United States General Accounting Office

GAO Report to Congressional Requesters

April 1997 FEDERAL

RETIREMENT

Federal and Private

Sector Retirement

Program Benefits Vary

GAO/GGD-97-40

GAO United States

General Accounting Office

Washington, D.C. 20548

General Government Division

B-271057 

April 7, 1997

The Honorable Ted Stevens

Chairman, Committee on Appropriations

United States Senate

The Honorable Fred Thompson

Chairman, Committee on Governmental Affairs

United States Senate

The Honorable John L. Mica

Chairman, Subcommittee on Civil Service

Committee on Government Reform and Oversight

House of Representatives

This report is in response to requests by the Chairmen of the former Senate Subcommittee on

Post Office and Civil Service and the House Subcommittee on Civil Service that we make a

series of analyses of federal and nonfederal retirement programs. As part of the requests, we

were asked to (1) update the reports on nonfederal retirement programs we completed for

Congress when the Federal Employees Retirement System (FERS) was being designed and

(2) compare current nonfederal programs with FERS and the Civil Service Retirement System

(CSRS). As agreed with the Subcommittees, this report provides comparative information on the

features and benefit levels of retirement programs offered by primarily large private sector

employers, FERS, and CSRS. We are not making any recommendations in this report.

As agreed with your representatives, unless you publicly announce its contents earlier, we plan

no further distribution of this report until 30 days after its issue date. At that time, we will send

copies of this report to (1) the Ranking Minority Members of the Senate Committees on

Appropriations and Governmental Affairs and of the House Subcommittee on Civil Service,

(2) other appropriate congressional committees, (3) the Director of the Office of Personnel

Management, (4) the Executive Director of the Federal Retirement Thrift Investment Board,

and (5) other interested parties. We will also make copies available to others on request.

Major contributors to this report were Robert E. Shelton, Assistant Director, and Laura G.

Shumway, Senior Evaluator. Please contact me at (202) 512-8676 if you or your staff have any

questions concerning this report.

L. Nye Stevens

Director, Federal Management and

 Workforce Issues
Executive Summary

Purpose Over the years, considerable debate has occurred over how retirement

programs for federal employees compare with the programs available to

other employees in the United States. The Chairmen of the former Senate

Subcommittee on Post Office and Civil Service and the House

Subcommittee on Civil Service asked GAO to compare the features and

benefit levels of the federal government’s two largest retirement programs

for its civilian employees—the Federal Employees Retirement System

(FERS) and the Civil Service Retirement System (CSRS)—with those of

private sector retirement programs.

Background Thousands of private sector retirement programs exist, covering millions

of employees. According to the Bureau of Labor Statistics, over 75 percent

of the full-time employees in private establishments with 100 or more

employees and about one-half of the full-time employees in private

establishments with 99 or fewer employees are covered by at least one

retirement program to which their employers contribute in addition to the

Social Security program. The remaining employees are covered by Social

Security, but not by retirement programs to which their employers

contribute.

The designs of private sector retirement programs vary greatly, although

all have the Social Security program as their base. Some employers’

programs have both defined benefit and defined contribution plans.

Defined benefit plans specify formulas for computing benefit amounts

payable at retirement typically based on an employee’s age, length of plan

participation, and salary history. In contrast, defined contribution plans

specify amounts that the employer (and employees, if required) will

contribute to the plan. The accumulated contributions, plus investment

earnings, constitute the source of employee retirement benefits from a

defined contribution plan. Also, some employers’ programs have defined

benefit plans only, and others have defined contribution plans only in

addition to Social Security.

Together, FERS and CSRS covered about 2.8 million federal employees at the

beginning of fiscal year 1995. The design of FERS consists of three

parts—Social Security; a defined benefit plan; and a defined contribution

plan, the Thrift Savings Plan (TSP), to which the federal government and

most of its employees contribute. CSRS is a stand-alone defined benefit

plan. Employees in CSRS may contribute to the FERS defined contribution

plan, but the government does not make any contributions to their

accounts. Employees in CSRS are not covered by Social Security through

Page 2 GAO/GGD-97-40 Federal and Private Retirement Benefits
Executive Summary

their federal employment. In general, FERS covers employees who first

entered federal service after 1983, and CSRS covers employees who entered

earlier.

GAO and the Congressional Budget Office (CBO) contracted at different

times with Watson Wyatt Worldwide, a company that collects benefits data

from a wide range of employers, to obtain information on the features and

benefit levels of the private sector retirement programs included in this

report. Watson Wyatt provided this information to GAO and CBO from its

1993 COMPARISON database, which was the latest database available at

the time the GAO contract was awarded. The database contained

information on the retirement programs of primarily large private sector

employers. About one-half of these employers were Watson Wyatt clients;

the remainder were from a survey of U.S. employers included in Fortune

magazine’s list of 1,000 top employers. Therefore, the features and benefit

levels developed from the database could not be generalized to the private

sector as a whole.

The database described the features of 661 employers’ retirement

programs. Of these programs, sufficient information was available to allow

the contractor to determine the benefit amounts provided by 435

employers’ programs. Of the 435 employers, 61 percent had 2,500 or more

employees, and 37 percent had fewer than 2,500 employees. The remaining

2 percent of the employers did not provide size information. About

70 percent of the 435 employers provided both defined benefit and defined

contribution plans, about 24 percent of the employers had defined

contribution plans only, and about 6 percent had defined benefit plans

only.

To see how employees with varying ages and years of service would fare

under FERS, CSRS, and private sector retirement programs, the contractor

calculated the benefit amounts potentially available to five illustrative

employees at three different salary levels. In making these calculations,

the contractor included the benefit amounts from the defined benefit and

defined contribution plans to which employers made contributions as well

as the amounts from Social Security. For private sector employers, the

contractor made and then averaged separate calculations for each of the

435 private sector retirement programs. Because defined contribution plan

benefits accumulate as individual account balances, the contractor

converted these balances to annuities so they could be compared with the

benefits provided by defined benefit plans. Also the benefit amounts

calculated were based on a single set of assumptions about salary

Page 3 GAO/GGD-97-40 Federal and Private Retirement Benefits
Executive Summary

histories, return on investments, the conversion of defined contribution

plan amounts, and the rate of inflation after retirement.

GAO believes the assumptions used are reasonable because they either

were those used by the Office of Personnel Management (OPM) in its latest

actuarial valuations, were based on standards used in the benefits field, or

were necessary to provide a common basis of comparison. However,

different assumptions would change the relative magnitude of results

between programs and the absolute magnitude over all programs. By

varying the assumptions, it could also be possible in some circumstances

to change the relative rankings between programs. For example, if the

salary histories included other types of compensation in addition to base

pay, the private sector benefit amounts could have been greater because at

least one-half of the 435 private sector retirement programs would include

overtime, bonuses, and commissions in their benefit calculations. Also, if

the rate of salary growth in the last years of employees’ careers had been

greater, the benefit amounts from FERS, CSRS, and the private sector

programs could have been smaller. However, because FERS and CSRS use

the average of the highest 3 years’ salaries in their benefit calculations and

about one-half of the 435 private sector programs use the highest 5 years’

salaries, the benefit amounts from FERS and CSRS would not decrease as

much as the private sector amounts.

Results in Brief The results of GAO’s review revealed that there is no clear, bottom-line

answer to the question of whether FERS and CSRS offer greater benefits, or

smaller benefits, than private sector retirement programs. The benefits

available from FERS and CSRS can be smaller, similar, or greater than the

average of the programs in the contractor’s private sector employer

database, depending on a number of factors and how these factors interact

with the retirement programs’ designs. Chief among these factors are

(1) the ages at which employees retire and at which programs provide

unreduced benefits, (2) the extent to which employees and employers

contribute to the defined contribution plans that are integral components

of FERS and most private sector programs, and (3) the impact of

cost-of-living adjustment practices on benefit amounts over the long term

(see ch. 2). In fact, FERS and CSRS can provide quite different benefit

amounts because of their different designs. As a rule, greater benefits are

available from FERS than from CSRS, but FERS employees must contribute

higher percentages of their salaries to receive the greater benefit amounts.

Page 4 GAO/GGD-97-40 Federal and Private Retirement Benefits
Executive Summary

Principal Findings

Comparative Benefits

Depend Greatly on the

Ages at Which Employees

Retire

One factor that exerts a major influence on the comparative benefit

amounts available from FERS, CSRS, and private sector programs is the age

at which employees retire. Both federal programs and virtually all of the

private sector programs in the contractor’s database allow employees to

retire as early as age 55. However, FERS and CSRS were designed to provide

unreduced benefits at age 55 to employees who serve at least a 30-year

career in the federal service. In contrast, few of the private sector

programs provide unreduced benefits at age 55, regardless of length of

service. Because the private sector defined benefit plans generally impose

reductions in accrued benefits for employees who elect to retire at age 55,

greater benefits are generally available under the federal programs at age

55 with 30 years of service than the average of the benefits available under

the private sector programs in the database.

Benefits available from FERS could be 65 percent of an employee’s final

salary at age 55 with 30 years of service; CSRS benefits would be 53 percent

of final salary, which is also the equivalent of 56.25 percent of the average

of the highest 3 years’ salaries. Benefits available from the private sector

programs in the database averaged 19 percent of an employee’s final salary

at age 55 with 30 years of service for programs with defined benefit plans

only, 26 percent for programs with defined contribution plans only, and

45 percent for programs with both defined benefit and defined

contribution plans. Benefits available from FERS at age 55 are greater than

benefits available from CSRS primarily because the FERS defined benefit

plan adds a “Social Security supplement” to the benefits paid to employees

who retire before age 62. (See fig. 2.1.)

Although FERS and CSRS provide unreduced retirement benefits to

employees who retire at age 55 with 30 years of service, federal

employees, on average, have been considerably older than age 55 when

they retired. According to OPM, in 1995 employees who retired under CSRS

averaged about age 62 with 30 years of service, and employees who retired

under FERS averaged about age 63 with 14 years of service. The

contractor’s database did not include information on the ages at which

employees choose to retire in the private sector programs.

The relative benefit amounts available to federal and private sector

employees who elect to wait to retire at age 62 or older, or who are not

Page 5 GAO/GGD-97-40 Federal and Private Retirement Benefits
Executive Summary

eligible to retire at earlier ages, change considerably from the age 55

comparisons. When employees retire at age 62 or older with 30 years of

service, which is the actual average for employees who retired under CSRS

in 1995, the relative benefit amounts available from CSRS are generally

comparable to those available from private sector programs that include

defined benefit or defined contribution plans only. However, the CSRS

benefit amounts available with 30 years of service are smaller than those

available from FERS and the average of the private sector programs that

include both defined benefit and defined contribution plans. The benefits

available from CSRS for employees who retire with 30 years of service are

about 53 percent of final salary.

Regardless of program design, the average benefits available at retirement

from the private sector programs in the contractor’s database were greater

than CSRS benefits for employees who retired at age 62 or older with 20

years of service. For example, CSRS benefits for employees who retired at

age 62 with 20 years of service were 36 percent of an employee’s final

salary, while the benefits available from private sector programs averaged

63 percent for programs with both defined benefit and defined

contribution plans, 43 percent for programs with defined contribution

plans only, and 40 percent for programs with defined benefit plans only.

This is the case because Social Security benefits are available to private

sector retirees at age 62, while CSRS retirees receive no Social Security

benefits from their federal employment. (See figs. 2.2 through 2.5.)

Benefits available from FERS for employees who retire at age 62 or older

are generally comparable to the average benefits available from private

sector programs that include both defined benefit and defined

contribution plans—as did about 70 percent of the employers in the

contractor’s database. The FERS benefits are greater than the average

benefits from private sector programs that include defined benefit or

defined contribution plans only. The benefits available from FERS for

employees who retire at age 62 with 20 years of service are about

66 percent of an employee’s final salary, and the benefits available from

FERS for those employees who retire at age 62 with 30 years of service are

about 81 percent. (See figs. 2.2 through 2.5.)

Benefit Amounts Vary by

How Much Employees

Contribute to Defined

Contribution Plans

A second factor that has a major influence on benefit amounts actually

paid by FERS and the private sector programs that include defined

contribution plans is the amounts employees elect to contribute to defined

contribution plans during their working years. The FERS defined

Page 6 GAO/GGD-97-40 Federal and Private Retirement Benefits
Executive Summary

contribution plan and most private sector defined contribution plans

provide for employer-matching of some portion of employee

contributions. Therefore, employees who contribute the amounts

necessary to receive maximum employer contributions will receive greater

benefits at retirement than employees who elect not to contribute to the

defined contribution plan or who contribute smaller amounts to the plan.

GAO estimates that the average retirement benefits from the TSP component

of FERS and the defined contribution plan component of private sector

programs in the contractor’s database could be 10 times higher for

employees who contribute enough to receive maximum employer

contributions throughout their careers than the benefits earned by

employees who make no contributions to their defined contribution plans

(see table 2.1). For example, employees who retire under FERS at age 62

with 30 years of service and who contributed enough throughout their

careers to receive the maximum employer contributions to the FERS

defined contribution plan would receive about 80 percent of their final

salaries at retirement—30 percent would be from the defined contribution

plan, 31 percent from the defined benefit plan, and 19 percent from Social

Security. If those same employees made no contributions to the FERS

defined contribution plan, they would receive about 53 percent of final

salary at retirement—3 percent would be from the defined contribution

plan, 31 percent from the defined benefit plan, and 19 percent from Social

Security (see fig. 2.14).

CSRS requires most employees to contribute 7 percent of their salaries

toward program costs. In contrast, employees in FERS generally are

required to contribute 0.8 percent of their salaries to the defined benefit

portion of the program, and over 90 percent of the private sector defined

benefit plans in the contractor’s database required no employee

contributions. However, FERS participants and private sector employees

are required to contribute 6.2 percent of their salaries to Social Security,

up to the Social Security salary ceiling, which tends to make these

employees’ total required contributions to Social Security and defined

benefit plans generally comparable to the amounts most employees

contribute under CSRS. In addition, for employees to receive maximum

employer contributions to their defined contribution plans, FERS

employees would need to contribute 5 percent of their salaries and the

private sector employees covered by programs in the contractor’s

database would need to, on average, contribute 6 percent of their salaries

to receive maximum employer contributions to their defined contribution

plans. Accordingly, FERS and private sector employees in programs that

include both defined benefit and defined contribution plans must generally

Page 7 GAO/GGD-97-40 Federal and Private Retirement Benefits
Executive Summary

contribute higher amounts to receive maximum employer contributions to

their retirement benefits than do CSRS employees.

Cost-of-Living Adjustment

Practices Cause

Differences in Long-term

Benefit Amounts

The third and final factor GAO examined that exerts a major influence on

the benefit amounts available to employees during their retirement under

federal and private sector retirement programs is cost-of-living adjustment

practices. Significant differences exist within and among the federal and

private sector programs regarding the adjustment practices. Social

Security benefits, which are part of the retirement programs for FERS and

private sector employees, are adjusted annually by the full increase in the

Consumer Price Index (CPI). This adjustment practice can provide greater

increases in benefits than the adjustment practices applicable to the FERS

defined benefit plan and private sector defined benefit plans, on average.

The CSRS statute requires benefit adjustments to maintain retirees’

purchasing power in the same manner as Social Security. However,

limitations on CSRS benefit adjustments over a 10-year period in the 1980s

and 1990s caused the adjustments actually given retirees to cover about

80 percent of the increase in the CPI during this same period. By their

nature, the FERS and private sector defined contribution plan benefits are

not subject to cost-of-living adjustments.

In private sector programs, wide variation exists in how cost-of-living

adjustments are provided. According to the contractor, available

cost-of-living adjustment information for private sector defined benefit

plans indicates that retirees have not received adjustments that cover the

full increase in the CPI. Retirees covered by the retirement programs of the

50 largest employers in the contractor’s database, on average, received

adjustments that offset less than 20 percent of the price increase over 20

years of retirement. Nevertheless, the total benefits available from FERS

and the average of the private sector programs that have both defined

benefit and defined contribution plans continued to exceed the benefit

amounts paid from CSRS 20 years after employees retired at age 62 or older

with 20 years of service, even though full CSRS adjustments were made

over the 20 years.

For example, with retirement at age 62 with 20 years of service, the private

sector employees covered by programs in the contractor’s database with

both defined benefit and defined contribution plans began retirement with

benefits that were 27 percent of final salary higher than the CSRS benefits

and that continued to be higher 20 years later by 3 percent of final salary.

The benefits available from FERS also continued to be higher than CSRS 20

Page 8 GAO/GGD-97-40 Federal and Private Retirement Benefits
Executive Summary

years later by about 9 percent. With retirement at age 65 with 20 years of

service, the private sector retiree began retirement with benefits that were

35 percent of final salary higher than CSRS benefits and that continued to

exceed CSRS by 8 percent of final salary after 20 years. The total benefits

available after 20 years of retirement for FERS employees who retired at

age 65 with 20 years of service were higher by about 8 percent of final

salary than the benefits available to their private sector counterparts who

were covered by programs in the database with both defined benefit and

defined contribution plans. (See figs. 2.17 and 2.18.)

For employees who retired at age 62 or older with 30 years of service, the

benefits available at retirement were higher under FERS and the private

sector programs that include both defined benefit and defined

contribution plans than the benefits available under CSRS. However, the

following data show that this higher benefit level was not maintained after

10 and 20 years of retirement:

• Ten years after employees retired at age 62 with 30 years of service, FERS

benefits continued to exceed CSRS benefits by about 14 percent of final

salary, while the benefits available from the private sector programs in the

database were similar to the CSRS benefits.

• Twenty years after employees retired at age 62 with 30 years of service,

the benefits available from FERS and CSRS were similar, but both FERS and

CSRS benefits exceeded the benefits available from the private sector

programs with both defined benefit and defined contribution plans by

about 10 percent of final salary.

• Twenty years after employees retired at age 65 with 30 years of service,

the benefits available from CSRS and the private sector programs with both

defined benefit and defined contribution plans were similar at about

50 percent of final salary, but FERS continued to exceed them at about

60 percent. (See figs. 2.19 and 2.20.)

For employees who retired before age 62, benefits available from FERS

were again higher by nearly 10 percent of final salary than the average

benefits available from private sector programs with defined benefit and

defined contribution plans after 10 and 20 years of retirement, but these

benefits were about 4 percent of final salary lower than the fully adjusted

CSRS benefits by the 20-year point. However, if the limitations imposed on

CSRS adjustments during much of the 1980s and 1990s continue to be made

in the future, CSRS benefits for pre-age 62 retirees after 20 years of

retirement (1) would be lower than benefits available from FERS by

4 percent of final salary and (2) would exceed by 6 percent of final salary

Page 9 GAO/GGD-97-40 Federal and Private Retirement Benefits
Executive Summary

the average benefits available from private sector programs with defined

benefit and defined contribution plans. (See fig. 2.16.)

Recommendations GAO is not making any recommendations in this report.

Agency and

Contractor Comments

and GAO’s Evaluation

Watson Wyatt Worldwide and the Federal Retirement Thrift Investment

Board (the Thrift Board) provided oral comments on the draft of this

report, and OPM provided written comments. The Watson Wyatt official

said that GAO’s use and interpretations of their database and analyses were

accurate and appropriate. The officials of Watson Wyatt, the Thrift Board,

and OPM agreed with GAO’s conclusion that there is no definitive answer to

the question of whether federal retirement programs offer greater or

smaller benefits than private sector programs. The Thrift Board and OPM

officials noted that it is very difficult to compare varied federal and private

sector retirement programs. They said, and GAO agrees, that GAO’s analyses

and conclusions are dependent on (1) the database used; (2) the age and

service characteristics of the illustrative employees; and (3) the

assumptions made about salary histories, return on investments, the

conversion of defined contribution plan amounts at retirement to

annuities, and the rate of inflation.

GAO believes that the database and illustrative employees used and the

assumptions made are reasonable because they either were those used by

OPM in its latest actuarial valuations, were based on standards used in the

benefits field, or were necessary to provide a common basis of

comparison. GAO made minor modifications to this report to clarify that

the use of different databases, illustrative employees, and assumptions

would have changed the relative magnitude of benefits available among

retirement programs as well as the levels of benefits provided by all

programs. Using such data could possibly, in some circumstances, change

the relative rankings between programs. However, while GAO believes that

no one database or set of assumptions could fully capture the range of

private sector programs and employees’ experiences, it also believes that

using different databases and assumptions would not have changed GAO’s

conclusion that no definitive answer exists to the question of whether

federal programs offer greater or smaller benefits than private sector

programs.

OPM also commented that the GAO analyses and conclusions might be

better understood if additional information on the database, illustrative

Page 10 GAO/GGD-97-40 Federal and Private Retirement Benefits
Executive Summary

employees, and the assumptions were provided in the report ( i.e., the

executive summary and chapter 1 of the report). GAO agreed that

additional information would help the reader understand its analyses and

conclusions and provided more details in the executive summary and the

objective, scope, and methodology section of chapter 1.

Officials of Watson Wyatt and the Thrift Board provided editorial and

technical comments that GAO incorporated in the report as appropriate.

