By Tammy Flanagan

March 31, 2006

Which federal retirement system is better? If you ask most employees, they seem to think the Civil Service Retirement System provides more generous benefits than its newer counterpart, the Federal Employees Retirement System. Even though most employees don't have any control over which system they're in, there are several reasons why this remains a subject of discussion: Two Different Approaches

A good place to start a comparison is with a basic knowledge of the how the two systems were designed.

The modern civil service dates back to 1883. CSRS was created in 1920. By that time, some civil servants had been on the job for 37 years. Why hadn't they retired? Partly because there was no retirement system available. Employees who did not have families to support them generally would work until they died or became too unhealthy to continue. Congress must have looked at the employees occupying federal jobs and decided it was time to rejuvenate the workforce.

CSRS was designed as a stand-alone program to provide a means for employees to survive after they retired from government. (Remember, Social Security wasn't created until 1935.) CSRS was supposed to serve career civil servants who entered federal service at a young age and remained onboard for a full career.

FERS has its roots in 1983 changes to Social Security mandating that all federal employees hired after that year would be subject to Social Security tax withholding, and would later receive benefits from the program. FERS was designed to be compatible with private sector retirement plans.

The creators of FERS figured such compatibility would help agencies attract mid-career employees from private companies, and would enable federal employees to explore careers outside of government. When FERS employees leave federal service before retirement, they can take their Social Security benefits with them and roll over the funds in their Thrift Savings Plan accounts into private firms' 401(k) plans. They also can collect a small pension benefit as long as they complete a minimum of five years of federal service.

CSRS employees were not able to set up TSP accounts until 1987 and generally were not encouraged to save for retirement prior to the creation of the TSP. CSRS employees receive no matching contributions on their TSP investments, and they do not earn Social Security benefits during their federal careers. Let's look at a comparison of a CSRS employee and one covered by FERS. In the example, we'll assume the employee retires at age 56 while making a $68,000 salary:

Basic benefit (30 years service with high-three average salary of $65,000) $36,562 $19,500
Social Security supplement $0 $10,800
Thrift Savings Plan account balance (assuming 5 percent contributions and an average return of 8 percent) $155,000 $311,000
TSP income (assuming employee withdraws 4.5 percent per year and continues to earn 8 percent return) $6,975 $13,955
Total annual retirement income $43,537 $44,255
In this example, FERS comes out slightly ahead of CSRS. But consider the following factors that could change the situation: The employee leaves federal service before retirement eligibility. The employee continues working until age 62. The employee reached the high end of the federal salary range. The employee worked at a lower salary or for fewer years.

In these cases, FERS doesn't look too shabby stacked up side by side with CSRS. But there are a few other reasons why someone might be happier retiring under CSRS:

At the same time, there are also some reasons why someone might be happier to retire under FERS: Resources Checklist 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.

By Tammy Flanagan

March 31, 2006