Federal Employees' Retirement System: Summary of Recent Trends

Updated February 2, 2018 (98-972)
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Summary

This report describes recent trends in the characteristics of annuitants and current employees covered by the Civil Service Retirement System (CSRS) and the Federal Employees' Retirement System (FERS) as well as the financial status of the Civil Service Retirement and Disability Fund (CSRDF).

For a general overview of current benefits and financing under CSRS and FERS, see CRS Report 98-810, Federal Employees' Retirement System: Benefits and Financing.

For summary information on recent reform proposals related to CSRS and FERS, see CRS In Focus IF10243, Civilian Federal Retirement: Current Law, Recent Changes, and Reform Proposals.


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 three-fourths 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). FERS is composed of three elements: (1) Social Security, (2) the FERS basic retirement annuity, and (3) the Thrift Savings Plan (TSP).

Most 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 2018, 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 the age of 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, 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 the age of 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 his or her years 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 × 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 for 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 2018, workers under FERS or CSRS can contribute up to $18,500 to the TSP.3 Workers aged 50 and older can contribute an additional $6,000 to the TSP.

Except in the case of the Roth TSP option, 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. Under the Roth TSP option, however, employee contributions are made with after-tax income. Qualified distributions from the Roth TSP 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.

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 FY2016, 94.1% of federal employees were enrolled in FERS.

Table 1. Retirement System Coverage of Federal Employees, by Fiscal Year

Covered Active Employeesa

CSRS

FERS

Total

FY2016

159,000

2,529,000

2,688,000

Percentage distribution

5.9

94.1

100

FY2014

224,000

2,471,000

2,695,000

Percentage distribution

8.3

91.7

100

FY2012

274,000

2,477,000

2,751,000

Percentage distribution

10.0

90.0

100

FY2010

373,000

2,458,000

2,831,000

Percentage distribution

13.2

86.8

100

FY2008

477,000

2,195,000

2,672,000

Percentage distribution

17.9

82.1

100

FY2006

650,000

2,014,000

2,664,000

Percentage distribution

24.4

75.6

100

FY2004

795,000

1,875,000

2,670,000

Percentage distribution

29.8

70.2

100

FY2002

897,000

1,717,000

2,614,000

Percentage distribution

34.0

66.0

100

FY2000

961,000

1,629,000

2,590,000

Percentage distribution

37.1

62.9

100

FY1998

1,108,000

1,550,000

2,658,000

Percentage distribution

41.7

58.3

100

FY1996

1,235,000

1,385,000

2,620,000

Percentage distribution

47.1

52.9

100

FY1994

1,402,000

1,296,000

2,698,000

Percentage distribution

52.0

48.0

100

Source: Office of Personnel Management, Federal Civilian Workforce Statistics: The Fact Book, various years, and Annual Report of the Board of Actuaries of the Civil Service Retirement and Disability Fund, 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 FY2016, 71.5% of employee annuitants were receiving pension benefits that were accrued under CSRS, whereas 28.5% 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, FY2016

 

CSRS

FERS

Total

Employee annuitants

1,395,063

682,741

2,077,804

Percentage

67.1

32.9

100

Survivor annuitants

472,841

61.043

533,884

Percentage

88.6

11.4

100

Total annuitants

1,867,904

743,784

2,611,688

Percentage

71.5

28.5

100

Source: U.S. Office of Personnel Management, FY2016 Statistical Abstract of Federal Employee Benefits Programs.

Note: Does not include retirees in interim pay status.

State of Residence of Civil Service Annuitants

Approximately 2.6 million people received civil service annuities in FY2016, either as retired federal employees, surviving spouses, or surviving dependents. California had the largest number of annuitants with 215,115 and Vermont had the fewest with 4,649. Five states—California, Texas, Florida, Maryland, and Virginia—accounted for about one-third of all civil service annuitants in FY2016. (See Table 3.)