Page 11 GAO/GGD-97-40 Federal and Private Retirement Benefits
Contents

Executive Summary 2

Chapter 1 

Introduction

20

Background 20

Objective, Scope, and Methodology 23

Chapter 2 

Comparative Benefit

Levels Available From

FERS, CSRS, and

Private Sector

Retirement Programs

30

Comparative Replacement Rates at Retirement 31

Relationship of Employee Contributions to Retirement Program

Benefits

38

Impact of Cost-of-Living Adjustment Practices on Long-Term

Replacement Rates

51

Chapter 3 

Comparative Features

of FERS, CSRS, and

Private Sector

Retirement Programs

59

Program Designs 59

Program Features 60

Chapter 4 

Conclusions and

Agency and

Contractor Comments

63

Conclusions 63

Agency and Contractor Comments and Our Evaluation 65

Appendixes Appendix I: FERS, CSRS, and Watson Wyatt Worldwide Database

Statistics

68

Appendix II: Salary Histories Used in Pension Plan and Social

Security Benefit Calculations

71

Appendix III: Results of the Replacement Rate Analysis 76

Appendix IV: Features of Federal and Private Sector Defined

Benefit Plans

106

Appendix V: Features of Federal and Private Sector Defined

Contribution Plans

116

Appendix VI: Comments From the Office of Personnel

Management

128

Page 12 GAO/GGD-97-40 Federal and Private Retirement Benefits
Contents

Tables Table 2.1: Average Replacement Rates Available From the FERS’

TSP and the Private Sector DC Plans at Varying Amounts of

Employee Contributions

45

Table 3.1: Major Features of FERS, CSRS, and Private Sector

Retirement Programs in the Contractor’s Database

61

Table I.1: Number of Participants in FERS and CSRS at the

Beginning of Fiscal Year 1995

68

Table I.2: Sizes of the Private Sector Employers in the

Contractor’s Database as of October 1995

68

Table I.3: Sizes in Percentiles, Median, and Mean for Private

Sector Employers in the Contractor’s Database as of

October 1995

69

Table I.4: Industry Classifications of Private Sector Employers in

the Contractor’s Database as of October 1995

69

Table I.5: Geographic Locations of Private Sector Employers in

the Contractor’s Database as of October 1995

70

Table I.6: Retirement Program Designs of Private Sector

Employers in the Contractor’s Database as of October 1995

70

Table II.1: Salary History With a Final Salary That Is Equivalent to

a $25,000 Salary in 1995

72

Table II.2: Salary History With a Final Salary That Is Equivalent to

a $40,000 Salary in 1995

73

Table II.3: Salary History With a Final Salary That Is Equivalent to

a $60,000 Salary in 1995

74

Table II.4: Percentage of Final Salary Replaced by Social Security

Benefits in FERS and the Private Sector Programs

75

Table III.1: Average Replacement Rates Available With Maximum

Employer Contributions to DC Plans - Age 55 and 30 Years of

Service

76

Table III.2: Average Replacement Rates Available With Maximum

Employer Contributions to DC Plans - Age 62 and 20 Years of

Service

78

Table III.3: Average Replacement Rates Available With Maximum

Employer Contributions to DC Plans - Age 65 and 20 Years of

Service

80

Table III.4: Average Replacement Rates Available With Maximum

Employer Contributions to DC Plans - Age 62 and 30 Years of

Service

82

Table III.5: Average Replacement Rates Available With Maximum

Employer Contributions to DC Plans - Age 65 and 30 Years of

Service

84

Page 13 GAO/GGD-97-40 Federal and Private Retirement Benefits
Contents

Table III.6: Average Replacement Rates Available With One-half

of the Maximum Employer Contributions to DC Plans - Age 55

and 30 Years of Service

86

Table III.7: Average Replacement Rates Available With One-half

of the Maximum Employer Contributions to DC Plans - Age 62

and 20 Years of Service

88

Table III.8: Average Replacement Rates Available With One-half

of the Maximum Employer Contributions to DC Plans - Age 65

and 20 Years of Service

90

Table III.9: Average Replacement Rates Available With One-half

of the Maximum Employer Contributions to DC Plans - Age 62

and 30 Years of Service

92

Table III.10: Average Replacement Rates Available With One-half

of the Maximum Employer Contributions to DC Plans - Age 65

and 30 Years of Service

94

Table III.11: Average Replacement Rates Available With No

Employee Contributions to DC Plans - Age 55 and 30 Years of

Service

96

Table III.12: Average Replacement Rates Available With No

Employee Contributions to DC Plans - Age 62 and 20 Years of

Service

98

Table III.13: Average Replacement Rates Available With No

Employee Contributions to DC Plans - Age 65 and 20 Years of

Service

100

Table III.14: Average Replacement Rates Available With No

Employee Contributions to DC Plans - Age 62 and 30 Years of

Service

102

Table III.15: Average Replacement Rates Available With No

Employee Contributions to DC Plans - Age 65 and 30 Years of

Service

104

Table IV.1: Eligibility Requirements to Participate in the Defined

Benefit Plans

107

Table IV.2: Vesting Schedule 107

Table IV.3: Employee Contribution Requirements 108

Table IV.4: Compensation Elements Included in Benefit

Calculation Base

108

Table IV.5: Pay Base for Benefit Calculations 109

Table IV.6: Social Security Integration in Benefit Formulas 110

Table IV.7: Age and Years of Service Requirements for Unreduced

Retirement Benefits

111

Page 14 GAO/GGD-97-40 Federal and Private Retirement Benefits
Contents

Table IV.8: Age and Years of Service Requirements for Reduced

Retirement Benefits

112

Table IV.9: Supplemental Benefits Available for Retirees

Receiving Reduced Benefits

113

Table IV.10: Age at Which Retirement Supplement Ends 113

Table IV.11: Program Provided at Least One Postretirement

Benefit Increase During 1983-92

114

Table IV.12: Years When Program Provided Postretirement

Increases During 1983-92

114

Table IV.13: Postretirement Increases in FERS and CSRS From

1983 to 1997

115

Table V.1: Eligibility Requirements to Participate in the Defined

Contribution Plans

117

Table V.2: Vesting Schedules (Plans With Employer

Contributions)

118

Table V.3: Types of Employer Contributions (Plans With

Employer Contributions)

118

Table V.4: Amounts of Employer Contributions as a Percentage of

Pay in 1992

119

Table V.5: Employer-Matching Contributions (Plans With

Employer Contributions)

119

Table V.6: Maximum Employee Contributions Matched by

Employer in 1993 (Plans With Matching Contributions)

120

Table V.7: Percentiles of Maximum Employee Contributions

Matched by Employer in 1993 (Plans With Matching

Contributions)

120

Table V.8: Maximum Pretax Employee Contributions Allowed in

1993 (Plans With Employee Contributions)

121

Table V.9: Percentiles of Maximum Pretax Employee

Contributions Allowed in 1993 (Plans With Employee

Contributions)

121

Table V.10: Amounts of Employer Match on a 3-Percent

Employee Contribution (Plans That Only Match Contributions up

to 3 Percent)

122

Table V.11: Percentiles of Amounts of Employer Match on a

3-Percent Employee Contribution (Plans That Only Match

Contributions up to 3 Percent)

122

Table V.12: Amounts of Employer Match on a 4-Percent

Employee Contribution (Plans That Only Match Contributions up

to 4 Percent)

123

Page 15 GAO/GGD-97-40 Federal and Private Retirement Benefits
Contents

Table V.13: Percentiles of Amounts of Employer Match on a

4-Percent Employee Contribution (Plans That Only Match

Contributions up to 4 Percent)

123

Table V.14: Amounts of Employer Match on a 5-Percent

Employee Contribution (Plans That Only Match Contributions up

to 5 Percent)

124

Table V.15: Percentiles of Amounts of Employer Match on a

5-Percent Employee Contribution (Plans That Only Match

Contributions up to 5 Percent)

124

Table V.16: Amounts of Employer Match on a 6-Percent or More

Employee Contribution (Plans That Only Match Contributions up

to 6 Percent or More)

125

Table V.17: Percentiles of Amounts of Employer Match on a

6-Percent or More Employee Contribution (Plans That Only

Match Contributions Up to 6 Percent or More)

125

Table V.18: Employer-Set Dollar Limitation on

Employer-Matching Contributions

126

Table V.19: Employer Contributions Not Based on a Match of

Employee Contributions (Plans With Employer Contributions)

126

Table V.20: Employer-Nonmatching Contributions Based on

Profits

126

Table V.21: Plan Loan Provisions 127

Table V.22: In-Service Hardship Withdrawal Provisions 127

Table V.23: In-Service (Other Than Hardship) Withdrawals

Permitted Before Age 59-1/2

127

Figures Figure 2.1: Average Replacement Rates Available for Employees

Who Retire at Age 55 With 30 Years of Service and a Final Salary

of $40,000

32

Figure 2.2: Average Replacement Rates Available for Employees

Who Retire at Age 62 With 20 Years of Service and a Final Salary

of $40,000

33

Figure 2.3: Average Replacement Rates Available for Employees

Who Retire at Age 65 With 20 Years of Service and a Final Salary

of $40,000

35

Figure 2.4: Average Replacement Rates Available for Employees

Who Retire at Age 62 With 30 Years of Service and a Final Salary

of $40,000

36

Figure 2.5: Average Replacement Rates Available for Employees

Who Retire at Age 65 With 30 Years of Service and a Final Salary

of $40,000

37

Page 16 GAO/GGD-97-40 Federal and Private Retirement Benefits
Contents

Figure 2.6: Comparative Average Replacement Rates Available

When Employees Contribute 12 Percent of Their Salaries and

Retire at Age 55 With 30 Years of Service and a Final Salary of

$40,000

40

Figure 2.7: Comparative Average Replacement Rates Available

When Employees Contribute 12 Percent of Their Salaries and

Retire at Age 62 With 20 Years of Service and a Final Salary of

$40,000

41

Figure 2.8: Comparative Average Replacement Rates Available

When Employees Contribute 12 Percent of Their Salaries and

Retire at Age 65 With 20 Years of Service and a Final Salary of

$40,000

42

Figure 2.9: Comparative Average Replacement Rates Available

When Employees Contribute 12 Percent of Their Salaries and

Retire at Age 62 With 30 Years of Service and a Final Salary of

$40,000

43

Figure 2.10: Comparative Average Replacement Rates Available

When Employees Contribute 12 Percent of Their Salaries and

Retire at Age 65 With 30 Years of Service and a Final Salary of

$40,000

44

Figure 2.11: Effect of Employee Contributions on Average

Replacement Rates Available When Employees Retire at Age 55

With 30 Years of Service and a Final Salary of $40,000

47

Figure 2.12: Effect of Employee Contributions on Average

Replacement Rates Available When Employees Retire at Age 62

With 20 Years of Service and a Final Salary of $40,000

48

Figure 2.13: Effect of Employee Contributions on Average

Replacement Rates Available When Employees Retire at Age 65

With 20 Years of Service and a Final Salary of $40,000

49

Figure 2.14: Effect of Employee Contributions on Average

Replacement Rates Available When Employees Retire at Age 62

With 30 Years of Service and a Final Salary of $40,000

50

Figure 2.15: Effect of Employee Contributions on Average

Replacement Rates Available When Employees Retire at Age 65

With 30 Years of Service and a Final Salary of $40,000

51

Figure 2.16: Average Replacement Rates Available at Retirement

and 10 and 20 Years After Retirement When Employees Retire at

Age 55 With 30 Years of Service and a Final Salary of $40,000

54

Figure 2.17: Average Replacement Rates Available at Retirement

and 10 and 20 Years After Retirement When Employees Retire at

Age 62 With 20 Years of Service and a Final Salary of $40,000

55

Page 17 GAO/GGD-97-40 Federal and Private Retirement Benefits
Contents

Figure 2.18: Average Replacement Rates Available at Retirement

and 10 and 20 Years After Retirement When Employees Retire at

Age 65 With 20 Years of Service and a Final Salary of $40,000

56

Figure 2.19: Average Replacement Rates Available at Retirement

and 10 and 20 Years After Retirement When Employees Retire at

Age 62 With 30 Years of Service and a Final Salary of $40,000

57

Figure 2.20: Average Replacement Rates Available at Retirement

and 10 and 20 Years After Retirement When Employees Retire at

Age 65 With 30 Years of Service and a Final Salary of $40,000

58

Figure 3.1: Federal and Private Sector Retirement Program

Designs

60

Abbreviations

BLS Bureau of Labor Statistics

CBO Congressional Budget Office

COLA cost-of-living adjustment

CPI Consumer Price Index

CSRS Civil Service Retirement System

DB defined benefit

DC defined contribution

FERS Federal Employees Retirement System

IRS Internal Revenue Service

MRA minimum optional retirement age

OPM Office of Personnel Management

TSP Thrift Savings Plan

Page 18 GAO/GGD-97-40 Federal and Private Retirement Benefits
Page 19 GAO/GGD-97-40 Federal and Private Retirement Benefits
Chapter 1 

Introduction

Background Thousands of private sector retirement programs exist, and they cover

millions of employees. According to information available from the Bureau

of Labor Statistics (BLS), in 1992, 16.1 million full-time employees (47

percent) in small private establishments with 99 or fewer employees were

covered by at least one retirement program to which their employers

contributed. BLS also reported that, in 1993, 22.4 million full-time

employees (78 percent) in medium and large private establishments with

100 or more employees were covered by retirement programs.1

 The

remaining employees are covered by Social Security, but not by retirement

programs to which their employers contribute.

The designs of private sector retirement programs and their individual

plans vary greatly. All programs include Social Security, while some also

include defined benefit (DB) plans only, some include defined contribution

(DC) plans only, and others include a combination or variation of DB and DC

plans.

DB plans specify formulas for computing benefit amounts that are payable

at retirement and are typically based on an employee’s age, length of plan

participation, and salary history. In contrast, DC plans specify amounts the

employer (and employees, if required) will contribute to the plan. The

accumulated contributions, plus investment earnings, constitute the

source of retirement benefits from a DC plan. In summary, a DB plan

specifies benefit amounts, and a DC plan specifies contribution amounts.

The Federal Employees Retirement System (FERS) and the Civil Service

Retirement System (CSRS) are the two largest retirement programs for

federal civilian employees. Together, they covered about 2.8 million

employees at the beginning of fiscal year 1995.2

 Several other retirement

1

See U.S. Department of Labor, Bureau of Labor Statistics, Employee Benefits in Medium and Large

Private Establishments, 1993, Bulletin 2456 (November 1994) and Employee Benefits in Small Private

Establishments, 1992, Bulletin 2441 (May 1994). According to BLS, the results presented in these

bulletins are representative of employees in private nonagricultural industries (i.e., employees with

public sector establishments, farms, and private households and the self-employed are excluded).

Also, adjustments were not made to the results for some types of missing data. For example, if data

had been supplied for all sampled occupations included in Bulletin 2456, the results would represent

39.4 million full- and part-time employees instead of the 34.3 million actually represented; and in

Bulletin 2441, the results would represent 47.9 million employees instead of the 44.1 million actually

represented. BLS did not publish in either bulletin the percentages of part-time employees who were

covered by retirement programs.

2

See United States Office of Personnel Management, Annual Report of the Civil Service Retirement and

Disability Fund for Fiscal Year 1995 (May 1996).

Page 20 GAO/GGD-97-40 Federal and Private Retirement Benefits
Chapter 1 

Introduction

programs for specific groups of federal civilian employees exist, but these

programs are much smaller than FERS and CSRS.

3

CSRS was established in 1920 and is a DB plan that predates the Social

Security system by several years. When the Social Security system was

established, Congress decided that employees in CSRS would not be

covered by Social Security through their federal employment. CSRS

provides employees the option to retire with unreduced benefits at age 55

with 30 years of service, at age 60 with 20 years of service, and at age 62

with 5 years of service.

At the beginning of fiscal year 1995, CSRS covered about 1.4 million

employees and, during that year, paid annuities of almost $38 billion to

about 2.3 million retired employees and survivor annuitants.4 CSRS was

closed to new entrants after December 31, 1983. When all covered

employees and annuitants are deceased, the program will end. According

to OPM actuaries, the program is projected to end about 2070.

FERS was implemented in 1987 and generally covers those employees who

first entered federal service after 1983. The primary impetus for the new

program was the Social Security Amendments of 1983, which required all

federal employees hired after December 1983 to be covered by Social

Security.5 FERS is a three-part retirement program and includes the

following: (1) Social Security, (2) a DB plan, and (3) a DC plan—the Thrift

Savings Plan (TSP)—to which the government and most employees

3

See Public Pensions: Summary of Federal Pension Plan Data (GAO/AIMD-96-6, Feb. 16, 1996). For

example, the Foreign Service has two retirement programs—the CSRS-like Foreign Service Retirement

and Disability System and the FERS-like Foreign Service Pension System. These two programs covered

about 12,000 employees in 1993. Another retirement program is the Judicial Retirement System, which

covered just over 700 employees in 1993.

4

Another 26,000 former employees were covered by CSRS and will be eligible to receive benefits in the

future.

5

CSRS was closed to new entrants after December 31, 1983. Most new federal employees hired after

that date, or employees who were rehired and had a break in CSRS coverage of more than 1 year, have

mandatory Social Security coverage. On January 1, 1987, the new FERS started and most federal

employees were covered by either CSRS or FERS. However, Congress, in the FERS legislation, created

the CSRS Offset plan. Typically, the Offset plan covers employees who (1) had a break in service that

exceeded 1 year and ended after 1983 and (2) had 5 years of creditable civilian service on January 1,

1987. The Offset plan also covers employees hired before January 1, 1984, who acquired CSRS

coverage for the first time after that date, and who had at least 5 years of creditable service by

January 1, 1987. Employees in the Offset plan are covered by both CSRS and Social Security. The

amounts they pay to CSRS are reduced, or offset, by the Social Security taxes they pay. When these

employees retire, their CSRS benefits will be calculated under the same rules as other CSRS retirees.

However, when the retirees in the Offset plan become eligible for Social Security benefits, their CSRS

benefits will be offset by the portion of their Social Security benefits earned during the years they were

covered by both CSRS and Social Security. At the beginning of fiscal year 1995, about 74,000 of the

1.4 million CSRS-covered employees were in the Offset plan.

Page 21 GAO/GGD-97-40 Federal and Private Retirement Benefits
Chapter 1 

Introduction

contribute. In FERS, the minimum optional retirement age (MRA) has been

increased from the CSRS’ age 55 to age 57 for FERS employees born after

1969.6 FERS provides employees with the option to retire with unreduced

benefits at their MRA with 30 years of service, at age 60 with 20 years of

service, and at age 62 with 5 years of service. FERS continued the CSRS

objective of encouraging employees to spend their working careers in

federal service by making unreduced benefits available at the MRA only to

employees who serve 30 or more years with the government. FERS has

another provision that is intended to serve as an incentive for employees

to extend their careers beyond the MRA. This provision allows FERS

employees who retire at age 62 or older and who have completed at least

20 years of service to receive retirement benefits calculated at a formula

that provides a 10-percent greater benefit amount than the formula applied

to employees who retire before age 62. However, FERS also provides

employees the option to retire with reduced benefits at their MRA with 10

years of service. This provision is not available to employees covered by

CSRS.

At the beginning of fiscal year 1995, FERS covered about 1.4 million

employees and, during that year, paid annuities of about $474 million to

48,000 retired employees and survivor annuitants.7

 (See app. I for

additional details on CSRS and FERS participants.)

The government automatically contributes an amount equal to 1 percent of

salary each pay period to the TSP for each FERS-covered employee whether

or not the employee contributes to the TSP. In addition, FERS employees

may contribute up to 10 percent of their salaries and receive

government-matching contributions on the first 5 percent.8 CSRS-covered

employees may also contribute up to 5 percent of their salaries to the TSP,

but the government does not make matching contributions for them.9

6

The FERS MRA is age 55 for employees born before January 1, 1948. The MRA gradually increases

until it reaches age 57 for employees born after December 31, 1969.

7

Another 89,000 former employees were covered by FERS and will be eligible to receive benefits in the

future.

8

The government will make matching contributions to the TSP accounts of FERS-covered employees in

the following manner: on the first 3 percent of salary that an employee contributes, the government

contributes $1.00 for each $1.00 the employee contributes; on the next 2 percent of salary, the

government contributes $0.50 for each $1.00 the employee contributes; and on the next 5 percent of

salary, the government contributes nothing.

9

The contributions of FERS and CSRS employees to the TSP are limited by the Internal Revenue

Service (IRS). The IRS limit was $9,500 in 1997.

Page 22 GAO/GGD-97-40 Federal and Private Retirement Benefits
Chapter 1 

Introduction

Employees in FERS and the private sector paid 6.2 percent of their salaries

to the Social Security system (excluding Medicare) on earnings of up to

$65,400 in 1997. FERS-covered employees receive the same Social Security

benefits as private sector employees. Social Security benefits payable at

retirement are designed to replace a higher proportion of earnings for

lower-paid employees than for higher-paid employees (see table II.4).

Objective, Scope, and

Methodology

In response to the requests of the Chairmen of the former Senate

Subcommittee on Post Office and Civil Service and the House

Subcommittee on Civil Service, our objective in preparing this report was

to compare FERS, CSRS, and private sector retirement programs. These

retirement programs can be compared in a number of ways. One possible

way is to compare the average benefit amounts different programs paid to

their retirees in a given year. In this method, the “typical” benefits paid by

each program would be presumed to be indicative of the relative benefits

offered by the programs. However, such a comparison approach would

ignore differences in ages, salary levels, years of service, and other factors

that cause benefit amounts to differ for individual retirees under the

programs. Another possible comparison method is to compare program

features, such as age and service requirements for retirement eligibility,

benefit calculation formulas, salary amounts used in the benefit

calculations, and how pension plan benefits are integrated with Social

Security benefits. This method would provide useful information on how

the various programs are designed, but it would not compare the actual

benefit amounts available under the programs.

Although a number of other comparison methods exist, the method we

used in this report was to determine the benefit amounts federal and

private sector programs would pay to employees who retire at the same

ages with the same years of service and salary histories. In using this

method, we avoided the benefit differences that could be caused by

variances in individual employees’ circumstances. Also, this method

allowed us to (1) compare federal retirement benefits with the average

benefits available under private sector programs for employees in the

same circumstances and (2) provide a measure of the extent to which

differences in the features of federal and private sector retirement

programs cause differences in the relative benefit amounts available from

the programs. However, this method does not consider what portions of

the benefits are financed by the employee and the employer.

Page 23 GAO/GGD-97-40 Federal and Private Retirement Benefits
Chapter 1 

Introduction

We and the Congressional Budget Office (CBO) contracted, at different

times, with Watson Wyatt Worldwide, a company that collects benefits

data from a wide range of employers, to obtain the information on the

features and benefit levels of private sector retirement programs included

in this report. Watson Wyatt provided this information from its 1993

COMPARISON database, which was the latest database available at the

time our contract was awarded. The database contained information on

the retirement programs of primarily large private sector employers and

that, by design, excluded employers who had no retirement programs

other than Social Security. About one-half of the employers were Watson

Wyatt clients; the remainder were from a survey of U.S. employers

included in Fortune magazine’s list of 1,000 top employers. Therefore, the

features and benefit levels developed from the database could not be

generalized to the private sector as a whole.

The database described the features of 661 employers’ retirement

programs. Of these programs, sufficient information was available to allow

the contractor to determine the benefit amounts provided by 435

employers’ programs. Of the 435 employers, 61 percent had 2,500 or more

employees. Another 22 percent had 1,000 to 2,499 employees; about

15 percent had 999 or fewer employees. The remaining 2 percent of the

employers did not provide size information. About 70 percent of the 435

employers provided both defined benefit and defined contribution plans,

whereas about 24 percent of the employers had defined contribution plans

only and about 6 percent had defined benefit plans only. Appendix I

contains more detailed information on the sizes and program designs of

the employers in the contractor’s database as well as information on the

industries and geographical areas that the employers represented.

To show how employees with varying ages and years of service would fare

under FERS, CSRS, and private sector retirement programs, we asked the

contractor to calculate the benefit amounts potentially available to three

illustrative employees (i.e., age 55 with 30 years of service, age 62 with 20

years of service, and age 65 with 20 years of service) at three different final

salary levels (i.e., $25,000, $40,000, and $60,000). (See app. II for the salary

histories and the actual dollar amounts used to calculate the benefit

amounts.)

Because of limited contract funds, we were limited to three illustrative

employees. We chose the specific ages and years of service in the

following manner: (1) age 55 with 30 years of service since that is the

Page 24 GAO/GGD-97-40 Federal and Private Retirement Benefits
Chapter 1 

Introduction

earliest age at which general employees in CSRS can choose to retire,10

(2) age 62 with 20 years of service since reduced Social Security

retirement benefits are first available at that age, and (3) age 65 with 20

years of service since full Social Security benefits are available at this age.

We chose 20 years of service to reflect the shortening of federal careers

that may occur under FERS.

11

Subsequently, CBO contracted with Watson Wyatt to obtain the benefit

amounts potentially available to an additional two illustrative

employees—age 62 with 30 years of service and age 65 with 30 years of

service. CBO chose age 62 with 30 years of service since that was the

average for employees who retired under CSRS’ optional retirement

provisions in fiscal year 1995; they chose age 65 with 30 years of service to

show the effect of the 30-year career on the age 65 comparisons. The

results provided under the CBO contract were based on the same

methodology and the same assumptions as the results provided under our

contract.12 We did not independently verify the accuracy of the Watson

Wyatt database or the benefit amounts calculated. However, the results

from its database and calculations were consistent with results we

reported in 1985 and with results reported more recently by others in the

benefits field.13 Also, Watson Wyatt’s calculations for FERS and CSRS were

consistent with FERS and CSRS calculations we had made.

