Annuity Contribution Change

For around 30 years, since the 1980s, employees that contributed to the FERS retirement plan put in 0.8% of their entire earnings toward their annuity. They received 1% to their annuity for every annual year that was served with three of the highest salary earned.

This finally changed in 2013 for newcomers as the contribution amount grew to 3.1%. It was then increased to 4.4% for new hires in 2014 and on. These changes were made due to two laws that were passed, which were “Revised Annuity Employees” (FERS-RAE) and “Further Revised Annuity Employees” (FERS-FRAE).

These laws did not change the annuity itself, but only the required contribution amounts.

Some think that investing these contributions outside of the program, if permitted, would be more beneficial than what the increase provides, as the benefits barely change for the better.

Here is some more information on what these policy changes mean:

If an employee retires at 62 or up with 20 years of service or more, 1% per year of time served will be 1.1%. The annuity payments themselves last throughout your lifetime.

Employees that retire before 62 years will be provided an annuity supplement. For those that are retiring this year, the amount could be more than 2K per month, but it depends on age, salary earned, and the time served. However, this benefit is terminated at age 62 and cannot be transferred to another family member after death (but the annuity will be). The payout can also be lessened if you are receiving too much income.

For quite a period of time, there have been proposals on terminating this benefit altogether to save more money for taxpayers, like the change in contribution rate did. However, if this were to happen, more than likely, employees with at least half a decade of service or more will be exempted from this change. The thing is, unlike the annuity contribution change, where the savings were quite immediate, if the supplement were to be cut, the savings would not be seen until the younger generation of workers retires in the future with at least 20 years of work under their belt.

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