FERS Transfer Handbook

F E R S

Federal Employees Retirement System

Transfer Handbook
A Guide to Making Your Decision

Revised October 1997

Note: The material in this publication is based on the law in effect at the time it went to publication. Under the Balanced Budget Act of 1997, Public Law 105-33 for fiscal year 1998, employee retirement contributions will increase as follows. Deductions for the Civil Service Retirement System and the Federal Employees Retirement System would be increased by 0.25% in January 1999, by an additional 0.15% in January 2000, and by 0.1% more in January 2001, for a total increase of 0.5%. These higher contribution rates would be in effect through 2002. Additional retirement information and all publications of the U.S. Office of Personnel Management listed in this handbook are available on the internet.
OPM Website - http://www.opm.gov/asd

Table of Contents

Introduction. . . . . . . . . . . . . . . . . 1

Why have I been Given this Book?

Your Chance to Choose

The Choice for People with Only Social Security Coverage

What happens if I Do Nothing?

How This Handbook Is Organized

What Things Do You Need to Make Your Choice?

CSRS and FERS: How Do They Work?. . . . . . . . . . . . . . . . . . . . . 5

Federal Employees Retirement System (FERS). . . . . . . . . . . . . . . . . . . . .7

Overview

When You Can Receive Retirement Benefits

How Much You Will Receive After Retirement

Cost-of-Living Adjustments (COLA's)

Cost to Participate

Thrift Savings Plan for FERS

Important Conclusions About FERS

Civil Service Retirement System (CSRS). . . . . . . . . . . . . . . . . . . .15

Overview

When You Can Receive Retirement Benefits

How Much You Will Receive After Retirement

cost-of-living adjustments (COLA's)

Cost to Participate

Thrift Savings Plan for CSRS

Voluntary Contributions for CSRS

Important Conclusions About CSRS

CSRS Offset Benefits

Important Conclusions About CSRS Offset

Special Transfer Rules: CSRS to FERS.........................................20

Overview

When You Can Receive Retirement Benefits

How Much You Will Receive After Retirement

cost-of-living adjustments (COLA's)

Disability Benefits

How CSRS Offset Service is Credited

Cost to Participate

Survivor Benefits

Important Conclusions

Making Your Decision......................................23

Choosing Based on When You Expect to Retire

Close to Retirement Age

A Special Note for Career Couples Near Retirement

Far From Retirement Age

In Between - Neither Close to Retirement nor Far From It

The Trade-offs

FERS Flexibility

Some Important Cautions

If You Are Unable to Meet Social Security Eligibility Requirements

If You Are Unable to contribute Enough to the Thrift Savings Plan

If You Should Die Soon After choosing

Summary of Situations That Could Make Switching to FERS a Problem

Brief Description of the Social Security Program. . . . . . . . . . . . . . . . . . .30

Introduction

How the Program Is Financed

Qualifying for Benefits

Benefits to Family Members

Amount of Social Security Benefits

Taxation of Social Security Earnings Test

Who is Affected

How the Social Security Earnings Test Works

Conclusion

Windfall Elimination Provision

What Is the Windfall Elimination Provision

Who is Affected

How the Windfall Elimination Provision Works

Conclusion

How to Estimate the Reduction In Your Social Security Benefit Resulting from the Windfall Elimination Provision

Use of PEBES Benefit Estimates to Estimate CSRS-Offset Reductions

Government Pension Offset

What the Government Pension Offset Is

Who is Affected

What is a Social Security Spouse or Survivor Benefit

How the Government Pension Offset Works

What is the Effect of Transferring to FERS

Conclusion

Special Employee Groups. . . . . . . .39

Law Enforcement and Firefighting Personnel

CSRS

FERS

Special Transfer Rules

Transfer Considerations for Law Enforcement and Firefighting Personnel

Air Traffic Controllers

CSRS

FERS

Special Transfer Rules

Transfer Considerations for ATC's

Military Reserve Technicians

CSRS

FERS

Thrift Savings Plan Consideration for

Special Groups

Service Credit Deposits and Refunds. . . . . . . . . . . . . . . . . . .42

Civilian Service

CSRS

FERS

Military Service

CSRS

Service in the National Guard

FERS

Conclusion

Glossary. . . . . . . . . . . . . . . . . . . 45

Acronyms

Examples. . . . . . . . . . . . . . . . . . .49

CSRS/FERS Special Transfer

Rules. . . . . . . . . . . . . . . . . . . . . 56

Comparison Table

Introduction

Why Have I Been Given This Book?

You have been given this handbook because you have an opportunity to choose to be covered by the Federal Employees Retirement System (FERS). This is a very important decision. Depending on what the future holds for you, your decision can make a difference to you in how early you can retire from the Federal government and how much retirement income you will have.