Table 3. State of Residence of Civil Service Annuitants, FY2016

State

Number of Annuitants

Percentage of National Total

Alabama

59,325

2.3%

Alaska

8,372

0.3%

Arizona

58,513

2.2%

Arkansas

25,204

1.0%

California

215,115

8.2%

Colorado

51,606

2.0%

Connecticut

14,806

0.6%

Delaware

10,782

0.4%

District of Columbia

44,187

1.7%

Florida

179,853

6.9%

Georgia

88,270

3.4%

Hawaii

25,281

1.0%

Idaho

15,769

0.6%

Illinois

70,215

2.7%

Indiana

38,137

1.5%

Iowa

21,411

0.8%

Kansas

25,088

1.0%

Kentucky

34,163

1.3%

Louisiana

28,001

1.1%

Maine

14,070

0.5%

Maryland

163,906

6.2%

Massachusetts

42,065

1.6%

Michigan

46,356

1.8%

Minnesota

30,395

1.2%

Mississippi

26,096

1.0%

Missouri

55,284

2.1%

Montana

13,864

0.5%

Nebraska

13,654

0.5%

Nevada

24,964

1.0%

New Hampshire

12,923

0.5%

New Jersey

53,291

2.0%

New Mexico

28,862

1.1%

New York

94,956

3.6%

North Carolina

78,882

3.0%

North Dakota

6,724

0.3%

Ohio

76,391

2.9%

Oklahoma

48,062

1.8%

Oregon

34,873

1.3%

Pennsylvania

109,655

4.2%

Rhode Island

7,720

0.3%

South Carolina

46,144

1.8%

South Dakota

10,938

0.4%

Tennessee

48,603

1.9%

Texas

175,967

6.7%

Utah

34,907

1.3%

Vermont

4,649

0.2%

Virginia

145,117

5.5%

Washington

69,598

2.7%

West Virginia

18,804

0.7%

Wisconsin

28,441

1.1%

Wyoming

6,047

0.2%

U.S. Territories and other countries

23,966

0.9%

Total

2,610,272

99.8%

Source: Office of Personnel Management, FY2016 Statistical Abstract of Federal Employee Benefits Programs.

Note: Includes retirees in interim pay status.

Average Age and Years of Service at Retirement

In FY2016, 99,242 civilian federal employees (including U.S. Postal Service employees) retired. (See Table 4.) Of this number, 78,832 (79.4%) were normal retirements5 and another 1,099 (1.1%) were voluntary early retirements. Under CSRS, normal retirement can occur as early as the age of 55 for an employee with 30 years of service. Under FERS, the minimum retirement age is currently 56 years old, and is scheduled to increase to 57 years old for workers born in 1970 or later. Under both programs, normal retirement can be taken at the age of 60 with 20 years of service or the age of 62 with five years of service. The average age of workers taking voluntary, normal retirement in FY2016 was 62.1 for employees under CSRS and 63.4 for those under FERS. Workers taking normal retirement under CSRS in FY2016 had completed an average of 37 years of service, whereas those retiring under FERS had an average of 22.2 years of service.

More than 1,000 federal employees took voluntary early retirement in FY2016. These workers were younger on average (54.3 years old for CSRS employees; 54.5 years old for FERS employees) than those who took normal retirement. The average length of service for CSRS employees who took voluntary early retirement was less (31.9 years) than CSRS employees who took normal retirement (37.0 years). For FERS employees, however, the average length of service of individuals taking early voluntary retirement was greater (25.6 years) than that of FERS employees who took normal retirement (22.2 years).6 Approximately 6.7% of all retirements among federal employees in FY2016 were taken for reasons of disability. CSRS disability retirees were, on average, 53.2 years old with 25.1 years of service. The average age of FERS disability retirees, who had 13.6 years of service, was 50.5. Involuntary retirements (such as those resulting from agency down-sizing) accounted for 1.2% of all retirements by federal employees in FY2016.

