How Good Is the FERS Retirement Plan?

The Federal Employees Retirement System (FERS) is the retirement plan for most federal employees hired since 1984. This system provides retirement income through a combination of components. FERS integrates multiple sources to offer a comprehensive retirement package.

The FERS Basic Benefit

The FERS Basic Benefit is a defined benefit pension, providing a guaranteed monthly payment in retirement. Eligibility generally requires reaching a minimum retirement age (MRA) and completing specified years of creditable service. The MRA varies based on an individual’s birth year, typically ranging from age 55 to 57. For a full, unreduced annuity, most employees need at least 30 years of service at their MRA, 20 years of service at age 60, or 5 years of service at age 62.

The pension amount is calculated using a specific formula: High-3 average salary multiplied by years of creditable service multiplied by a FERS multiplier. The “High-3 average salary” is the highest average basic pay earned during any three consecutive years of federal service, not necessarily the last three. This calculation includes basic pay and locality pay but excludes bonuses or overtime. Creditable service includes time spent in federal employment for which FERS contributions were made, and unused sick leave can also be converted to creditable service.

The FERS multiplier is typically 1% for most retirees. An enhanced multiplier of 1.1% applies if an employee retires at age 62 or older with at least 20 years of creditable service. Special provision employees, such as law enforcement officers and firefighters, have a different multiplier of 1.7% for their first 20 years of service.

The FERS Basic Benefit offers various retirement types. Early voluntary retirement may be offered during agency reorganizations or reductions in force, allowing employees to retire earlier if certain age and service conditions are met. Deferred retirement is an option for employees who leave federal service before meeting immediate retirement eligibility but have at least 5 years of creditable service; the annuity begins at a later date. Disability retirement is available for employees unable to perform their job duties due to illness or injury, providing income if they meet specific medical and service requirements.

The Thrift Savings Plan

The Thrift Savings Plan (TSP) is a defined contribution retirement savings program available to federal employees, similar to a private sector 401(k) plan. It offers tax-advantaged investment growth, allowing participants to contribute their own funds and benefit from government contributions.

Federal agencies contribute to an employee’s TSP account in two ways: the Agency Automatic (1%) Contribution and Agency Matching Contributions. The Agency Automatic Contribution, equal to 1% of an employee’s basic pay, is deposited into the TSP account each pay period, even if the employee does not contribute any of their own money. Agency Matching Contributions are provided on the first 5% of pay an employee contributes each pay period. The first 3% of an employee’s contribution is matched dollar-for-dollar, while the next 2% is matched at 50 cents on the dollar. By contributing 5% of their basic pay, employees receive an additional 4% in agency matching contributions, totaling 5% from the agency when combined with the automatic 1% contribution.

The TSP offers various investment fund options:
The G Fund invests in government securities, providing capital preservation.
The F Fund invests in a bond index fund, offering broader market exposure through fixed-income securities.
The C Fund invests in a common stock index fund, mirroring the performance of large U.S. companies.
The S Fund invests in a small-capitalization stock index fund, focusing on smaller U.S. companies.
The I Fund invests in an international stock index fund, providing exposure to non-U.S. markets.
L Funds (Lifecycle Funds) are target-date funds that automatically adjust their asset allocation over time, becoming more conservative as the target retirement date approaches.

Employees can make their own contributions to the TSP on either a traditional (pre-tax) or Roth (after-tax) basis. Traditional TSP contributions reduce current taxable income, with taxes deferred until withdrawal in retirement. Roth TSP contributions are made with after-tax dollars, meaning qualified withdrawals in retirement, including earnings, are tax-free. All agency contributions (both automatic and matching) are always made to the traditional TSP balance, even if an employee contributes to a Roth TSP.

Upon separation from federal service, TSP participants have several withdrawal options:
Partial distributions of a specified amount.
A total distribution of the entire account balance.
Installment payments (monthly, quarterly, or annually).
The purchase of a life annuity.

Social Security Integration

Federal employees covered by FERS contribute to Social Security through payroll taxes, similar to private-sector workers. This ensures eligibility for Social Security benefits in retirement, in addition to their FERS Basic Benefit and TSP savings.

FERS employees contribute 6.2% of their salary to Social Security, which their employer matches, along with a 1.45% contribution for Medicare. To qualify for Social Security retirement benefits, an individual needs to earn 40 credits, typically equating to about 10 years of work with covered earnings.

While FERS employees are eligible for Social Security benefits, certain provisions can affect the amount received. The Windfall Elimination Provision (WEP) can reduce Social Security benefits for individuals who receive a pension from non-covered employment (like a FERS pension) and also have Social Security earnings. The Government Pension Offset (GPO) can reduce Social Security spousal or survivor benefits for individuals who receive a government pension based on earnings not covered by Social Security.

The Special Retirement Supplement

The FERS Special Retirement Supplement (SRS), also known as the FERS Annuity Supplement, is a temporary payment designed to bridge the income gap for certain FERS retirees who retire before age 62, the earliest age for Social Security eligibility. It approximates the Social Security benefit earned from federal service, providing additional income until regular Social Security benefits can begin. The SRS is paid by the Office of Personnel Management (OPM), not directly by Social Security.

Eligibility for the SRS generally requires an immediate, unreduced FERS annuity. This typically applies to those who retire at their Minimum Retirement Age (MRA) with at least 30 years of service, or at age 60 with 20 years of service. Employees who retire under a deferred retirement, disability retirement, or a reduced MRA+10 retirement are not eligible for the supplement. Special provision employees, such as law enforcement officers, firefighters, and air traffic controllers, may qualify under different age and service rules, often allowing them to receive the supplement earlier.

The amount of the SRS is calculated by estimating what the retiree’s full Social Security benefit would be at age 62, based on their federal earnings, and then prorating it based on their years of FERS service. A common estimation method involves taking the estimated age 62 Social Security benefit, multiplying it by the years of FERS service, and then dividing by 40. For example, if an estimated age 62 Social Security benefit is $1,500 and a FERS employee has 30 years of service, the estimated SRS would be ($1,500 30) / 40 = $1,125 per month.

The SRS begins upon retirement for eligible individuals and stops at age 62, regardless of whether the retiree chooses to begin collecting Social Security benefits at that time. The SRS is subject to an annual earnings limitation, similar to Social Security’s earnings test. If a retiree earns above a certain threshold from employment outside the federal government, the SRS may be reduced by $1 for every $2 earned over the limit. The earnings limit changes annually; for example, it was $23,400 in 2025. This reduction applies to earned income, not to the FERS pension or TSP withdrawals.