How Does the Federal Employee Retirement System Work?

The Federal Employees Retirement System (FERS) is the primary retirement program for most federal government employees hired after December 31, 1983. Enacted in 1986, FERS replaced the Civil Service Retirement System (CSRS) for new hires, aligning federal retirement plans with those common in the private sector. FERS provides retirement income, disability coverage, and survivor benefits.

Core Components of FERS

FERS has three distinct components that contribute to a federal employee’s overall retirement income. These components combine to provide a robust benefit package.

The first component is the Basic Benefit Plan, a defined benefit pension. This pension is funded by employee and agency contributions, supplemented by investment earnings. Upon retirement, it provides a monthly annuity payment for the retiree’s life.

The second component is Social Security. FERS employees participate in Social Security and pay Social Security taxes, similar to private sector workers. Social Security provides retirement income, disability, and survivor benefits.

The third component is the Thrift Savings Plan (TSP), a defined contribution plan similar to a 401(k). Employees can contribute to their TSP accounts, which are tax-deferred or Roth. Agencies automatically contribute 1% of basic pay and provide matching contributions up to an additional 4%.

Eligibility and Retirement Types

Eligibility for FERS retirement depends on an employee’s age and years of creditable service. The Minimum Retirement Age (MRA) varies by birth year. For those born in 1948, the MRA is 55; for individuals born in 1970 or later, it is 57.

| Year of Birth | Minimum Retirement Age (MRA) |
| :———— | :————————— |
| Before 1948 | 55 |
| 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 |
| 1953-1964 | 56 |
| 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 and later| 57 |

Immediate Retirement

Immediate Retirement allows an annuity to begin within 30 days of separation. Eligibility requires specific age and service combinations: MRA with 30 years of service, age 60 with 20 years of service, or age 62 with 5 years of service.

Postponed Retirement

This option is for employees who meet their MRA and have at least 10 years of creditable service but delay receiving their annuity. This delay can reduce or eliminate age-related penalties. Unlike deferred retirement, postponing allows for potential re-enrollment in federal health benefits upon annuity commencement.

Deferred Retirement

Deferred Retirement applies to former federal employees who leave service before meeting immediate retirement requirements, but have at least 5 years of creditable civilian service and leave their FERS contributions in the system. They may receive a FERS annuity later, typically at age 62, or at their MRA with 10 years of service. Deferred retirees generally do not retain eligibility for federal health benefits.

Early Voluntary Retirement (VERA)

VERA is a special offering agencies may implement during downsizing or restructuring. It allows employees who meet specific age and service criteria, usually younger than immediate retirement requirements, to retire voluntarily.

Disability Retirement

Disability Retirement is available to employees with at least 18 months of federal civilian service who become disabled due to disease or injury. The disability must prevent them from performing useful service in their current position and be expected to last at least one year. Eligibility also requires applying for Social Security disability benefits if under age 62.

Calculating Your FERS Basic Annuity

The FERS Basic Annuity, the defined benefit portion of the retirement system, is calculated using three factors: “High-3 average salary,” years of creditable service, and a multiplier. Understanding these elements helps estimate potential retirement income.

High-3 Average Salary

The “High-3 average salary” is the highest average basic pay earned during any three consecutive years of service. This period does not have to be the last three years. Basic pay includes base salary and locality pay, but excludes overtime or bonuses.

Creditable Service

Creditable service includes all periods of federal civilian service with retirement deductions withheld, and certain military service if a deposit is made. Total years of creditable service, including fractional years, are used in the annuity computation.

Annuity Multiplier

The standard formula for calculating the FERS Basic Annuity is: High-3 Average Salary x Years of Creditable Service x Multiplier. For most employees, the multiplier is 1%. If an employee retires at age 62 or older with at least 20 years of service, the multiplier increases to 1.1%.

Different multipliers and earlier retirement ages may apply for special categories of employees, such as law enforcement officers, firefighters, and air traffic controllers. For example, some special provision employees may have a multiplier of 1.7% for their first 20 years of service.