The benefit amounts in this report are expressed as “replacement rates.” A

replacement rate is the annual retirement benefit amount divided by an

employee’s salary amount in the final year of employment. For example,

an employee who earned $40,000 in the final year of his or her

employment and received retirement benefits of $20,000 a year would have

a replacement rate of 50 percent.

10For this report, we assumed the FERS MRA was age 55, regardless of date of birth, to simplify the

comparisons with CSRS and private sector programs.

11We did not choose age 55 with 20 years of service because neither FERS nor CSRS provide

unreduced retirement benefits at this age with 20 years of service. However, FERS does provide

reduced benefits for employees who retire at their MRA (age 55 to 57) with 10 years of service. CSRS

does not have a similar provision. In the contractor’s database, about two-thirds of the private sector

retirement programs with DB plans provided reduced benefits for employees who retired at age 55 or

younger with 10 or less years of service.

12The contractor provided the results requested under our contract in October 1995 and the results

requested under the CBO contract in January 1997. The contractor used the same 435 employers in the

benefit calculations under both contracts. However, some employer values under the CBO contract

changed because the contractor had received updates on plan design since our contract. The effect of

these changes on the benefit calculations was very small. For example, in programs with both DB and

DC plans, the average of the benefit amounts available from the DB plan portion changed from

23.4 percent of final salary in October 1995 to 23.0 percent in January 1997 for employees who retired

at age 55 with 30 years of service with a final salary of $60,000.

13Benefit Levels of Nonfederal Retirement Programs (GAO/GGD-85-30, Feb. 26, 1985).

Page 25 GAO/GGD-97-40 Federal and Private Retirement Benefits
Chapter 1 

Introduction

Because the amounts of benefits employees can receive from DC plans are

determined in large part by the amounts they and their employers

contribute to the plans, we calculated replacement rates for benefits from

the FERS and private sector DC plans using the following three levels of

assumed employee contributions: (1) employees contributed amounts

necessary to receive maximum employer contributions, (2) employees

contributed amounts necessary to receive one-half of the maximum

employer contributions available, and (3) employees made no

contributions to their DC plans.

To examine the effects of cost-of-living adjustment practices that the

retirement programs provide to restore lost purchasing power, we also

calculated, in constant dollars, the replacement rates that would be

available after 10 and 20 years of retirement.14

The replacement rates presented in chapter 2 of this report are for five

illustrative employees at a final salary of $40,000. Appendix III shows the

results of the replacement rate analyses for these five employees if they

retired at the final salaries of $25,000, $40,000, and $60,000.

While the relative replacement rates available from federal and private

sector retirement programs for the five illustrative employees and salary

levels used in our analyses are meaningful measures of how the various

programs compare, they do not necessarily represent employees’ actual

experiences under the programs. For example, employees in CSRS and

FERS, on the average, are considerably older than age 55 when they retire.

In fiscal year 1995, employees retiring under CSRS’ optional retirement

provisions averaged age 62 with 30 years of service. Employees retiring

under FERS’ optional retirement provisions averaged age 63 with 14 years

of service.15 The contractor’s database did not contain information on the

ages at which employees choose to retire in the private sector programs.

In making the replacement-rate calculations, the contractor included the

benefit amounts from the defined benefit and defined contribution plans

to which employers made contributions as well as the amounts from

14Social Security, CSRS, and FERS benefits are to be adjusted annually to reflect cost-of-living

increases as measured by the annual change in the Consumer Price Index (CPI). In December 1996,

debate over the accuracy of the CPI expanded when the Senate Finance Committee’s advisory

commission concluded that the CPI is biased and overstates actual cost of living. However, among

economists there is a lack of consensus regarding the size and direction of the bias in the CPI.

15Because the majority of employees covered by FERS were first hired after 1983, the average years of

service for those retiring under FERS may not be an accurate indicator of the average length of service

for future FERS retirees.

Page 26 GAO/GGD-97-40 Federal and Private Retirement Benefits
Chapter 1 

Introduction

Social Security. For private sector employers, the contractor made and

then averaged separate calculations for each of the 435 private sector

retirement programs. Therefore, the replacement rates presented

represent averages of the benefits available from all programs of the same

design. They do not represent the actual benefits that are available from

any individual employer’s retirement program. Rather, some programs will

provide replacement rates that are higher than the average, and other

programs will provide replacement rates that are lower than the average.

The benefit amounts calculated were based on a single set of assumptions

about salary histories, return on investments, the conversion of defined

contribution plan amounts at retirement to annuities, and the rate of

inflation after retirement. We had the contractor assume 4.5 percent

annual increases in long-term inflation and the CPI and a 7-percent annual

return on investments. These are the same assumptions the Office of

Personnel Management (OPM) used in its latest actuarial valuation of FERS

and CSRS. Because defined contribution plan benefits accumulate as

individual account balances, the contractor converted these balances to

life annuities using the 1983 Group Annuity Mortality table with a 3-year

age setback so they could be compared with the benefits provided by

defined benefit plans. We had the contractor assume that all of an

employee’s years of service were with the same employer who was the last

employer before retirement; and that, for Social Security benefit

calculations, employees had no earnings in the years before hire and after

retirement.

We also had the contractor assume that the salary histories for the

illustrative employees included base pay only so that they would have a

common compensation structure. Although base pay is generally the only

type of compensation used in FERS and CSRS to calculate benefit amounts,

at least one-half of the 435 programs in the contractor’s database included

base pay and other types of compensation, such as overtime pay, bonuses,

and commissions, in their benefit calculations. We did not include these

other types of compensation in the salary histories because (1) benefit

calculations for FERS and CSRS do not include them and (2) the contractor

did not collect data on the amounts of compensation, by type, that are

typically provided to employees covered by the programs in the database.

However, had we assumed the illustrative employees had other types of

compensation in addition to the base pay represented in the salary

histories, the replacement rates available from FERS and CSRS would have

remained the same and the averages of the replacement rates available

from the private sector programs could have increased. Also, had we

Page 27 GAO/GGD-97-40 Federal and Private Retirement Benefits
Chapter 1 

Introduction

assumed that the rate of salary growth in the last years of employees’

careers had been greater, the replacement rates available from FERS, CSRS,

and the private sector programs could have been smaller. However,

because FERS and CSRS use the average of the highest 3 years’ salaries in

their benefit calculations, while about one-half of the 435 private sector

programs use the highest 5 years’ salaries, the replacement rates available

from FERS and CSRS would not decrease as much as the private sector

replacement rates.

We believe these assumptions are reasonable because they either were

those used by OPM in its latest actuarial valuations, were based on

standards used in the benefits field, or were necessary to provide a

common basis of comparison. However, different assumptions would

change the relative magnitude of results between programs and the

absolute magnitude over all programs. It could also be possible in some

circumstances to change the relative rankings between programs. For

example, an assumed annual return of 9.5 percent, rather than 7.0 percent,

on DC plan investments could mean that a 30-percent increase in

replacement rates would be available from DC plans after 20 years of

service. Over 30 years, a 9.5 percent annual return could generate a

50-percent increase in DC plan benefits.

To calculate the benefit amounts 10 and 20 years after retirement, the

contractor needed estimates of the cost-of-living adjustments (COLA)

provided in the DB plan portion of private sector employers’ programs.

Wide variation exists in how COLAs are provided. The adjustments tend to

be ad hoc, and their size and frequency tend to vary by employer size. The

contractor routinely tracks COLAs given by 50 large companies, but neither

we nor the contractor are aware of any data sources that accurately track

COLAs given by private sector DB plans, overall. In the absence of more

complete data on DB plan COLAs in the private sector, we had the

contractor use the 50 companies’ COLA experiences to represent all private

sector DB plans in calculating replacement rates available from private

sector programs 10 and 20 years after retirement.

We limited the federal and private sector benefit comparisons presented in

this report to the benefits available to career employees under the

“optional” or “regular” retirement provisions of employers’ retirement

programs. Accordingly, we did not include the following in our

comparisons:

Page 28 GAO/GGD-97-40 Federal and Private Retirement Benefits
Chapter 1 

Introduction

• other program provisions, such as early involuntary retirement, disability

retirement, or survivor benefits;

• special benefits that are available in FERS and CSRS, such as the benefits

that are provided to Members of Congress and congressional staff, law

enforcement officers and firefighters, and air traffic controllers;

• extra benefits that private sector programs may provide to top executives;

and

• spousal or children’s benefits that may be paid by Social Security in

addition to benefit amounts paid to retirees.

Our findings may have been different if another private sector database

had been used in the benefit comparisons because our contractor’s

database could not be generalized to the private sector as a whole. Over

one-half of the employers in the contractor’s database have 2,500 or more

employees. A number of small employers are in the database, but not in

proportion to their overall representation among private sector employers

with retirement programs in 1993. About 99 percent of the employers with

retirement programs in 1993 had fewer than 2,500 employees. Also, about

24 percent of the employers in the contractor’s database had retirement

programs that included DC plans only. In an earlier report, we described

the retirement program designs of all U.S. private sector employers who

offered pensions in 1993.16 Overall, a higher proportion (88 percent) of

these employers sponsored only DC plans than the employers in the

contractor’s database. However, the percentage of all employers with

2,500 or more employees that sponsored both DB and DC plans increased

from 1984 to 1993, and nearly one-half of the employers with 2,500 or more

employees sponsored DB plans in 1993.

We did our review in Washington, D.C., from October 1995 to January 1997

in accordance with generally accepted government auditing standards. We

requested comments on a draft of this report from Watson Wyatt

Worldwide and the heads of OPM and the Federal Retirement Thrift

Investment Board (the Thrift Board) or their designees. The Research

Actuary of Watson Wyatt’s Research and Information Center in

Washington, D.C., and the Thrift Board’s Director of External Affairs

provided us with oral comments. The Director of the Office of Personnel

Management provided written comments. Both the oral and written

comments are presented and evaluated in the executive summary and

chapter 4. The OPM comments are reprinted in appendix VI.

16Private Pensions: Most Employers That Offer Pensions Use Defined Contribution Plans

(GAO/GGD-97-1, Oct. 3, 1996).

Page 29 GAO/GGD-97-40 Federal and Private Retirement Benefits
Chapter 2 

Comparative Benefit Levels Available From

FERS, CSRS, and Private Sector Retirement

Programs

The comparative benefit amounts available to employees in FERS and CSRS

and the average benefit amounts available from the retirement programs in

the contractor’s private sector database can differ considerably, depending

on a number of factors and how these factors interact with the retirement

programs’ designs. These factors include (1) the ages at which employees

retire and at which programs provide unreduced benefits, (2) the extent to

which employees and employers contribute to the DC plans that are

integral components of FERS and most private sector programs, and (3) the

impact of inflation and cost-of-living adjustments provided through the

retirement programs. In general, when employees retire before age 62, the

largest benefits are available from FERS and the smallest benefits are

available from the private sector programs. The benefits available from

CSRS fall between those available from FERS and the private sector

programs.

However, the comparative benefits are quite different for employees who

retire at age 62 or older. For retirees at these older ages, FERS continues to

make the largest benefits available, but these benefits are just slightly

more than the average for private sector programs that, like FERS, include

both DB and DC plans. The benefits that are available at age 62 or older

from the private sector programs that include DB or DC plans only are quite

similar, but these benefits are smaller than the benefits available from FERS

and the average benefits available from the private sector programs that

include both DB and DC plans.

CSRS benefits for employees retiring at age 62 or older with 20 years of

service are smaller than FERS benefits and the average benefits available

from private sector programs, regardless of program design because

(1) CSRS benefits are the same for specific years of service, regardless of

age, and (2) CSRS-covered employees receive no Social Security benefits

from their federal employment. For employees who retire at age 62 or

older with 30 years of service, CSRS benefits are still smaller than the

benefits available from FERS and the private sector programs that include

both DB and DC plans, but the CSRS benefits become similar to the benefits

available from private sector programs with DB or DC plans only.

The level at which employees contribute to their DC plans is a significant

factor in determining the benefits that are available from FERS and the

private sector programs that incorporate DC plans. Considerably smaller

benefits are available from such programs when employees contribute

lesser amounts than are necessary to receive maximum employer

contributions.

Page 30 GAO/GGD-97-40 Federal and Private Retirement Benefits
Chapter 2 

Comparative Benefit Levels Available From

FERS, CSRS, and Private Sector Retirement

Programs

In this chapter, we present the replacement rates available from FERS, CSRS,

and private sector programs for five illustrative employees who are (1) age

55 with 30 years of service, (2) age 62 with 20 years of service, (3) age 65

with 20 years of service, (4) age 62 with 30 years of service, and (5) age 65

with 30 years of service and who retire with a final salary of $40,000.

Unless otherwise indicated, the replacement rates are calculated using the

assumption that employees in FERS and the private sector programs that

include DC plans contributed amounts that are necessary to receive

maximum employer contributions to their DC plans. However, separate

replacement-rate calculations are also presented for each illustrative

employee to show the effects of lower amounts of employee contributions

to DC plans. The effects of cost-of-living adjustment practices on

retirement program replacement rates after 10 and 20 years of retirement

are also analyzed in this chapter.

Comparative

Replacement Rates at

Retirement

With a replacement rate of 65 percent, FERS ranks first in a comparison of

available benefits for employees who retire at age 55 with 30 years of

service. CSRS is second with a replacement rate of 53 percent for

employees who retire at age 55 with 30 years of service, and the average of

private sector programs with both DB and DC plans in the contractor’s

database is third with a 45-percent replacement rate. The private sector

programs that have DB or DC plans only have available benefits averaging

less than 30 percent of final salary. (See fig. 2.1.)

The availability of unreduced DB plan benefits in FERS and CSRS for

employees retiring at age 55 with 30 years of service is an advantage over

most DB plans in the private sector because private sector plans usually

impose reductions in accrued benefits for employees retiring at age 55,

regardless of their number of years of service. Moreover, Social Security

retirement benefits are not available to private sector retirees until they

reach age 62, whereas the FERS’ DB plan provides an annuity supplement

equal to the estimated Social Security benefits that a retiree earned while

employed by the federal government and that the retiree could receive at

age 62.1

1

The FERS annuity supplement ends when the retiree reaches age 62 and his or her actual Social

Security payments can begin.

Page 31 GAO/GGD-97-40 Federal and Private Retirement Benefits
Chapter 2 

Comparative Benefit Levels Available From

FERS, CSRS, and Private Sector Retirement

Programs

Figure 2.1: Average Replacement

Rates Available for Employees Who

Retire at Age 55 With 30 Years of

Service and a Final Salary of $40,000

DB plans


only

Percentage of final salary

DC plans
 CSRS

only

DB and


DC plans

FERS

Program design

DC plan or TSP

DB plan

0

10

20

30

40

50

60

70

80

90

100

Note 1: Social Security retirement benefits are not available at age 55. Retirees may elect to begin

benefits at age 62.

Note 2: The FERS’ DB plan provides an annuity supplement until the retiree reaches age 62. The

supplement equals the estimated Social Security benefits that are payable at age 62 and earned

while the retiree was employed by the federal government.

Note 3: The percentages shown were calculated using the assumption that the employee

contributed the percentage of salary that is necessary to obtain the maximum employer-matching

contributions.

Source: Watson Wyatt Worldwide database (see table III.1).

Because Social Security retirement benefits are available to retirees in

FERS and the private sector programs at age 62 or older, the relative

positions of the federal and private sector programs, in terms of

replacement rates, change at age 62. Specifically, when the employee

retires at age 62 with 20 years of service, FERS is no longer the dominant

program, and CSRS drops from the second position to the last position. The

FERS replacement rate of 66 percent is higher than the 63-percent average

Page 32 GAO/GGD-97-40 Federal and Private Retirement Benefits
Chapter 2 

Comparative Benefit Levels Available From

FERS, CSRS, and Private Sector Retirement

Programs

replacement rate of the private sector programs with both DB and DC plans.

Private sector programs that include either a DB plan or a DC plan, but not

both, have available replacement rates of about 40 percent, which is higher

than the CSRS rate of 36 percent. (See fig. 2.2.)

Figure 2.2: Average Replacement

Rates Available for Employees Who

Retire at Age 62 With 20 Years of

Service and a Final Salary of $40,000

0

10

20

30

40

50

60

70

80

90

100

DB plans


only

Percentage of final salary

DC plans
 CSRS

only

DB and


DC plans

FERS

Program design

Social Security

DC plan or TSP

DB plan

Note: The percentages shown were calculated using the assumption that the employee

contributed the percentage of salary that is necessary to obtain the maximum employer-matching

contributions.

Source: Watson Wyatt Worldwide database (see table III.2).

When an employee retires at age 65 with 20 years of service, the relative

positions of the programs, in terms of replacement rates, are the same as

at age 62, but the available replacement rates for all programs, except CSRS,

are higher than at age 62. At age 65, replacement rates available to

employees under FERS and the average of the private sector programs with

Page 33 GAO/GGD-97-40 Federal and Private Retirement Benefits
Chapter 2 

Comparative Benefit Levels Available From

FERS, CSRS, and Private Sector Retirement

Programs

both DB and DC plans are almost the same, 71.1 and 70.5 percent,

respectively. For private sector programs with either a DB or DC plan, the

average available replacement rate increases to almost 50 percent. The

CSRS replacement rate remains the same at 36 percent. (See fig. 2.3.)

Several factors cause replacement rates for FERS and private sector

programs, on average, to increase between the ages of 62 and 65. Social

Security benefits are reduced for employees who retire before age 65.

Similarly, some private sector DB plans impose reductions in accrued

benefits when employees retire before age 65. Finally, DC plan benefit

amounts are larger at age 65 because account balances are paid out over

shorter periods when employees retire at older ages. These factors do not

apply to CSRS because (1) CSRS benefit amounts are not determined by

employees’ ages upon retirement at age 55 or older, (2) CSRS employees

are not covered by Social Security through their federal employment, and

(3) CSRS employees do not receive any employer-paid DC plan benefits.

Therefore, after age 55, CSRS replacement rates are the same for all

employees with the same years of service, regardless of the ages at which

they retire.

Page 34 GAO/GGD-97-40 Federal and Private Retirement Benefits
Chapter 2 

Comparative Benefit Levels Available From

FERS, CSRS, and Private Sector Retirement

Programs

Figure 2.3: Average Replacement

Rates Available for Employees Who

Retire at Age 65 With 20 Years of

Service and a Final Salary of $40,000

0

10

20

30

40

50

60

70

80

90

100

DB plans


only

Percentage of final salary

DC plans
 CSRS

only

DB and


DC plans

FERS

Program design

Social Security

DC plan or TSP

DB plan

Note: The percentages shown were calculated using the assumption that the employee

contributed the percentage of salary that is necessary to obtain the maximum employer-matching

contributions.

Source: Watson Wyatt Worldwide database (see table III.3).

When an employee retires at age 62 or older with 30 years of service, the

relative positions of the federal and private sector programs, in terms of

replacement rates, change again. FERS and the private sector programs that

include both DB and DC plans remain in the top two positions, but CSRS is

no longer in the last position. The CSRS replacement rate moves just ahead

of the averages of the replacement rates available from programs with DB

or DC plans only. Some of the change in the CSRS position is due to the

graduated accrual rates used for calculating benefit amounts under CSRS.

2

2

The accrual rates used to calculate the CSRS benefit amounts for general employees are 1.5 percent

for each of the first 5 years of service, 1.75 percent for each of the next 5 years, and 2 percent for each

year of service over 10 years.

Page 35 GAO/GGD-97-40 Federal and Private Retirement Benefits
Chapter 2 

Comparative Benefit Levels Available From

FERS, CSRS, and Private Sector Retirement

Programs

For a 30-year career, 20 years are calculated at the highest rate; while for a

20-year career, only 10 years are calculated at the highest rate. Therefore,

a 30-year career under CSRS yields a greater benefit than does a 20-year

career.

When the employee retires at age 62 with 30 years of service, CSRS has a

replacement rate of 53 percent; while the averages of the replacement

rates for the DB and DC plans only programs are about 50 percent. The FERS’

replacement rate and the averages of rates from the private sector

programs that have both DB and DC plans are 81 and 75 percent,

respectively, when the employee retires at age 62 with 30 years of service.

(See fig 2.4.)

Figure 2.4: Average Replacement

Rates Available for Employees Who

Retire at Age 62 With 30 Years of

Service and a Final Salary of $40,000

0

10

20

30

40

50

60

70

80

90

100

DB plans


only

Percentage of final salary

DC plans
 CSRS

only

DB and


DC plans

FERS

Program design

Social Security

DC plan or TSP

DB plan

Note: The percentages shown were calculated using the assumption that the employee

contributed the percentage of salary that is necessary to obtain the maximum employer-matching

contributions.

Source: Watson Wyatt Worldwide database (see table III.4).

Page 36 GAO/GGD-97-40 Federal and Private Retirement Benefits
Chapter 2 

Comparative Benefit Levels Available From

FERS, CSRS, and Private Sector Retirement

Programs

At age 65 with 30 years of service, the replacement rates available to

employees under CSRS and the averages of the replacement rates for the

private sector programs with DB or DC plans only are within 5 percentage

points of each other, ranging from 53 to 58 percent. The replacement rate

for employees retiring at age 65 with 30 years of service under FERS is

87 percent, and the average of the rates for private sector programs that

include both DB and DC plans is 82 percent. (See fig. 2.5.)

Figure 2.5: Average Replacement

Rates Available for Employees Who

Retire at Age 65 With 30 Years of

Service and a Final Salary of $40,000

0

10

20

30

40

50

60

70

80

90

100

DB plans


only

Percentage of final salary

DC plans
 CSRS

only

DB and


DC plans

FERS

Program design

Social Security

DC plan or TSP

DB plan

Note: The percentages shown were calculated using the assumption that the employee

contributed the percentage of salary that is necessary to obtain the maximum employer-matching

contributions.

Source: Watson Wyatt Worldwide database (see table III.5).

Page 37 GAO/GGD-97-40 Federal and Private Retirement Benefits
Chapter 2 

Comparative Benefit Levels Available From

FERS, CSRS, and Private Sector Retirement

Programs

Relationship of

Employee

Contributions to

Retirement Program

Benefits

Just as differences exist in the levels of benefits provided by various

retirement programs, differences also exist among programs in the

amounts employees must contribute toward program costs. In general, to

receive the replacement rates discussed above, CSRS and the private sector

programs that include Social Security and DB plans only require the

smallest employee contributions. FERS and the private sector programs

that include DC plans, regardless of whether a DB plan is also provided,

require the greatest employee contributions to receive maximum employer

contributions to their program benefits.

The amounts that employees contribute to the FERS and private sector DC

plans are critical factors in determining the benefit amounts employees

can receive from the overall retirement programs. Employees who

contribute the amounts that are necessary to receive maximum employer

contributions to DC plans will receive greater benefits at retirement than

those employees who elect not to contribute to the DC plan or those

employees who contribute smaller amounts.

Effects of Equalizing

Employee Contributions to

FERS, CSRS, and Private

Sector Retirement

Programs That Include

Both DB and DC Plans

Most employees in CSRS are required to contribute 7 percent of their

salaries toward program costs. Employees in FERS also generally

contribute a total of 7 percent of their salaries to Social Security and the

FERS’ DB plan (i.e., 6.2 percent to Social Security and 0.8 percent to the DB

plan). Private sector employees contribute 6.2 percent of their salaries to

Social Security, but virtually all of the programs in the contractor’s

database with DB plans did not require employee contributions toward DB

plan costs.

