44% after 30 years of service.
With enactment of P.L. 112-96, Members of Congress and congressional staff first covered by
FERS in 2013 or later, accrue pension benefits at the same rate as regular FERS employees (i.e.,
1% per year; or, for Members and congressional employees in this category with at least 20 years
of service and who work until age 62, the accrual rate is 1.1% for each year of service). The
replacement rate for these Members and congressional staff is, therefore, the same as for regular
FERS employees.6
Replacement Rates for Federal Retirees
For a regular federal employee with 30 years of service, CSRS provides a replacement rate equal
to 56.25% of high-three average pay. Estimating replacement rates under FERS is complicated by
the fact that income from two of its components—Social Security and the TSP—will vary
6 For additional details on FERS accrual rate changes made by P.L. 112-96, see U.S. Office of Personnel Management,
Benefits Administration Letter, 12-104, October 3, 2012, available at http://www.opm.gov/retire/pubs/bals/2012/12-
104.pdf.
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depending on the individual’s work history, contributions to the TSP, and the investment
performance of his or her TSP account.7
Social Security and the “FERS Supplement”
Because Social Security retirement benefits cannot begin before the age of 62, Congress included
in FERS a temporary supplemental benefit for workers who retire before age 62. This “FERS
supplement” is paid to workers who retire at the age of 55 or older with at least 30 years of
service or at the age of 60 with at least 20 years of service. It is also paid to law enforcement
officers, firefighters, and air traffic controllers who retire at the age of 50 or later with 20 or more
years of service. The supplement is equal to the estimated Social Security benefit that the
individual earned while employed by the federal government. It is paid only until the age of 62,
regardless of whether the retiree chooses to apply for Social Security retired worker benefits at 62
years old.
Cost-of-living Adjustments
Cost-of-living adjustments (COLAs) protect the purchasing power of retirement benefits from
being eroded by inflation in the prices of goods and services. In 1972, Congress passed legislation
providing for automatic COLAs for Social Security. COLAs have been in effect since 1962 for
CSRS. Social Security COLAs and CSRS COLAs are equal to the annual change in the
Consumer Price Index for Urban Wage and Clerical Workers (CPI-W).8
As a cost-control measure, Congress limited the annual COLA applied to the FERS retirement
annuity. Under FERS, the basic retirement annuity is fully indexed if inflation is under 2% per
year and partially indexed if inflation exceeds 2%. If the CPI-W increases by up to 2%, then the
FERS annuity increases by the same percentage. If the CPI-W increases by 2% to 3%, the FERS
annuity increases by 2%. If the CPI-W increases by more than 3%, the FERS annuity increases by
the rise in the CPI-W minus one percentage point. Under FERS, COLAs are applied only to
annuities of retirees aged 62 or older, individuals who retired by reason of disability, and to
survivor annuitants. Other FERS retirees receive no COLAs while they are under the age of 62.
The Thrift Savings Plan
The Thrift Savings Plan (TSP) is a defined contribution (DC) retirement plan similar to the
401(k) plans provided by many employers in the private sector. The TSP is a key component of
FERS, especially for workers in the middle and upper ranges of the federal pay scale, who are
7 For estimates of the replacement rates under FERS, see CRS Report RL30387, Federal Employees’ Retirement
System: The Role of the Thrift Savings Plan, by Katelin P. Isaacs.
8 Under both CSRS and FERS, automatic COLAs are paid out beginning in January each year, based on the percentage
increase in the CPI-W for the most recent third quarter (July-September) compared to the third quarter in the last year a
COLA was determined. In 1994, 1995, and 1996 COLAs for civil service annuitants were delayed from January until
April as a means of achieving budgetary savings. In 2010 and 2011, there were no automatic COLAs for civil service
annuitants. In 2014, the automatic COLA for both CSRS and FERS is 1.5%. See CRS Report 94-834, Cost-of-Living
Adjustments for Federal Civil Service Annuities, by Katelin P. Isaacs for a complete history of COLAs under CSRS and
FERS.
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unlikely to achieve adequate retirement income—as measured by the replacement rate—from
Social Security and the FERS basic annuity.
In 2014, federal employees can contribute up to $17,500 to the TSP.9 Employees aged 50 and
older can contribute an additional $5,500. These employee contributions may be made on a pre-
tax basis, in which case neither the contributions nor investment earnings that accrue to the plan
are taxed until the money is withdrawn. Alternatively, P.L. 111-31 authorized a qualified Roth
contribution option to the TSP. Under a Roth contribution option, employee salary deferrals into a
retirement plan are made with after-tax income. Qualified distributions from the Roth TSP plan
option—generally, distributions taken five or more years after the participant’s first Roth
contribution and after he or she has reached the age of 59½—are tax-free.
