Should you stay in

FERS?

A guide to choosing between FERS and CSRS Offset

retirement plans when you were erroneously put in FERS.
A Guide to Choosing Between FERS and CSRS Offset

Introduction

May 2002

2

Introduction

You were given this book because a mistake was made in your retirement coverage. You were

erroneously put in the Federal Employees Retirement System (FERS). You should have been put

in the Civil Service Retirement System (CSRS) Offset and then informed of your opportunity to

choose to move to FERS.

Congress created the Federal Employees Retirement System (FERS) in 1986, and it became

effective on January 1, 1987. Since that time, new Federal civilian employees who have

retirement coverage are covered by FERS.

However, when the Congress created FERS, one of the rules it established was that people who

already had enough Federal civilian service to potentially be eligible for an annuity some day

under CSRS could choose whether or not to be covered by FERS. Based on your employment

history, your agency should have placed you in CSRS Offset and given you an opportunity to

elect FERS.

Even though you are already in FERS, you now have a choice to make about whether you want to

stay in FERS or have your coverage corrected to CSRS Offset. This is a very important

decision. Depending on what the future holds for you, your decision can make a difference to

you in how early you can retire from the Federal Government and how much retirement income

you will have.

The information in this guide is based on the law in effect as of the edition date.

Simplifying Your Decision

Whether you choose FERS or CSRS Offset, you can't change your mind later, so you want to

choose the plan that fits best with your future plans. Both CSRS Offset and FERS are good

retirement plans. Each plan has advantages and disadvantages. Neither plan is best for all

Federal employees.

If you are like many people, your initial reaction may be that this will be a complicated decision.

For some people who have complex situations, it may be. However, for most people, it becomes a

fairly simple decision when they think about the choices in terms of their own situations. You

need to consider factors such as your work history, when you want to retire, and whether or not

you plan to stay in Federal service until then.

The same election considerations apply, whether you are working full time or part-time. If you

are married, we encourage you to discuss your choice with your spouse.
A Guide to Choosing Between FERS and CSRS Offset

Introduction

May 2002

3

This guide takes you through important considerations and shows you why they’re different in

CSRS Offset and FERS. Many people reach a decision without reading very much of this guide,

but we encourage you to at least review the first several sections because there are some

special circumstances that may change your mind. When you finish reading, you should be

prepared to make a choice based on the plan overviews and comparisons. In most cases, you

shouldn’t have to do any calculations to decide which retirement plan is better for you.

Making Your Own Decision

Remember, the decision whether to stay in FERS is yours to make. This guide contains the

information you need to consider, but it won’t tell you what to do. You must decide based on

what you know about yourself, your past, and your expectations for the future. You shouldn’t

decide based on what someone else did. There may be one key factor in that person’s situation

that would make his or her choice inappropriate for you.

We have tried to keep this guide as simple as possible, but if you have questions; your agency

should have personnel who can help answer your questions. So, if there is a part of the guide

that’s important to your situation and that you don’t understand, you should ask for help.

However, while your agency should help answer your questions about the guide, they will not tell

you what to do.

Finally, remember that you are choosing between two very different retirement systems. This

guide stresses the differences. If you try to understand the differences between the systems

in terms of what’s important to you, your choice will be easier. If you try to master exactly how

each system works, your decision will take more time and effort on your part. Of course, this

guide in no way replaces the many pages of regulations that govern benefits under CSRS and

CSRS Offset, FERS Basic Benefits, the Thrift Savings Plan (TSP), and Social Security, but it

should contain all of the information you need to make your decision.

What Happens If I Do Nothing?

If you do nothing, your current FERS coverage continues. You will remain covered by FERS for

all future Federal service that is not excluded from FERS by law or regulation (generally

temporary appointments that last for less than 1 year). You will not have another opportunity to

choose CSRS Offset coverage.

If you think you’ll need more time to decide let your human resources office know. Your agency

can extend the time limit for making an election under certain circumstances.
A Guide to Choosing Between FERS and CSRS Offset

Introduction

May 2002

4

What Things Do You Need to Make Your Choice?

For many employees, this guide will give you enough information to decide which retirement plan

is best for you. You will need only a pen to fill out the retirement plan election form, Standard

Form 3109.

Both FERS and CSRS Offset employees have Social Security coverage. Knowing how many

Social Security credits you already have will help with your decision. The Social Security

Administration mails annual Social Security Statements to all workers who are ages 25 and older

and not receiving Social Security benefits. Workers automatically receive their statement

about 3 months before their birth month. You also may request a Social Security Statement at

any time. You may use the Social Security Administration’s web site at http://www.ssa.gov to

request a Statement, or you can use form SSA-7004, Social Security Statement request form,

to request the Statement. You can download the form from the Social Security Administration

web site, or you can request it by calling 1-800-SSA-1213.

