Understanding the Federal Employees Retirement System by Jeff Boettcher

Federal Employees Retirement System information by Jeff Boettcher

Jeff Boettcher

FERS, or the Federal Employees Retirement System, is the retirement program that is set up specifically for those who work within the United States civil service. This system has been in place since 1987, when it replaced CSRS, or Civil Service Retirement System.

The FERS retirement system actually provides benefits from three primary sources. These include the:

• Basic Benefit Plan
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  – The Basic Benefit Plan is typically referred to as the FERS (Federal Employee Retirement System) plan, or simply as a FERS annuity. This pension, or “defined benefit” plan, will provide a set amount of retirement income to the employee upon his or her retirement, no matter how much the employee contributes into the plan. The employee will receive this income benefit for the remainder of their life. A Minimum Retirement Age, or MRA, must often be met in order to start receiving this income.

• Social Security – Just as with civilian employees, federal employees contribute a percentage of their pay to the Social Security program, and may begin receiving retirement benefits as early as age 62. The amount that is received in retirement benefits from Social Security will ultimately be dependent upon how much the employee has earned throughout the years, as well as how long he or she was employed in a job that made contributions into the Social Security system.

• Thrift Savings Plan (TSP) – TSP accounts are automatically set up for federal civilian employees by their particular agencies. Every pay period, the agency deposits an amount that is equal to 1% of the employee’s basic pay. Employees may also make additional contributions on their own. In addition, the employee’s agency may make a matching contribution amount. The TSP plan provides six different investment funds in which participants may choose to place their contributions. These include the following:

• G Fund – The G Fund is managed by the Federal Retirement Thrift Investment Board. This fund provides a conservative option as it purchases U.S. Treasury securities that are guaranteed by the U.S. government.

• F, C, S, and I Funds – The F, C, S, and I Funds are different types of index funds. Each of these are invested with the intent of taking on the various risk and return characteristics of the specific underlying indexes that they are benchmarking.

• L Funds – The L funds, also referred to as lifecycle funds, will automatically shift investors’ money from a mix of more risk options to a mix of more conservative options as they become older and closer to retirement.

Employee contributions are withheld for both the Basic Benefit Plan and for Social Security. These amounts are automatically taken from the individual’s paycheck via the agency that he or she works through as payroll deductions. If an employee leaves their federal employment, they are eligible to take with them their Social Security and TSP to their next employer, if they choose to do so.

About the Jeff Boettcher, AIF®: Helping clients grow and protect their wealth has been Jeff Boettcher’s passion since the 1990’s.   Mr. Boettcher is also the owner and Co-Chief Investment Officer for BWM Advisory, LLC / Bedrock Investment Advisors, as well as owns and manages the Insurance Brokerage firm (IMO) of Bedrock Financial Services, LLC.

Specializing in Federal Retirees and small business owner retirement planning strategies along with being an expert in retirement income generation, Jeff Boettcher’s knowledge has been incredibly important to both his clients and the hundred-plus independent financial professionals who rely upon Mr. Boettcher’s various companies for the services and advice they need to help their own clients.

To Contact Jeff Boettcher you can visit www.BedrockIA.com or call 800-779-4183.

Who is Eligible for the TSP Retirement Plan?

Most people who are employees of the U.S. Government are eligible to participate in the TSP. For example, you would be considered an eligible participant if you are a:

• Federal Employees’ Retirement System (FERS) employee – typically if you were hired either on or after January 1st, 1984, or
• Civil Service Retirement System (CSRS) employee – generally if you were hired before January 1st, 1984, and you did not convert over to FERS, or
• Member of the uniformed services (regardless of whether you are an active duty or a ready reserve), or
• Civilian who works in various other qualified categories of the government service.¹

In addition, you must also be actively working either on a full- or a part-time basis, as well as be able to contribute to the plan.²

In some cases, an employee may have left their employment at a government agency or in the armed services and then returned to a position within government employment at a later date in the future.

If you have had a break in your federal service, then your participation in the Thrift Savings Plan will be based on two key factors. These will include the length of your break in service, as well as whether or not you were a participant in the TSP prior to your break.

How Retirement Benefits are Determined

When the time comes to retire, the amount of benefit that you will receive will depend upon a number of different factors. These will include your age, as well as the amount of salary that you were earning throughout your time of employment. It will also include how many years of service that you put in.

As a FERS retiree, the amount of your benefit, based on the type of annuity that you receive, can be determined as follows:

Immediate Unreduced Annuity

If you are retiring with an immediate, unreduced annuity, then you can multiply 0.01 X your high-3 X all years and full months of your service. If, however, you have put in a minimum of 20 years of service and you will be retiring at age 62 or older, then you should substitute a 0.011 for the 0.01 in your equation.

MRA + 10 Annuity

If you are retiring at MRA (Minimum Retirement Age), and you have more than 10 years of service, but less than 30, then you will have a reduction of 5% per year for each year that you are retiring before you turn age 62.

