Civilian Federal Retirement: Current Law, Recent Changes, and Reform Proposals
June 18, 2015
Civilian Federal Retirement: Current Law, Recent Changes,
and Reform Proposals
Current Law
high-3 pay of 56.25% for a worker who retires with 30
Most civilian federal workers hired before 1984 are covered
years of service.
by the Civil Service Retirement System (CSRS). Most
civilian federal workers hired in 1984 or later are covered
Cost-of-Living Adjustments (COLAs)—CSRS COLAs
by the Federal Employees’ Retirement System (FERS).
are calculated using the same formula as the Social Security
Both CSRS and FERS require that employees make
COLA: the average monthly percentage change in the
contributions and meet other requirements (e.g., age and
Consumer Price Index for Urban Wage Earners and Clerical
years of service) in order to be eligible for a pension
Workers (CPI-W) in the third quarter (July to September)
benefit. FERS employees also contribute to and earn
of the current calendar year compared with the third quarter
benefits under the Social Security program. Employees
of the base year, which is the year that the last COLA was
covered by CSRS and FERS may participate in the Thrift
applied. All CSRS retirees and survivors receive COLAs.
Savings Plan (TSP), a retirement savings and investment
plan; but only employees under FERS receive matching
FERS
employer contributions to TSP. (This In Focus largely
FERS was created by the Federal Employees’ Retirement
describes the features of CSRS and FERS benefits for
System Act of 1986 (P.L. 99-335), which integrated federal
regular federal employees; certain special categories of
civilian workers into the Social Security program and
employees—e.g., Members of Congress, congressional
reduced pension costs for the federal government. The
employees, and law enforcement officers—are subject to
FERS has three elements: (1) Social Security; (2) the FERS
different rules.)
basic annuity (including the FERS supplement); and (3) the
TSP. FERS law is set out under Title 5 U.S.C. Chapter 84.
CSRS
As of FY2014, there were 2,471,000 current employees
Congress passed the Civil Service Retirement Act of 1920
covered by FERS and 582,000 annuitants (532,000 retirees
(P.L. 66-215), which created CSRS, to provide pension
and 50,000 survivors).
benefits for civilian federal employees. CSRS law has been
amended over time and is currently set out under Title 5
Financing—Employees enrolled in FERS and first hired
U.S.C. Chapter 83. As of FY2014, there were 224,000
before 2013 contribute 0.8% of their pay to the CSRDF;
current employees covered by CSRS and 2.0 million CSRS
employees first hired (or rehired with less than 5 years of
annuitants (1.5 million retirees and 524,000 survivors).
service) in 2013 contribute 3.1% of pay; and employees
first hired (or rehired with less than 5 years of service) after
Financing—Employees who are covered by CSRS
2013 contribute 4.4% of pay. FERS employees also pay
contribute 7.0% of pay to the Civil Service Retirement and
6.2% of wages up to the Social Security taxable wage base
Disability Fund (CSRDF), the federal trust fund that
($118,500 in 2015) to the Social Security trust fund.
finances both CSRS and FERS benefits. Federal agencies
Federal agencies also pay Social Security taxes (6.2%) on
employing CSRS workers also contribute 7.0% of
behalf of their FERS employees. In addition, employing
employees’ pay to the CSRDF. Additional funds from the
agencies pay 13.2% of pay for employees hired before 2013
U.S. Treasury are also transferred into the CSRDF to pay
and 11.1% of pay for employees hired after 2012 to the
for CSRS benefits. In FY2015, CSRS is estimated to have
CSRDF. Unlike CSRS, FERS benefits are required under
an unfunded liability of $761.1 billion.
law to be fully funded by the combination of employee
contributions, agency contributions, and interest earned on
Age and Years of Service Requirements—Under CSRS, a
CSRDF assets.
worker with at least 30 years of service can retire at age 55;
with at least 20 years of service at age 60; and with at least
Age and Years of Service Requirements—A FERS
5 years of service at age 62.
employee who has reached the minimum retirement age
(age 55-57, depending on year of birth) can retire with 30
Benefit Calculation—The retirement annuity under CSRS
years of service; at age 60 with 20 years of service; and at
is determined by multiplying three factors: the salary
age 62 with 5 years of service.
base, the accrual rate, and the number of years of service.
The salary base is defined as the average of the highest
Benefit Calculation—The FERS annuity is calculated
three, consecutive years of basic pay, or high-3 pay. The
using a similar formula to the CSRS annuity—multiplying
CSRS accrual rate increases with length of service: 1.5%
high-3 pay by the benefit accrual rate and by the number of
for each of the first 5 years of service; 1.75% for the 6th
years of service—except that the benefit accrual rate is
through 10th years; and 2.0% for each year of service after
lower under FERS than CSRS. Under FERS, workers
the 10th year. This formula yields a replacement rate of
accrue retirement benefits at the rate of 1% per year; or, if a
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Civilian Federal Retirement: Current Law, Recent Changes, and Reform Proposals
FERS employee has at least 20 years of service and works
Reform Proposals
until at least age 62, then the FERS accrual rate is 1.1% for
In recent years, Congress has considered additional
each year of service.
proposals to make changes to federal retirement programs.
