If you and/or your spouse are an employee of the federal government, you have access to a wide array of benefits – including a retirement savings plan, life insurance protection, and health insurance coverage.
But even though these benefits can equate to financial security – both now and in the future – they can also be somewhat confusing. So, it is important that you have a good understanding of what you have access to, and that you maximize all of your coverage options.
Understanding Your Federal Employee Insurance and Retirement Benefits
Among your government benefits are programs that can directly affect your – and possibly even your spouse and other loved ones’ – financial future. These include the Federal Employees Retirement System (FERS) and/or the Civil Service Retirement Service (CSRS).
Federal Employees Retirement System(FERS)
Congress created the Federal Employees Retirement System in 1986 and it became effective on January 1, 1987. Since that time, new Federal civilian employees who have retirement coverage are covered by FERS.
FERS provides retirement benefits from three different sources. These include:
These three components of FERS can all work together in order to provide you with a strong financial foundation for your retirement years.
Both the Basic Benefit plan and Social Security will require that you pay into the system each payday. Agencies withhold the cost of these plans as payroll deductions, plus your agency pays its share, too. After you retire, you are entitled to a monthly annuity income for life.
If you leave Federal service before you reach your full retirement age and you have a minimum of five years of FERS service, you can elect to take a deferred retirement. Two of the three parts of FERS – Social Security and the TSP – can remain with you if you leave your federal government job before you retire.
In other words, while FERS is offered through your government employer, many of the features of this plan are “portable,” meaning that even if you leave federal employment, you may still be able to qualify for these benefits.
Employees who are enrolled in FERS and who were first hired before 2013 contribute 0.8 percent of their pay to the CSRDF. Employees who were enrolled in FERS and who were first hired in 2013 or later contribute 3.1 percent of pay to the CSRDF. Also, all employees who are enrolled in FERS contribute 6.2 percent of wages – up to the Social Security taxable wage base – to the Social Security Trust Fund.
The Minimum Retirement Age, or MRA, for FERS participants who were born before 1948 is age 55. The MRA for employees who were born between 1953 and 1964, is 56. The MRA increases to the age of 57 for those who were born in 1970 or later.
FERS allows retirement with an unreduced pension at the age of 60 for employees who have 20 or more years of service, and at the age of 62 for employees with at least five years of service.
When FERS Participants Can Retire
Civil Service Retirement Service (CSRS)
The Civil Service Retirement Act became effective on August 1, 1920. Through this act, a retirement system for certain federal employees was established – the Civil Service Retirement System, or CSRS. This plan was later replaced by the Federal Employees Retirement System, or FERS, for federal employees who initially entered into their covered service either on or after January 1, 1987.
When FERS was first created, all federal workers at that time had the option to convert from CSRS to FERS. Now, all federal employees are automatically enrolled in FERS and they do not have the option to choose CSRS. Therefore, CSRS is only available to federal workers who were in the plan before 1987, and who choose to remain with CSRS in lieu of switching over to FERS.
The Civil Service Retirement System, or CSRS, is a defined benefit, contributory system. This means that the amount of retirement benefit you receive is a set, known amount, and also that employees share in the expense of the retirement annuities to which they will become entitled.
Those who are participants in this classic pension plan contribute a percentage of their pay, and when they retire, they can receive an annuity that may help to maintain a certain standard of living throughout their retirement years.
Several different types of retirement may trigger the need for CSRS benefits. The U.S. Office of Personnel Management will work with your specific agency's personnel to process your annuity claim. To help in reducing or eliminating delays, it is important to ensure that your Official Personnel Folder is complete. You can also submit your paperwork early, if applicable.
Overall, the types of retirement may include:
- Early Retirement
- Voluntary Retirement, or
- Deferred Retirement
You may also be able to receive CSRS benefits due to a qualifying disability.
The Most Common Retirement Mistakes that are Made by Federal Employees
Even though federal retirement benefits are fairly comprehensive, employee participants may still make mistakes – both before and after retirement – that can impact what is received through these plans.
Some of the most common mistakes that are made by federal employees include:
Not Regularly Reviewing Your Personnel File
Knowing what is in your personnel file can help you to better ensure that you’re prepared for retirement – especially if it is determined that there are some mistakes. Although the Office of Personnel Management (OPM) handles a lot of data regularly, it is never a good idea to simply assume that yours is correct.
With that in mind, make sure that you regularly review your Official Personnel Folder, or OPF, and in particular Form SF 50 (the Notice of Personnel Action) to make sure that everything matches up.
This information can include details regarding which retirement plan(s) you are enrolled in, as well as important dates like when you officially began employment with the federal government.
Not Maximizing Contributions to the Thrift Savings Plan (TSP)
The Thrift Savings Plan can encompass a large portion of your retirement savings. So, it makes sense to maximize these benefits. You can do so by contributing as much money as possible – up to the annual maximum limit – each year.
This can give you a bigger “base” from which to generate tax-deferred growth. In addition, because your government agency may offer a matching program, you will want to make sure that you are eligible to receive this “free money.”
Not Keeping Track of and Managing Health Insurance Coverage
As we get older, one of the biggest expenses that can be faced is healthcare. As a government employee, you (and your spouse and children, if applicable) will have access to a comprehensive health insurance program. This coverage can also remain after you have retired.
With that in mind, make sure that you meet all of the eligibility criteria for taking the coverage with you when you retire. Otherwise, you may miss out on keeping this protection and in turn, having to pay a much larger out-of-pocket sum when you require healthcare in retirement.
Not Updating the Beneficiary Information
While most people do not like to think about the unexpected, it is still essential to plan for it. Therefore, you should name one or more beneficiaries on your government retirement plan, as well as on your government-provided life insurance coverage.
It is also important to make sure that your beneficiary information is always up-to-date – especially if you have had any major changes take place in your life, such as marriage or divorce, death of a spouse, and/or the birth or adoption of a child.
Regularly reviewing your beneficiary(ies) means that funds won’t be paid out to someone for whom they are no longer intended.It can also help you to ensure that you aren’t unintentionally disinheriting someone who you want to provide these funds to.
Is Your Retirement Plan Up-to-Date?
Making sure that your retirement plan and other related benefits are up-to-date is essential for living a worry-free future. That’s because when you know that you’re covered financially, you can spend your time focusing on other things, like doing things you enjoy with the people you love and care about.
If you would like to make sure that your federal retirement plan is on track with your objectives – or if you’d simply like to get a second opinion – feel free to reach out to us. Our retirement income professionals are well-versed in designing cash flow plans for retirees – in particular, those who are FERS and CSRS participants.