Average Annuity Amounts Under CSRS and FERS

The average monthly annuity among civilian federal employees who retired under CSRS in FY2016 was $4,755, whereas new FERS annuitants received an average annuity of $1,714 per month. Employees retiring under CSRS received larger annuities than those covered by FERS both because of their longer average length of service and 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 with agency matching contributions through the TSP.7 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 the age of 62. The supplement is equal to the Social Security benefit that they earned while employed by the federal government and enrolled in FERS. Employees who retire at the age of 60 or 61 with 20 or more years of service also receive this supplement. The FERS supplement terminates at the age of 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 FY2016

Civilian Federal Retirements

CSRS

FERSa

Average or Total

Normal Retirements

Number

27,022

51,810

78,832

Average age at retirement

62.1

63.4

NAb

Average years of service

37.0

22.2

NA

Average monthly annuity

$4,917

$1,534

NA

Disability Retirements

Number

136

6,486

6,622

Average age at retirement

53.2

50.5

NA

Average years of service

25.1

13.6

NA

Average monthly annuity

$2,328

$1,802

NA

Involuntary Retirements

Number

147

1,079

1,226

Average age at retirement

58.7

55.7

NA

Average years of service

31.6

23.7

NA

Average monthly annuity

$3,895

$1,751

NA

Voluntary Early Retirements

Number

159

940

1,099

Average age at retirement

54.3

54.5

NA

Average years of service

31.9

25.6

NA

Average monthly annuity

$4,347

$2,072

NA

Special Provision Retirementsc

Number

398

4,892

5,290

Average age at retirement

57.2

53.8

NA

Average years of service

33.8

25.5

NA

Average monthly annuity

$7,676

$3,698

NA

Total Retirements in FY2016d

Number

29,376

69,866

99,242

Average age at retirement

61.9

61.0

61.0

Average years of service

35.9

21.3

25.6

Average monthly annuity

$4,755

$1,714

$2,614

Source: CRS analysis of data from the Office of Personnel Management (OPM), FY2016 Statistical Abstract of Federal Employee Benefits Programs.

a. Employees covered by FERS also participate in Social Security. In November 2015, the average monthly Social Security benefit for workers retiring at the age of 62 was $1,049.

b. NA=not available in OPM published data.

c. Includes law enforcement officers, firefighters, air traffic controllers, and Members of Congress.

d. Includes other, unclassified retirements that are not shown separately.

Average Age at Retirement of New Federal Retirees

In FY2016, the average age of federal employees taking normal retirement was 62.8, which was higher than in FY1990. (See Table 5.) The average age for all retirements in FY2016 was 61.3, which was higher than in FY1990 (59.4). 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 the age of 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.

Table 5. Average Age at Retirement for New Federal Retirees, by Fiscal Year

Fiscal Year

Average Age at Retirement

Normal Retirements
as a Percentage of All
Retirementsa

 

All Retirements

Normal Retirementsa

 

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

2010

59.9

61.6

77.1

2011

60.5

61.8

80.1

2013

60.6

62.5

75.4

2016

61.3

63.0

79.4

Source: Office of Personnel Management, Statistical Abstracts, Federal Employee Benefits Programs (various years).

Note: Normal retirements include all retirements except disability retirements, voluntary early retirements, involuntary retirements, and special provision retirements.

a. CRS analysis of information from Office of Personnel Management Statistical Abstracts (various years)

Total and Median Annuity Payments to Retirees and Survivors

The Civil Service Retirement and Disability Fund (CSRDF) paid annuities to 2,077,804 retired federal employees (also referred to as employee annuitants) and 533,884 survivor annuitants in FY2016. Of these beneficiaries, 1,867,904 individuals (71.5%) received benefits earned under CSRS and 743,784 (28.5%) received benefits under FERS. Employee annuitants under CSRS received a median monthly annuity of $3,118. Survivors of CSRS annuitants received a median monthly CSRS annuity of $1,396. Employee annuitants under FERS received a median monthly payment of $1,082. The median survivor benefit under FERS was $432. 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.8

Table 6. Monthly Annuity Payments to Retirees and Survivors in FY2016

(in thousands of dollars)

 