In the FERS’ DC plan—the TSP—employees must contribute 5 percent of

their salaries to receive the maximum available employer contributions to

their accounts. Accordingly, to obtain the greatest available benefits from

FERS, employees must contribute a total of 12 percent of their salaries.

Employees in private sector programs that include DC plans must also

generally contribute about 12 percent of their salaries to receive the

greatest benefits available from their programs. These employees must

contribute 6.2 percent of their salaries to Social Security, and, according to

the contractor, typically must contribute 6 percent of their salaries to

receive maximum employer contributions to their DC plans.

Employees in CSRS can, by law, contribute up to 5 percent of their salaries

to the TSP with no employer-matching contributions. Therefore, CSRS

employees who contribute 5 percent of their salaries to the TSP would

Page 38 GAO/GGD-97-40 Federal and Private Retirement Benefits
Chapter 2 

Comparative Benefit Levels Available From

FERS, CSRS, and Private Sector Retirement

Programs

contribute a total of 12 percent of salary to their retirement program, just

as the employees in FERS and private sector programs that include DC

plans. To show the effects of employee contributions on replacement rates

if employees in FERS, CSRS, and private sector programs that include both

DB and DC plans were all to contribute approximately 12 percent of their

salaries to their retirement programs, figures 2.6 through 2.10 reflect the

comparative replacement rates that would be available to these

employees.3

 As the figures show, the replacement rate available to CSRS

employees who retire at age 55 with 30 years of service would be quite

similar to the FERS replacement rate, but considerably higher than the

average replacement rate available from private sector programs that

include both DC and DB plans. However, even with employee contributions

of 12 percent of salary, the CSRS replacement rates for employees who

retire at ages 62 and 65 with 20 or 30 years of service would be lower than

FERS and the private sector programs that include both DB and DC plans.

3

The percentage of salary contributed is exactly 12 percent for FERS and CSRS employees and

averages 12.2 percent for private sector employees in programs with both DB and DC plans.

Page 39 GAO/GGD-97-40 Federal and Private Retirement Benefits
Chapter 2 

Comparative Benefit Levels Available From

FERS, CSRS, and Private Sector Retirement

Programs

Figure 2.6: Comparative Average

Replacement Rates Available When

Employees Contribute 12 Percent of

Their Salaries and Retire at Age 55

With 30 Years of Service and a Final

Salary of $40,000

0

10

20

30

40

50

60

70

80

90

100

DB and


DC plans

Percentage of final salary

FERS CSRS

Program design

DC plan or TSP

DB plan

Note 1: Social Security retirement benefits are not available at age 55. Retirees may elect to begin

benefits at age 62.

Note 2: The percentages shown were calculated using the assumption that the employee

contributed the percentage of salary that is necessary to obtain the maximum employer-matching

contributions.

Sources: Watson Wyatt Worldwide database (see table III.1) and GAO analysis.

Page 40 GAO/GGD-97-40 Federal and Private Retirement Benefits
Chapter 2 

Comparative Benefit Levels Available From

FERS, CSRS, and Private Sector Retirement

Programs

Figure 2.7: Comparative Average

Replacement Rates Available When

Employees Contribute 12 Percent of

Their Salaries and Retire at Age 62

With 20 Years of Service and a Final

Salary of $40,000

0

10

20

30

40

50

60

70

80

90

100

DB and


DC plans

Percentage of final salary

FERS CSRS

Program design

Social Security

DC plan or TSP

DB plan

Note: The percentages shown were calculated using the assumption that the employee

contributed the percentage of salary that is necessary to obtain the maximum employer-matching

contributions.

Sources: Watson Wyatt Worldwide database (see table III.2) and GAO analysis.

Page 41 GAO/GGD-97-40 Federal and Private Retirement Benefits
Chapter 2 

Comparative Benefit Levels Available From

FERS, CSRS, and Private Sector Retirement

Programs

Figure 2.8: Comparative Average

Replacement Rates Available When

Employees Contribute 12 Percent of

Their Salaries and Retire at Age 65

With 20 Years of Service and a Final

Salary of $40,000

0

10

20

30

40

50

60

70

80

90

100

DB and


DC plans

Percentage of final salary

FERS CSRS

Program design

Social Security

DC plan or TSP

DB plan

Note: The percentages shown were calculated using the assumption that the employee

contributed the percentage of salary that is necessary to obtain the maximum employer-matching

contributions.

Sources: Watson Wyatt Worldwide database (see table III.3) and GAO analysis.

Page 42 GAO/GGD-97-40 Federal and Private Retirement Benefits
Chapter 2 

Comparative Benefit Levels Available From

FERS, CSRS, and Private Sector Retirement

Programs

Figure 2.9: Comparative Average

Replacement Rates Available When

Employees Contribute 12 Percent of

Their Salaries and Retire at Age 62

With 30 Years of Service and a Final

Salary of $40,000

0

10

20

30

40

50

60

70

80

90

100

DB and


DC plans

Percentage of final salary

FERS CSRS

Program design

Social Security

DC plan or TSP

DB plan

Note: The percentages shown were calculated using the assumption that the employee

contributed the percentage of salary that is necessary to obtain the maximum employer-matching

contributions.

Sources: Watson Wyatt Worldwide database (see table III.4) and GAO analysis.

Page 43 GAO/GGD-97-40 Federal and Private Retirement Benefits
Chapter 2 

Comparative Benefit Levels Available From

FERS, CSRS, and Private Sector Retirement

Programs

Figure 2.10: Comparative Average

Replacement Rates Available When

Employees Contribute 12 Percent of

Their Salaries and Retire at Age 65

With 30 Years of Service and a Final

Salary of $40,000

0

10

20

30

40

50

60

70

80

90

100

DB and


DC plans

Percentage of final salary

FERS CSRS

Program design

Social Security

DC plan or TSP

DB plan

Note: The percentages shown were calculated using the assumption that the employee

contributed the percentage of salary that is necessary to obtain the maximum employer-matching

contributions.

Sources: Watson Wyatt Worldwide database (see table III.5) and GAO analysis.

Effects of Employee

Contribution Rates on DC

Plan Benefits

Whether comparisons are made of the replacement rates available solely

from DC plans or the replacement rates available from all plans that are

part of the retirement programs (i.e., Social Security, DB plans, and/or DC

plans), the amounts that employees contribute to DC plans significantly

affect replacement rates and can affect which retirement program

provides the highest replacement rate.

Table 2.1 illustrates the effects of employee contribution amounts on DC

plan benefits. The table shows the comparative average replacement rates

that are available from FERS’ TSP and the private sector DC plans in the

contractor’s database when employees (1) contribute amounts that are

sufficient to receive maximum employer contributions, (2) contribute

Page 44 GAO/GGD-97-40 Federal and Private Retirement Benefits
Chapter 2 

Comparative Benefit Levels Available From

FERS, CSRS, and Private Sector Retirement

Programs

amounts that are sufficient to receive one-half of the maximum employer

contributions available, and (3) make no contributions to their DC plans.

The amounts that employees contribute to their DC plans have a major

influence on the benefits they could receive from their DC plans. For

example, employees retiring at age 62 with 30 years of service under FERS

could expect to receive annual benefits of about 30 percent of their final

salary from their TSP accounts if they had received the maximum employer

contributions by contributing 5 percent of their salary to the TSP

throughout their 30-year career. This amount would be 10 times greater

than the 3 percent of final salary they could expect to receive from TSP if

they had made no contributions to their TSP accounts.

Table 2.1: Average Replacement Rates Available From the FERS’ TSP and the Private Sector DC Plans at Varying Amounts

of Employee Contributions

Average DC plan replacement rates

Numbers in percent

Program design

Employees contribute

amounts to receive

maximum employer

match

Employees contribute

amounts to receive

one-half maximum

employer match

Employees make no

contributions

Age 55 with 30 years of service and $40,000 final salary:

Private sector, DC plans only 26.0 16.3 6.3

Private sector, both DB and DC plans 24.1 13.3 2.1

FERS’ TSP 27.2 16.3 2.8

Age 62 with 20 years of service and $40,000 final salary:

Private sector, DC plans only 23.7 14.9 5.7

Private sector, both DB and DC plans 22.0 12.2 1.9

FERS’ TSP 24.8 14.9 2.5

Age 65 with 20 years of service and $40,000 final salary:

Private sector, DC plans only 25.2 15.8 6.1

Private sector, both DB and DC plans 23.5 12.9 2.0

FERS’ TSP 26.4 15.9 2.7

Age 62 with 30 years of service and $40,000 final salary:

Private sector, DC plans only 29.8 18.6 7.3

Private sector, both DB and DC plans 26.2 14.3 1.8

FERS’ TSP 30.4 18.2 3.1

Age 65 with 30 years of service and $40,000 final salary:

Private sector, DC plans only 31.7 19.8 7.8

Private sector, both DB and DC plans 27.9 15.2 1.9

FERS’ TSP 32.4 19.4 3.3

Source: Watson Wyatt Worldwide database (see tables III.1 through III.15).

Page 45 GAO/GGD-97-40 Federal and Private Retirement Benefits
Chapter 2 

Comparative Benefit Levels Available From

FERS, CSRS, and Private Sector Retirement

Programs

To show the effects of employee contributions to DC plans on the total

replacement rates available from all parts (i.e., Social Security, DB plans,

and/or DC plans) of the federal and private sector retirement programs,

figures 2.11 through 2.15 show the total retirement program average

replacement rates available at each of the three levels of contributions to

DC plans.3 The replacement rates decline with reduced levels of employee

contributions in all programs that include DC plans.

When employees retire at age 55 with 30 years of service, CSRS’

replacement rate is higher than the replacement rates for all other

programs in the comparison, regardless of the amounts employees

contribute to the DC plans, except for FERS employees who contribute at

least one-half of the amount required to receive maximum employer

contributions to the TSP. (See fig. 2.11.)

3

The comparisons shown in figures 2.11 through 2.15 do not include any employee contributions to the

FERS’ TSP for CSRS employees because the government does not match their TSP contributions. The

comparisons also do not include any additional contributions that FERS or private sector employees

could make to their DC plans and that would not be matched by their employers.

Page 46 GAO/GGD-97-40 Federal and Private Retirement Benefits
Chapter 2 

Comparative Benefit Levels Available From

FERS, CSRS, and Private Sector Retirement

Programs

Figure 2.11: Effect of Employee

Contributions on Average

Replacement Rates Available When

Employees Retire at Age 55 With 30

Years of Service and a Final Salary of

$40,000

Percentage of final salary

0

10

20

30

40

50

60

70

80

90

100

DB plans only DC plans only DB and DC

plans

FERS CSRS

Program design

Maximum match

One-half match

No employee contributions

Note 1: Social Security retirement benefits are not available at age 55. Retirees may elect to begin

benefits at age 62.

Note 2: These bars include the benefits gained from any DB or DC plans to which the employer

contributes.

Source: Watson Wyatt Worldwide database (see tables III.1, III.6, and III.11).

When employees retire at ages 62 and 65 with 20 years of service, the other

programs, even if covered employees made no contributions to their DC

plans, generally provide higher replacement rates than CSRS. The only

average replacement rates when employees retire at ages 62 and 65 with

20 years of service that are lower than the CSRS replacement rate are those

rates that occur in private sector programs with DC plans only when

employees did not make maximum contributions to their DC plans. FERS’

replacement rates when employees retire at ages 62 and 65 with 20 years

of service are comparable to the replacement rates available from private

Page 47 GAO/GGD-97-40 Federal and Private Retirement Benefits
Chapter 2 

Comparative Benefit Levels Available From

FERS, CSRS, and Private Sector Retirement

Programs

sector programs with both DB and DC plans at all three levels of employee

contributions. However, employees in private sector programs with DC

plans only must make maximum contributions to their plans to receive

replacement rates at ages 62 and 65 that are comparable to the FERS’

replacement rate with no employee contributions to the TSP. (See figs. 2.12

and 2.13.)

Figure 2.12: Effect of Employee

Contributions on Average

Replacement Rates Available When

Employees Retire at Age 62 With 20

Years of Service and a Final Salary of

$40,000

Percentage of final salary

0

10

20

30

40

50

60

70

80

90

100

DB plans only DC plans only DB and DC

plans

FERS CSRS

Program design

Maximum match

One-half match

No employee contributions

Note: These bars include the benefits gained from Social Security and any DB or DC plans to

which the employer contributes.

Source: Watson Wyatt Worldwide database (see tables III.2, III.7, and III.12).

Page 48 GAO/GGD-97-40 Federal and Private Retirement Benefits
Chapter 2 

Comparative Benefit Levels Available From

FERS, CSRS, and Private Sector Retirement

Programs

Figure 2.13: Effect of Employee

Contributions on Average

Replacement Rates Available When

Employees Retire at Age 65 With 20

Years of Service and a Final Salary of

$40,000

Percentage of final salary

0

10

20

30

40

50

60

70

80

90

100

DB plans only DC plans only DB and DC

plans

FERS CSRS

Program design

Maximum match

One-half match

No employee contributions

Note: These bars include the benefits gained from Social Security and any DB or DC plans to

which the employer contributes.

Source: Watson Wyatt Worldwide database (see tables III.3, III.8, and III.13).

When employees retire at ages 62 and 65 with 30 years of service, the

replacement rates available under FERS and the average of the private

sector programs that have both DB and DC plans are similar at all three

levels of employee contributions as they were with 20 years of service. The

relative position of the CSRS replacement rate at 30 years of service has

improved. CSRS now provides a replacement rate that is similar to (1) the

averages of the replacement rates available from the private sector

programs with DB plans only, (2) programs with DC plans only when

employees make the contributions that are needed to receive the

maximum employer match, and (3) FERS and private sector programs that

have both DB and DC plans when the employees make no contributions to

Page 49 GAO/GGD-97-40 Federal and Private Retirement Benefits
Chapter 2 

Comparative Benefit Levels Available From

FERS, CSRS, and Private Sector Retirement

Programs

their plans. CSRS has a higher replacement rate than private sector DC plans

only programs when employees contribute less than the amounts needed

to get the maximum employer match. However, CSRS’ replacement rate

remains behind the rates available from FERS and private sector programs

that have DB and DC plans as long as the FERS and private sector employees

make some contributions to their DC plans. (See figs. 2.14 and 2.15.)

Figure 2.14: Effect of Employee

Contributions on Average

Replacement Rates Available When

Employees Retire at Age 62 With 30

Years of Service and a Final Salary of

$40,000

Percentage of final salary

0

10

20

30

40

50

60

70

80

90

100

DB plans only DC plans only DB and DC

plans

FERS CSRS

Program design

Maximum match

One-half match

No employee contributions

Note: These bars include the benefits gained from Social Security and any DB or DC plans to

which the employer contributes.

Source: Watson Wyatt Worldwide database (see tables III.4, III.9, and III.14).

Page 50 GAO/GGD-97-40 Federal and Private Retirement Benefits
Chapter 2 

Comparative Benefit Levels Available From

FERS, CSRS, and Private Sector Retirement

Programs

Figure 2.15: Effect of Employee

Contributions on Average

Replacement Rates Available When

Employees Retire at Age 65 With 30

Years of Service and a Final Salary of

$40,000

Percentage of final salary

0

10

20

30

40

50

60

70

80

90

100

DB plans only DC plans only DB and DC

plans

FERS CSRS

Program design

Maximum match

One-half match

No employee contributions

Note: These bars include the benefits gained from Social Security and any DB or DC plans to

which the employer contributes.

Source: Watson Wyatt Worldwide database (see tables III.5, III.10, and III.15).

Impact of

Cost-of-Living

Adjustment Practices

on Long-Term

Replacement Rates

After retirement benefits begin, inflation will erode the purchasing power

of these benefits unless they are maintained by COLAs.5

 By law, the Social

Security portion of FERS and private sector retirement programs is adjusted

each year. Social Security retirement benefits are increased each year by

the percentage increase in the CPI, which is used for inflation adjustment

purposes. However, in the DB plan portion of private sector employers’

programs, wide variation exists in how COLAs are provided. The

adjustments tend to be ad hoc, and their size and frequency tend to vary by

employer size. The contractor we used routinely tracks the COLAs given by

50 large companies, but neither we nor the contractor are aware of any

data sources that accurately track COLAs given by private sector DB plans,

5

By their nature, the TSP and private sector DC plan benefits are not subject to cost-of-living

adjustments.

Page 51 GAO/GGD-97-40 Federal and Private Retirement Benefits
Chapter 2 

Comparative Benefit Levels Available From

FERS, CSRS, and Private Sector Retirement

Programs

overall. Using COLA data from the 50 companies, the contractor determined

that employees who retired from the companies in 1985, had received, on

average, a 4-percent benefit increase by 1994. These cumulative COLAs

offset about 10 percent of the CPI increase during the 10-year period. For

employees who retired in 1975, cumulative COLAs averaging 30 percent

were given, which was about 15 percent of the CPI increase during the

20-year period from 1975 to 1994. In the absence of more complete data on

DB plan COLAs, we used the 50 companies’ COLA experiences to represent all

private sector DB plans in calculating replacement rates available from

private sector programs 10 and 20 years after retirement.

FERS does not always provide full COLAs in its DB plan. COLAs for

nondisabled FERS retirees are not paid until retirees reach age 62. When

paid, the COLAs are equal to the annual increase in the CPI if the price

increase is 2 percent or less. The adjustment is 2 percent if the CPI increase

is between 2 and 3 percent. If the CPI increase is 3 percent or greater, the

adjustment is equal to the CPI increase minus 1 percent.

Like Social Security, the law calls for CSRS benefits to be adjusted annually

by the percentage increase in the CPI. However, since 1980, several

legislative provisions have often reduced, delayed, or skipped the

scheduled CSRS COLAs. For example, in 1983, the CSRS COLA was delayed 1

month and was less than the increase in the CPI for nondisabled retirees

under age 62; the 1984 COLA was delayed for 9 months; in 1986, the

President and Congress decided not to grant any COLAs to federal retirees

that year; and in fiscal years 1994, 1995, and 1996, the COLA payments were

delayed until April of each of those years instead of the scheduled January

payment dates.6

 In 1995, we reported that the CSRS COLA delays and

reductions during the 10-year period from 1985 to 1994 had caused the

COLAs to cover about 80 percent of the CPI increase for the period.7 In

figures 2.16 through 2.20, the bars labeled CSRS I represent the statutory

policy of full adjustments for CSRS, and the bars labeled CSRS II represent

the actual COLA practices during 1985 through 1994 when 80 percent of the

CPI increase was covered.

Because of the full COLAs provided for CSRS I, its replacement rates remain

the same in constant dollars, regardless of the length of retirement. In

contrast, the replacement rates available from FERS and private sector

programs decline in constant dollars during retirement because only the

Social Security portion of these programs is fully adjusted. Similarly, the

6

The COLA delays in 1994, 1995, and 1996 also applied to FERS retirees.

7

Overview of Federal Retirement Programs (GAO/T-GGD-95-172, May 22, 1995).

Page 52 GAO/GGD-97-40 Federal and Private Retirement Benefits
Chapter 2 

Comparative Benefit Levels Available From

FERS, CSRS, and Private Sector Retirement

Programs

limitations on COLAs under CSRS II cause retirees to lose purchasing power,

or receive declining replacement rates, during their retirement years.

While FERS makes greater immediate benefits available than CSRS when

employees retire at age 55 with 30 years of service, FERS’ smaller COLAs8

cause its replacement rate to fall behind the CSRS I replacement rate after

20 years of retirement (i.e., the effective FERS replacement rate is

65 percent at retirement, declines to 57 percent after 10 years, and further

declines to 49 percent after 20 years in comparison to the constant CSRS I

replacement rate of 53 percent at retirement and thereafter). However, the

FERS replacement rates for age 55 retirees with 30 years of service continue

to exceed the average replacement rates for private sector programs in the

contractor’s database, with both DB and DC plans that start at 45 percent,

increase to 49 percent after 10 years (because of the addition of Social

Security retirement benefits at age 62), and decrease to 39 percent after 20

years of retirement.9

 The FERS replacement rate does not show an increase

at 10 years after retirement because the FERS annuity supplement ceases at

age 62 when Social Security retirement benefits are available. The FERS

replacement rate for employees who retire at age 55 with 30 years of

service also exceeds the CSRS II replacement rate after 20 years of

retirement because, together, the FERS’ higher replacement rate at

retirement and the increases provided by COLAs in the FERS’ DB plan and

Social Security keep its replacement rate just above CSRS II with its COLA

that covers 80 percent of the increase in the CPI.

8

In our analysis, we assumed the rate of inflation and increase in the CPI to be 4.5 percent each year,

so the FERS COLA is 3.5 percent, which is smaller than the CSRS COLA of 4.5 percent. If the rate of

inflation is 2 percent or less, then the FERS and CSRS COLAs would be the same.

9

Because the private sector programs with DB plans only were so few in number, the contractor did

not calculate their effective replacement rates 10 and 20 years after retirement. Also, the COLA

information available to the contractor pertained largely to programs that included both DB and DC

plans.

Page 53 GAO/GGD-97-40 Federal and Private Retirement Benefits
Chapter 2 

Comparative Benefit Levels Available From

FERS, CSRS, and Private Sector Retirement

Programs

Figure 2.16: Average Replacement

Rates Available at Retirement and 10

and 20 Years After Retirement When

Employees Retire at Age 55 With 30

Years of Service and a Final Salary of

$40,000

Percentage of final salary

0

10

20

30

40

50

60

70

80

90

100

DB and DC

plans

FERS CSRS I CSRS II

Program design

At retirement

10 years after

20 years after

Note 1: Social Security retirement benefits are not available at age 55. Retirees may elect to begin

benefits at age 62.

Note 2: The percentages shown were calculated using the assumption that the employee

contributed the percentage of salary that is necessary to obtain the maximum employer-matching

contributions.

Source: Watson Wyatt Worldwide database (see table III.1).

When retirement occurs at age 62 or older, Social Security retirement

benefits are available immediately upon retirement for FERS and private

sector retirees. Therefore, the changes in the relative replacement rates

that occur within a particular program design after retirement at age 55 do

not occur at the older retirement ages. For employees who retire at ages

62 and 65 with 20 or 30 years of service, FERS starts with the highest

replacement rates of all programs, and this advantage continues

throughout the next 20 years. (See figs. 2.17 through 2.20.)

Page 54 GAO/GGD-97-40 Federal and Private Retirement Benefits
Chapter 2 

Comparative Benefit Levels Available From

FERS, CSRS, and Private Sector Retirement

Programs

When retirement occurs at age 62 or older with 20 years of service, the

private sector programs in the contractor’s database that have both DB and

DC plans rank in the second position for the full 20 years. CSRS I stays in the

third position, but moves closer to the private sector program average by

the 20-year point. CSRS II remains at the bottom for the full 20 years. (See

figs. 2.17 and 2.18.)

Figure 2.17: Average Replacement

Rates Available at Retirement and 10

and 20 Years After Retirement When

Employees Retire at Age 62 With 20

Years of Service and a Final Salary of

$40,000

Percentage of final salary

0

10

20

30

40

50

60

70

80

90

100

DB and DC

plans

FERS CSRS I CSRS II

Program design

At retirement

10 years after

20 years after

Note: The percentages shown were calculated using the assumption that the employee

contributed the percentage of salary that is necessary to obtain the maximum employer-matching

contributions.

Source: Watson Wyatt Worldwide database (see table III.2).