For all federal workers under FERS, the agencies where they are employed contribute an amount
equal to 1% of each employee’s base pay to the TSP, whether or not the employee chooses to
contribute anything to the plan. In addition, employees enrolled in FERS can receive employer
matching contributions equal to 4% of pay, according to the schedule shown in Table 2. Federal
workers covered by CSRS also may contribute to the TSP, but they receive no matching
contributions from their employing agencies.
TSP participants are immediately vested in their contributions to the plan, all federal matching
contributions, and any interest, dividends, or capital gains attributable to those contributions.
Participants are fully vested in the 1% agency automatic contribution to the TSP after three years
(two years for congressional employees and executive branch political appointees).
Table 2. Government Matching Rate on TSP Contributions by FERS Participants
Employee Government
Total
0.0%
1.0%
1.0%
1.0%
2.0%
3.0%
2.0%
3.0%
5.0%
3.0%
4.0%
7.0%
4.0%
4.5%
8.5%
5.0% or more
5.0%
10.0%
Source: Federal Retirement Thrift Investment Board.
TSP Investment Options
The value of an individual’s TSP account at retirement will depend on how much he or she
contributed to the TSP each year, the number of years over which contributions were made, and
the investment earnings of the TSP funds. Participants in the TSP may choose among five funds
in which they can invest their TSP contributions:
• The “C” fund invests in a stock market index fund that replicates the Standard
and Poor’s 500 Index of 500 large to medium-sized U.S. companies.
9 See 26 U.S.C. §402(g). Prior to 2006, employee contributions were limited to the lesser of a specific percentage of
pay or the amount permissible under I.R.C. §402(g). The Consolidated Appropriations Act of 2000 (P.L. 106-554)
eliminated the percentage-of-pay limitations on contributions to the TSP, effective in 2006.
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• The “F” fund invests in bonds in the same proportion as they are represented by
the Barclays Capital U.S. Aggregate Bond Index.
• The “G” fund invests in U.S. government securities and pays interest equal to the
average rate of return on government securities with maturities of four years or
more.
• The “S” fund invests in a stock index fund that tracks the Dow Jones U.S.
Completion Total Stock Market Index.
• The “I” fund invests in a stock index fund that replicates the Morgan Stanley
Capital International EAFE (Europe, Australasia, Far East) Index.10
In 2005, the TSP added a “Lifecycle Funds” option. Lifecycle Funds are invested in various
combinations of the five existing TSP funds. According to the Federal Retirement Thrift
Investment Board, participants who invest in these funds “benefit from having professionally
designed asset allocation models available to optimize their investment performance by providing
portfolios that are appropriate for their particular time horizon.”11 The participant’s time horizon
is based on the future date he or she expects to begin withdrawing money from the TSP. There are
currently four TSP Lifecycle Funds: Lifecycle 2050 (with a target date for leaving federal service
of 2045 or later); Lifecycle 2040 (with a target date of 2035 through 2044); Lifecycle 2030 (with
a target date of 2025 through 2034); and Lifecycle 2020 (with a target date of now through 2024).
When a particular “Lifecycle Fund” reaches its target date, it is automatically rolled into the “L
Income Fund,” to produce income for TSP participants who anticipate withdrawing from their
TSP accounts in the near term or who are already receiving TSP monthly payments.
Historical rates of return for the TSP are shown in Table 3. For the years before 2001, the rates of
return for the S and I funds are the rates of return for the indices on which those funds are based.
Table 3. Annual Rates of Return for Thrift Savings Plan Funds
Year
G Fund
C Fund
F Fund
S Fund
I Fund
1988
8.8% 11.8% 3.6% 20.5% 26.1%
1989
8.8% 31.0% 13.9% 23.9% 10.0%
1990
8.9% -3.2% 8.0% -13.6% -23.6%
1991
8.1% 30.8% 15.7% 43.5% 12.2%
1992 7.2%
7.7%
7.2%
11.9%
-12.2%
1993
6.1% 10.1% 9.5% 14.6% 32.7%
1994
7.2% 1.3% -3.0% -2.7% 7.8%
1995
7.0% 37.4% 18.3% 33.5% 11.3%
1996
6.8% 22.8% 3.7% 17.2% 6.1%
1997
6.8% 33.2% 9.6% 25.7% 1.5%
1998
5.7% 28.4% 8.7% 8.6% 20.1%
10 The “S” and “I” funds were added in 2001 in accordance with the Thrift Savings Plan Act of 1996 (P.L. 104-208).
11 Statement of Gary A. Amelio, former executive director of the Federal Retirement Thrift Investment Board before
the Senate Subcommittee on Securities and Investment, June 14, 2005.