FERS was created by Congress 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. Currently, more than 1.3 million employees are covered by FERS.
However, when the Congress created FERS, one of the rules it established was that people who already had enough Federal civilian service to potentially be eligible for a benefit some day under the old Civil Service Retirement System (CSRS) would have a choice whether or not to be covered by FERS. Your agency has identified you, based on your current appointment and employment history, as someone who meets this criterion. As a result, you have a choice whether to keep the retirement coverage you now have or to transfer to FERS.
Depending on your current appointment and employment history, you currently may have CSRS coverage, CSRS Offset coverage, or only Social Security coverage. CSRS Offset coverage normally applies to employees who are going to a job with retirement after a break in both service and CSRS coverage of more than 1 year, and who also had at least 5 years of civilian service as of the break in service.

The most common groups of employees who have an opportunity to elect FERS coverage are as follows.

Employees who are returning to Federal employment after a break in service of more than 3 days, who already have at least 5 years of Federal civilian service and who were previously covered by CSRS. If you are in this group and in a position that provides retirement coverage, you now have CSRS or CSRS Offset coverage.

Certain employees with CSRS coverage who are moving to a senior position that, by law, is also covered by Social Security.

Employees who are converted from an appointment that is excluded from retirement coverage, and whose prior service history precludes automatic FERS coverage. For example, after a break in service, you may have obtained a temporary appointment and have now been converted back to a career appointment.
Employees who have an appointment, such as a term appointment, that is excluded from CSRS coverage, but not from FERS coverage, and whose prior service history prevents automatic FERS coverage. If you are in this group, you have Social Security coverage only.
Annuitants who retired under CSRS or CSRS Offset provisions and who have been reemployed after a break of more than 3 days on other than a temporary or intermittent basis.
This handbook is written primarily for employees who have a choice between CSRS or CSRS Offset coverage and FERS coverage. The Standard Form 50 (or equivalent personnel form) that shows your current appointment will say whether you currently have CSRS coverage, CSRS Offset coverage, or only Social Security coverage. If you have any questions about what your current retirement status should be, contact your servicing personnel office. Be sure that they have accurate records of all your Federal service. Even a few days can make a difference.
If you are already covered under FERS, you do not need to read this handbook. The U.S. Office of Personnel Management (OPM) booklet called The Federal Employees Retirement System, (RI 90-1) describes your benefits. If you are a Member of Congress or a congressional staff person, you should see your servicing personnel office.
The information in this handbook is based on the law in effect as of the printing date.

Your Chance to Choose

You have a personal election opportunity for 6 months from the date of your reemployment or your conversion to an appointment that offers FERS coverage. If you choose FERS, you can't change your mind later; so you want to choose the plan that fits best with your future plans.
Both CSRS/CSRS Offset and FERS are good retirement plans. Each plan has advantages and disadvantages. Neither plan is best for all Federal employees. That's why you are being given a choice.
In general, CSRS may be better if you think that you will retire from the Federal Government after a long career -- 20 or 30 years and before age 62. But what if you're not sure what the future holds? Maybe you're not planning to spend the remainder of your career with the Federal Government, or you may want to retire before you have 20 or 30 years of Federal service. In either case, FERS may be the retirement plan you want.
Either way, the decision deserves thought. You need to consider factors such as your work history, when you want to retire, and whether or not you plan to stay in Federal service until then. The same transfer considerations apply, whether you are working full time or on a part-time basis. If you are married, we encourage you to discuss your choice with your spouse.

This handbook takes you through important considerations and shows you why they're important in CSRS/CSRS Offset and FERS. You may reach a decision early on, but you should still go through the first 23 pages of the handbook because there are some special circumstances that may change your mind. When you finish reading, you should be prepared to make a choice based on the plan overviews, comparisons, and examples. In most cases, you shouldn't have to do any complicated calculations to decide which retirement plan you like better.
Remember, the decision whether to choose FERS is yours to make. This handbook contains the information you need to consider, but it won't tell you what to do. You must decide based on what you know about yourself, your past, and your expectations for the future. We have tried to keep the handbook as simple as possible, and your agency should have personnel available who can answer your questions about it. So if However, if 1) you have a former spouse who is entitled, by court order, to a portion of your CSRS annuity or CSRS survivor benefits, 2) the court order is on file at OPM, 3) the former spouse has not remarried before reaching age 55, and 4) the former spouse is still living, you cannot transfer to FERS without that former spouse's consent. OPM can waive this requirement only in very limited circumstances. If you don't know whether OPM has a qualifying court order on file, or want to request a waiver of the consent requirement, ask your servicing personnel office for Standard Form 3111, Request for Waiver, Extension, or Search.