Page 55 GAO/GGD-97-40 Federal and Private Retirement Benefits
Chapter 2 

Comparative Benefit Levels Available From

FERS, CSRS, and Private Sector Retirement

Programs

Figure 2.18: Average Replacement

Rates Available at Retirement and 10

and 20 Years After Retirement When

Employees Retire at Age 65 With 20

Years of Service and a Final Salary of

$40,000

Percentage of final salary

0

10

20

30

40

50

60

70

80

90

100

DB and DC

plans

FERS CSRS I CSRS II

Program design

At retirement

10 years after

20 years after

Note: The percentages shown were calculated using the assumption that the employee

contributed the percentage of salary that is necessary to obtain the maximum employer-matching

contributions.

Source: Watson Wyatt Worldwide database (see table III.3).

When retirement occurs at age 62 or older with 30 years of service, the

averages of the replacement rates for the private sector programs that

have both DB and DC plans are higher than those for CSRS I at retirement

and 10 years after retirement. However, by 20 years after retirement, the

CSRS I replacement rate becomes higher than the private sector rate. The

replacement rate for CSRS II remains lower than the rates for all other

programs at the 10-year and 20-year points. (See figs. 2.19 and 2.20.)

However, at the 20-year point, the replacement rates available are similar

for employees who retire at age 62 with 30 years of service under CSRS II

Page 56 GAO/GGD-97-40 Federal and Private Retirement Benefits
Chapter 2 

Comparative Benefit Levels Available From

FERS, CSRS, and Private Sector Retirement

Programs

and the private sector programs that include both DB and DC plans. CSRS II’s

replacement rate is 44 percent, and the private sector rate is 45 percent.

Figure 2.19: Average Replacement

Rates Available at Retirement and 10

and 20 Years After Retirement When

Employees Retire at Age 62 With 30

Years of Service and a Final Salary of

$40,000

Percentage of final salary

0

10

20

30

40

50

60

70

80

90

100

DB and DC

plans

FERS CSRS I CSRS II

Program design

At retirement

10 years after

20 years after

Note: The percentages shown were calculated using the assumption that the employee

contributed the percentage of salary that is necessary to obtain the maximum employer-matching

contributions.

Source: Watson Wyatt Worldwide database (see table III.4).

Page 57 GAO/GGD-97-40 Federal and Private Retirement Benefits
Chapter 2 

Comparative Benefit Levels Available From

FERS, CSRS, and Private Sector Retirement

Programs

Figure 2.20: Average Replacement

Rates Available at Retirement and 10

and 20 Years After Retirement When

Employees Retire at Age 65 With 30

Years of Service and a Final Salary of

$40,000

Percentage of final salary

0

10

20

30

40

50

60

70

80

90

100

DB and DC

plans

FERS CSRS I CSRS II

Program design

At retirement

10 years after

20 years after

Note: The percentages shown were calculated using the assumption that the employee

contributed the percentage of salary that is necessary to obtain the maximum employer-matching

contributions.

Source: Watson Wyatt Worldwide database (see table III.5).

Page 58 GAO/GGD-97-40 Federal and Private Retirement Benefits
Chapter 3 

Comparative Features of FERS, CSRS, and

Private Sector Retirement Programs

The designs of the private sector retirement programs in the contractor’s

database fall into the following three distinct groups: (1) programs with

Social Security, a DB plan, and a DC plan; (2) programs with Social Security

and DC plans only; and (3) programs with Social Security and DB plans

only. The FERS program design is the same as the first group, while CSRS is

different from all three groups. CSRS is solely a DB plan with no Social

Security coverage. Employees in CSRS may contribute to the TSP, but the

government makes no contribution to their accounts.

Along with the differing program designs, specific features of federal and

private sector DB and DC plans often vary considerably from plan to plan,

including the ages at which benefits are available, the formulas used to

calculate benefit amounts, the amounts of contributions employees are

required to pay toward plan costs, and the arrangements for determining

employer contributions to DC plans.

This chapter compares and contrasts the features of FERS, CSRS, and private

sector retirement programs in the contractor’s database.

Program Designs DB plans are offered by 75 percent of the 661 private sector employers in

the contractor’s database, and DC plans are offered by 93 percent of the

employers. FERS includes both a DB plan and a DC plan—the TSP—to which

the government and most FERS employees contribute. CSRS includes a DB

plan only, but CSRS employees are allowed to contribute to the TSP. The

federal government does not contribute to CSRS employees’ TSP accounts.

All of the private sector programs and FERS provide Social Security

coverage. Employees in CSRS are not covered by Social Security through

their federal employment.

In the contractor’s database, 69 percent of the 661 private sector programs

consisted of three parts—Social Security, DB plans, and DC plans. Another

25 percent of the programs had Social Security and DC plans only. The

remaining 7 percent of the programs had Social Security and DB plans

only.1

 Figure 3.1 shows the various designs of the federal and private

sector programs.

1

These percentages do not add to 100 percent or to the percentages cited in the previous paragraph

because of rounding.

Page 59 GAO/GGD-97-40 Federal and Private Retirement Benefits
Chapter 3 

Comparative Features of FERS, CSRS, and

Private Sector Retirement Programs

Figure 3.1: Federal and Private Sector Retirement Program Designs

Private sector

Both DB & DC plans

Three-part design:

 Social Security

 +DB plan

 +DC plan

DC plan only

Two-part design:

 Social Security

 +DC plan

DB plan only

Two-part design:

 Social Security

 +DB plan

 

Federal sector

FERS

Three-part design:

 Social Security

 +DB plan

 +DC plan

CSRS

One-part design:

 DB plan

Source: GAO and the Watson Wyatt Worldwide database.

Program Features Table 3.1 shows that the major features of FERS and CSRS, as well as private

sector DB and DC plans, vary greatly. However, one specific feature alone

does not reflect a retirement program’s overall generosity. Rather, it is the

combination of all the features working together that determines benefit

amounts. For example, one DB plan may use employees’ 5-year salary

averages in benefit calculations, and a second DB plan may use employees’

3-year salary averages. In this case, the salary average feature in the

second plan appears better because it usually would produce higher salary

averages. However, the first plan could produce greater benefit amounts if

Page 60 GAO/GGD-97-40 Federal and Private Retirement Benefits
Chapter 3 

Comparative Features of FERS, CSRS, and

Private Sector Retirement Programs

its benefit formula provided a higher percentage of the salary average for

each year of service than the second plan. But, the second plan could still

provide greater benefit amounts for employees who retire at age 55 if the

first plan had a feature calling for reductions in accrued benefits for

employees who retire at that age and if the second plan had no such

feature.

Through a replacement rate analysis, as used in the retirement program

comparisons presented in chapter 2, all of a program’s features are

considered in calculating the benefit amounts the program provides at

varying ages and years of service so that meaningful comparisons with

other programs can be made.

Additional details on the features of the FERS, CSRS, and private sector DB

plans are presented in appendix IV. Appendix V presents details on the

FERS and private sector DC plans.

Table 3.1: Major Features of FERS, CSRS, and Private Sector Retirement Programs in the Contractor’s Database

Program features Private sectora FERS CSRS

Social Security Yes Yes No

Require employee contributions

to DB plan

Yes, 7% of plans 

No, 92% of plans

Yes, 0.8% of payb Yes, 7% of pay

Definition of pay for DB plan

benefit calculation

Base pay, 97%

Overtime, 61%

Bonuses, 53%

Commissions, 41%

Other pay, 14%

Base pay only Base pay only

Average pay for DB plan benefit

calculations

Final 3-year average, 14%

Final 5-year average, 64%

Career average, 11%

Other, 8%

Average of highest 3

consecutive years of base pay

(“high 3”)

Average of highest 3

consecutive years of base pay

Formula for calculating DB plan

benefit amounts

Formulas varied so widely that

they could not be meaningfully

summarized or a “typical”

formula described

1.1% of “high 3” for each year of

service, if age 62 and 20 years

of service; otherwise, 1% for

each year

1.5% of “high 3” for each of the

first 5 years of service, 1.75%

for each of the next 5 years,

and 2% for each year over 10

years

DB plan formula is integrated

with Social Security

Yes, 75% of plans

No, 25% of plans

No No Social Security coverage

Unreduced DB plan benefits are

available

Usually with service

requirement,c

Age 55, 10%

Age 60, 14%

Age 62, 27%

Age 65, 43%

Other, 4%

MRAd and 30 years of service

Age 60 and 20 years

Age 62 and 5 years

Age 55 and 30 years of service

Age 60 and 20 years

Age 62 and 5 years

(continued)

Page 61 GAO/GGD-97-40 Federal and Private Retirement Benefits
Chapter 3 

Comparative Features of FERS, CSRS, and

Private Sector Retirement Programs

Program features Private sectora FERS CSRS

Reduced DB plan benefits are

available at employee’s option

Less than age 55, 8%

Age 55 and 10 years or less,

 69%

Age 55 and more than 10

 years, 13%

Other, 7%

MRA and 10 years of service None

Postretirement increases in DB

plan amounts

At least once during 1983-92,

Yes, 43%

No, 44%

Annual adjustments payable

only to retirees age 62 or older,

unless they are disability or

survivor annuitants.

Adjustments, unless limited by

law, are equal to (1) the

increase in the CPI, if the CPI

increases 2 percent or less; (2)

2 percent, if the CPI increases

between 2 and 3 percent; and

(3) the CPI increase minus 1

percent, if the CPI increases 3

percent or more.

Annual adjustments fully

indexed to the CPI for all

annuitants, unless limited by law

Tax advantages to employee in

the DC plan

Yes, 93% had employee

contributions under a Section

401(k) or 403(b) feature

No, 5%

Yes, up to 10% of pay on a

pretax basis

Yes, up to 5% of pay on a

pretax basis

Employer contributions to DC

plan

Matching only,e 65%

Nonmatching only, 11%

Both matching and

 nonmatching,e 17%

Other, 2%

For all FERS employees, 1% of

pay. Plus, 100% matching on

the first 3% of pay that

employee contributes and 50%

matching on the next 2% of pay.

No employer contributions

aThe percentages for some features may total less than 100 percent because of rounding or

because some employers did not provide information on a particular feature. Percentages for

other features may total more than 100 percent because multiple responses could be given.

bThe required contribution is 7 percent of pay minus the contribution of 6.2 percent of pay to

Social Security.

cEighty-two percent of the programs had service requirements. These requirements ranged from

5 to 35 years of service when the employee retires at age 55, from 1 to 40 years at ages 60 and

62, and from 1 to 10 years at age 65.

dMRA is the minimum optional retirement age, which ranges from age 55 to age 57 and is based

on the employee’s date of birth.

eFor programs with employer-matching contributions, the median match was 50 percent of

employee contributions up to 6 percent of pay.

Source: Watson Wyatt Worldwide database (see apps. IV and V).

Page 62 GAO/GGD-97-40 Federal and Private Retirement Benefits
Chapter 4 

Conclusions and Agency and Contractor

Comments

Conclusions There is no definitive answer to the question of whether federal retirement

programs offer greater or smaller benefits than private sector programs.

Depending on individual retirees’ circumstances and how they interact

with the retirement programs’ designs, the benefits available from FERS

and CSRS can be smaller, similar, or greater than benefits available from the

private sector programs in the contractor’s database.

For example, CSRS benefits are greater than the benefits available from the

private sector programs in the contractor’s database when employees

retire before age 62. However, for employees who retire at age 62 or older

with 20 years of service, CSRS benefits at retirement are smaller than the

benefits available from private sector programs in the database of all

designs. After 20 years of retirement, CSRS benefits for age 62 or older

retirees who retired with 20 years of service are still behind the private

sector programs that have both DB and DC plans, even though the COLA

provision in CSRS provides greater increases in benefits over time than

private sector programs.

CSRS replacement rates are greater than those available in the private

sector when employees retire at age 55 principally because private sector

DB plans generally impose reductions in accrued benefits for employees

who retire at that age. CSRS imposes no such reductions; but it does permit

employees to retire at age 55 under regular retirement provisions only if

they have 30 or more years of service. Therefore, CSRS limits age 55

retirement eligibility to long-term, career employees. The average private

sector program has no similar design feature, although the average

program allows employees to retire on reduced benefits at age 55 with

fewer than 30 years of service—a feature that does not exist in CSRS. Most

federal employees do not have 30 years of service by the time they are age

55, and, of those who do, many elect to retire later. As a result, the average

CSRS retirement age is about 62.

The lack of Social Security coverage for employees in CSRS is a major

reason why the private sector programs in the contractor’s database can

provide higher replacement rates to employees who retire at age 62 or

older. Moreover, CSRS employees do not participate in a DC plan to which

their employer contributes. As this report shows, most private sector

programs in the contractor’s database included DC plans to which their

employers contribute and from which employees can earn significant

benefit amounts.

Page 63 GAO/GGD-97-40 Federal and Private Retirement Benefits
Chapter 4 

Conclusions and Agency and Contractor

Comments

CSRS was closed to new entrants at the end of 1983 and was replaced by

FERS—a completely restructured federal retirement program. FERS follows

the model used by most of the private sector employers in the contractor’s

database: a three-part retirement package that includes Social Security, a

DB plan, and a DC plan. As our findings illustrate, the FERS benefits from

Social Security, the DB plan, and the government’s automatic 1-percent

contribution to the TSP alone are smaller than CSRS benefits for employees

who retire at age 55. However, these FERS benefits can be greater than CSRS

benefits for employees who retire at age 62 or older, even though FERS

employees generally contribute the same total percentage of their salaries

toward the cost of these benefits as CSRS employees contribute. By

contributing to their DC plan, FERS employees can obtain greater benefits

than are available from CSRS at all ages, but they will pay more to receive

the greater benefit amounts.

FERS continued CSRS’ objective of encouraging employees to spend their

working careers in federal service by making unreduced benefits available

at age 55 only to employees who serve 30 or more years with the

government. Consistent with this objective, FERS also provides an annuity

supplement to career employees who retire before Social Security benefits

are otherwise available. This feature is not commonly found in private

sector programs and, along with the lack of reductions in accrued DB plan

benefits for age 55 retirees in federal programs, the feature causes FERS

replacement rates available at age 55 to exceed the replacement rates

available from the private sector programs of all designs in the

contractor’s database. However, as with CSRS, FERS employees generally

have been older than age 55 when they retired. FERS was designed to

encourage, but not to require, longer careers by raising the age of earliest

retirement eligibility to age 57 for employees born after 1969 and by

increasing the DB plan benefit formula for employees who continue

working to at least age 62.

For employees who retire at age 62 or older, the total benefits available at

retirement from all three parts of FERS are quite comparable to the average

benefits available from private sector programs in the contractor’s

database that also have DB and DC plans in addition to Social Security.

Because the COLA provision in the FERS’ DB plan provides greater increases

in benefits over time than do private sector DB plans on average, FERS

retirees will fare better in times of high inflation when increases in the CPI

will be greater. However, the FERS COLA does not fully maintain retirees’

purchasing power and, thereby, represents a reduction from the inflation

protection intended for CSRS retirees.

Page 64 GAO/GGD-97-40 Federal and Private Retirement Benefits
Chapter 4 

Conclusions and Agency and Contractor

Comments

Agency and

Contractor Comments

and Our Evaluation

Watson Wyatt Worldwide and the Federal Retirement Thrift Investment

Board provided oral comments on the draft of this report, and OPM

provided written comments. All of the officials agreed with our conclusion

that there is no definitive answer to the question of whether federal

retirement programs offer greater or smaller benefits than private sector

programs. The Thrift Board and OPM officials noted that it is very difficult

to compare varied federal and private sector retirement programs. They

said, and we agree, that our analyses and conclusions are dependent on

(1) the database used; (2) the age and service characteristics of the

illustrative employees; and (3) the assumptions made about salary

histories, return on investments, the conversion of defined contribution

plan amounts at retirement to annuities, and the rate of inflation.

We believe that the database and illustrative employees used and the

assumptions made are reasonable because they either were those used by

OPM in its latest actuarial valuations, were based on standards used in the

benefits field, or were necessary to provide a common basis of

comparison. We modified the executive summary and chapter 1 of this

report to clarify that the use of different databases, illustrative employees,

and assumptions would have changed the relative magnitude of benefits

available among retirement programs as well as the levels of benefits

provided by all programs. Using such data could possibly, in some

circumstances, change the relative rankings between programs. However,

while we believe that no one database or set of assumptions could fully

capture the range of private sector programs and employees’ experiences,

we also believe that using different databases and assumptions would not

have changed our conclusion that no definitive answer exists to the

question of whether federal programs offer greater or smaller benefits

than private sector programs.

OPM also commented that our analyses and conclusions might be better

understood if additional information on the database, illustrative

employees, and the assumptions were provided in the report (i.e., the

executive summary and chapter 1 of the report). OPM expressed concern

that we had implied in the executive summary that variations in retirement

benefits result from employee decisions and situations, while the body of

the report made it clear that the variations result from the structural

differences between retirement programs. We agree that the variations in

benefits available did not result solely from employee choices and have

modified the executive summary to reflect that it is the interactions

between factors, such as employees’ ages, years of service, and DC plan

Page 65 GAO/GGD-97-40 Federal and Private Retirement Benefits
Chapter 4 

Conclusions and Agency and Contractor

Comments

contribution behavior, and the varying designs and provisions of the

retirement programs that affect the comparisons among programs.

OPM also said that while it is difficult to include every material item in the

executive summary, some significant information contained in the body of

the report was not included in the executive summary. OPM mentioned the

following: (1) that private sector salaries used in calculating retirement

benefits often include overtime and bonuses, (2) that a meaningful

“typical” retirement benefit formula does not exist for the private sector,

and (3) that retirement program designs vary considerably between large

and small private sector companies. We agree that it was difficult to

include all information in the executive summary and, as noted previously,

have modified the executive summary to clarify that the use of different

databases, illustrative employees, and assumptions would have changed

the relative magnitude of benefits available among retirement programs,

the levels of benefits provided by all programs, and could, in some

circumstances, change the relative rankings between programs. We have

modified the executive summary to specifically mention that many private

sector programs use overtime, bonuses, or commissions in their benefit

calculations. We have modified the objective, scope, and methodology

section of chapter 1 to include that (1) the salary histories include base

pay only, (2) benefit calculations in many of the private sector programs in

the contractor’s database would include other types of compensation in

addition to base pay, and (3) had we assumed other types of compensation

in addition to the base pay represented in the salary histories, the averages

of the replacement rates from the private sector programs would have

increased. We also deleted the footnote in chapter 2 to which OPM referred.

We agree that not being able to identify a typical benefit formula is

significant. It is one of the major reasons why we selected the replacement

rate analysis as our method of comparison and had the contractor

separately calculate and then average the benefits available from each of

the 435 retirement programs in the private sector database.

We agree with OPM that retirement program designs vary considerably and

say this in the executive summary. We also agree that program designs

vary by employer size and have discussed this in an earlier GAO report.1

Our methodology did not include analyses by employer size because the

contractor’s database included primarily large employers.

1

GAO/GGD-97-1.

Page 66 GAO/GGD-97-40 Federal and Private Retirement Benefits
Chapter 4 

Conclusions and Agency and Contractor

Comments

The contractor and the Thrift Board also provided editorial and technical

comments that we incorporated in the report as appropriate.

Page 67 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix I 

FERS, CSRS, and Watson Wyatt Worldwide

Database Statistics

Table I.1: Number of Participants in

FERS and CSRS at the Beginning of

Fiscal Year 1995

Participants FERS CSRS Total

Employees:

Activea 1,375,000 1,443,000 2,818,000

Formerb 89,000 26,000 115,000

Total employees 1,464,000 1,469,000 2,933,000

Annuitants:

Retirees 44,900 1,652,000 1,696,900

Survivors 3,100 610,000 613,100

Total annuitants 48,000 2,262,000 2,310,000

Total participants 1,512,000 3,731,000 5,243,000

aNumber of employees determined on a full-time equivalent basis. These numbers include

employees on leave without pay who retain coverage.

bFormer employees are employees who separated before eligibility for immediate retirement

benefits, but who are entitled to deferred benefits.

Source: United States Office of Personnel Management, Annual Report of the Civil Service

Retirement and Disability Fund for Fiscal Year 1995 (May 1996).

Table I.2: Sizes of the Private Sector

Employers in the Contractor’s

Database as of October 1995

Percentage of employers whose

program benefits could be valued

Number of employees

Percentage

of all

employers

in database

DB plans

only

DC plans

only

DB and DC

plans

499 or fewer 9 28 9 6

500 to 999 10 4 12 6

1,000 to 2,499 22 24 26 20

2,500 to 4,999 16 24 19 13

5,000 to 9,999 11 8 15 13

10,000 or more 30 12 17 40

No response 2 0 2 2

Number of employers 661 25 106 304

Note: The Watson Wyatt Worldwide 1993 COMPARISON database had 661 employers. Of those

661, 435 employers contributed to their plans and provided sufficient information so that the

benefits could be valued.

Source: Watson Wyatt Worldwide database.

Page 68 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix I 

FERS, CSRS, and Watson Wyatt Worldwide

Database Statistics

Table I.3: Sizes in Percentiles, Median,

and Mean for Private Sector Employers

in the Contractor’s Database as of

October 1995

Employers whose program benefits

could be valued (number of

employees)

Percentiles, median, and mean

All

employers

in

database

(number of

employees)

DB plans

only

DC plans

only

DB and DC

plans

25th percentile 1,232 415 1,050 1,672

50th percentile (median) 3,500 2,020 2,700 6,000

75th percentile 13,000 3,925 6,000 18,724

Mean 15,148 3,691 7,410 20,003

Source: Watson Wyatt Worldwide database.

Table I.4: Industry Classifications of

Private Sector Employers in the

Contractor’s Database as of

October 1995

Percentage of employers whose

program benefits could be valued

Industry

Percentage

of all

employers

in database

DB plans

only

DC plans

only

DB and DC

plans

Manufacturing - durable goods 27 4 32 28

Manufacturing - nondurable goods 18 16 19 21

Financial services 15 4 12 20

Insurance and real estate 11 8 2 18

Services 11 8 22 9

Health care 8 52 8 4

Nonprofit and public organizations 8 24 8 2

Retail and wholesale 7 12 11 5

Utilities 7 0 0 8

Energy and natural resources 5 4 2 7

Transportation 2 0 1 2

Construction a 0 1 a

No response 1 0 2 a

Number of employers 661 25 106 304

Note: Multiple responses were permitted. Therefore, percentages total more than 100 percent.

aLess than 0.5 percent.

Source: Watson Wyatt Worldwide database.

Page 69 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix I 

FERS, CSRS, and Watson Wyatt Worldwide

Database Statistics

table I.5: Geographic Locations of

Private Sector Employers in the

Contractor’s Database as of

October 1995

Percentage of employers whose

program benefits could be valued

Region

Percentage

of all

employers

in database

DB plans

only

DC plans

only

DB and DC

plans

Midwest 44 36 36 49

Northeast 37 28 32 40

Southeast 33 24 30 35

Pacific 30 8 44 27

West south central 20 20 21 21

Mountain 12 4 16 11

No response 2 0 1 2

Number of employers 661 25 106 304

Note 1: Geographic locations refer to a region(s) in which the employer has at least 1,000

employees or 10 percent of its workforce.

Note 2: Multiple responses were permitted. Therefore, percentages total more than 100 percent.