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Year
G Fund
C Fund
F Fund
S Fund
I Fund
1999
6.0% 21.0% -0.8% 35.5% 26.7%
2000
6.4% -9.1% 11.7% -15.8% -14.2%
2001 5.4%
-11.9%
8.6%
-2.2%
-15.4%
2002
5.0% -22.1% 10.3% -18.1% -16.0%
2003
4.1% 28.5% 4.1% 42.9% 37.9%
2004
4.3% 10.8% 4.3% 18.0% 20.0%
2005
4.5% 5.0% 2.4% 10.5% 13.6%
2006
4.9% 15.8% 4.4% 15.3% 26.3%
2007
4.9% 5.5% 7.1% 5.5% 11.4%
2008
3.8% -37.0% 5.5% -38.3% -42.4%
2009
3.0% 26.7% 6.0% 34.9% 30.0%
2010
2.8% 15.1% 6.7% 29.1% 7.9%
2011 2.5%
2.1%
7.9%
-3.4%
-11.8%
2012
1.5% 16.1% 4.3% 18.6% 18.7%
Average Return,
5.6% 11.1% 7.1% 12.6% 7.4%
1988-2012
Sources: http://www.tsp.gov, http://www.wilshire.com, and http://www.msci.com.
Notes: Rates of return for the TSP funds are shown net of expenses. “Average Return” is the average of the
annual return across each year, 1998 through 2012.
Rates of return for the S and I funds prior to 2001are the rates of return for the indices on which those funds
are based.
TSP Withdrawal Options
There are three ways an employee can withdraw funds from the TSP. Funds can be withdrawn
• as a life annuity,12
• in a single lump-sum payment, or
• in a series of monthly payments, either for a fixed number of months or in a fixed
dollar amount until the account is depleted.
A retiree can choose to have payments begin immediately or at a later date. There is a 10% tax
penalty for those who withdraw funds before the age of 59½. The penalty does not apply if the
individual has retired and is aged 55 or older, or if the withdrawals are taken as a series of
substantially equal periodic payments based on the person’s remaining life expectancy.
12 An annuity is a contract between the individual and an insurance company that pays a monthly income in exchange
for an initial premium. The monthly income that a given premium will purchase depends on both on the estimated rate
of return from the investment and actuarial estimates of the annuitant’s remaining life expectancy.
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Employer and Employee Contributions to CSRS
and FERS
Both CSRS and FERS require participants to contribute toward the cost of their future pensions
through a payroll tax. Under CSRS, employees contribute 7.0% of base pay to the Civil Service
Retirement and Disability Fund (CSRDF). Under FERS, employees first hired before 2013
contribute 0.8% of pay to the CSRDF and they also pay Social Security taxes (6.2% on salary up
to the maximum taxable wage base of $117,000 in 2014). FERS employees first hired in 2013
contribute 3.1% of pay to the CSRDF as well as Social Security taxes. FERS employees first
hired after 2013 contribute 4.4% of pay to the CSRDF as well as Social Security taxes.
Participants in CSRS are not covered by Social Security.13 See Table 4 for a summary of FERS
employee contribution rates by date of hire.
Members of Congress contribute 8.0% of salary to the CSRDF if covered by CSRS; 1.3% of
salary to the CSRDF if under FERS and first covered prior to 2013; 3.1% of salary to the CSRDF
if under FERS and first covered in 2013; or 4.4% of salary to the CSRDF if under FERS and first
covered after 2013. All Members of Congress pay Social Security taxes, regardless of whether
they are under CSRS or FERS.14
Pension Funding in the Private Sector vs. the Federal Government
In the private sector, employers are required by the Employee Retirement Income Security Act of
1974 (ERISA, P.L. 93-406) to pre-fund the benefits that workers earn under defined benefit plans.
Pre-funding of future pension obligations is required because there is always the possibility that a
firm could go out of business. A firm that closes down will no longer have revenues to pay its
pension obligations, and if these obligations were not fully funded, retirees and employees of the
firm would lose some or all of their pension benefits. Private-sector employers with defined
benefit pensions are required to pay premiums to the Pension Benefit Guaranty Corporation
(PBGC), which insures the pensions of workers whose employer terminates a pension plan that
has unfunded liabilities. For plans that terminate in 2014, the PBGC guarantees a maximum
annual benefit of approximately $59,318 for a worker retiring at the age of 65. The maximum
benefit is lower for workers who retire before the age of 65. The PBGC does not insure federal,
state, or local government pensions. The ultimate guarantors of government pensions are the
taxpayers.15
The federal government requires firms in the private sector to pre-fund employees’ pension
benefits to ensure that if a firm goes out of business, there will be funds available to pay its
pension obligations. Although the federal government is unlikely to “go out of business,” there
are other reasons that Congress has required federal agencies and their employees to contribute
13 Former federal employees are eligible for Medicare at the age of 65, regardless of whether they were covered by
CSRS or FERS. Workers in both programs pay the Hospital Insurance (HI) payroll tax of 1.45% on all salary and
wages.