The Choice For People With Only Social Security Coverage

You also have a choice if you were rehired under or converted to an appointment that is excluded from CSRS coverage, but not from FERS. Employees on term appointments are the primary group who are eligible for FERS coverage, but not CSRS coverage. For example, suppose that Bill had 10 years of service under the CSRS, then left the Federal government for 2 years. Today, he is returning to Federal service under a term appointment. Because of the amount of previous CSRS-covered service Bill has, he is excluded from automatic FERS coverage, and has only Social Security coverage. He can choose to have FERS, or to remain under Social Security coverage.
Right now, you too can choose to stay under only Social Security, or to change to FERS. You need to decide if FERS fits your needs. If so, you should choose it now. However, if you believe that the CSRS/CSRS Offset plan fits your needs better, you also need to think about whether you believe that, in the future, you will get a career-type appointment that would provide CSRS or CSRS Offset coverage. Most people would probably join FERS because of the unknown career future, and the continuing of Social Security coverage, plus added Thrift Savings Plan benefits.

What Happens If I Do nothing?

If you do nothing, your current coverage (CSRS, CSRS Offset, or Social Security) will stay the same. Most people will not have another chance to choose FERS coverage unless they leave Federal service for more than 3 days.

How This Handbook is Organized

This handbook begins with a review of the important features of CSRS and FERS, so you can understand how each plan works.
Next there's a section called "Making Your Decision" that explains how to determine which plan better meets your needs. It also discusses some important cautions to consider when making your decision.
The next section provides a brief description of the Social Security Program.
This handbook also has an appendix that contains a handy reference chart for comparing the basic elements of CSRS and FERS as well as the special rules for employees who transfer.
As you go through the handbook, you'll see a table of contents for each section. This should make it easy for you to find the information you need.
Also, you'll come across some words that are printed in bold type. These words are important to know. They're explained in the text, and are also included in the Glossary Section in the back of the book.

What Things Do You Need To Make Your Choice?

This handbook should give you enough information to decide which retirement plan you like better without doing any calculations. You will need only a pen to fill out the retirement plan election form.
If you want to do calculations, there is a computer program available on disk (check with your agency personnel office) that allows employees like yourself, who have an opportunity to transfer to FERS, to enter data about future career expectations to compare CSRS and FERS benefits. However, since this program is a projection into the future that requires making assumptions that may or may not turn out to be accurate, the numbers produced by the program should not be taken as estimates of future benefits. Instead, the results allow employees to evaluate the relative benefits of the two retirement systems as they apply to the data provided. This program is also available on OPM's electronic bulletin board, OPM ONLINE. The ONLINE telephone number is 202-606-4800.
In addition, this handbook provides only an overview of the Thrift Savings Plan (TSP). Since TSP is a key component of FERS, you should ask your employing agency for the booklet, "Summary of the Thrift Savings Plan for Federal Employees," published by the Federal Retirement Thrift Investment Board. The booklet contains detailed information about the Thrift Savings Plan. It is available on the Thrift Board Website at http://www.tsp.gov.

If you have already earned some Social Security credits, but are not sure how many, you should request this information from the Social Security Administration, using Form SSA-7004, Request for Earnings and Benefit Estimate Statement. Your personnel office may have the form or you can request it by calling 1-800-SSA-1213, or you can download it from Social Security's Website at http://www.ssa.gov.

CSRS and FERS: How Do They Work?

An overview, When you can receive retirement benefits, How much you will receive, How your benefits can increase after retirement,

How much it costs you now, Savings options that are available, and Some important conclusions.
This section describes how the plans work for the majority of Federal employees. Other topics, such as information on special employee groups (law enforcement officers, firefighters, air traffic controllers, and military reserve technicians), are covered in a later section of the handbook. Early retirement, disability and death benefits are covered in more detail in Retirement Facts pamphlets that can be obtained from your agency personnel office, OPM's electronic bulletin board system and OPM's Website.