Voluntary Early Retirement Authority (VERA)

If you have accepted a Voluntary Early Retirement Authority, or VERA, then you will be able to retire at age 50, provided that you have a minimum of 20 years of service. Or, you can retire at any age if you have a minimum of 25 years of service. In this situation, the amount of your retirement benefit would be determined by using the same FERS standard formula. However, in this case, you would not be penalized by the 5% reduction per year for each year under age 62.

Special Category Employees

There are some employees such as law enforcement officers, firefighters, and air traffic controllers, who are considered as Special Category Employees. If you fall into this particular category and you have a minimum of 20 years of service, then you would be eligible to retire. In this case, then your benefit amount would be determined by taking (0.017 X the high-3 X 20 years of service) + (0.01 X the high-3) X all additional years and full months of service.

When a FERS Employee Can Retire

Retirement eligibility for FERS employees is determined by an employee’s age, as well as the number of years of creditable service that they have put in with their agency. In certain instances, an employee may need to have reached a Minimum Requirement Age, or MRA, in order to receive their annuity benefits.

For the FERS Basic Benefit Plan, there are four different categories of benefits that an employee may qualify for. These include the following:

• Immediate Retirement Benefits – If an employee retires at his or her MRA (Minimum Retirement Age) and he or she has between 10 and 30 years of service, then their benefit will be reduced by 5% for each year that they are younger than age 62. The employee can also qualify for immediate benefits if they are age 60 or over and they have at least 20 years of service.

• Early Retirement Benefits – A FERS employee may qualify for early retirement benefits in certain situations of involuntary separation, as well as in cases of voluntary separation from service such as during a RIF (reduction in force) or a major reorganization.

• Deferred Retirement Benefits – If an employee is age 60 or over and they have at least 20 years of service, they will be eligible for deferred retirement benefits. An employee may also be eligible for deferred benefits if they reach their MRA and they have between 10 and 30 years of service. However, the amount of the benefit will be reduced by 5% per year for every year that they are under the age of 62.

• Disability Benefits – If an individual has not yet reached retirement age, but they have become disabled, then they may be eligible for disability income benefits. In this case, the employee must have become disabled while they were actively employed in a FERS position. In addition, the disability that they sustained must be anticipated to last for at least a period of one year or longer. The employee must also be unable to perform the work that is required in his or her present position – as certified by their agency – and their agency must also have considered the employee for any other vacant position within that same agency (at the same grade / pay level) in which the individual is qualified to perform.

How is MRA Determined?

Meeting an employee’s Minimum Retirement Age, or MRA, can be based upon the year that an employee was born. The following chart outlines what your MRA would be, based upon your year of birth:

Source: OPM.gov

FERS Survivor Benefits

In addition to retirement benefits for the individual FERS employee / retiree, there are other benefits of participating in this program. For example, should a former federal employee pass away prior to collecting his or her deferred annuity income, then their surviving spouse will be eligible to receive 50% of the annuity payout, beginning on the date that the employee attained the age and service requirements for that annuity.³

If, however, the surviving spouse chooses to collect their benefits from the annuity at an even earlier time, then they will be allowed to do so. The amount of the income benefit will simply be less.

The Bottom Line on the FERS Retirement System

The FERS retirement system can provide federal employees with an income that they can count on in the future. Yet, this particular source may or may not be ample enough to provide what is necessary for covering all of their living expenses in the future.

With that in mind, it will still be important to get an accurate assessment of just how much it may take to live in retirement, and then to plan for any potential income “gaps” that you may have. These may be filled in with personal savings and other investment options.

About the Jeff Boettcher, AIF®: Helping clients grow and protect their wealth has been Jeff Boettcher’s passion since the 1990’s.   Mr. Boettcher is also the owner of Bedrock Financial Services, LLC an Insurance Brokerage and Marketing company and also the Owner and Co-Chief Investment Officer for BWM Advisory, LLC / Bedrock Investment Advisors.

Specializing in Federal Retirees and being an expert in retirement income generation, Mr. Boettcher has helped hundreds of Federal employees grow and protect their wealth through a consistent commitment to educating the Federal Employee about their benefits. Jeff Boettcher has also demonstrated a phenomenal expertise in the retirement planning strategies necessary to maximize federal retirement benefits and has served as a trainer to some of the most successful Federal Employee Retirement Experts in the Country. Jeff Boettcher is also a consistent contributor to GovLoop.com, PSRetirement.com and RetirementPlanningNews.com.

To Contact Jeff Boettcher you can visit www.BedrockIA.com or call 800-779-4183.

Sources

1. TSP.gov (https://www.tsp.gov/PlanParticipation/EligibilityAndContributions/index.html)
2. TSP.gov (https://www.tsp.gov/PlanParticipation/EligibilityAndContributions/index.html)
3. Federal Retirement Planning (https://psretirement.com/fers-retirement/fers-eligibility/)

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