Federal Employee Retirement System – Definition

Cite this article as:"Federal Employee Retirement System – Definition," in The Business Professor, updated January 14, 2020, last accessed October 22, 2020, https://thebusinessprofessor.com/lesson/federal-employee-retirement-system-definition/.

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Federal Employee Retirement System (FERS) Definition

The Federal Employee Retirement System (FERS) is a retirement system for Federal civilian employees in the United States. This system offers a three-tier retirement plan that covers employees with the Civil Service in the US. FERS was created in 1986 but became effective on January 1, 1987.

FERS was created to replace the Civil Service Retirement System. When it became effective, FERS offered three retirement benefits or plans to federal civilian employees which are;

A Little More on What is the Federal Employee Retirement System (FERS)

Federal civilian employees recruited after 1983 are covered by the Federal Employee Retirement System (FERS). Employees under this system need to contribute a percentage of the salary in order to receive retirement benefits in the future.

The FERS has a  defined-benefit annuity structure, this is the structure in which retirement benefits are paid out to retired federal civilian employees. There are certain eligibility criteria that employees under the FERS must meet before they can start receiving annuities. The age of the retired employee, years of service and the percentage of salary contributed to the plan determine the annuities that will be paid to an employee.

21.2% to 25.4% of employee’s payroll is contributed to the FERS. These contributions belong to the employee regardless of whether they change jobs.

Vast, Underfunded Retirement System

The Civil Service Retirement System (CSRS) is quite different from the Federal Employee Retirement System (FERS). While FERS features an accrual of retirement benefit at slower rates, CSRS offers much faster rates. CSRS however, has unfunded liability given the fact it is partially funded by contributions made by employees and employers. As of 2013, the unfunded liability of CSRS was $785.0 billion, this unfunded liability is expected to rise to $834.8 billion by 2025, this is according to a Congressional Research Service report.

References for “Federal Employee Retirement System – FERS”

https://www.benefits.gov/benefit/4583

https://www.opm.gov/retirement-services/fers-information/

www.federalretirement.net/fers_eligibility.htm

https://en.wikipedia.org/wiki/Federal_Employees_Retirement_System

https://www.investopedia.com › Retirement › Retirement Savings

https://www.thebalancecareers.com › … › Government Careers › Retirement Planning

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