14 See also CRS Report RL30631, Retirement Benefits for Members of Congress, by Katelin P. Isaacs.
15 For additional details on private sector funding of defined benefit pensions and the PBGC, see CRS Report 95-118,
Pension Benefit Guaranty Corporation (PBGC) and Defined Benefit Pension Plan Funding Issues, by John J.
Topoleski.
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money to the CSRDF.16 First, by providing a continuous source of budget authority, the CSRDF
allows benefits to be paid on time, regardless of any delays that Congress may experience in
passing its annual appropriations bills. Secondly, the balance in the trust fund acts as a barometer
of the government’s future pension obligations. Given a fixed contribution rate and benefit
structure, a rising trust fund balance indicates that the government is incurring obligations to
make higher pension payments in the future.17 Finally, prefunding pension obligations forces
federal agencies to recognize their full personnel costs when requesting annual appropriations
from Congress. Otherwise, these costs would be recognized only in the central administrative
accounts of the Office of Personnel Management, and not by the agencies where the costs are
incurred.
Employee Contributions
Contributions to CSRS and FERS are not deposited into individual employee accounts. Nor is the
amount of a federal worker’s pension based on the amount of his or her contributions. All
contributions are paid into—and all benefits are paid out of—the Civil Service Retirement and
Disability Fund. Employee contributions pay for a comparatively small part of the retirement
annuities paid by CSRS and FERS. There are, however, both budgetary and actuarial reasons that
federal employees are required to contribute to CSRS and FERS.
Employee Contributions from a Budgetary Perspective
Employee contributions are revenues of the federal government. These revenues reduce the
proportion of pension costs that must be borne by the public. In FY2013, employee contributions
to CSRS and FERS totaled an estimated $3.0 billion, equal to 2.8% of the total income of the
Civil Service Retirement and Disability Fund. The other major sources of revenue to the CSRDF
are agency contributions, contributions of the U.S. Postal Service on behalf of its employees,
interest on the federal bonds held by the fund, and transfers from the general revenues of the U.S.
Treasury. These transfers are necessary because the costs of the older of the two federal
retirement programs, the CSRS, are not fully covered by employee and agency contributions.
FERS benefits are required by law to be fully funded by the sum of contributions from employees
and their employing agencies and the interest earnings of the CSRDF.
Employee Contributions in Actuarial Terms
Actuaries calculate the cost of defined benefits pension plans in terms of “normal cost.” The
normal cost of a pension plan is the level percentage of payroll that must to be set aside each year
to fund the pension benefits that participants have earned. Normal cost is based on estimates of
attrition and mortality among the workforce, future interest rates, salary increases, and inflation.
OPM has estimated the current normal cost of CSRS to be 26.0% of payroll. The federal
government’s share of the estimated normal cost of CSRS is 19.0% of payroll. The Civil Service
Retirement Amendments of 1969 (P.L. 91-93) require participating employees and their
16 In general, state and local governments do not face this risk either; however, they are more like private businesses in
that they have in some cases defaulted on their public debts.
17 As is explained later in this report, a large balance in the civil service retirement trust fund does not by itself make it
easier to pay these benefits when they come due because the trust fund invests exclusively in U.S. Treasury securities.
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employing agencies each to contribute an amount equal to 7.0% of basic pay to the CSRDF to
finance retirement benefits under CSRS. The combined contribution of 14% of employee pay
does not fully finance the retirement benefits provided by the CSRS. The costs of the CSRS that
are not financed by the 7.0% employee and 7.0% agency contributions are attributable mainly to
increases in future CSRS benefits that result from (1) employees’ annual pay raises, and (2)
annual COLAs to CSRS annuities. In actuarial terms, the employee and agency contributions
totaling 14% of pay are equal to the static normal cost of CSRS benefits.18 This is the benefit that
would be paid if employees received no future pay raises and annuitants received no future
COLAs. The dynamic normal cost of CSRS pensions includes the cost of financing future benefit
increases that result from pay raises and COLAs provided to annuitants.19
Contributions from employees and their employing agencies meet about 54% of the normal cost
of CSRS (14.0/26.0 = .538). The remaining 46% of the cost of CSRS is paid from the interest
earned by bonds held by the retirement and disability trust fund, special contributions by the U.S.
Postal Service for retired postal workers, and transfers from the general revenues of the U.S.
Treasury. If each federal agency were to pay the full cost of CSRS benefits on an accrual basis, as
is done under FERS, they would contribute an amount equal to 19.0% of payroll. This represents
the dynamic normal cost of CSRS minus the required employee contribution of 7.0% of pay.
