LegiStorm

Summary:

Most civilian federal employees who were hired before 1984 are covered by the Civil Service Retirement System (CSRS). Federal employees hired in 1984 or later are covered by the Federal Employees' Retirement System (FERS). Both CSRS and FERS require participants to contribute toward the cost of their pensions through a payroll tax to the Civil Service Retirement and Disability Fund (CSRDF). The Office of Personnel Management (OPM) estimates CSRS to cost an amount equal to 36.6% of employee pay. Of this amount, the federal government pays 29.6% and employees pay 7.0%. CSRS employees do not pay Social Security taxes or earn Social Security benefits. Effective beginning October 1, 2019, OPM estimates the FERS basic annuity to cost an amount equal to 16.8% of pay for employees first hired before 2013, 17.3% for employees first hired in 2013, and 17.5% for employees first hired in 2013 or later. (These FERS normal cost percentages apply to regular FERS employees. For special categories of employees—such as Members of Congress and law enforcement officers—higher normal costs apply. Beginning October 1, 2019, lower normal costs apply for employees of the U.S. Postal Service.) Of this amount, for regular FERS employees first hired before 2013, the federal government contributes 16.0% and employees pay the other 0.8%, in 2013, the federal government contributes 14.2% and employees pay the remaining 3.1%, and after 2013 the federal government contributes 14.4% and employees pay 4.4% (with the additional sums from the higher FERS employee contributions [4.4%-3.1%=1.3%]) going to pay down the CSRS unfunded liability). All FERS employees contribute 6.2% of wages up to the Social Security taxable wage base ($132,900 in 2019) to the Social Security trust fund. The minimum retirement age (MRA) under CSRS is 55 for workers who have at least 30 years of service. The FERS MRA is 55 for employees born before 1948, is 56 for employees born between 1953 and 1964, and increases on an incremental basis to 57 for those born in 1970 or later. Both FERS and CSRS allow retirement with an unreduced pension at the age of 60 for employees with 20 or more years of service and at the age of 62 for employees with at least 5 years of service. The Thrift Savings Plan (TSP) is a retirement savings plan similar to the 401(k) plans provided by many private-sector employers. In 2019, employees covered under either CSRS or FERS can contribute up to $19,000 to the TSP. Employees aged 50 and older can contribute an additional $6,000 to the TSP. Employees under FERS receive employer matching contributions of up to 5% of pay from their federal employing agency. Federal workers covered by CSRS also can contribute to the TSP, but they receive no employer matching contributions. Employers pay three other costs for employees under FERS: (1) both the employer and employee pay Social Security taxes equal to 6.2% of pay up to the maximum taxable amount; (2) agencies automatically contribute an amount equal to 1% of employee pay to the TSP; and (3) agencies make matching contributions to the TSP equal to up to 4% of pay. At the end of FY2017, the CSRDF had an unfunded liability of $968.1 billion, consisting of a $812.5 billion deficit for CSRS and a $155.6 billion deficit for FERS. Although the civil service trust fund has an unfunded liability, it is not in danger of becoming insolvent. OPM projects that the balance the CSRDF's balance will continue to grow through at least 2095, at which point it will hold assets equal to more than 6.5 times total payroll and about 20 times total annual benefit payments. This report provides an overview of current benefits and financing under CSRS and FERS. For summary information on recent reform proposals related to CSRS and FERS, see CRS In Focus IF10243, Civilian Federal Retirement: Current Law, Recent Changes, and Reform Proposals, by Katelin P. Isaacs.