CSRS

FERS

All Retirees
and Survivors

Retired Employees Annuitants

1,395,063

682,741

2,077,804

Percentage of Total

67.1

32.9

100

Mean monthly annuity

$3,586

$1,392

$2,865

Median monthly benefit

$3,118

$1,082

$2,470

Survivor Annuitants

472,841

61,043

533,884

Percentage of Total

88.6

11.4

100

Mean monthly benefit

$1,575

$557

$1,459

Median monthly benefit

$1,396

$432

$1,293

Total Annuitants

1,867,904

743,784

2,611,688

Percentage of Total

71.5

28.5

100

Source: Office of Personnel Management, FY2016 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 (CPI-W). 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 with 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 (or if they decrease) 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 (and the base year used for the COLA calculation remains the last year that a COLA was applied). 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. These limits do not apply to the CSRS COLA.9

From the third quarter of 2017 to the third quarter of 2018, the CPI-W increased by 2.0%. Therefore, the CSRS COLA beginning in January 2018 is 2.0%. The January 2018 FERS COLA is also 2.0%. (See Table 7.)

Table 7. Cost-of-Living Adjustments Under CSRS and FERS

(in percentage)

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

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

January 2012

3.6

2.6

3.6

January 2013

1.7

1.7

1.7

January 2014

1.5

1.5

1.5

January 2015

1.7

1.7

1.7

January 2016

0.0

0.0

-0.4

January 2017

0.3

0.3

0.3

January 2018

2.0

2.0

2.0

Source: Office of Personnel Management.

Income and Expenditures of the Civil Service Retirement and Disability Fund

The CSRDF began FY2016 with a balance of $864.5 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 end-of-FY2016 balance of $879.8 billion was more than 10 times the value of the CSRS and FERS annuities paid from the fund that year. (See Table 8.)

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 ($3.2 billion in FY2016) consists of employee contributions to CSRS and FERS. These contributions are equal to 7.0% of base pay under CSRS; 0.8% of base pay under FERS for employees first hired before 2013; 3.1% of pay under FERS for employees first hired in 2013; and 4.4% of pay under FERS for employees first hired after 2013.10 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.

The CSRDF's largest sources of income are (1) annual payments from the general fund of the Treasury to make up for the insufficient funding of benefits accrued under CSRS, (2) payments from federal agencies and the Postal Service on behalf of their employees, and (3) interest payments on the U.S. Treasury bonds it holds. Agency contributions under CSRS are equal to 7.0% of payroll, and are supplemented by transfers from the general fund of the Treasury equal to approximately 12% of payroll. Agency contributions to FERS are required by law to be equal to the full actuarial cost of the program minus employee contributions. Effective FY2015, employing agencies contribute 13.7% of payroll on behalf of FERS employees first hired before 2013, and 11.9% of pay on behalf of FERS employees first hired in 2013 or later (including individuals hired in 2014 or later).11 These three sources of income are intra-governmental 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.12

Expenditures from the CSRDF consist mainly of payments to retired federal employees and their surviving dependents. Annuity payments totaled $82.5 billion in FY2016. Payments to the estates of decedents and payments to separating employees accounted for another $330 million. The administrative expenses of the fund were $142 million, or 0.2% of obligations.

Table 8. Receipts and Obligations of the Civil Service Retirement and Disability Fund, FY2016-FY2018

(in millions of dollars)

 

FY2016

FY2017 (est.)

FY2018 (est.)

Beginning balance

$864,516

$879,824

$894,880

Receipts to the fund

 

 

 

Cash receipts:

 

 

 

—Employee contributions

$3,191

$3,468

$3,742

—District of Columbia

$29

$21

$20

—Other employee deposits

$631

$635

$630

Intragovernmental transfers:

 

 

 

—Agency contributions

$26,083

$26,528

$26,740

—Postal Service contributions

$3,413

$3,610

$3,715

—Interest on securities

$27,722

$25,458

$25,024

—General fund receipts

$36,664

$36,558

$37,458

—Reemployment offseta

$43

$40

$37

Total receipts to the fund

$98,242

$98,204

$98,039

Obligations from the fund

 

