CSRS vs. FERS: 2008 Edition
There is no denying that some parts of CSRS truly are superior to FERS, such as:
- Inflation Protection: CSRS retirees who are old enough and have selected an immediate retirement benefit start getting cost of living adjustments right away. And the COLAs are the same as they are for Social Security recipients and military retirees -- the full increase in the Consumer Price Index for urban wage earners and clerical workers. The FERS basic benefit also features a COLA, but it is less generous and usually not payable until the retiree is 62 years old.
- No Need to Save: CSRS is a single benefit retirement plan. It's possible to live comfortably on CSRS benefits without a dime of Social Security and with little in retirement savings -- although most people need to have 30 or more years of federal service for this to be true.
- Support for Survivors: Full survivor benefits for a spouse equal 55 percent of the unreduced CSRS benefit, and the reduction to provide this benefit is less than 10 percent of the overall benefit. Full survivor benefits for a spouse of a FERS annuitant are 50 percent, and the reduction to the FERS benefit is a full 10 percent. Surviving spouses of FERS retirees also generally will inherit the balance in the spouse's Thrift Savings Plan account and may qualify for widow's benefits under Social Security.
- Better Basic Benefits: The CSRS basic benefit is almost twice as large as its FERS counterpart. But CSRS employees are exempt from Social Security and receive no matching on their TSP contributions. And unused sick leave is added in the CSRS computation, while FERS employees currently receive no credit for it. (Although the House voted this summer to give FERS retirees the same sick leave credit as those under CSRS.)
- Lifetime Security: Under CSRS, you do not have to worry that your money might run out before you do. The CSRS annuity is for life, and is indexed to inflation. The FERS basic benefit and Social Security also are lifetime benefits, but it is possible to outlive your retirement savings in your TSP account if you neglect to plan for the future.
What FERS Offers
So if CSRS has all that going for it, what does FERS offer? Here are a few advantages:
- More Flexibility: FERS offers Social Security coverage that's the same as you would have if you worked in private industry -- or any other job sector. Your Thrift Savings Plan funds belong completely to you, even if you don't spend your entire career in federal service. The automatic 1 percent agency contribution is vested after three years of service. Your contributions and agency contributions matching them are immediately vested. If you resign from federal service, you can transfer these funds to a new employer's retirement savings plan, or continue to leave them invested in the TSP. Also, the FERS basic retirement benefit is vested after only five years of civilian service.
- More Control: Some people are very good at managing their investments, knowing the importance of diversification and the value of compound interest. FERS employees who have maximized the potential of their TSP investments probably would not choose to switch to CSRS if it meant they had to give up the agency contributions on their TSP accounts, along with the accompanying interest growth.
- Disability Benefits: The FERS disability program is more generous than CSRS for employees with as little as 18 months of federal service. FERS employees also may be eligible for additional Social Security disability benefits. Most CSRS employees would not qualify for Social Security disability because they don't have recently earned Social Security credits.
- Dependent's Benefits: FERS employees who work for only a portion of a full career and spend the other part working at home to raise a family and take care of a household can receive either their own Social Security benefits or the dependent's benefits earned by their spouse -- whichever is higher. A CSRS retiree is affected by the Government Pension Offset, which usually eliminates or greatly reduces any dependent's benefit.
- Support for Family Members: Social Security provides not only for workers, but also their dependents, upon death, disability or retirement. CSRS provides survivor benefits only for spouses.
- Leaving a Legacy: For those who are unmarried and not concerned about survivor annuity benefits for spouses, FERS allows anyone to be named as the beneficiary of TSP funds. For the annuities that make up the core of a CSRS retirement, only a spouse or a person having an "insurable interest" in you can receive a benefit if you die first.
Asking for It
I know that in even raising the CSRS vs. FERS question, I'm asking for it. I went through this a couple of years ago with my most controversial column to date. Many of you already questioned my mental state at that point, so you can save your breath this time around.
Here are my basic beliefs, and I'm sticking to them:
- I believe that FERS employees who spend their entire career in federal service can expect to retire comfortably if they understand that FERS requires employee participation and involvement.
- Compared to most private sector retirement plans, FERS has the advantage of a basic benefit. Most companies are no longer offering their workers such pension plans.
I will agree that, in general, CSRS provides more security for much less effort. In the long run, FERS will be less expensive to the government, since it places more responsibility on the employee to save.
That presents a problem, because not everyone manages their retirement savings to optimum advantage. Many people neglect to save for retirement in their younger years, and it's very hard, if not impossible, to make up for that lost time in later years.
I hope those of you who are new to federal service will recognize early in your career that you will not be able to live comfortably on just Social Security. Even adding in the FERS basic benefit won't be enough if you want to retire at a young age (55-62). You need to save and invest. Take the time to understand retirement planning early in your career. It will pay off in the future.
Tammy Flanagan is the senior benefits director for the National Institute of Transition Planning Inc., which conducts federal retirement planning workshops and seminars. She has spent 25 years helping federal employees take charge of their retirement by understanding their benefits.