BLANK PAGE FOR FRONT TO BACK PAGINATION

Federal Employees Retirement System (FERS)

Overview

FERS is a retirement plan that provides benefits from three different sources: a Basic Benefit Plan, Social Security, and the Thrift Savings Plan. Two of the three parts of FERS (Social Security and the Thrift Savings Plan) are portable should you leave the Federal Government before retirement. FERS gives you more control over the retirement benefits you receive.
The Basic Benefit and Social Security parts of FERS require you to make contributions each pay period. The cost of the Basic Benefit and Social Security are withheld from your pay as payroll deductions. The Government makes contributions too. Then, after you retire, you receive benefit checks each month for the rest of your life. This is what is called an annuity. The Thrift Savings Plan part of FERS is an account that is automatically set up for you. Each pay period your employing agency deposits into your account an amount equal to 1 percent of the basic pay you earn for the pay period. You can also make your own contributions to your TSP account and your agency will contribute even more.
Although FERS is a single retirement plan, the three benefit sources have different rules. The Basic Benefit and Social Security portions will be discussed together first. The Thrift Savings Plan will be explained by itself later.
Information about Social Security appears throughout this section on FERS. A brief overview of the Social Security program prepared by the Social Security Administration begins on page 33.
There also are some special rules for employees who transfer from CSRS/CSRS Offset to FERS. Be sure to read about them in the section that begins on page 21.

When You Can Receive Retirement Benefits

Basic Benefit Plan

If You Stay Until Retirement Age

With FERS, you can retire with a Basic Benefit as soon as you reach the Minimum Retirement Age (MRA) and have just 10 years of service. The MRA is the first year in which you can receive benefits. It varies according to the year you were born. For anyone born before 1948, the MRA is age 55. It increases gradually to age 56 for those born before 1965 and goes up to 57 for those born in 1970 and after.
The following chart will help you determine what your MRA is.

Under FERS, you can retire when your age and years of Federal service match any of the retirement combinations shown below. These are all immediate annuity benefits that also allow you to keep your Federal Employees Health Benefits (FEHB) and Federal Employees' Group Life Insurance (FEGLI) coverages as a retiree if you have been enrolled for enough time (usually the 5 years immediately preceding your retirement) before you retire.

Postponing Your Benefits

If you retire at your Minimum Retirement Age with only 10 years of service or less than 30 years of service or less than 20 years of service if age 60, you can wait until age 62 for full benefits and get a postponed annuity, or you can begin receiving reduced benefits any time before age 62. Your monthly benefits will be reduced 5/12 of 1 percent for each month (up to 5 percent per year) you are younger than age 62 when you start receiving benefits. For example, if you retire at age 56 with 10 years of service, you are 6 years away from age 62. Your retirement benefit checks will be reduced by 30 percent.

If You Leave Before Retirement Age

One real advantage to FERS is that you do not have to stay with the Federal Government until retirement to receive good value from your retirement plan. This value comes from the fact you get an Agency Automatic contribution to your Thrift Savings Plan (TSP) account equal to 1% of your salary. Plus, if you contribute to the TSP, you can get up to 4% more. In addition, you will probably earn more Social Security credits wherever you work next. If you leave the government long before retirement, with little service, FERS will always be best.
Let's say that you leave before you have the right combination of age and service to retire. Once you reach the age shown in the chart on page 07, you may elect to begin receiving benefits. If you don't have 30 years of service, you may also choose to put off receiving benefits until as late as age 62. This will allow you to receive a bigger benefit by avoiding part or all of the 5 percent per year reduction, and you can collect on your Social Security and your TSP benefits.

If you don't want to wait until retirement age, you can withdraw all of the money you have contributed toward the FERS Basic Benefit Plan. It will be paid to you with a market rate of interest; that is, the same rate of interest earned by the U.S. Treasury securities purchased by the Retirement Fund (the account that contains all employee and employer contributions to CSRS and FERS). However, you give up your right to your Basic Benefit after retirement. If you take your money out, you cannot put it back in if you return to work with the Federal Government later. It's usually better to leave your money in FERS so that you can receive monthly benefits when you retire. This is because you pay very little compared to the benefits you will eventually receive from the Basic Benefit.

Social Security

For almost all American workers, Social Security is the basic retirement plan to which other benefits are added. To qualify for Social Security retirement benefits, you must have paid Social Security taxes for at least 10 years (or 40 "quarters") over the course of your lifetime. (This 40-quarter rule applies if you were born after 1928. If you were born before 1929, you need fewer quarters to qualify). The Social Security credits you earn as a Federal employee are added to those you have earned in other employment throughout your career.
You can receive unreduced Social Security benefits if you wait until age 65. Starting in the year 2000, this age will gradually increase to 67. Or, you can retire at age 62 and receive reduced benefits. Your monthly Social Security checks will be reduced about 20 percent from the full benefit amount you'd receive if you waited until age 65. (This gradually increases to a 30 percent reduction for those born in 1960 or later.) Leaving the Federal Government before you retire has no effect on the Social Security benefits you receive later. All of your FERS Social Security credits (years of covered employment) still count. You may continue to add more quarters of Social Security credits as long as you work under Social Security. You can still receive reduced Social Security benefits at age 62 or full benefits at age 65 (or later as the Social Security retirement age goes up to 67).