Cost of Living Adjustments (COLAs)

Cost of Living Adjustments (COLAs) are applied to FERS annuities after retirement to maintain purchasing power. FERS COLAs are generally provided annually in January, but often differ from Social Security COLAs.

If the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increases by 2% or less, the FERS COLA matches the CPI increase.
If the CPI increase is more than 2% but not exceeding 3%, the FERS COLA is capped at 2%.
When the CPI increase is greater than 3%, the FERS COLA is 1% less than the CPI increase.

Nondisabled FERS retirees typically begin receiving COLAs at age 62, while disability retirees and survivor annuitants are eligible regardless of age.

Thrift Savings Plan Explained

The Thrift Savings Plan (TSP) is a defined contribution retirement savings plan for federal employees and uniformed service members, similar to a 401(k). It allows employees to save for retirement on a tax-deferred (Traditional TSP) or tax-exempt (Roth TSP) basis. The Federal Retirement Thrift Investment Board administers the TSP.

Employee Contributions

Employees can contribute to the TSP each pay period, up to annual IRS limits. For 2025, the standard employee contribution limit is $23,500. Employees aged 50 or older can make additional “catch-up” contributions, with a limit of $7,500 in 2025, allowing a total contribution of $31,000. A special higher catch-up limit of $11,250 applies for those turning ages 60-63 in 2025, bringing their total possible contribution to $34,750.

Agency Contributions

The employing agency also contributes to an employee’s TSP account. Agencies automatically contribute 1% of basic pay, regardless of employee contributions. They also provide matching contributions: the first 3% of an employee’s contributions are matched dollar-for-dollar, and the next 2% are matched at 50 cents on the dollar. An employee contributing 5% of basic pay receives a total agency contribution of 5%.

Investment Options

The TSP offers various investment options, known as funds, to suit different risk tolerances:
The Government Securities Investment (G) Fund, which invests in non-marketable U.S. Treasury securities.
The Fixed Income Index Investment (F) Fund, which tracks a broad U.S. bond index.
The Common Stock Index Investment (C) Fund, which mirrors a large-cap U.S. stock index.
The Small Capitalization Stock Index (S) Fund.
The International Stock Index (I) Fund.
The Lifecycle (L) Funds, which are target-date funds that automatically adjust their asset allocation over time.

Loans and Withdrawals

TSP participants may take loans from their accounts while employed. These loans must be repaid with interest, typically through payroll deductions.

Upon separation or retirement, TSP participants have several withdrawal options, including installment payments, partial withdrawals, or a total distribution (lump sum). Participants can also use their TSP balance to purchase an annuity from a private provider.

Withdrawals before age 59½ may be subject to a 10% early withdrawal penalty, plus regular income tax, unless an exception applies. Required Minimum Distributions (RMDs) typically begin at age 73 for those born in 1950 or later, requiring participants to start withdrawing a certain amount each year.

Applying for FERS Retirement Benefits

Applying for FERS retirement benefits involves several steps. Prospective retirees should gather necessary personal documents, such as birth certificates, marriage licenses, and military service records. Reviewing one’s service history and earnings before submitting an application is also advisable.

The primary application form for immediate retirement is Standard Form (SF) 3107, “Application for Immediate Retirement.” This form, with required supporting documentation, must be completed accurately. Employees typically submit their retirement application through their agency’s human resources or benefits office.

It is recommended to submit the application 60 to 90 days prior to the desired retirement date. This allows sufficient time for the agency to process paperwork and forward it to the Office of Personnel Management (OPM). Early submission helps prevent delays in benefit commencement.

After submission, retirees can expect an interim pay period while OPM processes the final annuity. OPM aims to provide interim payments, typically 60% to 80% of the estimated net annuity. Full processing by OPM can take several months, though common timelines range from 60 to 90 days.

Once OPM finalizes the retirement claim, the retiree receives a statement detailing their official annuity amount. OPM may request additional information during processing, so prompt responses are important. Social Security benefits are applied for separately through the Social Security Administration.