 

 

—Employee and survivor annuities

-$82,460

-$82,724

-$85,959

—Refunds and payments to estates

-$330

-$328

-$294

—Administration

-$142

-$94

-$101

Transfer to Merit Systems Protection Boardb

$2

$2

$2

Total obligations from the fund

-$82,934

-$83,148

-$86,356

Ending balance

$879,824c

$894,880

$909,202

Source: U.S. Office of Management and Budget, Budget of the United States Government, FY2018.

a. CSRS or FERS retirees may be reemployed by the federal government in some situations (they are referred to as reemployed annuitants); yet, in most circumstances, such individuals may not simultaneously collect a federal civil service retirement benefit and a salary for current employment with the federal government. Reemployed annuitants generally have their federal salaries reduced by the amount of their CSRS or FERS retirement benefits while they are reemployed (i.e., are subject to a "reemployment offset"). The amount of this reemployment offset is required to be deposited into the CSRDF (see 5 U.S.C. §8468).

b. Current law authorizes the transfer of funds from the CSRDF to the Merit Systems Protection Board, an independent, quasi-judicial agency established to protect the civil service merit system, for the purposes of administering CSRS and FERS appeals (see 5 U.S.C. §8348(a)(3)).

c. Includes rounding adjustment of -$4 million.

Recent Trends in the Balance of the Civil Service Retirement and Disability Fund

Between FY1990 and FY2018 (estimated), the balance of the CSRDF rose from $238 billion to $972 billion, an increase of 308%. (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.13 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 Expenses of the Civil Service Retirement and Disability Fund, FY1990-FY2018

(in billions of dollars)

Fiscal Year

CSRDF Income

CSRDF Expenditures

Net Assets at End of Year

1990

$52.7

-$31.4

$238.0

1995

66.1

-38.6

371.3

1996

67.7

-39.9

398.9

1997

70.4

-41.8

427.5

1998

72.8

-43.2

457.1

1999

73.7

-44.0

486.8

2000

76.0

-45.2

521.5

2001

77.9

-47.1

548.2

2002

80.1

-48.7

579.5

2003

77.8

-50.0

607.1

2004

82.1

-52.0

637.1

2005

83.5

-55.4

665.9

2006

87.0

-57.6

695.0

2007a

89.5

-78.1

706.4

2008

90.8

-63.5

733.7

2009

92.7

-67.6

758.7

2010

95.2

-69.3

784.6

2011

94.1

-70.3

808.4

2012

94.8

-73.9

829.1

2013

106.4

-76.6

859.0

2014

111.5

-79.6

890.9

2015

115.2

-82.7

923.4

2016b

114.5

-82.7

905.1

2017b

118.2

-85.1

938.2

2018b

122.1

-88.1

972.2

Source: Office of Personnel Management, Annual Report of the Board of Actuaries of the Civil Service Retirement and Disability Fund (various years).

a. Expenditures for 2007 include a $17.1 billion payment to the Postal Service Retiree Health Fund.

b. Data for FY2016-FY2018 are estimated.

Number of Civil Service Annuitants and Total Annuity Payments

The number of people receiving civil service annuity payments has risen more than 175% since 1970, but the rate of increase has slowed since 1985. (See 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 2016, the number of civil service annuitants rose from just under 2 million to just over 2.6 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. Cost-of-living adjustments—which have been applied to civil service annuities since 1962—increase the nominal value of civil service annuities, but do not increase the real value of these annuities. COLAs are intended to keep purchasing power from eroding due to the effects of inflation.14

Under current law, the real value of a civil service annuity either remains constant (CSRS) or declines (FERS) during retirement.15 Rates of increase in the "high-three" average pay of retiring federal employees (on which these annuities are based) 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.

