Today marks the beginning of the open season when most federal workers -- including nearly 300,000 here -- must decide their pension future.
The decision workers make between now and Dec. 31 when this first open season ends will be with them the rest of their lives. The plan selected could earn (or lose) thousands of dollars in retirement income. For many, the choice will determine whether they just get by, or live very comfortably, once they have stopped working for Uncle Sam.
During this pension open season most U.S. workers hired before 1984 must make an all-important career decision: Should they stick with the old Civil Service Retirement System, an excellent plan, or move into the new Federal Employees Retirement System, which is more like a private-sector pension package?
Both plans are good. Both are backed by the government. But chances are one is much better for you. The trick is figuring out which one.
There is no easy way to pick a plan.
Old Plan: Generally speaking, the current Civil Service Retirement System is probably best for you if you plan to make the government a career. The CSRS offers benefits from a single source: a civil service pension based on your salary and length of service. It also promises retirees a raise to catch up with inflation each January.
Under the CSRS plan workers may invest up to 5 percent of pay in a tax-deferred thrift plan. Those investments are put into a so-called G-Fund that is made up of Treasury securities with an interest rate that changes monthly. Investments in the G-Fund are guaranteed by the government.
Only about a third of the people now working for the government will retire from the government. Workers who leave federal service before qualifying for a pension will get back only the money they contributed to the retirement fund (about 7 percent of their salary) plus any money in their thrift plan account.
New Plan: For workers who think they will not retire from the government, the new FERS plan should be considered. It offers benefits and mobility not available in the old retirement plan.
For instance, under FERS retirement benefits will come from three sources: Social Security, a modified civil service pension and earnings from investments (which the government will partially match) in a multi-option tax-deferred thrift plan.
Workers under FERS can, this year, put up to 10 percent of salary or $7,000 in the thrift plan with the government matching 5 percent for employes who contribute 5 percent or more.
Workers who leave government can take all their thrift plan account money with them and transfer it to another qualified pension plan (with a new company) or put it in an individual retirement account.
The number of people covered by the old Civil Service Retirement System is shrinking every day as employes retire, quit government or die. But its benefits are guaranteed by Congress, which means that the plan is not going to dry up and blow away. The number of people covered by the new Federal Employees Retirement System is growing every day, because virtually all new U.S. hires are covered by it.
During the next few weeks we will have a series of columns devoted to the old and new plans, and where you can get help (both free, and for a fee) in making your decision. Next Tuesday we will list firms that offer special computer comparisons of benefits under the old and new plans.