How Much You Will Receive After Retirement

Basic Benefit Plan

The amount of your FERS Basic Benefit annuity -- the monthly checks you receive after retirement -- depends on two things: your pay and your length of service.

As in most other retirement plans, an annuity formula is used to determine your benefits. The Government averages your highest 3 consecutive years of basic pay in your Federal career. This "high-3" average pay, together with your length of service, are used in the annuity formula. Your length of service is the total number of years and months you were covered under FERS.
Here is how the annuity formula is calculated:

According to this formula, if you retire at age 55 with 30 years of service, you will be eligible for an annual annuity that is 30 percent of your high-3 pay. If you retire at age 62 with 30 years of service, you would get 33 percent of your high-3 pay.
In addition, If you have at least 1 calendar year (January 1 to December 31) of FERS service, you will be eligible for the Special Retirement Supplement. The Special Retirement Supplement (also known as the FERS Annuity Supplement) is a special benefit for those who have at least 1 full calendar year of FERS coverage, and who retire

(1) after 30 years of service at their MRA,
(2) after 20 years of service at age 60, or
(3) under the discontinued service or early voluntary retirement provisions. (These employees do not begin to receive the Special Retirement Supplement until they reach the MRA.)
The Supplement represents the amount you would receive from the Social Security Administration for your FERS service as if you were 62 on the day you retire. This benefit substitutes for the Social Security part of your total FERS benefit until age 62, when most people become eligible for Social Security. Like Social Security benefits, the Supplement is subject to an earnings test, which means your benefits are reduced if your income is higher than an allowable amount.
If you take advantage of the FERS early retirement option (retiring at your MRA after leaving the Government), your annuity will be calculated according to the FERS annuity formula shown at the beginning of this section. Then, if you have less than 30 years of service, it will be reduced 5 percent for each year of service you are away from age 62 when you retire or elect to receive benefits. If you are 60 with 20 years of service, there's no reduction.
Remember, the Basic Benefit is just one of the three sources of benefits you'll receive. You may also get Social Security and Thrift Savings Plan benefits.

Social Security

It's difficult to predict exactly how much you will receive from Social Security.
A number of factors can affect your Social Security benefits, such as your complete pay history, whether or not you plan to work after retirement, and whether your spouse has been covered by Social Security.
Social Security benefits are determined by a three-part formula that is applied to your lifetime earnings under Social Security. Those who postpone receiving Social Security benefits until the full retirement age get higher benefits from the system.
Whether you start receiving Social Security benefits at age 62 or at the full retirement age, you should be aware that continuing to work may result in what is called an earnings offset under the Social Security Earnings Test. If you work at any job after you start receiving Social Security payments, your benefits will be reduced if you earn over the allowable amount. If you are under your full retirement age, for every $2.00 you earn over the amount, you'll give up $1.00 in Social Security benefits. The same rules apply to the Special Retirement Supplement. (See Special Notes on the Social Security Earnings Test on page 36 for more information on this topic.)
More information about Social Security is presented on page 33 and in the Overview section.

Cost-of-Living Adjustments (COLA's)

Basic Benefit Plan

Cost-of-living adjustments, or COLA's under the FERS Basic Benefit Plan begin when you reach age 62.
FERS Cost-of-living-adjustments's match the rate of inflation when the increase in the Consumer Price Index (CPI) is up to 2 percent. (The CPI is a monthly survey that measures changes in consumer prices.) If the increase in the CPI is between 2 and 3 percent, the Cost-of-living-adjustments will be 2 percent. If the CPI increases 3 percent or more, the Cost-of-living-adjustments will be the rate of increase in the CPI minus 1 percent. This means that FERS cost-of-living-adjustments are sometimes less than the rate of inflation.
For example, if the increase in the CPI is 2 percent, FERS basic benefit payments will increase by 2 percent. If the increase in the CPI is 5 percent, FERS retirement checks will increase by 4 percent.
The Supplement paid through age 62 is not increased by cost-of-living adjustments.

Social Security

Social Security gives cost-of-living adjustments that match the rate of inflation.

Cost to Participate

Basic Benefit Plan

FERS Basic Benefits, including the Special Retirement Supplement, are financed by very small contributions from you and much larger contributions from the Government. Your contributions are automatically deducted from our paychecks. The Basic Benefit deduction for 1997 is .80 percent of the total basic pay (basic pay, not including such things as overtime, bonuses, etc.) you earn in a pay period. However, in contrast, your agency pays 11.4 percent of your pay each pay period for your Basic Benefit.
If you leave the Federal Government before retirement, you can take out all of your Basic Benefit Plan contributions, and you will receive market rate interest, but you lose any right to a future Basic Benefit.