Source: Watson Wyatt Worldwide database.

table I.6: Retirement Program Designs

of Private Sector Employers in the

Contractor’s Database as of

October 1995

All employers in

database

Employers whose

program benefits could

be valued

Retirement plans offered Number Percenta Number Percent

DB plans only 44 7 25 6

DC plans only 164 25 106 24

Both DB and DC plans 453 69 304 70

Number of employers 661 100 435 100

Note: The total number of employers whose program benefits could be valued remained the

same between October 1995 and January 1997 when the additional replacement rate analyses

were provided under the CBO contract. However, the numbers in each category changed. As of

January 1997, 23 of the 435 employers had DB plans only, 109 of the employers had DC plans

only, and 303 of the employers had both DB and DC plans.

aThese percentages do not add to 100 percent because of rounding.

Source: Watson Wyatt Worldwide database.

Page 70 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix II 

Salary Histories Used in Pension Plan and

Social Security Benefit Calculations

To calculate retirement benefit amounts available from Social Security and

individual employers’ DB and DC plans, a number of factors must be taken

into account. A primary factor is an employee’s salary history. Most DB

plans base benefits on employees’ average annual salaries received in the

final years of employment, such as the last 3 or 5 years. Some use the

average of the annual salaries that employees received during their entire

careers with an employer. Salary histories are also necessary to determine

the total amounts that employees and employers could contribute to DC

plans over employees’ working years, as well as to calculate the Social

Security benefits earned while working for a particular employer.

For all of the illustrative employees used in this report to show the relative

benefit amounts available from FERS, CSRS, and private sector retirement

programs, we assumed the employees began working in 1995 and worked

throughout the specified periods (20 or 30 years) under each program used

in the comparisons. We developed employee salary histories that resulted

in final salaries equivalent in 1995 dollars to $25,000, $40,000, and $60,000.

The $25,000 salary history has the slowest rate of growth and was selected

to represent the experiences of employees at lower salary levels. The

$40,000 salary history was selected to represent the experiences of the

“typical” federal employee because employees retiring under the optional

retirement provisions of CSRS and FERS in 1995 had final salaries averaging

about $40,000. The $60,000 salary history has the fastest rate of growth and

was selected to represent the experiences of higher-paid employees. The

three salary histories are presented in tables II.1, II.2, and II.3.

Page 71 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix II 

Salary Histories Used in Pension Plan and

Social Security Benefit Calculations

Table II.1: Salary History With a Final

Salary That Is Equivalent to a $25,000

Salary in 1995

Year 30-year career 20-year career

1 $12,234 $21,572

2 15,322 23,179

3 16,562 25,703

4 18,327 27,198

5 20,834 30,132

6 22,879 33,148

7 25,099 35,843

8 26,997 37,337

9 29,216 38,403

10 30,917 40,003

11 33,500 41,454

12 35,996 42,606

13 39,915 43,923

14 42,238 44,820

15 46,793 47,999

16 51,478 49,791

17 55,663 51,920

18 57,982 55,620

19 59,639 57,697

20 62,124 57,697

21 64,377 n/a

22 66,165 n/a

23 68,211 n/a

24 69,603 n/a

25 74,540 n/a

26 77,324 n/a

27 80,630 n/a

28 86,375 n/a

29 89,601 n/a

30 89,601 n/a

Legend: n/a = not applicable

Source: GAO generated.

Page 72 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix II 

Salary Histories Used in Pension Plan and

Social Security Benefit Calculations

Table II.2: Salary History With a Final

Salary That Is Equivalent to a $40,000

Salary in 1995

Year 30-year career 20-year career

1 $16,809 $34,447

2 18,826 37,202

3 21,067 39,992

4 23,405 42,872

5 25,839 45,873

6 28,371 48,992

7 30,925 52,226

8 33,646 55,568

9 36,506 59,013

10 39,536 62,554

11 42,660 66,120

12 45,944 69,756

13 49,436 73,384

14 53,094 76,906

15 56,917 80,136

16 61,015 83,021

17 65,408 86,010

18 70,118 89,106

19 75,166 92,314

20 80,052 92,314

21 84,855 n/a

22 89,946 n/a

23 95,343 n/a

24 101,064 n/a

25 107,128 n/a

26 113,555 n/a

27 120,369 n/a

28 127,591 n/a

29 135,246 n/a

30 143,361 n/a

Legend: n/a = not applicable

Source: GAO generated.

Page 73 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix II 

Salary Histories Used in Pension Plan and

Social Security Benefit Calculations

Table II.3: Salary History With a Final

Salary That Is Equivalent to a $60,000

Salary in 1995

Year 30-year career 20-year career

1 $17,505 $48,407

2 22,330 52,389

3 28,602 56,332

4 31,079 61,364

5 40,034 65,982

6 44,010 73,988

7 54,303 80,309

8 60,355 86,352

9 65,443 89,051

10 71,416 92,761

11 75,174 99,037

12 81,358 99,037

13 87,481 105,103

14 95,295 107,248

15 102,468 115,027

16 114,900 119,323

17 124,717 124,424

18 134,102 133,487

19 138,293 138,472

20 144,055 138,472

21 153,801 n/a

22 153,801 n/a

23 163,222 n/a

24 166,553 n/a

25 178,633 n/a

26 185,304 n/a

27 193,226 n/a

28 207,301 n/a

29 215,042 n/a

30 215,042 n/a

Legend: n/a = not applicable

Source: GAO generated.

Page 74 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix II 

Salary Histories Used in Pension Plan and

Social Security Benefit Calculations

Social Security

Benefits Produced by

Salary Histories

Table II.4 shows the Social Security benefit amounts earned by FERS and

private sector employees with the above salary histories and years of

service, assuming the employees had no Social Security-covered

employment with any other employer before or after retirement.

Table II.4: Percentage of Final Salary Replaced by Social Security Benefits in FERS and the Private Sector Programs

Social Security replacement rates (percentage)

Age and years of service at retirement

$25,000 final

average salary

in 1995 dollars

$40,000 final

average salary

in 1995 dollars

$60,000 final

average salary

in 1995 dollars

Age 55 with 30 years of servicea 25.3 19.2 16.9

Age 62 with 20 years of service 22.5 19.0 16.3

Age 65 with 20 years of service 27.1 23.0 19.6

Age 62 with 30 years of service 25.3 19.2 16.9

Age 65 with 30 years of service 30.3 23.1 20.6

Note: The replacement rates were determined using an assumption that the Social Security salary

ceiling (the amount of earnings to which Social Security contributions and benefit calculations

apply) will increase by 4.5 percent each year—the same projected rate of salary growth that OPM

used in its actuarial valuations of CSRS and FERS.

aSocial Security benefits were assumed to be payable at age 62 for retirements before age 62

and were adjusted for the 7 years of 4.5-percent inflation between the ages of 55 and 62.

Source: Watson Wyatt Worldwide database.

Page 75 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix III 

Results of the Replacement Rate Analysis

Table III.1: Average Replacement Rates

Available With Maximum Employer

Contributions to DC Plans - Age 55

and 30 Years of Service

Private sector

Federal

At retirement

Program component

DB plans

only

DC plans

only

DB and

DC plans FERS CSRS

Average replacement rates at final salary of $25,000:

DB plan 20.0 22.2 41.6 55.6

DC plan 32.0 29.6 33.4

Social Security

Total 20.0 32.0 51.8 75.0 55.6

Average replacement rates at final salary of $40,000:

DB plan 19.0 21.1 37.4 53.1

DC plan 26.0 24.1 27.2

Social Security

Total 19.0 26.0 45.2 64.6 53.1

Average replacement rates at final salary of $60,000:

DB plan 20.8 23.4 37.8 55.6

DC plan 29.0 27.0 30.4

Social Security

Total 20.8 29.0 50.4 68.2 55.6

Page 76 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix III 

Results of the Replacement Rate Analysis

Private sector

Federal

Private sector

Federal

10 years after retirement 20 years after retirement

S

DB and DC

plans FERS CSRS I CSRS II

DB and DC

plans FERS CSRS I CSRS II

6 15.0 21.2 55.6 51.0 10.5 19.3 55.6 46.8

19.1 21.5 12.3 13.8

25.3 25.3 25.3 25.3

6 59.4 68.0 55.6 51.0 48.1 58.4 55.6 46.8

14.2 20.2 53.1 48.7 10.0 18.4 53.1 44.7

15.5 17.5 10.0 11.3

19.2 19.2 19.2 19.2

48.9 56.9 53.1 48.7 39.2 48.9 53.1 44.7

6 15.8 21.2 55.6 51.0 11.1 19.3 55.6 46.8

17.4 19.6 11.2 12.6

16.9 16.9 16.9 16.9

6 50.1 57.7 55.6 51.0 39.2 48.8 55.6 46.8

Note 1: Because of differences in the annual rates of growth in the three salary histories, the

replacement rates may differ somewhat for each salary history.

Note 2: Some column cells show no data because all of the program components are not

applicable to all of the retirement plans.

Page 77 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix III 

Results of the Replacement Rate Analysis

Table III.2: Average Replacement Rates

Available With Maximum Employer

Contributions to DC Plans - Age 62

and 20 Years of Service

Private sector

Federal

At retirement

Program component

DB plans

only

DC plans

only

DB and

DC plans FERS CSRS

Average replacement rates at final salary of $25,000:

DB plan 20.2 21.0 21.7 35.8

DC plan 24.1 22.3 25.2

Social Security 22.5 22.5 22.5 22.5

Total 42.7 46.6 65.8 69.4 35.8

Average replacement rates at final salary of $40,000:

DB plan 21.0 21.7 21.7 35.8

DC plan 23.7 22.0 24.8

Social Security 19.0 19.0 19.0 19.0

Total 40.0 42.7 62.7 65.5 35.8

Average replacement rates at final salary of $60,000:

DB plan 21.6 23.1 21.8 35.8

DC plan 23.0 21.4 24.2

Social Security 16.3 16.3 16.3 16.3

Total 37.9 39.3 60.8 62.3 35.8

Page 78 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix III 

Results of the Replacement Rate Analysis

Private sector

Federal

Private sector

Federal

10 years after retirement 20 years after retirement

S

DB and DC

plans FERS CSRS I CSRS II

DB and DC

plans FERS CSRS I CSRS II

8 14.1 19.7 35.8 32.8 10.0 17.9 35.8 30.1

14.4 16.2 9.2 10.4

22.5 22.5 22.5 22.5

8 51.0 58.4 35.8 32.8 41.7 50.8 35.8 30.1

8 14.6 19.7 35.8 32.8 10.3 17.9 35.8 30.1

14.2 16.0 9.1 10.3

19.0 19.0 19.0 19.0

8 47.8 54.7 35.8 32.8 38.4 47.2 35.8 30.1

8 15.6 19.8 35.8 32.8 11.0 18.0 35.8 30.1

13.8 15.6 8.9 10.0

16.3 16.3 16.3 16.3

8 45.7 51.7 35.8 32.8 36.2 44.3 35.8 30.1

Note 1: Because of differences in the annual rates of growth in the three salary histories, the

replacement rates may differ somewhat for each salary history.

Note 2: Some columns show no data because all of the program components are not applicable

to all of the retirement plans.

Page 79 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix III 

Results of the Replacement Rate Analysis

Table III.3: Average Replacement Rates

Available With Maximum Employer

Contributions to DC Plans - Age 65

and 20 Years of Service

Private sector

Federal

At retirement

Program component

DB plans

only

DC plans

only

DB and

DC plans FERS CSRS

Average replacement rates at final salary of $25,000:

DB plan 23.0 22.8 21.8 35.8

DC plan 25.6 23.7 26.8

Social Security 27.1 27.1 27.1 27.1

Total 50.1 52.7 73.6 75.7 35.8

Average replacement rates at final salary of $40,000:

DB plan 24.1 24.0 21.7 35.8

DC plan 25.2 23.5 26.4

Social Security 23.0 23.0 23.0 23.0

Total 47.1 48.2 70.5 71.1 35.8

Average replacement rates at final salary of $60,000:

DB plan 25.0 25.4 21.7 35.9

DC plan 24.5 22.8 25.8

Social Security 19.6 19.6 19.6 19.6

Total 44.6 44.1 67.8 67.1 35.9

Page 80 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix III 

Results of the Replacement Rate Analysis

Private sector

Federal

Private sector

Federal

10 years after retirement 20 years after retirement

S

DB and DC

plans FERS CSRS I CSRS II

DB and DC

plans FERS CSRS I CSRS II

8 15.4 19.8 35.8 32.8 10.8 18.0 35.8 30.1

15.3 17.3 9.8 11.1

27.1 27.1 27.1 27.1

8 57.8 64.2 35.8 32.8 47.7 56.2 35.8 30.1

8 16.2 19.7 35.8 32.8 11.4 17.9 35.8 30.1

15.1 17.0 9.7 10.9

23.0 23.0 23.0 23.0

8 54.3 59.7 35.8 32.8 44.1 51.8 35.8 30.1

9 17.1 19.7 35.9 32.9 12.0 17.9 35.9 30.2

14.7 16.6 9.5 10.7

19.6 19.6 19.6 19.6

9 51.4 55.9 35.9 32.9 41.1 48.2 35.9 30.2

Note 1: Because of differences in the annual rates of growth in the three salary histories, the

replacement rates may differ somewhat for each salary history.

Note 2: Some columns show no data because all of the program components are not applicable

to all of the retirement plans.

Page 81 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix III 

Results of the Replacement Rate Analysis

Table III.4: Average Replacement Rates

Available With Maximum Employer

Contributions to DC Plans - Age 62

and 30 Years of Service

Private sector

Federal

At retirement

Program component

DB plans

only

DC plans

only

DB and

DC plans FERS CSRS

Average replacement rates at final salary of $25,000:

DB plan 32.3 30.8 32.6 55.6

DC plan 36.6 32.1 37.2

Social Security 25.3 25.3 25.3 25.3

Total 57.6 61.9 88.2 95.1 55.6

Average replacement rates at final salary of $40,000:

DB plan 30.8 29.3 31.2 53.2

DC plan 29.8 26.2 30.4

Social Security 19.2 19.2 19.2 19.2

Total 50.0 49.0 74.7 80.8 53.2

Average replacement rates at final salary of $60,000:

DB plan 34.2 33.5 32.6 55.6

DC plan 33.1 29.3 34.0

Social Security 16.9 16.9 16.9 16.9

Total 51.1 50.0 79.7 83.5 55.6

Page 82 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix III 

Results of the Replacement Rate Analysis

Private sector

Federal

Private sector

Federal

10 years after retirement 20 years after retirement

S

DB and DC

plans FERS CSRS I CSRS II

DB and DC

plans FERS CSRS I CSRS II

6 20.7 29.6 55.6 51.0 14.6 26.9 55.6 46.8

20.7 24.0 13.3 15.4

25.3 25.3 25.3 25.3

6 66.7 78.9 55.6 51.0 53.2 67.6 55.6 46.8

2 19.7 28.3 53.2 48.8 13.9 25.7 53.2 44.7

16.9 19.6 10.9 12.6

19.2 19.2 19.2 19.2

2 55.8 67.1 53.2 48.8 44.0 57.5 53.2 44.7

6 22.6 29.6 55.6 51.0 15.9 26.9 55.6 46.8

18.9 21.9 12.1 14.1

16.9 16.9 16.9 16.9

6 58.4 68.4 55.6 51.0 44.9 57.9 55.6 46.8

Note 1: Because of differences in the annual rates of growth in the three salary histories, the

replacement rates may differ somewhat for each salary history.

Note 2: Some columns show no data because all of the program components are not applicable

to all of the retirement plans.

Page 83 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix III 

Results of the Replacement Rate Analysis

Table III.5: Average Replacement Rates

Available With Maximum Employer

Contributions to DC Plans - Age 65

and 30 Years of Service

Private sector

Federal

At retirement

Program component

DB plans

only

DC plans

only

DB and

DC plans FERS CSRS

Average replacement rates at final salary of $25,000:

DB plan 36.2 32.7 32.6 55.6

DC plan 38.9 34.2 39.6

Social Security 30.3 30.3 30.3 30.3

Total 66.5 69.2 97.2 102.5 55.6

Average replacement rates at final salary of $40,000:

DB plan 34.7 31.3 31.2 53.1

DC plan 31.7 27.9 32.4

Social Security 23.1 23.1 23.1 23.1

Total 57.8 54.8 82.3 86.7 53.1

Average replacement rates at final salary of $60,000:

DB plan 38.7 36.1 32.6 55.6

DC plan 35.3 31.2 36.2

Social Security 20.6 20.6 20.6 20.6

Total 59.3 55.9 87.9 89.4 55.6

Page 84 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix III 

Results of the Replacement Rate Analysis

Private sector

Federal

Private sector

Federal

10 years after retirement 20 years after retirement

S

DB and DC

plans FERS CSRS I CSRS II

DB and DC

plans FERS CSRS I CSRS II

6 22.0 29.6 55.6 51.0 15.5 26.9 55.6 46.8

22.0 25.5 14.2 16.4

30.3 30.3 30.3 30.3

6 74.3 85.4 55.6 51.0 60.0 73.6 55.6 46.8

21.1 28.3 53.1 48.7 14.8 25.7 53.1 44.7

18.0 20.9 11.6 13.4

23.1 23.1 23.1 23.1

62.2 72.3 53.1 48.7 49.5 62.2 53.1 44.7

6 24.3 29.6 55.6 51.0 17.1 26.9 55.6 46.8

20.1 23.3 12.9 15.0

20.6 20.6 20.6 20.6

6 65.0 73.5 55.6 51.0 50.6 62.5 55.6 46.8

Note 1: Because of differences in the annual rates of growth in the three salary histories, the

replacement rates may differ somewhat for each salary history.

Note 2: Some columns show no data because all of the program components are not applicable

to all of the retirement plans.

Page 85 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix III 

Results of the Replacement Rate Analysis

Table III.6: Average Replacement Rates

Available With One-half of the

Maximum Employer Contributions to

DC Plans - Age 55 and 30 Years of

Service

Private sector

Federal

At retirement

Program component

DB plans

only

DC plans

only

DB and

DC plans FERS CSRS

Average replacement rates at final salary of $25,000:

DB plan 20.0 22.2 41.6 55.6

DC plan 20.0 16.3 20.0

Social Security

Total 20.0 20.0 38.5 61.6 55.6

Average replacement rates at final salary of $40,000:

DB plan 19.0 21.1 37.4 53.1

DC plan 16.3 13.3 16.3

Social Security

Total 19.0 16.3 34.4 53.7 53.1

Average replacement rates at final salary of $60,000:

DB plan 20.8 23.4 37.8 55.6

DC plan 18.2 14.8 18.3

Social Security

Total 20.8 18.2 38.2 56.1 55.6

Page 86 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix III 

Results of the Replacement Rate Analysis

Private sector

Federal

Private sector

Federal

10 years after retirement 20 years after retirement

S

DB and DC

plans FERS CSRS I CSRS II

DB and DC

plans FERS CSRS I CSRS II

6 15.0 21.2 55.6 51.0 10.5 19.3 55.6 46.8

10.5 12.9 6.8 8.3

25.3 25.3 25.3 25.3

6 50.8 59.4 55.6 51.0 42.6 52.9 55.6 46.8

14.2 20.2 53.1 48.7 10.0 18.4 53.1 44.7

8.6 10.5 5.5 6.8

19.2 19.2 19.2 19.2

42.0 49.9 53.1 48.7 34.7 44.4 53.1 44.7

6 15.8 21.2 55.6 51.0 11.1 19.3 55.6 46.8

9.5 11.8 6.1 7.6

16.9 16.9 16.9 16.9

6 42.2 49.9 55.6 51.0 34.1 43.8 55.6 46.8

Note 1: Because of differences in the annual rates of growth in the three salary histories, the

replacement rates may differ somewhat for each salary history.

Note 2: Some columns show no data because all of the program components are not applicable

to all of the retirement plans.

Page 87 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix III 

Results of the Replacement Rate Analysis

Table III.7: Average Replacement Rates

Available With One-half of the

Maximum Employer Contributions to

DC Plans - Age 62 and 20 Years of

Service

Private sector

Federal

At retirement

Program component

DB plans

only

DC plans

only

DB and

DC plans FERS CSRS

Average replacement rates at final salary of $25,000:

DB plan 20.2 21.0 21.7 35.8

DC plan 15.1 12.3 15.1

Social Security 22.5 22.5 22.5 22.5

Total 42.7 37.6 55.8 59.3 35.8

Average replacement rates at final salary of $40,000:

DB plan 21.0 21.7 21.7 35.8

DC plan 14.9 12.2 14.9

Social Security 19.0 19.0 19.0 19.0

Total 40.0 33.9 52.9 55.6 35.8

Average replacement rates at final salary of $60,000:

DB plan 21.6 23.1 21.8 35.8

DC plan 14.4 11.8 14.6

Social Security 16.3 16.3 16.3 16.3

Total 37.9 30.7 51.2 52.7 35.8

Page 88 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix III 

Results of the Replacement Rate Analysis

Private sector

Federal

Private sector

Federal

10 years after retirement 20 years after retirement

S

DB and DC

plans FERS CSRS I CSRS II

DB and DC

plans FERS CSRS I CSRS II

8 14.1 19.7 35.8 32.8 10.0 17.9 35.8 30.1

7.9 9.7 5.1 6.3

22.5 22.5 22.5 22.5

8 44.5 51.9 35.8 32.8 37.6 46.7 35.8 30.1

8 14.6 19.7 35.8 32.8 10.3 17.9 35.8 30.1

7.9 9.6 5.1 6.2

19.0 19.0 19.0 19.0

8 41.5 48.3 35.8 32.8 34.4 43.1 35.8 30.1

8 15.6 19.8 35.8 32.8 11.0 18.0 35.8 30.1

7.6 9.4 4.9 6.1

16.3 16.3 16.3 16.3

8 39.5 45.5 35.8 32.8 32.2 40.4 35.8 30.1

Note 1: Because of differences in the annual rates of growth in the three salary histories, the

replacement rates may differ somewhat for each salary history.

Note 2: Some columns show no data because all of the program components are not applicable

to all of the retirement plans.

Page 89 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix III 

Results of the Replacement Rate Analysis

Table III.8: Average Replacement Rates

Available With One-half of the

Maximum Employer Contributions to

DC Plans - Age 65 and 20 Years of

Service

Private sector

Federal

At retirement

Program component

DB plans

only

DC plans

only

DB and

DC plans FERS CSRS

Average replacement rates at final salary of $25,000:

DB plan 23.0 22.8 21.8 35.8

DC plan 16.0 13.1 16.1

Social Security 27.1 27.1 27.1 27.1

Total 50.1 43.1 63.0 65.0 35.8

Average replacement rates at final salary of $40,000:

DB plan 24.1 24.0 21.7 35.8

DC plan 15.8 12.9 15.9

Social Security 23.0 23.0 23.0 23.0

Total 47.1 38.8 59.9 60.6 35.8

Average replacement rates at final salary of $60,000:

DB plan 25.0 25.4 21.7 35.9

DC plan 15.4 12.6 15.5

Social Security 19.6 19.6 19.6 19.6

Total 44.6 35.0 57.6 56.8 35.9

Page 90 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix III 

Results of the Replacement Rate Analysis

Private sector

Federal

Private sector

Federal

10 years after retirement 20 years after retirement

S

DB and DC

plans FERS CSRS I CSRS II

DB and DC

plans FERS CSRS I CSRS II

8 15.4 19.8 35.8 32.8 10.8 18.0 35.8 30.1

8.4 10.4 5.4 6.7

27.1 27.1 27.1 27.1

8 50.9 57.3 35.8 32.8 43.3 51.8 35.8 30.1

8 16.2 19.7 35.8 32.8 11.4 17.9 35.8 30.1

8.3 10.2 5.3 6.6

23.0 23.0 23.0 23.0

8 47.5 52.9 35.8 32.8 39.7 47.5 35.8 30.1

9 17.1 19.7 35.9 32.9 12.0 17.9 35.9 30.2

8.1 10.0 5.2 6.4

19.6 19.6 19.6 19.6

9 44.8 49.3 35.9 32.9 36.8 43.9 35.9 30.2

Note 1: Because of differences in the annual rates of growth in the three salary histories, the

replacement rates may differ somewhat for each salary history.