Such legislative proposals seek to reduce federal
Some employees under FERS may be eligible for the FERS
expenditures on these benefits, which totaled $81.0 billion
annuity supplement, which is paid to workers who retire at
in FY2014. In many cases, these proposals have also been
the age of 55 or older with at least 30 years of service or at
part of the larger policy discussion about federal deficit
the age of 60 with at least 20 years of service. This annuity
reduction. Sometimes these discussions also consider
supplement is equal to the estimated Social Security benefit
comparability with retirement benefits in the private sector.
that the individual earned while employed by the federal
government and is paid only until the age of 62 (regardless
The following are examples of reform proposals included in
of whether the retiree chooses to apply for Social Security
binding legislation or made by deficit reduction
retired worker benefits at 62 years old).
commissions:
COLAs—Like CSRS COLAs, FERS COLAs are
Increase employee contributions: Proposed by the
calculated using the average monthly percentage change in
National Commission on Fiscal Responsibility and
the CPI-W in the third quarter of the current calendar year
Reform (commonly referred to as Simpson-Bowles); in
compared with the third quarter of the base year. Unlike
H.R. 3813 and H.R. 5652 in the 112th Congress; and in
CSRS COLAs, the FERS COLA is capped if the measure
S. 18 and H.R. 3639 in the 113th Congress
of inflation is greater than 2.0%. If the rate of inflation
Change calculation of pay from high-3 to high-5:
during the measurement period is between 2.0% and 3.0%,
Proposed by Simpson-Bowles; by Debt-Reduction Task
the COLA under FERS is 2.0%. If inflation is greater than
Force (commonly referred to as Rivlin-Domenici); in
3.0%, then the COLA for FERS benefits is equal to the
H.R. 3813 in the 112th Congress; and in H.R. 1230 in
CPI-W minus 1 percentage point. Under FERS, non-
the 114th Congress
disabled retirees under the age of 62 do not receive COLAs.
Survivors and disabled retirees are eligible for COLAs
Eliminate FERS annuity supplement: Proposed in
under FERS, however, regardless of age.
H.R. 3813 and H.R. 5652 in the 112th Congress; and in
S. 18 and H.R. 3639 in the 113th Congress
Recent Changes
Change COLAs to be based on Chained CPI:
Two recent laws made changes to employee contributions
Proposed by Simpson-Bowles; and Rivlin-Domenici
and benefits for new employees covered by FERS: the
Middle Class Tax Relief and Job Creation Act of 2012 (P.L.
Eliminate FERS coverage for new hires: Proposed in
112-96) and Bipartisan Budget Act of 2013 (P.L. 113-67).
S. 1678 in the 113th Congress
Middle Class Tax Relief and Job Creation Act of
For More Information
2012 (P.L. 112-96)
CRS Report 98-810, Federal Employees’ Retirement
Title V of the Middle Class Tax Relief and Job Creation
System: Benefits and Financing, by Katelin P. Isaacs
Act of 2012 (P.L. 112-96; February 22, 2012), made two
types of changes to FERS. First, P.L. 112-96 increased the
CRS Report RL30023, Federal Employees’ Retirement
FERS employee contribution rate by an additional 2.3
System: Budget and Trust Fund Issues, by Katelin P. Isaacs
percentage points (3.1% vs. 0.8% of pay) for FERS
employees hired (or rehired with less than 5 years of
CRS Report RL30387, Federal Employees’ Retirement
service) after 2012. Second, P.L. 112-96 reduced the benefit
System: The Role of the Thrift Savings Plan, by Katelin P.
accrual rates for new Members of Congress and new
Isaacs
congressional staff after 2012 so that they are now the same
as for regular FERS employees. Previously, all Members of
CRS Report RL30631, Retirement Benefits for Members of
Congress and all congressional staff covered by FERS had
Congress, by Katelin P. Isaacs
a benefit accrual rate of 1.7% per year for the first 20 years
of service and 1.0% for any years of service after 20 years.
National Commission on Fiscal Responsibility and Reform:
https://www.fiscalcommission.gov/
Bipartisan Budget Act of 2013 (P.L. 113-67)
Title IV of the Bipartisan Budget Act of 2013 (P.L. 113-67;
Debt-Reduction Task Force Plan 2.0:
December 26, 2013) further increased the required FERS
http://bipartisanpolicy.org/library/domenici-rivlin-debt-
employee contribution—by an additional 1.3 percentage
reduction-task-force-plan-20/
points over prior law (4.4%)—for new employees first
hired (or rehired with less than 5 years of service) after
Katelin P. Isaacs, Specialist in Income Security
2013.
IF10243
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Civilian Federal Retirement: Current Law, Recent Changes, and Reform Proposals
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