OPM has estimated the normal cost of the FERS basic annuity to be 12.7% of payroll. Federal
law requires agencies to contribute an amount equal to the normal cost of FERS minus employee
contributions to the program. Employees first hired before 2013 contribute 0.8% of pay toward
their FERS annuities. Consequently, the normal cost of the FERS basic annuity to the federal
government for these employees is equal to 11.9% of payroll (12.7-0.8=11.9). Under P.L. 112-96,
FERS employees first hired in 2013 contribute 3.1% of pay toward their FERS annuity. The cost
for this category of FERS employees is equal to 9.6% of payroll (12.7-3.1=9.6). Under P.L. 113-
67, FERS employees first hired after 2013 contribute 4.4%, while their employing agencies still
contribute 9.6%. (The additional amounts provided by the increased employee contributions are
applied toward reducing the CSRS unfunded liability until it is eliminated.)
The federal government has three other mandatory costs for employees enrolled in FERS: Social
Security, the 1% agency automatic contribution to the TSP, and agency matching contributions to
the TSP. Social Security taxes are 6.2% of payroll on both the employer and the employee up to
the maximum taxable amount of earnings ($117,000 in 2014). All agencies must contribute an
amount equal to 1% of employee pay to the TSP. The normal cost of FERS to the federal
government is therefore is at least 19.1% of pay for employees first hired before 2013 and 16.8%
for employees hired in 2013 or later. Federal matching contributions to the TSP can add up to 4
percentage points to that amount. For an employee enrolled in FERS and first hired before 2013
who contributes 5.0% or more of pay to the TSP, his or her employing agency must finance
retirement costs equal to 23.1% of employee pay. For an employee enrolled in FERS and first
hired in 2013 or later who contributes 5.0% or more of pay to the TSP, his or her employing
agency must finance retirement costs equal to 20.8% of pay.
18 A pension plan’s normal cost is the level percentage of pay that, invested today at a particular real rate of interest,
will be sufficient to fully finance the retirement benefits under the plan.
19 Two other elements of a pension plan’s dynamic normal cost are increases in benefits that result from (1) new or
expanded benefits and (2) newly covered groups of workers.
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CSRS and FERS differ in the way that each federal agency must budget its contributions toward
employee pension benefits. Under FERS, each agency must include the full normal cost of the
FERS basic benefit (11.9% of pay for FERS employees hired before 2013; 9.6% of pay for FERS
employees hired in 2013 or later) in its annual budget request. In addition, each agency must
include in its budget request the cost of the employer share of Social Security payroll taxes, the
1.0% automatic contribution to the TSP, and employer matching contributions to the TSP. Under
CSRS, each agency must budget only a 7.0% contribution to the CSRDF, even though this is less
than the full cost of the program. The costs associated with CSRS that are not paid by the
employee contribution of 7.0% and the agency contribution of 7.0% are treated as a general
obligation of the U.S. Treasury.
In both CSRS and FERS, government contributions to the Civil Service Retirement and
Disability Fund result in the Treasury issuing securities that are credited to the fund. The
contributions for both programs are commingled, and benefits for retirees and survivors in both
programs are paid from the CSRDF. In contrast, government contributions to the TSP are
deposited into individual accounts for each TSP participant. The accounts are managed by the
Federal Retirement Thrift Investment Board. The TSP is not a trust fund of the U.S. government.
TSP accounts are individually owned by the participants in the TSP in the same way that 401(k)
accounts are owned by workers in the private sector.
Financing Pension Benefits for Federal Employees
As of September 30, 2011, the CSRDF had net assets of $808.4 billion available for benefit
payments under both CSRS and FERS. At the same time, the accrued actuarial liability under the
CSRS and FERS plans was $1,569.9 billion.20 In other words, on October 1, 2012, the civil
service trust fund had an unfunded actuarial liability of $761.5 billion. At the end of FY2011,
there is $741.4 billion in unfunded liability attributable to CSRS and $20.1 billion in unfunded
liability attributable for FERS.21 Federal law has never required that employee and agency
contributions must equal the present value of benefits that employees accrue under the CSRS. In
contrast, the FERS Act requires that the benefits accrued each year by employees must be fully
funded by contributions from employees and their employing agencies.
Although the CSRDF has an unfunded liability, it is not in danger of becoming insolvent.
According to the projections of the actuaries at OPM, the assets of the CSRDF will continue to
grow over the next 70 years. The fund’s assets are projected to reach $1.1 trillion in 2020, $2.1
trillion in 2040, $4.9 trillion in 2060, and $9.8 trillion in 2080. Actuarial projections indicate that
the CSRDF will be able to meet its financial obligations in perpetuity. According to OPM, “the
total assets of the CSRDF, including both CSRS and FERS, continue to grow throughout the term
of the projection, and ultimately reach a level of about 5.3 times payroll, or about 20 times the
level of annual benefit outlays.”22 One reason that the CSRDF will not exhaust its resources is
that all federal employees hired since 1984 are enrolled in FERS. By law, the benefits that
20 The actuarial present value of benefits is based on their dynamic normal cost, including future COLAs.
21 Civil Service Retirement and Disability Fund, Annual Report of the Board of Actuaries, Civil Service Retirement and
Disability Fund, Fiscal Year Ended September 30, 2012. As of the date of this CRS Report, this is the most recent,
actual program data available from OPM.