Note 2: Some columns show no data because all of the program components are not applicable

to all of the retirement plans.

Page 91 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix III 

Results of the Replacement Rate Analysis

Table III.9: Average Replacement Rates

Available With One-half of the

Maximum Employer Contributions to

DC Plans - Age 62 and 30 Years of

Service

Private sector

Federal

At retirement

Program component

DB plans

only

DC plans

only

DB and

DC plans FERS CSRS

Average replacement rates at final salary of $25,000:

DB plan 32.3 30.8 32.6 55.6

DC plan 22.8 17.5 22.3

Social Security 25.3 25.3 25.3 25.3

Total 57.6 48.1 73.6 80.2 55.6

Average replacement rates at final salary of $40,000:

DB plan 30.8 29.3 31.2 53.2

DC plan 18.6 14.3 18.2

Social Security 19.2 19.2 19.2 19.2

Total 50.0 37.8 62.8 68.6 53.2

Average replacement rates at final salary of $60,000:

DB plan 34.2 33.5 32.6 55.6

DC plan 20.7 15.9 20.4

Social Security 16.9 16.9 16.9 16.9

Total 51.1 37.6 66.3 69.9 55.6

Page 92 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix III 

Results of the Replacement Rate Analysis

Private sector

Federal

Private sector

Federal

10 years after retirement 20 years after retirement

S

DB and DC

plans FERS CSRS I CSRS II

DB and DC

plans FERS CSRS I CSRS II

6 20.7 29.6 55.6 51.0 14.6 26.9 55.6 46.8

11.3 14.4 7.3 9.2

25.3 25.3 25.3 25.3

6 57.3 69.3 55.6 51.0 47.2 61.4 55.6 46.8

2 19.7 28.3 53.2 48.8 13.9 25.7 53.2 44.7

9.2 11.7 5.9 7.5

19.2 19.2 19.2 19.2

2 48.1 59.2 53.2 48.8 39.0 52.4 53.2 44.7

6 22.6 29.6 55.6 51.0 15.9 26.9 55.6 46.8

10.2 13.1 6.6 8.5

16.9 16.9 16.9 16.9

6 49.7 59.6 55.6 51.0 39.4 52.3 55.6 46.8

Note 1: Because of differences in the annual rates of growth in the three salary histories, the

replacement rates may differ somewhat for each salary history.

Note 2: Some columns show no data because all of the program components are not applicable

to all of the retirement plans.

Page 93 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix III 

Results of the Replacement Rate Analysis

Table III.10: Average Replacement

Rates Available With One-half of the

Maximum Employer Contributions to

DC Plans - Age 65 and 30 Years of

Service

Private sector

Federal

At retirement

Program component

DB plans

only

DC plans

only

DB and

DC plans FERS CSRS

Average replacement rates at final salary of $25,000:

DB plan 36.2 32.7 32.6 55.6

DC plan 24.3 18.6 23.8

Social Security 30.3 30.3 30.3 30.3

Total 66.5 54.6 81.6 86.7 55.6

Average replacement rates at final salary of $40,000:

DB plan 34.7 31.3 31.2 53.1

DC plan 19.8 15.2 19.4

Social Security 23.1 23.1 23.1 23.1

Total 57.8 42.9 69.6 73.7 53.1

Average replacement rates at final salary of $60,000:

DB plan 38.7 36.1 32.6 55.6

DC plan 22.1 17.0 21.7

Social Security 20.6 20.6 20.6 20.6

Total 59.3 42.7 73.7 74.9 55.6

Page 94 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix III 

Results of the Replacement Rate Analysis

Private sector

Federal

Private sector

Federal

10 years after retirement 20 years after retirement

S

DB and DC

plans FERS CSRS I CSRS II

DB and DC

plans FERS CSRS I CSRS II

6 22.0 29.6 55.6 51.0 15.5 26.9 55.6 46.8

12.0 15.3 7.7 9.9

30.3 30.3 30.3 30.3

6 64.3 75.2 55.6 51.0 53.5 67.1 55.6 46.8

21.1 28.3 53.1 48.7 14.8 25.7 53.1 44.7

9.8 12.5 6.3 8.0

23.1 23.1 23.1 23.1

54.0 63.9 53.1 48.7 44.2 56.8 53.1 44.7

6 24.3 29.6 55.6 51.0 17.1 26.9 55.6 46.8

10.9 14.0 7.0 9.0

20.6 20.6 20.6 20.6

6 55.8 64.2 55.6 51.0 44.7 56.5 55.6 46.8

Note 1: Because of differences in the annual rates of growth in the three salary histories, the

replacement rates may differ somewhat for each salary history.

Note 2: Some columns show no data because all of the program components are not applicable

to all of the retirement plans.

Page 95 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix III 

Results of the Replacement Rate Analysis

Table III.11: Average Replacement

Rates Available With No Employee

Contributions to DC Plans - Age 55

and 30 Years of Service

Private sector

Federal

At retirement

Program component

DB plans

only

DC plans

only

DB and

DC plans FERS CSRS

Average replacement rates at final salary of $25,000:

DB plan 20.0 22.2 41.6 55.6

DC plan 7.7 2.5 3.4

Social Security

Total 20.0 7.7 24.7 45.0 55.6

Average replacement rates at final salary of $40,000:

DB plan 19.0 21.1 37.4 53.1

DC plan 6.3 2.1 2.8

Social Security

Total 19.0 6.3 23.2 40.2 53.1

Average replacement rates at final salary of $60,000:

DB plan 20.8 23.4 37.8 55.6

DC plan 7.0 2.3 3.1

Social Security

Total 20.8 7.0 25.7 40.9 55.6

Page 96 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix III 

Results of the Replacement Rate Analysis

Private sector

Federal

Private sector

Federal

10 years after retirement 20 years after retirement

S

DB and DC

plans FERS CSRS I CSRS II

DB and DC

plans FERS CSRS I CSRS II

6 15.0 21.2 55.6 51.0 10.5 19.3 55.6 46.8

1.6 2.2 1.0 1.4

25.3 25.3 25.3 25.3

6 41.9 48.7 55.6 51.0 36.8 46.0 55.6 46.8

14.2 20.2 53.1 48.7 10.0 18.4 53.1 44.7

1.4 1.8 0.9 1.2

19.2 19.2 19.2 19.2

34.8 41.2 53.1 48.7 30.1 38.8 53.1 44.7

6 15.8 21.2 55.6 51.0 11.1 19.3 55.6 46.8

1.5 2.0 1.0 1.3

16.9 16.9 16.9 16.9

6 34.2 40.1 55.6 51.0 29.0 37.5 55.6 46.8

Note 1: Because of differences in the annual rates of growth in the three salary histories, the

replacement rates may differ somewhat for each salary history.

Note 2: Some columns show no data because all of the program components are not applicable

to all of the retirement plans.

Page 97 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix III 

Results of the Replacement Rate Analysis

Table III.12: Average Replacement

Rates Available With No Employee

Contributions to DC Plans - Age 62

and 20 Years of Service

Private sector

Federal

At retirement

Program component

DB plans

only

DC plans

only

DB and

DC plans FERS CSRS

Average replacement rates at final salary of $25,000:

DB plan 20.2 21.0 21.7 35.8

DC plan 5.8 1.9 2.5

Social Security 22.5 22.5 22.5 22.5

Total 42.7 28.3 45.4 46.7 35.8

Average replacement rates at final salary of $40,000:

DB plan 21.0 21.7 21.7 35.8

DC plan 5.7 1.9 2.5

Social Security 19.0 19.0 19.0 19.0

Total 40.0 24.7 42.6 43.2 35.8

Average replacement rates at final salary of $60,000:

DB plan 21.6 23.1 21.8 35.8

DC plan 5.6 1.8 2.4

Social Security 16.3 16.3 16.3 16.3

Total 37.9 21.9 41.2 40.5 35.8

Page 98 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix III 

Results of the Replacement Rate Analysis

Private sector

Federal

Private sector

Federal

10 years after retirement 20 years after retirement

S

DB and DC

plans FERS CSRS I CSRS II

DB and DC

plans FERS CSRS I CSRS II

8 14.1 19.7 35.8 32.8 10.0 17.9 35.8 30.1

1.2 1.6 0.8 1.0

22.5 22.5 22.5 22.5

8 37.8 43.8 35.8 32.8 33.3 41.4 35.8 30.1

8 14.6 19.7 35.8 32.8 10.3 17.9 35.8 30.1

1.2 1.6 0.8 1.0

19.0 19.0 19.0 19.0

8 34.8 40.3 35.8 32.8 30.1 37.9 35.8 30.1

8 15.6 19.8 35.8 32.8 11.0 18.0 35.8 30.1

1.2 1.5 0.7 1.0

16.3 16.3 16.3 16.3

8 33.1 37.6 35.8 32.8 28.0 35.3 35.8 30.1

Note 1: Because of differences in the annual rates of growth in the three salary histories, the

replacement rates may differ somewhat for each salary history.

Note 2: Some columns show no data because all of the program components are not applicable

to all of the retirement plans.

Page 99 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix III 

Results of the Replacement Rate Analysis

Table III.13: Average Replacement

Rates Available With No Employee

Contributions to DC Plans - Age 65

and 20 Years of Service

Private sector

Federal

At retirement

Program component

DB plans

only

DC plans

only

DB and

DC plans FERS CSRS

Average replacement rates at final salary of $25,000:

DB plan 23.0 22.8 21.8 35.8

DC plan 6.2 2.0 2.7

Social Security 27.1 27.1 27.1 27.1

Total 50.1 33.3 51.9 51.6 35.8

Average replacement rates at final salary of $40,000:

DB plan 24.1 24.0 21.7 35.8

DC plan 6.1 2.0 2.7

Social Security 23.0 23.0 23.0 23.0

Total 47.1 29.1 49.0 47.4 35.8

Average replacement rates at final salary of $60,000:

DB plan 25.0 25.4 21.7 35.9

DC plan 6.0 2.0 2.6

Social Security 19.6 19.6 19.6 19.6

Total 44.6 25.6 47.0 43.9 35.9

Page 100 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix III 

Results of the Replacement Rate Analysis

Private sector

Federal

Private sector

Federal

10 years after retirement 20 years after retirement

S

DB and DC

plans FERS CSRS I CSRS II

DB and DC

plans FERS CSRS I CSRS II

8 15.4 19.8 35.8 32.8 10.8 18.0 35.8 30.1

1.3 1.7 0.8 1.1

27.1 27.1 27.1 27.1

8 43.8 48.6 35.8 32.8 38.7 46.2 35.8 30.1

8 16.2 19.7 35.8 32.8 11.4 17.9 35.8 30.1

1.3 1.7 0.8 1.1

23.0 23.0 23.0 23.0

8 40.5 44.4 35.8 32.8 35.2 42.0 35.8 30.1

9 17.1 19.7 35.9 32.9 12.0 17.9 35.9 30.2

1.3 1.7 0.8 1.1

19.6 19.6 19.6 19.6

9 38.0 41.0 35.9 32.9 32.4 38.6 35.9 30.2

Note 1: Because of differences in the annual rates of growth in the three salary histories, the

replacement rates may differ somewhat for each salary history.

Note 2: Some columns show no data because all of the program components are not applicable

to all of the retirement plans.

Page 101 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix III 

Results of the Replacement Rate Analysis

Table III.14: Average Replacement

Rates Available With No Employee

Contributions to DC Plans - Age 62

and 30 Years of Service

Private sector

Federal

At retirement

Program component

DB plans

only

DC plans

only

DB and

DC plans FERS CSRS

Average replacement rates at final salary of $25,000:

DB plan 32.3 30.8 32.6 55.6

DC plan 8.9 2.2 3.8

Social Security 25.3 25.3 25.3 25.3

Total 57.6 34.2 58.3 61.7 55.6

Average replacement rates at final salary of $40,000:

DB plan 30.8 29.3 31.2 53.2

DC plan 7.3 1.8 3.1

Social Security 19.2 19.2 19.2 19.2

Total 50.0 26.5 50.3 53.5 53.2

Average replacement rates at final salary of $60,000:

DB plan 34.2 33.5 32.6 55.6

DC plan 8.1 2.0 3.4

Social Security 16.9 16.9 16.9 16.9

Total 51.1 25.0 52.4 52.9 55.6

Page 102 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix III 

Results of the Replacement Rate Analysis

Private sector

Federal

Private sector

Federal

10 years after retirement 20 years after retirement

S

DB and DC

plans FERS CSRS I CSRS II

DB and DC

plans FERS CSRS I CSRS II

6 20.7 29.6 55.6 51.0 14.6 26.9 55.6 46.8

1.4 2.4 0.9 1.6

25.3 25.3 25.3 25.3

6 47.4 57.3 55.6 51.0 40.8 53.8 55.6 46.8

2 19.7 28.3 53.2 48.8 13.9 25.7 53.2 44.7

1.2 2.0 0.7 1.3

19.2 19.2 19.2 19.2

2 40.1 49.5 53.2 48.8 33.8 46.2 53.2 44.7

6 22.6 29.6 55.6 51.0 15.9 26.9 55.6 46.8

1.3 2.2 0.8 1.4

16.9 16.9 16.9 16.9

6 40.8 48.7 55.6 51.0 33.6 45.2 55.6 46.8

Note 1: Because of differences in the annual rates of growth in the three salary histories, the

replacement rates may differ somewhat for each salary history.

Note 2: Some columns show no data because all of the program components are not applicable

to all of the retirement plans.

Page 103 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix III 

Results of the Replacement Rate Analysis

Table III.15: Average Replacement

Rates Available With No Employee

Contributions to DC Plans - Age 65

and 30 Years of Service

Private sector

Federal

At retirement

Program component

DB plans

only

DC plans

only

DB and

DC plans FERS CSRS

Average replacement rates at final salary of $25,000:

DB plan 36.2 32.7 32.6 55.6

DC plan 9.5 2.3 4.0

Social Security 30.3 30.3 30.3 30.3

Total 66.5 39.8 65.3 66.9 55.6

Average replacement rates at final salary of $40,000:

DB plan 34.7 31.3 31.2 53.1

DC plan 7.8 1.9 3.3

Social Security 23.1 23.1 23.1 23.1

Total 57.8 30.9 56.3 57.6 53.1

Average replacement rates at final salary of $60,000:

DB plan 38.7 36.1 32.6 55.6

DC plan 8.7 2.1 3.7

Social Security 20.6 20.6 20.6 20.6

Total 59.3 29.3 58.8 56.9 55.6

Page 104 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix III 

Results of the Replacement Rate Analysis

Private sector

Federal

Private sector

Federal

10 years after retirement 20 years after retirement

S

DB and DC

plans FERS CSRS I CSRS II

DB and DC

plans FERS CSRS I CSRS II

6 22.0 29.6 55.6 51.0 15.5 26.9 55.6 46.8

1.5 2.6 1.0 1.7

30.3 30.3 30.3 30.3

6 53.8 62.5 55.6 51.0 46.8 58.9 55.6 46.8

21.1 28.3 53.1 48.7 14.8 25.7 53.1 44.7

1.2 2.1 0.8 1.4

23.1 23.1 23.1 23.1

45.4 53.5 53.1 48.7 38.7 50.2 53.1 44.7

6 24.3 29.6 55.6 51.0 17.1 26.9 55.6 46.8

1.4 2.4 0.9 1.5

20.6 20.6 20.6 20.6

6 46.3 52.6 55.6 51.0 38.6 49.0 55.6 46.8

Note 1: Because of differences in the annual rates of growth in the three salary histories, the

replacement rates may differ somewhat for each salary history.

Note 2: Some columns show no data because all of the program components are not applicable

to all of the retirement plans.

Page 105 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix IV 

Features of Federal and Private Sector

Defined Benefit Plans

The Watson Wyatt database included information on the retirement

programs of 661 employers of which 497 had DB plans. Sufficient

information was available to enable Watson Wyatt to determine the benefit

amounts provided by 435 of the 661 employers. Of the 435 employers

whose program benefits could be valued, 329 had DB plans. Of these 329

employers, 25 had retirement programs that included DB plans only and

304 had programs that included both DB and DC plans.

This appendix describes in detail the features of all 497 DB plans included

in the 661 programs in Watson Wyatt’s database. It also describes

separately the features of the 329 DB plans in the 435 programs that could

be valued. The private sector DB plans are divided into three categories.

The first category, “all employers in database,” contains data on all 497 DB

plans. The second category, “DB plans only,” contains data on the 25

programs with DB plans only whose benefits could be valued. The third

category, “DB and DC plans,” contains data on the DB plans in the 304

programs with DB and DC plans whose benefits could be valued. Therefore,

the number of plans in the second and third categories will not total the

number of plans in the first category.

The number of plans in each table varies because plans are sometimes

excluded when a particular feature is not applicable to them. For example,

in table IV.1, the total number of plans in the “all employers in database”

category is 497, but in table IV.5, the total number of plans in that category

is 470. Twenty-seven plans were excluded because they were

nontraditional plans that, by nature, do not use salary averages in benefit

calculations.

Page 106 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix IV 

Features of Federal and Private Sector

Defined Benefit Plans

Table IV.1: Eligibility Requirements to Participate in the Defined Benefit Plans

Employers whose

program benefits

could be valued

Private sector (percentage of plans)

Federal

Eligibility requirements

All employers

in database

DB plans

only

DB and

DC plans FERS CSRS

Immediate (any age/any

service)

25 28 23 Immediate Immediate

Any age/6 months service 3 0 4

Any age/12 months service 18 4 18

Any age/Other service

requirement

2 4 2

Age 18 4 12 3

Age 21/12 months service 36 44 39

Age 21/Service other than 12

months

7 4 7

Other age/Service requirement 2 4 2

No response 3 0 2

Number of plans 497 25 304

Table IV.2: Vesting Schedule

Employers whose

program benefits

could be valued

Private sector (percentage of plans)

Federal

Vesting schedulea

All employers

in database

DB plans

only

DB and

DC plans FERS CSRS

Cliff vesting, 5 years service 91 92 95 Cliff vesting, 5 years service Cliff vesting, 5 years service

Graded vesting, 7 years service 3 4 3

Other vesting schedule 5 4 2

No response 1 0 0

Number of plans 497 25 304

aIf certain conditions are satisfied at the time an employee separates from an employer, the

employee will have a vested interest in all or a portion of his or her accrued defined benefit plan

benefits. Under cliff vesting, an employee must complete a set number of years of service before

any benefits are guaranteed. Under graded vesting, an employee is guaranteed an increasing

portion of plan benefits as his or her years of service increase.

Page 107 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix IV 

Features of Federal and Private Sector

Defined Benefit Plans

Table IV.3: Employee Contribution Requirements

Employers whose

program benefits

could be valued

Private sector (percentage of plans)

Federal

Employee contributions

All employers

in database

DB plans

only

DB and

DC plans FERS CSRS

Required 7 8 4 7% of base pay for general

employees minus

contributions to Social

Securityb

7% of base pay for general

employees

Not required 92 92 96

No response 1 0 a

Number of plans 497 25 304

aLess than 0.5 percent.

bThe Social Security contribution rate since 1990 has been 6.2 percent of pay up to the Social

Security pay ceiling, meaning that employees in FERS contribute 0.8 percent of their pay to the

DB plan.

Table IV.4: Compensation Elements Included in Benefit Calculation Base

Employers whose

program benefits

could be valued

Private sector (percentage of plans)

Federal

Compensation elements

All employers

in database

DB plans

only

DB and

DC plans FERS CSRS

Base pay 97 100 99 Base pay only Base pay only

Overtime 61 68 63

Commissions 41 20 47

Bonuses 53 48 56

401(k) or salary deferrals 59 48 62

Internal Revenue Code section

125 conversions

44 40 48

Other pay 14 16 15

No response 2 0 1

Number of plans 497 25 304

Note: Some employers defined compensation to include more than one element. Therefore,

percentages total to more than 100 percent.

Page 108 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix IV 

Features of Federal and Private Sector

Defined Benefit Plans

Table IV.5: Pay Base for Benefit Calculations

Employers whose

program benefits

could be valued

Private sector (percentage of plans)

Federal Pay base for benefit

calculations

All employers

in database

DB plans

only

DB and

DC plans FERS CSRS

Career average only 11 0 11 Average of highest 3

consecutive years of base

pay rate

Average of highest 3

consecutive years of base

pay rate

Final average, 5-year

averaging period

64 77 70

Final average, 3-year

averaging period

14 0 12

Final average, other averaging

period

5 9 3

More than one formula, career

average and final average

(5-year averaging period)

1 0 1

More than one formula, career

average and final average

(3-year averaging period)

a 0 1

Other 2 0 2

No response 3 14 a

Number of plans 470 22 286

aLess than 0.5 percent

Page 109 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix IV 

Features of Federal and Private Sector

Defined Benefit Plans

Table IV.6: Social Security Integration in Benefit Formulas

Employers whose

program benefits

could be valued

Private sector (percentage of plans)

Federal Social Security integration in

benefit formulas

All employers

in database

DB plans

only

DB and

DC plans FERS CSRS

Offset integration formula(s)

only

21 9 24 No Social Security integration No Social Security coverage

Excess integration formula(s)

only

47 45 53

No integration in any plan

formula

25 41 17

More than one formula, one

offset and one excess

1 0 1

More than one formula, one

offset and one not integrated

4 0 3

More than one formula, one

excess and one not integrated

2 5 2

No response 0 0 0

Number of plans 470 22 286

Page 110 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix IV 

Features of Federal and Private Sector

Defined Benefit Plans

Table IV.7: Age and Years of Service Requirements for Unreduced Retirement Benefits

Employers whose

program benefits

could be valued

Private sector (percentage of plans)

Federal Age and years of service

requirements for unreduced

benefits

All employers

in database

DB plans

only

DB and

DC plans FERS CSRS

Less than age 55 a 0 0 Minimum retirement age and

30 years of service, age 60

and 20 years of service, or

age 62 and 5 years of service

Age 55 with 30 years of

service, age 60 and 20 years

of service, or age 62 and 5

years of service

Age 55 10 8 8

Age 60, no years of service

requirement

1 0 0

Age 60, with a years of service

requirement

13 4 16

Age 62, no years of service

requirement

1 0 2

Age 62, with a years of service

requirement

26 4 28

Other age requirement, less

than age 65

2 0 2

Years of service requirement,

but no age requirement

2 4 1

Age 65 43 80 41

No response 2 0 2

Number of plans 497 25 304

aLess than 0.5 percent.

