The Federal Employees Retirement System (FERS) was created in 1987, but most employees who were first hired after December 31, 1983 are covered automatically under FERS and Social Security. FERS employees are also eligible to participate fully in the Thrift Savings Plan (TSP) including receipt of limited matching funds. FERS is a comprehensive system of entitlements that provides a full range of pension benefits and wage insurance protections.
FERS is a three-tier retirement system. It provides a defined benefit pension. This means that if you retire at a certain age, with a certain number of years of creditable service, you will receive a percentage of your “High-3” salary for the rest of your life. The “High-3” salary is your highest three consecutive years of pay. The second tier is TSP, which is similar to private-sector 401(k) plans, and the third tier is Social Security. Contributions are 7% of your base pay – 6.2% of that goes to Social Security and the remaining .08% goes to the FERS pension. Contributions to TSP are voluntary.
The Federal Employees Retirement System has several outstanding features. The government automatically contributes 1% of your salary to TSP, and will match your contributions up to 5%. For instance, this means that if you commit 5% of your salary to TSP, FERS will match that 5% toward your retirement. Also, while there are only five funds to choose from within the TSP, the fund management fees are very low.
Because of FERS heavy reliance on the Thrift Savings Plan to provide the lion’s share of your retirement funds; as a FERS employee you must take more responsibility for your own retirement. A commitment to planning and diligent money management while you are an active employee will be required to achieve the retirement you dream of having. Employee Benefit Advisors can help. Our Federal Employee Benefit Analysis will provide you with a current projection of your benefits and retirement income as well as a thorough examination of all of planning options to help you make the right decisions for your future.