Table 10. Annuitants and Annuity Payments, by Fiscal Year

Fiscal Year

Total Annuitants (thousands)

Payments in Nominal Dollars (millions)

Payments in Constant 2016 Dollars (millions)

1970

962

$2,746

16,986

1975

1,391

7,048

31,442

1980

1,675

14,662

42,706

1985

1,971

23,012

51,329

1990

2,143

31,036

56,992

1995

2,311

38,319

60,347

2000

2,372

45,072

62,820

2001

2,380

47,244

64,025

2002

2,383

48,838

65,155

2003

2,290

50,248

65,543

2004

2,404

52,048

66,130

2005

2,423

54,593

67,090

2006

2,449

57,809

68,822

2007

2,463

60,860

70,448

2008

2,471

63,432

70,710

2009

2,510

67,618

75,646

2010

2,522

69,261

76,233

2011

2,530

70,209

74,912

2012

2,544

74,342

77,714

2013

2,563

77,513

79,859

2014

2,616

79,644

80,744

2015

2,638

81,898

82,931

2016

2a

2,652

82,956

82,956

2017a

2,665

83,003

81,240

2018a

2,680

86,062

81,805

Sources: Office of Personnel Management, FY2016 Statistical Abstract of Federal Employee Benefits Program; and Office of Management and Budget, Budget of the United States Government, FY2018.

Notes: Does not include retirees in interim pay status. 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 Office of Management and Budget, Budget of the United States Government, FY2018.

Total Civilian Federal Employment

Between FY1994 and FY2013, the number of civilian federal employees (including the U.S. Postal Service, which participates in both CSRS and FERS) fell from 2,972,000 to 2,731,000. (See Table 11.) Civilian federal employment outside the Postal Service fell from 2,149,000 in FY1994 to 1,943,000 in FY2006, a decline of 9.6%. From FY2006 to FY2013, total federal employment rose from 2,700,000 to 2,731,000, an increase of 2.3%. Non-postal employment rose from 1,943,000 to 2,168,000, an increase of 11.6%. Much of the FY2006 to FY2013 increase in federal employment was driven by growth in the executive branch, which is the largest branch of government in terms of federal employees. The executive branch experienced an increase in employees over this period of 1.2% (2,637,000 employees in FY2006; 2,668,000 employees in FY2013). Employment in the judicial branch (34,000) exceeded employment in the legislative branch (29,000) in FY2013. From FY1994 to FY2013, employment in the legislative branch declined from 35,000 employees to 29,000 employees. Over the same period, employment in the judicial branch rose from 28,000 to 34,000 employees.

Table 11. Civilian Federal Employment, by Fiscal Year

(total employment, in thousands, as of September 30 each year)

Year

Legislative
Branch

Judicial
Branch

Executive
Branch

Total, Excluding Postal Service

Postal
Service

1994

35

28

2,908

2,972

823

1996

32

30

2,786

2,847

852

1998

31

32

2,727

2,790

872

2000

31

32

2,645

2,708

861

2002

31

35

2,650

2,716

812

2004

30

34

2,649

2,713

768

2006

29

34

2,637

2,700

757

2008

30

34

2,694

2,758

728

2010

31

34

2,777

2,841

643

2011

30

34

2,756

2,820

610

2012

30

34

2,697

2,761

593

2013

29

34

2,668

2,731

584

Source: Office of Personnel Management. The Fact Book: 2005 Edition (p. 7) and 2007 Edition (p. 8), and Employment and Trends, various years (Table 2).

Notes: Due to rounding the rows may not sum exactly to the "Total, Excluding Postal Service" column. Data in this table may not match the data found in Table 12 as not all civilian federal employees are covered by CSRS or FERS.

Age Distribution of CSRS and FERS Employees

Under CSRS, an employee with 30 or more years of service can retire with an immediate, unreduced annuity at the age of 55. The current minimum retirement age under FERS is 56. In both CSRS and FERS, an employee with 20 or more years of service can retire at the age of 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 FY2016 was 61.3. The average age among individuals who took normal retirement—as opposed to early retirement or disability retirement—was 61.8.16

Because CSRS has been closed to new entrants since 1984, the distribution of current CSRS employees is older than FERS. For example, there were no CSRS employees under the age of 45 as of September 2015. Thirty-eight percent of FERS employees, however, were under the age of 45 during this same period. Approximately 10% of CSRS employees and 33% of FERS employees were between the ages of 45 and 54. Although most CSRS employees (90%) were aged 55 or older, only 28% of FERS employees were aged 55 or older. (See Table 12.)

