Law Enforcement Officer FERS Explanation
We have focused on the Law Enforcement Officer, but let’s take a brief moment to explain the 3 legs of the Federal Employees Retirement System (FERS). This post was prompted by an email question from a FERS employee.
The question: I would like a simple and clear explanation of the FERS retirement system. Can you help?
The answer is – we are going to give it our best shot. If more clarity is needed after the publication of this post, just tell us and we will use a different approach to get you to where you want to be.
The FERS Basic Benefit is a defined benefit plan determined by two factors; the average high-3 annual earnings of an employee that represent the highest earnings during 36 consecutive months of federal service that would produce the highest average. In most cases, the highest average salary comes towards the end of the work career. However, that is not always the case.
The second factor in the FERS Basic Benefit is the employee’s length of creditable service. The calculation for the FERS Basic Benefit is different for LEOs than for regular FERS employees. An explanation of the formula can be viewed in previous posts on LEOs (LEO-FERS Basic Annuity and LEO Component Computation).
The next component of the 3 leg stool representing FERS retirement is Social Security. Earning 40 credits, approximately 4 per year over a 10 year period with a minimum age of 62 qualifies individuals for the Social Security benefit.
The last leg of the stool and potentially the largest component is the Thrift Savings Plan (TSP). The TSP is structured to build financial stability in retirement. TSP is portable and allows participants a wide-range of passive investment options. The agency contributes 1% of salary automatically whether the employee makes a contribution or not. The contributions become vested after 3 years of employment. Your TSP balance is yours to keep when you leave service.
Additionally the government will contribute from 1% to 5% in matching funds based on your level of contributions. The maximum TSP cap changes annually based on the rate of inflation. If inflation is flat, then there will be no change in the cap. It is important that employees maximize their contributions to the TSP in order to realize the greatest benefit from FERS retirement. Instead of only drawing a pension, FERS employees have the combination of a Basic Benefit, Social Security and TSP contributions.
Make certain that you speak with the TSP representative in your Human Resources Office to ensure your contributions are spread out over the 26 pay periods in order to receive maximum contributions from the government. If you max out contributions too quickly, you miss out on the government match. FERS is structured to provide employees with a retirement profile that will help them retire well.
P. S. Always Remember to Share What You Know.
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