If you are one of the 2 million federal workers who were hired before January 1984, you have a major career decision to make later this year. The decision is whether to remain under your current Civil Service Retirement System.
Between July 1 and the end of December workers covered by CSRS will have the option of switching to the new Federal Employees Retirement System (FERS). FERS offers a private sector-style pension plan with benefits coming from Social Security, a modified civil service pension and earnings from a generous tax-deferred thrift investment program. Employes under FERS will be able to contribute more (10 percent of salary up to $7,000 per year) to the thrift plan than employes who remain under the old pension plan. FERS employes will be eligible for a 5 percent matching contribution (also tax-deferred) from the government. Workers who remain under the CSRS plan can contribute 5 percent of salary, but with no matching contribution from the government.
Amounts employes in either group, CSRS or FERS, can contribute to the thrift plan next year depend on participation this year. Generally speaking, higher-income ($50,000 per year and above) employes cannot contribute more than 2 percent above the average amount contributed by lower-income workers.
This month the Office of Personnel Management will distribute copies of a 124-page FERS Transfer Handbook. It explains the old and new pension plans and tells how to switch, if you decide to do so. Your agency is supposed to get a free copy of the booklet to you before the open season begins.
Today we take a brief look at benefits available to you under the old CSRS pension plan. Tomorrow's column will list benefits available under FERS.
The CSRS plan was designed for "lifers" -- that is, people who plan to make federal service a career and retire from the government. Benefits are based on length of service and salary.
Good points of the CSRS plan include:
You can retire as early as age 55 with 30 years' service and begin receiving full benefits (about 56 percent of your highest three-year salary average). If you take a second job it does not affect your federal pension.
Annuity benefits are indexed to inflation. Federal retirees are supposed to get full cost-of-living adjustments each January.
The retirement formula rewards people for length of service and salary. Workers may boost their pensions when they are eligible to retire by adding unused sick leave time to their federal service time.
Drawbacks to the CSRS plan include:
Workers who leave early cannot receive a retirement check until age 62 no matter how much time they have in government.
Workers who leave before they are eligible to retire may withdraw their contributions to the civil service pension plan, about 7 percent of their career salary, but get nothing extra.
Employes can retire under the CSRS system at age 55 after 30 years' service, at age 60 after 20 years' service, or at age 62 after 5 years' service. Benefits break down like this:
An individual retiring after five years gets a benefit equal to 7.5 percent of his or her high-three-year average salary. Someone retiring after 10 years gets 16.25 percent; at 15 years of service the benefit is 26.25 percent; at 20 years' service the benefit is 36.25 percent; at 25 years' service the benefit is 46.25 percent; at 30 years' service the benefit is 56.25 percent; at 35 years' service the benefit is 66.25 percent. The maximum benefit, 80 percent of the high-three salary, is reached after 41 years' service.
Tomorrow: The FERS system.