22 Civil Service Retirement and Disability Fund, Annual Report of the Board of Actuaries, Civil Service Retirement and
Disability Fund, Fiscal Year Ended September 30, 2012, p. 18.
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employees earn under FERS must be fully funded by the sum of employer and employee
contributions and interest earnings.
Federal Trust Funds and Pre-Funding of Benefits
The CSRDF is similar to the Social Security Trust Fund in that 100% of the monies deposited
must be used to purchase special-issue U.S. Treasury bonds. This exchange between the trust
fund and the Treasury does not result in revenues or outlays for the federal government. It is an
intra-governmental transfer, which has no effect on the size of the government’s budget surplus or
deficit.23
Federal trust funds are not a “store of wealth” like private pension funds. The assets of the civil
service retirement trust fund are U.S. Treasury bonds that function solely as a record of available
budget authority. The bonds cannot be sold by the trust fund to the general public in exchange for
cash. They can only be returned to the Treasury, which recognizes each bond as representing an
equivalent dollar-value of budget authority to be used for the payment of benefits to federal
retirees and their survivors. The Office of Management and Budget has stated that
These [trust fund] balances are available for future benefit payments and other trust fund
expenditures, but only in a bookkeeping sense. The holdings of the trust funds are not assets
of the Government as a whole that can be drawn down in the future to fund benefits. Instead,
they are claims on the Treasury. From a cash perspective, when trust fund holdings are
redeemed to authorize the payment of benefits, the Department of the Treasury finances the
expenditure in the same way as any other Federal expenditure—by using current receipts or
by borrowing from the public. The existence of large trust fund balances, therefore, does not,
by itself, increase the Government’s ability to pay benefits. Put differently, these trust fund
balances are assets of the program agencies and corresponding liabilities of the Treasury,
netting to zero for the Government as a whole.24
Government trust funds, however, can ease the burden of future benefit payments if an increase in
the trust fund balance represents a net increase in national saving. Again, quoting OMB:
From an economic standpoint, the Government is able to prefund benefits only by increasing
saving and investment in the economy as a whole. This can be fully accomplished only by
simultaneously running trust fund surpluses equal to the actuarial present value of the
accumulating benefits while maintaining an unchanged Federal fund deficit, so that the trust
fund surplus reduces the unified budget deficit or increases the unified budget surplus. This
would reduce Federal borrowing by the amount of the trust funds surplus and increase the
amount of national saving available to finance investment. As long as the increase in
Government saving is not offset by a reduction in private saving, greater investment would
increase future national income, which would yield greater tax revenue to support the
benefits.25
23 Federal trust funds represent budget authority. Only revenues and outlays affect the size of the annual budget surplus
or deficit. The excess revenues that result in a trust fund surplus therefore reduce the government’s deficit (or increase
its surplus) and the outlays for retiree and survivor benefits either reduce the government’s budget surplus or increase
the budget deficit. However, the exchange of cash for bonds (or vice versa) between the trust fund and the Treasury
does not affect the deficit because it is an exchange that occurs entirely within the government.
24 U.S. Office of Management and Budget, Budget of the United States Government, Fiscal Year 2010: Analytical
Perspectives, 2009, p. 345.
25 Ibid.
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Investment Practices of Federal Trust Funds
Many state and local government pension funds invest in stocks, bonds, mortgages, real estate,
and other private assets. If Congress were to permit the CSRDF to acquire assets other than U.S.
Treasury bonds—such as the stocks and bonds issued by private corporations—these assets could
be sold to the public for cash as pension liabilities come due. This would represent a major
change in public policy that would have important effects on the federal budget and on private
businesses that would, in effect, be partly owned by an agency of the federal government.26
Among the possible drawbacks of allowing the CSRDF to invest in private assets are that the
stocks and bonds purchased by the trust fund would displace purchases of these assets by private
citizens, so that while civil service retirement benefits would be prefunded, it would be at the cost
of reducing the amount of private-sector assets held by private citizens. In a scenario of “full
displacement,” there would be no net increase in the amount of saving and investment in the
economy, just a reallocation of assets in which the government would own more private sector
stocks and bonds and private investors would hold more Treasury bonds.
A second issue that would have to be considered if the trust fund were to purchase private
investment securities would be the fund’s management and investment practices. It is unclear who
would make the investment decisions, and what the acceptable level of investment risk for the
funds would be. The most fundamental risk is that poor investment choices would result in the
trust fund losing value over time. Another question would be how the fund would decide what
assets to purchase.27 Deciding what would constitute an appropriate investment for a fund that
consists mainly of monies provided by taxpayers could be controversial. Not all companies,
industries, or countries would be seen by the public as appropriate places to invest these funds. In
short, the question of investing trust fund assets in securities other than U.S. Treasury bonds is
one that would deserve close and careful consideration of all the possible ramifications.