Social Security

Your contributions to Social Security are actually a tax. This means that there are no refunds -- even if you never gain enough years of Social Security credit to qualify for benefits.
Social Security taxes are a percentage of your pay, including overtime and bonuses. They are limited to earnings below the maximum taxable wage base, which in 1997 is $65,400. This amount increases each year based on the annual average increase in earnings of the American work force as a whole. (You do not pay Social Security taxes on any earnings above the maximum taxable wage base. However, these excess earnings are not used in calculating your Social Security benefits, either.) The Social Security tax rate, not counting Medicare, in 1997 is 6.2 percent of salary up to the maximum taxable wage base. Your agency also pays the same amount.

Total Cost to Participate

The total cost to you of the FERS Basic Benefit contribution and Social Security in 1996 is 7.0 percent. However, FERS will cost you less than 7.0 percent if you earn more than the $65,400 maximum taxable wage base because the Social Security tax stops when your earnings reach this amount. In other words, the FERS employee contribution rate is .80 percent. This is different from CSRS Offset which for 1997 is 7.0% minus Social Security taxes. If FERS salary exceeds the Social Security maximum wage base, contributions stay in 1997 at .80%; thus take-home pay goes up. However, if CSRS Offset salary exceeds the Social Security maximum wage base, when Social Security deductions stop, 1997 retirement contributions go up to 7.0% - thus take-home pay is unchanged.

Thrift Savings Plan for FERS

The Thrift Savings Plan is an important part of the total FERS retirement package. It gives you a way to save extra money for the future and to get a tax break today.
When you join FERS, your agency sets up a Thrift Savings Plan account in your name. Every pay period, your agency automatically puts in an amount equal to 1 percent of your basic pay. This money is called your Agency Automatic (1 percent) Contribution. It is not a deduction from your basic pay. It is an amount your agency contributes for you based on your basic pay per pay period.
In addition, you can contribute up to 10 percent of your basic pay per pay period to your Thrift Savings Plan account. If you contribute to your Thrift Savings Plan account, you will also receive Agency Matchings Contributions as follows:
The first 3 percent you save each pay period will be matched dollar for dollar, and
The next 2 percent you save each pay period will be matched 50 cents on the dollar.
Your own contributions and your Agency Matching Contributions as well as the earnings associated with these contributions belong to you right away. There is no waiting (vesting) period. You are vested in the Agency Automatic (1 percent) Contributions and associated earnings after you have completed 3 years of Federal (generally, civilian) service (2 years for some noncareer participants).
The following chart shows how your agency matches your contributions:

The money in your Thrift Savings Plan account can be invested in any of the three investment funds: the Government Securities Investment (G) Fund, the Common Stock Index Investment (C) Fund, and the Fixed Income Investment (F) Fund. The C and F Funds are riskier than the G Fund but have the potential for earning higher rates of return. For example, during the 9-year period 1988 through 1996, the C Fund's compound annual rate of return was 15.9%.
Twice each year there is a Thrift Savings Plan open season. During the open season, you can start, stop, increase or decrease, and change the investment of your Thrift Savings Plan contributions. The investment election you make during the open season affects only your future contributions. You may move any portion of your existing account balance among the three funds by requesting an interfund transfer in any month you choose, without an annual limit.
You can stop contributing to the Thrift Savings Plan at any time. However, if you stop contributing outside an open season, you must wait until the second open season after you stop before you can contribute again. If you stop contributing during an open season, you may resume contributions during the next open season.
You get a tax break for saving in the Thrift Savings Plan because your Thrift Savings Plan contribution comes out of your basic pay before Federal and many State and local income taxes are figured. There is, however, an Internal Revenue Service annual limit on tax-deferred contributions. For 1997, the limit is $9,500; this limit is indexed to cost-of-living adjustments referred to in the Tax code and may change from year to year. You won't owe taxes on your contributions and associated earnings until you withdraw your TSP account. You cannot withdraw your account until you separate or retire from Federal service. If you transfer all or any portion of your Thrift Savings Plan account balance to an Individual Retirement Arrangement or other eligible retirement plan when you leave Federal service, you do not pay taxes on the funds transferred when they are transferred. You will, however, be subject to applicable taxes when you withdraw your funds from the Individual Retirement Arrangement or other eligible retirement plan.
Although you may not withdraw money from your Thrift account while you are working for the Government, you can borrow from it for general purpose or for the purchase of a primary residence. You must have at least $1,000 in your own contributions and associated earnings to be eligible for a loan.
The Thrift Savings Plan is managed by the Federal Retirement Thrift Investment Board, an independent Government agency. The Board manages the G Fund and contracts with a professional asset manager to manage the C and F Funds. To find out more about the Thrift Savings Plan, ask your employing agency for the most recent booklet prepared and issued by the Board. You should read the Board's detailed information on each of the Investment Funds and review each Fund's performance before making any investment decision. The Board also issues a Fact Sheet each month containing the monthly returns for the Thrift funds. This is available from your agency.

