Options to Change the Federal Employment Retirement System

by | Sep 13, 2017

Last Updated June 6, 2024

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The federal government spent $91 billion on retirement benefits for civilian employees in 2016 alone.

  • $70 billion for CSRS pensions for civilian retirees and their survivors
  • $13 billion for FERS pensions for civilian retirees and their survivors
  • $8 billion for TSP contributions

These expenses were partially offset by $3 billion in revenue from employee contributions to CSRS/FERS pension plans.

The national debt is close to $20 trillion and continues to rise. Because of this, the House Oversight and Government Reform Committee asked the Congressional Budget Office (CBO) to consider changing the federal retirement system for potential savings. Under the current system, the governments’ net expenses for federal civilian retirement systems are projected to grow by an average of 2.8 percent annually between 2018-2027.

Retirement Options for FERS

The report from the CBO examines how changing FERS would affect federal government spending in the long term.

Option 1

This option would modify the FERS pension plan by changing employee contributions to the plan. It would increase the FERS contribution rate to 4.4 percent for current employees (from 0.8 percent for employees hired before 2013 and from 3.1 percent for employees hired in 2013).

Option 2

This option would decrease pension contributions for some employees with larger contributions from the government to employee TSP accounts. CBO describes this change similar to the shifts over recent decades from defined benefit to defined contribution retirement plans in many private sector companies and state governments.

It would decrease the FERS contribution rate to 0.8 percent for all employees (from 4.4 percent for employees hired after 2013 and from 3.1 percent for employees hired in 2013). This option may help in recruiting new federal employees and retaining current employees, however, it would increase the federal government’s net retirement costs by 10 percent over the next 10 years.

Option 3

Option 3 would change the current pension formula from calculations based on the High-3 salary to a High-5. This would decrease FERS pensions by basing the retirement benefit on 5 years of the highest salary. It would also decrease the government’s cost by one percent over the next 10 years.

Option 4

This option would eliminate the FERS pension and increase the government’s automatic TSP contribution to 8 percent salary. It would also require the government to match employee contributions up to an additional 7 percent.

Option 5

Option 5 would eliminate the FERS pension, increase the government’s automatic TSP contribution to 10 percent of salary and eliminate the governments’ matching contributions. This option would potentially have the biggest long-term savings for the government.

Most of these proposals would have a greater impact on new employees than those who are already employees.

There’s also no guarantee that Congress will adopt these changes.

 

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