Table 12. Age Distribution of CSRS and FERS Employees, FY2016

(number as of September 30, 2015)

Age

Under 45

45 -49

50 -54

55 -59

60 -64

65 or Older

Total

Number of CSRS employees

0

41

16,443

55,918

52,870

33,728

159,000

Percentage

0.0

.03

10.3

35.2

33.3

21.2

100%

Number of FERS employees

975,881

379,677

460,396

387,500

227,455

98,092

2,529,000

Percentage

38.6

15.0

18.2

15.3

9.0

3.9

100%

Source: Office of Personnel Management, FY2016 Annual Report of the Board of Actuaries of the Civil Service Retirement and Disability Fund.

Note: Due to rounding columns may not sum exactly to totals.

Author Contact Information

[author name scrubbed], Specialist in Income Security ([email address scrubbed], [phone number scrubbed])

Acknowledgments

Emma Sifre, research assistant at CRS, contributed to the updating of this report.

Footnotes

1.

P.L. 105-61 (October 10, 1997) authorized an open season to be held from July through December 1998.

2.

The retirement annuity is a monthly payment made for the life of the employee. High-three average pay is based on nominal (current) dollars rather than indexed (constant) dollars. Years of service are pro-rated based on whole months (defined as 30 days).

3.

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.

5.

Normal retirements include all retirements except disability retirements, voluntary early retirements, involuntary retirements, and special provision retirements.

6.

To qualify for voluntary early retirement, individuals must have at least 25 years of service or be at least age 50 with at least 20 years of service. This requirement may be responsible for the greater years of service for individuals who take FERS voluntary early retirement compared with FERS normal retirement. For more details on the Voluntary Early Retirement Authority (VERA) that may grant eligibility for voluntary early retirement, see http://www.opm.gov/policy-data-oversight/workforce-restructuring/voluntary-early-retirement-authority/.

7.

In 2018, federal employees can contribute up to $18,500 of pay 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.

8.

In December 2017, the average monthly Social Security benefit among all retired workers was $1,460. The average monthly benefit for a nondisabled surviving spouse was $1,297.

9.

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. For additional details on the CSRS and FERS COLAs, see CRS Report 94-834, Cost-of-Living Adjustments for Federal Civil Service Annuities.

10.

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. The Middle Class Tax Relief and Job Creation Act of 2012 (P.L. 112-96) increased the FERS employee contributions by 2.3 percentage points for FERS employees hired (or rehired with less than five years of FERS service) after December 31, 2012. Individuals subject to the increased employee contributions under P.L. 112-96 are referred to as FERS-Revised Annuity Employees (FERS-RAE). The Bipartisan Budget Act of 2013 (P.L. 113-67) further increased the FERS employee contribution by an additional 1.3 percentage points for FERS employees hire (or rehired with less than five years of FERS service) after December 31, 2013. Individuals subject to the increased employee contributions under P.L. 113-67 are referred to as FERS-Further Revised Annuity Employees (FERS-FRAE).Therefore, the FERS employee contribution rate is 3.1% of pay for FERS-RAE (i.e., employees first hired in 2013) and 4.4% of pay for FERS-FRAE (i.e., employees first hired after 2013).

11.

Office of Personnel Management, "Federal Employees' Retirement System: Normal Cost Percentages," 80 Federal Register 15036-15037, March 20, 2015. FERS agency contribution rates may be adjusted in future fiscal years based on changes in OPM's annual actuarial calculations of the dynamic normal cost of FERS benefits as well as any changes in required employee contribution rates.

12.

See CRS Report RL30023, Federal Employees' Retirement System: Budget and Trust Fund Issues.

13.

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.

14.

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.

15.

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.

16.

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.