Important Conclusions About FERS

FERS is flexible for a work force that is more likely to work for several different employers over the course of a career. It allows for the fact that many employees may not retire from the Federal government. FERS builds on the Social Security credits that employees already have or may earn in the future from non-Federal work. Also, the Thrift Savings Plan keeps its value after an employee leaves Federal service.

There are some important advantages to FERS:
Portability - FERS lets you take most of your retirement benefits with you when you leave Federal service and add to them in your future jobs. Instead of decreasing in total value, most of your benefits will continue to grow. You'll probably earn more Social Security credits wherever you work next. Also, your contributions and associated earnings, Agency Matching Contributions and associated earnings, and if vested, the Agency Automatic (1 percent) Contributions and associated earnings, in your Thrift Savings Plan account can be transferred to

an Individual Retirement Arrangement or other eligible retirement plan. You may also leave your Thrift Savings Plan account balance in the Plan where it will continue to accumulate earnings based on your investment decisions. The part of FERS that does decrease in value, the Basic Benefit, only requires a small contribution from you. If you withdraw your Basic Benefit contributions, you receive interest on that money.
Flexibility - You have more control over the amount of your retirement benefits. For example, you decide how much to contribute to the Thrift Savings Plan and where money is invested. If you contribute, the first 5 percent of your contributions are matched by agency contributions.
Minimum Service Requirement - you can receive a reduced benefit after only 10 years of service once you reach your Minimum Retirement Age, whether or not you reach that age while a Government employee. You do not have to wait until age 62.
Early Annuity Eligibility - If you leave the Federal Government before retirement and with at least 30 years of service, FERS lets you begin to receive full retirement benefits as soon as you reach the Minimum Retirement Age or with 20 years of service when you are at least 60 years old. You do not have to wait until age 62.
FERS has some disadvantages too:
To get the most out of FERS, you have to pay more than the 7.0 percent that the Basic Benefit and Social Security require. You also need to take advantage of the Thrift Savings Plan, especially if you are an upper income employee, for whom Social Security will make up a smaller percentage of retirement income.

If you continue to work after you start receiving the FERS Special Retirement Supplement or Social Security, you could lose some benefit dollars if your earnings are more than the allowed amount.
The cost-of-living adjustment that FERS provides (CPI minus 1 percent) does not completely make up for inflation if the increase in the Consumer Price Index is more than 2 percent. Also, cost-of-living adjustments do not start until you are age 62, even if your retire sooner.
FERS is a good retirement plan, especially for employees who are not sure whether they will stay with the Federal Government until they retire. FERS gives employees more control over the amount of their retirement benefits. It also allows you more flexibility in deciding when to retire.
If you do stay with the Federal Government until retirement, you will also receive good benefits based on your FERS coverage. FERS comes out ahead of CSRS if you retire late because the annuity value of your Social Security benefit and Thrift Savings Plan go up quickly if you continue to work past age 62. The Windfall Elimination Provision penalty reduces (see page 36) as you go from 20 to 30 years of service under FERS. The reduced cost-of-living-adjustments have less effect if you retire later.

Civil Service Retirement System (CSRS)

The Civil Service Retirement System (CSRS) has traditionally been a single benefit retirement plan. Employees have had one payroll deduction for the plan and, after retirement, have received one check from CSRS each month for the rest of their lives.
CSRS employees may also contribute to the Thrift Savings Plan in order to receive additional retirement income. If you stay with CSRS, you can contribute up to 5 percent of your basic pay each pay period and receive a tax break today. (CSRS, including CSRS Offset employees, receive no agency contributions to their Thrift accounts.)
If you have CSRS Offset coverage, you should read both this section, which gives the basic CSRS rules, as well as the following section beginning on page 19. It tells you what is different under the offset rules. Also available is Retirement Facts 13, CSRS Offset Retirement, RI 83-019 which explains retirement rules for offset employees.

When You Can Receive Retirement Benefits

If You Stay Until Retirement Age

With CSRS, you can retire with full benefits as soon as your age and years of Federal service match one of the retirement combinations shown below:

Retiring Under CSRS

At least age 55 with 30 years of service or more.
At least age 60 with 20 years of service or more.
At least age 62 with 5 years of service or more. Except in limited circumstances, CSRS does not allow you to retire voluntarily before you have the required age and service combination and take a reduced benefit (a reduced annuity) like FERS and many other modern plans do.