Allowing the civil service retirement trust fund to invest in private-sector securities also would
have implications for the federal budget.28 Currently, the trust fund is credited by the Treasury
with agency contributions on behalf of covered employees, and it receives revenue in the form of
employee contributions. Agency contributions are intra-governmental transfers, and have no
effect on the size of the government’s annual budget deficit or surplus. Employee contributions,
however, are revenues of the U.S. government. As it now operates, the only outlays of the trust
fund are payments to annuitants and relatively minor outlays for administrative expenses. If the
trust fund were to purchase private assets such as corporate stocks and bonds rather than U.S.
26 The Railroad Retirement and Survivors’ Improvement Act of 2001 (P.L. 107-90) authorizes the Railroad Retirement
Trust Fund to acquire corporate stocks, bonds, and other assets to fund railroad retirement benefits. According to the
Congressional Budget Office, “such an action has no clear precedent and raises questions about how the federal
government might behave as an investor in private enterprises.” (Congressional Budget Office, The Budget and
Economic Outlook: Fiscal Years 2003-2012, January 2002, p. 88.) For more details on the Railroad Retirement Trust
Fund, see CRS Report RS22782, Railroad Retirement Board: Trust Fund Investment Practices, by Scott D.
Szymendera.
27 In the case of the Railroad Retirement Trust Fund, there is a Trust independent of the federal government that makes
all investment decisions. See CRS Report RS22782, Railroad Retirement Board: Trust Fund Investment Practices.
28 In the case of the Railroad Retirement Trust Fund, for budgetary purposes, purchases by the Trust are not considered
outlays, but as an exchange of assets of equal value; redemptions are not considered offsetting receipts. This differs
from long-standing budgetary rules, which usually treat an investment in nonfederal securities as the purchase of an
asset, recording both an obligation and an outlay equal to the purchase price during the year of the purchase. See CRS
Report RS22782, Railroad Retirement Board: Trust Fund Investment Practices.
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Treasury bonds, there would be an immediate outlay of funds. This outlay by the trust fund would
be paid for in part by employee contributions that would be diverted from the general fund of the
Treasury. The remainder of the purchase, financed by agency contributions, would replace an
intra-governmental transfer with a direct outlay of federal funds.
Because the Treasury would no longer receive employee contributions toward CSRS and FERS
as revenue, it would have to borrow an equal amount from the public. Consequently, without an
offsetting reduction in outlays elsewhere in the budget or an increase in revenues other sources,
the net effect of these transactions would be an increase in the government’s budget deficit (or a
decrease in the budget surplus). If the budget accounting period extended over a long enough
time, these transactions would cancel one another out because the long-term effect would merely
move some outlays from the future, where they would have occurred as payments to annuitants,
to the present, where they would occur partly as outlays to purchase assets and partly as a
reduction in revenues that currently go to the general fund of the Treasury.
Enacted Legislation in the 113th Congress
P.L. 113-67, the Bipartisan Budget Act of 2013
P.L. 113-67, the Bipartisan Budget Act of 2013, was signed into law on December 26, 2013. Title
IV of P.L. 113-67 increased the required FERS employee contribution by an additional 1.3
percentage points over current law for new employees first hired (or rehired with less than five
years of service) after December 31, 2013. Thus, the amended FERS contribution rate for FERS
employees first hired (or rehired with less than five years of service) is now 4.4%.29 Table 4
provides a comparison of the FERS employee contribution rates by date of hire, including the
employee contribution rates enacted by the Bipartisan Budget Act of 2013.
Under P.L. 113-67, employer contributions remained unchanged; additional funds will be used to
pay down the current unfunded liability of CSRS. Once the CSRS unfunded liability has
eliminated, the employer contributions will be recalculated and adjusted to be based on the
dynamic normal cost of FERS.30
The Bipartisan Budget Act of 2013 made no further changes to the retirement benefits available
to eligible employees through FERS; rather, P.L. 113-67 only increased required employee
contributions for certain newly hired (or rehired with less than five years of service) employees
beginning in 2014.
29 The increased employee contribution—an additional 1.3 percentage points on top of current law—also applies to
individuals covered by the Foreign Service Pension System (FSPS) who are first hired (or rehired with less than five
years of service) after December 31, 2013.
30 As under FERS, P.L. 113-67 did not decrease FSPS agency contributions. Instead the additional funds will be used to
pay down the unfunded liability of the Foreign Service Retirement and Disability Fund (FSRDF) until it has been
eliminated. One the FSRDF unfunded liability has been eliminated, the FSPS employer contributions will be
recalculated based on the dynamic normal cost of FSPS.
