FERS not a better deal than CSRS
- By Bureaucratus
- May 24, 1998
Recent preliminary guidance from the Office of Personnel Management urges federal employees covered by the Civil Service Retirement System (CSRS) to decide whether to switch to "the more flexible" Federal Employees Retirement System (FERS). I am not certain I agree with OPM's characterization of FERS' greater flexibility, and I certainly disapprove of the apparent bias in OPM's description.
OPM's guidance at times reads like an ad for FERS. "If you transfer, your past CSRS service and all future FERS service will be added together to determine when you can retire," it said. "Instead of the CSRS retirement rules, you will follow the more flexible FERS rules."
OPM said you can retire on full benefits under FERS if you attain "at least the minimum retirement age (55 to 57) with 30 years or more of combined service; or are at least age 60 with 20 years or more of combined service; or are at least age 62 with five years or more of combined service." So far, I do not see any enhanced flexibility; the same set of rules applies to CSRS employees. Where's the beef?
Maybe the value is added when you decide to retire with reduced benefits. OPM said that if you switch to FERS, you can retire with reduced benefits if you attain at least the minimum retirement age (55 to 57) with 10 years or more of combined service. For example, if you have 12 years of CSRS service when you transfer to FERS, and you work eight more years, your total service is 20 years. You can retire with full benefits at age 60 or with reduced benefits at your minimum retirement age.
"In addition, transferees do not have to work under FERS for any minimum amount of time," according to the OPM guidance. "If you retire early, you will receive reduced combined CSRS and FERS benefits. The reduction will be 5 percent for each year you are under age 62 when you retire. However, there is no reduction if you are 60 when you retire and you have at least 20 years of service. You also can keep your federal health and life insurance coverage as a retiree if you met participation requirements as an employee."
Frankly, I am surprised that OPM is hawking FERS so blatantly. Yes, you can retire under FERS at age 55 with just 10 years of service, but you lose 5 percent of your pension for each year you are under the age of 62. So retiring at age 55 would result in a 35 percent reduction. And the annuity computation will only credit you with 10 years of service, which guarantees that your benefit will be quite small. Does that sound like a good deal to you?
Also, a key source of income for FERS retirees is the value of their Thrift Savings Plan.
In contrast, the formula used by the government to calculate retirement benefits for CSRS participants only considers years of service, average earnings and retirement age. The stock market can plunge by 1,000 points, and CSRS retirees will still get their full benefit.
That is not the case with FERS. If you have made substantial contributions to the FERS TSP and invested in the C Fund, your retirement benefits are highly dependent on how the stock market performs.
Would I want the major portion of my retirement income to depend on how the stock market performs? Absolutely not.
FERS does guarantee a specific benefit when you retire, but it is much smaller than the benefit guaranteed by CSRS. The only way you can come out ahead with FERS is if you contribute as much as is permitted into the TSP and your investments appreciate substantially.
Also with CSRS, the government guarantees your retirement benefit and promises annual cost-of-living increases that are tied to the consumer price index. With FERS, the guaranteed portion of your pension is not tied to the consumer price index; instead, you get 1 percent less.
OPM is performing a major disservice to federal employees by camouflaging this difference between the two plans. If you have been enrolled in CSRS for years, you are getting a good deal. Why switch?
OPM is supposed to look after the interests of federal employees. To this observer, it sure looks as if OPM has dropped the ball.
Bureaucratus is a retired federal employee who contributes regularly to Federal Computer Week.