If You Leave Before Retirement Age

The chart above shows when you can retire and begin receiving CSRS benefits as an immediate annuity. If you leave Federal service before you are eligible to retire, you must wait until age 62 to receive monthly benefits, no matter how many years of service you have.
For example, let's say you simply stop working for the Federal Government at age 53 with 30 years of service. You're not 55 yet, so you don't qualify for retirement. Your monthly checks from CSRS won't start until you turn 62. Your monthly benefit amount is based on your pay when you leave. With inflation, those dollars don't buy as much by the time you receive them at age 62. You can't continue your health or life insurance as a retiree, either.
If you don't want to wait until age 62 to get benefits, you can withdraw all of the money you've contributed when you leave. However, in most cases, your money will be returned to you without any interest, and, you will not get monthly checks from CSRS, even at age 62.

How Much You Will Receive After Retirement

The amount of your annuity -- the monthly checks you receive after retirement -- depends on two things: your pay and your length of service. In computing your annuity, the Government uses your 3 highest consecutive years of basic pay and your length of service (the number of years and months you worked for the Federal Government). If you retire and receive a benefit right away, you will also get credit for any unused sick leave.

Here is how the CSRS annuity formula is calculated:

Note: The maximum benefit you can receive from CSRS is 80 percent of your high-3 pay plus credit for your sick leave. This limit generally affects only those who have more than 41 years of service when they retire.
According to the formula above, if you retire at age 55 with 30 years of service, you will be eligible for an annual annuity that is about 56 percent of your high-3 pay.
You will receive your full monthly annuity even if you have other retirement income or start a second non-Federal career when you retire. There is no reduction in your annuity because of other employment.
This is a very generous annuity formula compared to those used by many other retirement plans. As you can see, it rewards long service, because you receive more money for the years of service that come late in your career. It's not quite as generous if you have less than 10 years of service.

Cost-of-Living Adjustments (COLA's)

Inflation is a fact of life, but the actual rate of increase varies from year to year. To help retirement benefits keep pace with inflation, CSRS gives all those who retire annual cost-of-living adjustments or COLA's.
Your retirement benefits are eligible to be increased by a cost-of-living-adjustment in the year after you retire, and every year after that. The increases you receive each year actually match the rate of inflation, as measured by the Consumer Price Index (CPI).
For example, if the increase in the Consumer Price Index is 2 percent, CSRS retirement checks will increase by 2 percent. If the increase in the Consumer Price Index is 5 percent, the cost-of-living-adjustments will also be 5 percent.

Cost-of-living adjustments help make sure that your retirement dollars keep the same buying power year after year. CSRS is better than many other retirement plans because it provides complete protection against inflation.

Cost to Participate

CSRS retirement benefits are financed by contributions from you and much larger contributions from the Government. Your contributions are automatically deducted from your paychecks. Your deduction in 1997 is 7.0 percent of the total basic pay you earn in a pay period. Your agency pays 7.0 percent of your basic pay each pay period. The balance of the cost of CSRS benefits are paid from the U.S. Treasury.

Thrift Savings Plan for CSRS

CSRS employees may participate in the Thrift Savings Plan. The Plan gives you a way to save extra money for the future and gives you a tax break today. The Plan allows you to contribute up to 5 percent of your basic pay per pay period on a before tax basis to your Thrift Savings Plan account. CSRS employees do not receive Agency Matching or Automatic (1 percent) Contributions.
The Thrift Savings Plan investment options, withdrawal and tax information are the same for both CSRS and FERS employees. See page 11 for this information.

Voluntary Contributions for CSRS

CSRS employees also may make voluntary contributions. Total contributions may not exceed 10 percent of the total pay an employee has received to date. At retirement, each $100 in voluntary contributions (including interest earned) will provide an additional annuity of $7 a year, plus 20 cents for each full year you are over age 55 at the time you retire. You may also choose to share the annuity by electing a survivor annuity. Voluntary contributions paid out as additional annuity are not increased by cost-of-living-adjustments. Voluntary contributions can also be paid out as a lump sum refund at any time before retirement.
Voluntary contributions earn a variable interest rate determined by the Treasury Department each calendar year, based on the average yield of new investments purchased during the previous fiscal year. The interest rate payable for 1997 is 6.875 percent. Interest accrues to the date of the refund calculation, separation, or transfer to a position not subject to CSRS, whichever is earliest. Employees who transfer to FERS may retain a voluntary contributions account, but may not add to it after transferring.
Interest on voluntary contributions is not taxed until the tax year in which it is paid out. At that time, inter...........................................