What Is FERS Retirement and How Does It Work?

The Federal Employees Retirement System (FERS) is a retirement plan designed for most civilian employees of the U.S. federal government hired after December 31, 1983. Enacted in 1986 and effective January 1, 1987, FERS aligned federal retirement benefits with those found in the private sector. It integrates multiple benefit sources, distinguishing itself from its predecessor, the Civil Service Retirement System (CSRS).

The Three Pillars of FERS

FERS is structured around three pillars that provide a comprehensive retirement benefit: the Basic Benefit Plan, Social Security, and the Thrift Savings Plan (TSP). The Basic Benefit Plan operates as a defined benefit pension plan, providing a guaranteed monthly annuity payment for life after retirement. Both employees and their agencies contribute funds to this plan, with employee contributions withheld from their paychecks.

Social Security covers federal employees like most private-sector workers. FERS employees contribute to Social Security through payroll deductions and accrue eligibility for its benefits, which include retirement income, disability protection, and survivor benefits.

The Thrift Savings Plan (TSP) is a defined contribution plan similar to a 401(k) or 403(b). The TSP allows employees to save for retirement on a tax-deferred basis, with agency contributions. Agencies automatically contribute 1% of an employee’s basic pay each pay period, and they also provide matching contributions on employee contributions up to an additional 4%. Employees can invest their TSP funds across various options, including G, F, C, S, I, and L Funds.

Eligibility for FERS Retirement

To qualify for FERS retirement benefits, federal employees must meet specific age and service requirements, which vary depending on the type of retirement sought. The Minimum Retirement Age (MRA) ranges from 55 to 57, depending on an employee’s birth year. For instance, individuals born before 1948 have an MRA of 55, while those born in 1970 or later have an MRA of 57.

Beyond age, the number of years of creditable service is important for eligibility. Creditable service includes periods of civilian federal employment during which FERS retirement deductions were withheld. It can also encompass military service if a deposit, often called a “military buyback,” is made to receive credit for that time. Unused sick leave can increase total creditable service for annuity computation, but it does not count towards meeting minimum service requirements for eligibility.

Minimum service requirements vary, with five years of creditable civilian service needed for eligibility for a deferred annuity. Immediate retirement requires more extensive service, such as 30 years of service at the MRA, or 20 years of service at age 60. To qualify for most FERS retirement types, an employee must be serving in a position subject to FERS coverage at the time of retirement, or meet specific conditions for deferred or postponed retirement if separated from service.

Calculating Your FERS Basic Annuity

The FERS Basic Annuity is calculated using a formula that considers an employee’s salary history and length of service. The “High-3 Average Salary” is a key element of this calculation. This refers to the highest average basic pay earned by an employee during any three consecutive years of service, which are often the final three years of employment.

The formula also incorporates the total years of creditable service. Each full year and any fractional part of a year (rounded to the nearest month) of federal service, including purchased military service, contributes to the annuity calculation. The number of service years directly impacts the size of the monthly pension.

A multiplier is then applied to these two factors. For most FERS retirees, the standard multiplier is 1% of the High-3 Average Salary for each year of service. However, for those who retire at age 62 or older with at least 20 years of creditable service, a higher multiplier of 1.1% is used.

The general formula for calculating the FERS basic annuity is: High-3 Average Salary × Years of Creditable Service × Multiplier. For example, an employee with a High-3 of $80,000 and 30 years of service, retiring at age 62, would receive an annual annuity of $26,400 ($80,000 x 30 x 0.011). FERS annuities may also be subject to Cost-of-Living Adjustments (COLAs) after retirement, beginning at age 62, to maintain purchasing power.

Retirees can also choose to allocate a portion of their annuity for survivor benefits, which provides a continuing payment to a designated beneficiary, often a spouse, after the retiree’s death. Electing a survivor benefit will result in a reduction of the retiree’s monthly payment during their lifetime. The reduction can be 5% for a partial survivor benefit (25% of the unreduced annuity) or 10% for a maximum survivor benefit (50% of the unreduced annuity).

Types of FERS Retirement

Immediate Retirement

Immediate Retirement is available to employees who meet age and service combinations, allowing their annuity to begin within 30 days of their last workday. Common scenarios include retiring at the Minimum Retirement Age (MRA) with 30 years of service, at age 60 with 20 years of service, or at age 62 with at least 5 years of service. This option provides full, unreduced benefits if the age and service criteria are met.

Early Retirement

Early Retirement, often authorized under Voluntary Early Retirement Authority (VERA), is offered by agencies during downsizing or reorganizations. Eligibility for VERA requires employees to be age 50 with 20 years of service, or have 25 years of service at any age. This option provides an immediate annuity, though it may be subject to a reduction if the retiree is under age 62.

Deferred Retirement

Deferred Retirement applies to employees who leave federal service before becoming eligible for immediate retirement but have at least five years of creditable civilian service. These individuals can apply to receive their FERS annuity at a later date, at age 62 or their MRA, depending on their years of service. Eligibility for federal health benefits (FEHB) is lost upon separation and cannot be reinstated when the annuity begins.

Postponed Retirement

Postponed Retirement is an option for employees who separate from service at their MRA with at least 10 years of service, but choose to delay the start of their annuity to avoid a permanent age-based reduction. By postponing, an employee can receive a full annuity at age 62 and may retain the ability to re-enroll in federal health benefits when their annuity commences.

Disability Retirement

Disability Retirement is available to employees who become unable to perform their job duties due to a medical condition. To qualify, an employee must have completed at least 18 months of federal civilian service and their disability must be expected to last at least one year. The employing agency must certify that it cannot reasonably accommodate the medical condition, and the employee must apply for Social Security disability benefits. The Office of Personnel Management (OPM) reviews and approves disability retirement applications.

FERS for Special Categories

While FERS provides a general framework, certain occupations have special retirement provisions due to their demanding or hazardous nature. These special categories include Law Enforcement Officers (LEO), Firefighters, and Air Traffic Controllers (ATC). Their roles often involve higher physical demands, stricter age requirements, and earlier potential retirement ages compared to other federal positions.

Employees in these special categories have different minimum retirement ages and service requirements. For instance, many can retire as early as age 50 with 20 years of specialized service, or at any age with 25 years of specialized service.

Furthermore, the annuity calculation for these special categories may include a higher multiplier for a portion of their service. For example, their annuity might be calculated using a 1.7% multiplier for the first 20 years of specialized service, followed by the standard 1% multiplier for service exceeding 20 years.