Page 111 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix IV 

Features of Federal and Private Sector

Defined Benefit Plans

Table IV.8: Age and Years of Service Requirements for Reduced Retirement Benefits

Employers whose

program benefits

could be valued

Private sector (percentage of plans)

Federal Age and years service

requirements for reduced

benefits

All employers

in database

DB plans

only

DB and

DC plans FERS CSRS

Less than age 55 8 12 7 Minimum retirement age

(varying from ages 55 to 57

based on year of birth) and

10 years of service

No provision

Age 55, 10 years or less of

service

69 68 73

Age 55, more than 10 years of

service

13 8 13

Age 60 2 8 2

Age 62 a 0 0

Years of service requirement

only

4 4 3

Other age requirement 1 0 1

No response 3 0 1

Number of plans 497 25 304

aLess than 0.5 percent.

Page 112 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix IV 

Features of Federal and Private Sector

Defined Benefit Plans

Table IV.9: Supplemental Benefits Available for Retirees Receiving Reduced Benefits

Employers whose

program benefits

could be valued

Private sector (percentage of plans)

Federal Supplemental benefits

available for retirees

All employers

in database

DB plans

only

DB and

DC plans FERS CSRS

No 84 91 86 No supplemental benefits for

retirees not eligible for

unreduced benefits. If eligible

for unreduced benefits, an

annuity supplement is

payable from the MRAa to age

62. This supplement equals

the portion of the Social

Security benefit that was

earned during federal service

and would be payable at age

62.

No supplemental benefits

Yes 12 4 13

No response 4 5 1

Number of plans 468 22 285

aMRA is the minimum optional retirement age. The FERS MRA is age 55 for employees born

before January 1, 1948. The MRA increases until it reaches age 57 for employees born after

December 31, 1969.

Table IV.10: Age at Which Retirement Supplement Ends

Employers whose

program benefits

could be valued

Private sector (percentage of plans)

Federal Age at which retirement

supplement ends

All employers

in database

DB plans

only

DB and

DC plans FERS CSRS

Age 62 87 a 87 Age 62 No supplement paid

Age 65 7 a 8

Other 6 a 5

No response 0 0 0

Number of plans 55 1 37

aFewer than five employers/plans in column, and percentages were not determined.

Page 113 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix IV 

Features of Federal and Private Sector

Defined Benefit Plans

Table IV.11: Program Provided at Least One Postretirement Benefit Increase During 1983-92

Employers whose

program benefits

could be valued

Private sector (percentage of plans)

Federal Postretirement benefit

increases during 1983-92

All employers

in database

DB plans

only

DB and

DC plans FERS CSRS

Yes 43 28 42 Yesa Yes

No 44 68 43

No response 13 4 15

Number of plans 497 25 304

Note: Data on private sector increases during 1983-92 were the latest available at the time the

contract was awarded to Watson Wyatt Worldwide. The percentages include plans that provided

at least one increase.

aFERS became effective January 1, 1987. Therefore, COLA payments began in January 1988.

Table IV.12: Years When Program Provided Postretirement Increases During 1983-92

Employers whose

program benefits

could be valued

Private sector (percentage of plans)

Federal Years when postretirement

increases were provided

All employers

in database

DB plans

only

DB and

DC plans FERS CSRS

1983 25 29 19 See table IV.13 for actual

postretirement increases paid.

See table IV.13 for actual

postretirement increases paid.

1984 35 29 29

1985 38 29 32

1986 32 57 30

1987 34 43 32

1988 37 43 31

1989 33 43 27

1990 31 14 28

1991 27 29 22

1992 22 29 19

No response 2 0 2

Number of plans 213 7 129

Note: Data on private sector increases during 1983-92 were the latest available at the time the

contract was awarded to Watson Wyatt Worldwide.

aEmployers in the Watson Wyatt database may have provided more than one increase during

1983-92. Therefore, the percentages total more than 100 percent.

Page 114 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix IV 

Features of Federal and Private Sector

Defined Benefit Plans

Table IV.13: Postretirement Increases

in FERS and CSRS From 1983 to 1997 Numbers in percent

Month and year when postretirement increases were

provided FERS CSRS

May 1983 a 3.9b

January 1985 a 3.5

January 1986 a 0.0

January 1987 a 1.3

January 1988 3.2 4.2

January 1989 3.0 4.0

January 1990 3.7 4.7

January 1991 4.4 5.4

January 1992 2.7 3.7

January 1993 2.0 3.0

April 1994 2.0 2.6

April 1995 2.0 2.8

April 1996 2.0 2.6

January 1997 2.0 2.9

aFERS became effective January 1, 1987, and COLA payments began in January 1988.

bThe CSRS COLA payment for May 1983 was 3.3 percent for nondisabled employee annuitants

under age 62.

Page 115 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix V 

Features of Federal and Private Sector

Defined Contribution Plans

The Watson Wyatt database included information on the retirement

programs of 661 employers of which 617 had DC plans. Sufficient

information was available to enable Watson Wyatt to determine the benefit

amounts provided by 435 of the 661 employers. Of the 435 employers

whose program benefits could be valued, 410 had DC plans. Of these 410

employers, 106 had retirement programs that included a DC plan only and

304 had programs that included both DB and DC plans.

This appendix describes in detail the features of all 617 DC plans included

in the 661 programs in Watson Wyatt’s database. It also describes

separately the features of the 410 DC plans in the 435 programs that could

be valued. The private sector DC plans are divided into three categories.

The first category, “all employers in database,” contains data on all 617 DC

plans. The second category, “DC plans only,” contains data on the 106

programs with DC plans only whose benefits could be valued. The third

category, “DB and DC plans,” contains data on the DC plans in the 304

programs with DB and DC plans whose benefits could be valued. Thus, the

number of plans in the second and third categories will not total the

number of plans in the first category.

The number of plans in each table varies because plans are sometimes

excluded when a particular feature is not applicable to them. For example,

in table V.1, the total number of plans in the “all employers in database”

category is 617, but in table V.2, the total number of plans in that category

is 530 because only 530 plans of the 617 plans include employer

contributions.

Page 116 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix V 

Features of Federal and Private Sector

Defined Contribution Plans

Table V.1: Eligibility Requirements to Participate in the Defined Contribution Plans

Employers whose

program benefits

could be valued

Private sector (percentage of plans)

Federal

Eligibility requirements

All employers

in database

DC plans

only

DB and

DC plans FERS CSRS

Immediate (any age/any

service)

20 17 19 Open season every 6 months;

new hires may join during the

second open season after

hire (6 to 12 months after hire)

Open season every 6 months;

new hires may join during the

second open season after

hire (6 to 12 months after hire)

Any age/6 months service 7 8 7

Any age/12 months service 28 25 32

Any age/Other service

requirement

7 6 7

Age 18 5 8 5

Age 21/12 months service 19 23 18

Age 21/Service other than 12

months

5 5 5

Other age/Service requirement 2 2 1

No response 7 6 6

Number of plans 617 106 304

Page 117 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix V 

Features of Federal and Private Sector

Defined Contribution Plans

Table V.2: Vesting Schedules (Plans With Employer Contributions)

Employers whose

program benefits

could be valued

Private sector (percentage of plans)

Federal Vesting schedules (plans

with employer contributions)

All employers

in database

DC plans

only

DB and

DC plans FERS CSRS

Immediate 32 26 29 Full and immediate vesting in

all contributions and earnings

except employer

nonmatching contributions

and earnings on the

nonmatching contributions

that vest at 3 years of service

Full and immediate vesting in

employee contributions and

earnings (no employer

contributions are made)

Cliff vesting in less than 5 years 6 4 8

Cliff vesting with 5 years of

service

18 13 20

Graded vesting, 100% vested

in less than 7 years

28 33 31

Graded vesting, 100% vested

in 7 years

7 16 4

Other 5 7 6

No response 4 1 2

Number of plans 530 100 300

Table V.3: Types of Employer Contributions (Plans With Employer Contributions)

Employers whose

program benefits

could be valued

Private sector (percentage of plans)

Federal Types of employer

contributions (plans with

employer contributions)

All employers

in database

DC plans

only

DB and

DC plans FERS CSRS

Matching only 65 54 78 Nonmatching contribution of

1% of pay; 100% match on

the first 3% of pay and 50%

on the next 2% of pay that

employee contributes

No employer contributions

Nonmatching only 11 11 5

Both matching and

nonmatching

17 34 15

Other 2 0 2

No response 5 1 0

Number of plans 530 100 300

Page 118 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix V 

Features of Federal and Private Sector

Defined Contribution Plans

Table V.4: Amounts of Employer Contributions as a Percentage of Pay in 1992

Employers whose

program benefits

could be valued

Private sector (percentage of plans)

Federal Amounts of employer

contributions as a

percentage of pay

All employers

in database

DC plans

only

DB and

DC plans FERS CSRS

Less than 2.00% 11 8 14 1994 employer contribution

was 3.9%a

Employer does not contribute

to the plan

2.00% to 3.99% 16 16 19

4.00% to 7.99% 9 20 6

8.00% to 9.99% 3 6 1

10.00% or more 4 8 3

No employer contributions 1 0 1

Employer never contributes to

plan

13 5 1

No response 43 37 55

Number of plans 617 106 304

Note: Information on contributions made in 1992 was the latest available at the time the contract

was awarded to Watson Wyatt.

aTotal of all government contributions made to the TSP in 1994 as a percentage of all FERS

employees’ salaries.

Table V.5: Employer-Matching Contributions (Plans With Employer Contributions)

Employers whose

program benefits

could be valued

Private sector (percentage of plans)

Federal Employer-matching

contributions (plans with

employer contributions)

All employers

in database

DC plans

only

DB and

DC plans FERS CSRS

Only employee after-tax

contributions matched

1 1 1 Employee pretax

contributions matched

No employer contributions

Only employee pretax

contributions matched

43 59 39

Both after-tax and pretax

contributions matched

15 8 18

No matching employer

contributions

9 10 5

No response 32 22 37

Number of plans 530 100 300

Page 119 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix V 

Features of Federal and Private Sector

Defined Contribution Plans

Table V.6: Maximum Employee Contributions Matched by Employer in 1993 (Plans With Matching Contributions)

Employers whose

program benefits

could be valued

Private sector (percentage of plans)

Federal

Maximum employee

contributions matched by

employer (plans with

matching contributions)

All employers

in database

DC plans

only

DB and

DC plans FERS CSRS

2.00% or less 3 2 2 5% of pay No employer contributions

2.01% to 4.00% 21 27 22

4.01% to 6.00% 64 56 66

6.01% to 8.00% 7 6 6

8.01% to 10.00% 1 2 1

10.01% or more 4 7 3

No response a 0 0

Number of plans 436 88 283

aLess than 0.5 percent.

Table V.7: Percentiles of Maximum Employee Contributions Matched by Employer in 1993 (Plans With Matching

Contributions)

Employers whose

program benefits

could be valued

Private sector (maximum employee

contribution percentages matched)

Federal

Percentiles of maximum

employee contributions

matched by employer (plans

with matching contributions)

All employers

in database

DC plans

only

DB and

DC plans FERS CSRS

25th percentile 5% 4% 5% 5% of pay No employer contributions

50th percentile (median) 6% 6% 6%

75th percentile 6% 6% 6%

Number of plans 436 88 283

Page 120 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix V 

Features of Federal and Private Sector

Defined Contribution Plans

Table V.8: Maximum Pretax Employee Contributions Allowed in 1993 (Plans With Employee Contributions)

Employers whose

program benefits

could be valued

Private sector (percentage of plans)

Federal Maximum pretax employee

contributions allowed (plans

with employee contributions)

All employers

in database

DC plans

only

DB and

DC plans FERS CSRS

No maximum 1 2 1 10% of pay 5% of pay

3.00% or less a 0 0

3.01% to 6.00% 6 9 6

6.01% to 9.00% 6 8 5

9.01% to 12.00% 24 32 27

12.01% to 15.00% 33 37 32

15.01% to 18.00% 16 7 20

18.01% or more 8 3 3

No response 6 2 6

Number of plans 549 96 284

Note: Employee pretax contribution amounts are limited by IRS. The limit in 1997 is $9,500.

aLess than 0.5 percent.

Table V.9: Percentiles of Maximum Pretax Employee Contributions Allowed in 1993 (Plans With Employee Contributions)

Employers whose

program benefits

could be valued

Private sector (maximum pretax

employee contributions allowed)

Federal

Percentiles of maximum

pretax employee

contributions allowed (plans

with employee contributions)

All employers

in database

DC plans

only

DB and

DC plans FERS CSRS

25th percentile 10% 10% 10% 10% of pay 5% of pay

50th percentile (median) 15% 12% 15%

75th percentile 16% 15% 15%

Number of plans 549 96 284

Note: Employee pretax contribution amounts are limited by IRS. The limit in 1997 is $9,500.

Page 121 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix V 

Features of Federal and Private Sector

Defined Contribution Plans

Table V.10: Amounts of Employer Match on a 3-Percent Employee Contribution (Plans That Only Match Contributions Up to

3 Percent)

Employers whose

program benefits

could be valued

Private sector (percentage of plans)

Federal

Amounts of employer match

on a 3% employee

contribution (plans that only

match contributions up to 3%)

All employers

in database

DC plans

only

DB and

DC plans FERS CSRS

25% or less 6 0 6 100% employer match on

employee contributions up to

3% of pay and 50% employer

match on employee

contributions of next 2% of

pay

No employer contributions

26% to 50% 31 43 29

51% to 75% 3 0 4

76% to 100% 50 57 50

Over 100% 10 0 11

No response 0 0 0

Number of plans 36 7 28

Table V.11: Percentiles of Amounts of Employer Match on a 3-Percent Employee Contribution (Plans That Only Match

Contributions Up to 3 Percent)

Employers whose

program benefits

could be valued

Private sector (employer match on a

3% employee contribution)

Federal

Percentiles of amounts of

employer match on a 3%

employee contribution (plans

that only match contributions

up to 3%)

All employers

in database

DC plans

only

DB and

DC plans FERS CSRS

25th percentile 50% 100% 50% 100% employer match on

employee contributions up

to 3% of pay and 50%

employer match on

employee contributions of

next 2% of pay

No employer contributions

50th percentile (median) 100% 100% 100%

75th percentile 100% 100% 100%

Number of plans 36 7 28

Page 122 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix V 

Features of Federal and Private Sector

Defined Contribution Plans

Table V.12: Amounts of Employer Match on a 4-Percent Employee Contribution (Plans That Only Match Contributions Up to

4 Percent)

Employers whose

program benefits

could be valued

Private sector (percentage of plans)

Federal

Amounts of employer match

on a 4% employee

contribution (plans that only

match contributions up to 4%)

All employers

in database

DC plans

only

DB and

DC plans FERS CSRS

25% or less 11 13 11 100% employer match on

employee contributions up to

3% of pay and 50% match on

employee contributions of

next 2% of pay. At 4%

employee contribution,

employer match is 87.5%.

No employer contributions

26% to 50% 58 63 57

51% to 75% 6 0 6

76% to 100% 23 19 26

Over 100% 2 5 0

No response 0 0 0

Number of plans 57 16 35

Table V.13: Percentiles of Amounts of Employer Match on a 4-Percent Employee Contribution (Plans That Only Match

Contributions Up to 4 Percent)

Employers whose

program benefits

could be valued

Private sector (employer match on a

4% employee contribution)

Federal

Percentages of amounts of

employer match on a 4%

employee contribution (plans

that only match contributions

up to 4%)

All employers

in database

DC plans

only

DB and

DC plans FERS CSRS

25th percentile 50% 50% 50% 100% employer match on

employee contributions up

to 3% of pay and 50%

match on employee

contributions of next 2% of

pay. At 4% employee

contribution, employer

match is 87.5%.

No employer contributions

50th percentile (median) 50% 50% 50%

75th percentile 75% 50% 100%

Number of plans 57 16 35

Page 123 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix V 

Features of Federal and Private Sector

Defined Contribution Plans

Table V.14: Amounts of Employer Match on a 5-Percent Employee Contribution (Plans That Only Match Contributions Up to

5 Percent)

Employers whose

program benefits

could be valued

Private sector (percentage of plans)

Federal

Amounts of employer match

on a 5% employee

contribution (plans that only

match contributions up to 5%)

All employers

in database

DC plans

only

DB and

DC plans FERS CSRS

25% or less 19 33 17 100% employer match on

employee contributions up to

3% and 50% match on

employee contributions of

next 2% of pay. At 5%

employee contribution,

employer match is 80%.

No employer contributions

26% to 50% 48 25 55

51% to 75% 4 0 3

76% to 100% 25 25 25

Over 100% 4 17 0

No response 0 0 0

Number of plans 53 12 36

Table V.15: Percentiles of Amounts of Employer Match on a 5-Percent Employee Contribution (Plans That Only Match

Contributions Up to 5 Percent)

Employers whose

program benefits

could be valued

Private sector (employer match on a

5% employee contribution)

Federal

Percentages of amounts of

employer match on a 5%

employee contribution (plans

that only match contributions

up to 5%)

All employers

in database

DC plans

only

DB and

DC plans FERS CSRS

25th percentile 35% 25% 35% 100% employer match on

employee contributions up

to 3% and 50% match on

employee contributions of

next 2% of pay. At 5%

employee contribution,

employer match is 80%.

No employer contributions

50th percentile (median) 50% 50% 50%

75th percentile 100% 100% 66%

Number of plans 53 12 36

Page 124 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix V 

Features of Federal and Private Sector

Defined Contribution Plans

Table V.16: Amounts of Employer Match on a 6-Percent or More Employee Contribution (Plans That Only Match

Contributions Up to 6 Percent or More)

Employers whose

program benefits

could be valued

Private sector (percentage of plans)

Federal

Amounts of employer match

on a 6% or more employee

contribution (plans that only

match contributions up to 6%

or more)

All employers

in database

DC plans

only

DB and

DC plans FERS CSRS

25% or less 20 22 18 Employer does not match

employee contributions above

5% of pay

No employer contributions

26% to 50% 53 54 54

51% to 75% 14 10 14

76% to 100% 13 14 13

Over 100% a 0 0

No response a 0 1

Number of plans 245 50 176

aLess than 0.5 percent.

Table V.17: Percentiles of Amounts of Employer Match on a 6-Percent or More Employee Contribution (Plans That Only

Match Contributions Up to 6 Percent or More)

Employers whose

program benefits

could be valued

Private sector (employer match on a

6% or more employee contribution)

Federal

Percentages of amounts of

employer match on a 6% or

more employee contribution

(plans that only match

contributions up to 6% or

more)

All employers

in database

DC plans

only

DB and

DC plans FERS CSRS

25th percentile 40% 30% 40% Employer does not match

employee contributions

above 5% of pay

No employer contributions

50th percentile (median) 50% 50% 50%

75th percentile 60% 50% 60%

Number of plans 245 50 176

Page 125 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix V 

Features of Federal and Private Sector

Defined Contribution Plans

Table V.18: Employer-Set Dollar Limitation on Employer-Matching Contributions

Employers whose

program benefits

could be valued

Private sector (percentage of plans)

Federal

Dollar limitation (other than

legal maximum) on

employer-matching

contributions

All employers

in database

DC plans

only

DB and

DC plans FERS CSRS

Yes 5 11 3 No employer-set limitation No employer contributions

No 81 75 81

No response 14 14 16

Number of plans 436 88 283

Note: Employer-matching contribution amounts are subject to statutory limitations.

Table V.19: Employer Contributions Not Based on a Match of Employee Contributions (Plans With Employer Contributions)

Employers whose

program benefits

could be valued

Private sector (percentage of plans)

Federal

Employer contributions not

based on a match of

employee contributions

(plans with employer

contributions)

All employers

in database

DC plans

only

DB and

DC plans FERS CSRS

Yes 27 45 20 1% of pay No employer contributions

No 71 55 78

No response 2 0 2

Number of plans 530 100 300

Table V.20: Employer-Nonmatching Contributions Based on Profits

Employers whose

program benefits

could be valued

Private sector (percentage of plans)

Federal Employer-nonmatching

contributions based on profits

All employers

in database

DC plans

only

DB and

DC plans FERS CSRS

Yes 50 58 49 No No employer contributions

Partially 10 9 8

No 34 31 35

No response 6 2 8

Number of plans 145 45 61

Page 126 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix V 

Features of Federal and Private Sector

Defined Contribution Plans

Table V.21: Plan Loan Provisions

Employers whose

program benefits

could be valued

Private sector (percentage of plans)

Federal

Plan has a loan provision

All employers

in database

DC plans

only

DB and

DC plans FERS CSRS

Yes 70 66 77 Yes Yes

No 27 34 21

No response 3 0 2

Number of plans 617 106 304

Table V.22: In-Service Hardship Withdrawal Provisions

Employers whose

program benefits

could be valued

Private sector (percentage of plans)

Federal In-service hardship

withdrawal provisions

All employers

in database

DC plans

only

DB and

DC plans FERS CSRS

Yes 84 83 88 Noa Noa

No 12 17 10

No response 4 0 2

Number of plans 617 106 304

aIn late 1997, changes in the provisions of the federal DC plan, the TSP, will allow federal

employees to make withdrawals if they are age 59-1/2 or older or if they have a financial hardship.

Table V.23: In-Service (Other Than Hardship) Withdrawals Permitted Before Age 59-1/2

Employers whose

program benefits

could be valued

Private sector (percentage of plans)

Federal In-service (other than

hardship) withdrawals

permitted before age 59-1/2

All employers

in database

DC plans

only

DB and

DC plans FERS CSRS

Yes 25 17 30 No No

No 33 51 21

No response 42 32 49

Number of plans 617 106 304

Note: Under IRS code, such withdrawals are only permissible from after-tax accounts.

Page 127 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix VI 

Comments From the Office of Personnel

Management

See comments on pp. 65

to 67.

Page 128 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix VI 

Comments From the Office of Personnel

Management

See comments on pp. 65

to 67.

Page 129 GAO/GGD-97-40 Federal and Private Retirement Benefits
Appendix VI 

Comments From the Office of Personnel

Management

(410014) Page 130 GAO/GGD-97-40 Federal and Private Retirement Benefits
Ordering Information

The first copy of each GAO report and testimony is free.

Additional copies are $2 each. Orders should be sent to the

following address, accompanied by a check or money order

made out to the Superintendent of Documents, when

necessary. VISA and MasterCard credit cards are accepted, also.

Orders for 100 or more copies to be mailed to a single address

are discounted 25 percent.

Orders by mail:

U.S. General Accounting Office

P.O. Box 6015

Gaithersburg, MD 20884-6015

or visit:

Room 1100

700 4th St. NW (corner of 4th and G Sts. NW)

U.S. General Accounting Office

Washington, DC

Orders may also be placed by calling (202) 512-6000 

or by using fax number (301) 258-4066, or TDD (301) 413-0006.

Each day, GAO issues a list of newly available reports and

testimony. To receive facsimile copies of the daily list or any

list from the past 30 days, please call (202) 512-6000 using a

touchtone phone. A recorded menu will provide information on

how to obtain these lists.

For information on how to access GAO reports on the INTERNET,

send an e-mail message with "info" in the body to:

info@www.gao.gov

or visit GAO’s World Wide Web Home Page at:

http://www.gao.gov

PRINTED ON RECYCLED PAPER
United States

General Accounting Office

Washington, D.C. 20548-0001

Official Business

Penalty for Private Use $300

Address Correction Requested

Bulk Rate

Postage & Fees Paid

GAO

Permit No. G100