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Table 4. FERS Employee Contribution Rates by Date of Hire
Contribution Rates Expressed as Percentage of Pay
Increases Enacted Under P.L.
Increases Enacted Under P.L.
112-96: Hired (or rehired with
113-67: Hired (or rehired with
Current Law Prior to
less than 5 years of FERS
less than 5 years of FERS
P.L. 112-96: Hired prior to 2013
service) in 2013
service) after 2013
0.8% 3.1% 4.4%
Source: Compiled by Congressional Research Service.
Notes: Employee contribution rates are provided for regular FERS employees. Certain special categories of
FERS employees—including certain Members of Congress, certain congressional staff, federal law enforcement
officers, federal firefighters, air traffic controllers, and nuclear waste couriers—contribute an additional 0.5
percentage points (i.e., 1.3% for those individuals hired prior to 2013 and 3.6% for those individuals hired in
2013). Under P.L. 113-67, the Bipartisan Budget Act of 2013, the special category FERS employee contribution is
4.9% for those individuals hired (or rehired with less than 5 years of FERS service) after 2013.
Legislative Proposals in the 113th Congress
In the 113th Congress, several pieces of legislation have been introduced that propose significant
changes to federal retirement benefits and financing. In addition to the changes enacted under P.L.
113-67, relevant legislation introduced thus far includes S. 18, S. 1678, and H.R. 3639.
Additionally, the President’s Budget Proposal for FY2014 includes federal retirement
recommendations.
S. 18, the Sequester Replacement and Spending Reduction Act of
2013
Among other provisions, Subtitle B of Title VIII of S. 18, the Sequester Replacement and
Spending Reduction Act of 2013, would increase current CSRS and FERS employee retirement
contributions over three years beginning in 2014 for a cumulative increase of 2.3 percentage
points over current law (an additional 0.75 percentage point in 2014; an additional 0.75
percentage point in 2015; and an additional 0.8 percentage point in 2016). S. 18 would also
eliminate the FERS annuity supplement for individuals first covered by FERS after December 31,
2013—except for law enforcement officers and other employees subject to mandatory retirement
age.
S. 1678, the Public-Private Employee Retirement Parity Act
S. 1678, the Public-Private Employee Retirement Parity Act, would end federal employee
coverage under FERS for individuals first covered by FERS six months after enactment. This
proposal would not impact Social Security coverage or participation in the Thrift Savings Plan for
federal employees; it would only end the defined benefit pension for employees first hired six
months after enactment.
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H.R. 3639, the Provide for the Common Defense Act of 2013
Among other provisions, Subtitle C of H.R. 3639, the Provide for the Common Defense Act of
2013, would make three changes to federal retirement programs. H.R. 3639 would
• beginning in 2014, increase the current CSRS and FERS employee contribution
by 1.2 percentage points over three years, by an additional 0.4 percentage points
each year;
• eliminate the FERS annuity supplement for individuals first covered by FERS
after December 31, 2013;31 and
• use the Chained Consumer Price Index for all Urban Consumers (C-CPI-U) to
calculate the CSRS and FERS cost-of-living adjustment (COLA) rather than the
Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) as
under current law.32
President’s Budget Proposal FY201433
The President’s Budget Proposal for FY2014 contains recommendations related to federal
retirement benefits and financing.34 This proposal recommends increasing current employee
contributions by 0.4 percentage points in each of three calendar years—2013, 2014, and 2015—
for a cumulative increase of 1.2 percentage points of pay over current contributions.
This proposal also recommends eliminating the FERS annuity supplement for new employees.
The President’s Budget Proposal for FY2014 does not make any further recommendations related
to FERS benefit changes.
Author Contact Information
Katelin P. Isaacs
Analyst in Income Security
kisaacs@crs.loc.gov, 7-7355
31 H.R. 3639 does not include the FERS annuity supplement elimination exception for law enforcement officers and
other employees subject to a mandatory retirement age.
32 For additional information on the C-CPI-U, see CRS Report RL32293, The Chained Consumer Price Index: What Is
It and Would It Be Appropriate for Cost-of-Living Adjustments?, by Julie M. Whittaker. For additional information on
proposals to use of a different measure of consumer price change to index various provisions of federal programs,
including cost-of-living adjustments (COLAs), see CRS Report R42000, Inflation-Indexing Elements in Federal
Entitlement Programs, coordinated by Dawn Nuschler.
33 U.S. Office of Management and Budget, Budget of the United States Government, Fiscal Year 2014, available at
http://www.whitehouse.gov/sites/default/files/omb/budget/fy2014/assets/budget.pdf.
34 These recommendations are the same as the recommendations found in the President’s Budget Proposal for FY2013.
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Acknowledgments
This report was originally prepared by former CRS Specialist Patrick Purcell.
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