Some employees want to see some calculations before deciding. Your agency’s human resources

office can help prepare estimates of your future retirement annuity under FERS and CSRS

Offset, as well as TSP benefits. Please remember that any estimate is a projection into the

future that requires making assumptions that may or may not turn out to be accurate, so you

should not base your decision solely on the estimated amount of future benefits. Instead, the

estimates allow you to evaluate the relative benefits of the two retirement systems based on

the data you provide.

Finally, you need some time to read this guide. Choosing your retirement coverage is an

important decision, so set aside some time to read the parts of this guide that are important to

you, and to fill out your retirement plan election form.

Making Your Election

Whether you stay in FERS or switch to CSRS Offset, you should complete the election form

(Standard Form 3109) your human resources representative gave you and return it to your

human resources office. Your election is effective on the date that you were first erroneously

put in FERS. Your election is retroactive, which means it affects service you already

performed.

Your election is irrevocable once it is processed by your human resources office.
A Guide to Choosing Between FERS and CSRS Offset

Introduction

May 2002

5

Your spouse does not need to consent to a decision to change retirement plans. However, if you

were ever divorced or separated, you cannot decide to stay in FERS without your former

spouse’s consent if:

 your former spouse (or current spouse if separated) is entitled, by court order, to

a portion of your annuity or survivor benefits,

 the court order is on file at OPM,

 your former spouse has not remarried before reaching age 55, and

 your former spouse is still living.

Your former spouse must complete SF 3110, Former Spouse’s Consent to FERS Election for you

to be able to stay in FERS. OPM can waive this requirement only in very limited circumstances.

If you don't know whether OPM has a qualifying court order on file, or you want to request a

waiver of the consent requirement, ask your human resources office for Standard Form 3111,

Request for Waiver, Extension, or Search.

Regardless of which retirement plan you choose, you may want to file a new designation of

beneficiary form. Form SF 3102, Designation of Beneficiary, Federal Employees’ Retirement

System, is the form for FERS employees and form SF 2808, Designation of Beneficiary, Civil

Service Retirement System, is the form for CSRS Offset employees. All these forms are

available from OPM’s web site at http://www.opm.gov/fers_election.
A Guide to Choosing Between FERS and CSRS Offset

Civil Service Retirement System (CSRS ) Offset

May 2002

6

Civil Service Retirement System (CSRS) Offset

 Overview

The Civil Service Retirement System (CSRS) has traditionally been a single benefit retirement

plan. Employees have had one payroll deduction for the plan and, after retirement, have

received one payment from CSRS each month for the rest of their lives.

However, since 1984, certain CSRS covered employees also have had Social Security coverage.

These employees have what is known as CSRS Offset coverage. As an Offset employee, you

have payroll deductions for both CSRS coverage and Social Security. If you stay with the

Federal Government until retirement, you will receive payments from both the CSRS and Social

Security.

CSRS Offset employees may also contribute to the TSP to receive additional retirement income.

CSRS Offset employees receive no agency contributions to their Thrift accounts. If you choose

CSRS Offset, you can currently contribute up to 7% of your basic pay each pay period and

receive a tax break today. This percentage will continue rising until it reaches 10% in 2005. In

2006, the percentage limit will be abolished. In no case, however, can you save more than the

Internal Revenue Service annual limit on tax-deferred contributions. For 2002, the limit is

$11,000.

If you are a law enforcement officer, firefighter, air traffic controller, or military reserve

technician, you also need to read the Special Employee Groups section.

 When You Can Receive Retirement Benefits

If You Stay Until Retirement Age

With CSRS Offset, you can retire with full benefits as soon as your age and years of Federal

service match one of the following retirement combinations:

 At least age 55 with 30 years of service or more.

 At least age 60 with 20 years of service or more.

 At least age 62 with 5 years of service or more.

CSRS Offset does not allow you to retire voluntarily before you have the required age and

service combination and take a reduced annuity like FERS and many other modern plans do.
A Guide to Choosing Between FERS and CSRS Offset

Civil Service Retirement System (CSRS ) Offset

May 2002

7

If You Leave Before Retirement Age

The list above shows when you can retire and begin receiving an immediate CSRS Offset annuity.

If you leave Federal service before you are eligible to retire, you must wait until age 62 to receive

a monthly annuity, no matter how many years of service you have.

For example, let's say you simply stop working for the Federal Government at age 53 with 30

years of service. You're not 55 yet, so you don't qualify for retirement. Your monthly checks

from CSRS Offset won't start until you turn 62. Your monthly annuity amount is based on your

pay when you leave. With inflation, those dollars won't buy as much by the time you receive them

at age 62. You can't continue your health or life insurance as a retiree, either.

If you don't want to wait until age 62 to get an annuity, you can withdraw all the money you've

contributed when you leave. However, in most cases, your money will be returned to you without

any interest, and you will not get monthly payments from CSRS Offset, even at age 62.

 How Much You Will Receive After Retirement

The amount of your annuity -- the monthly CSRS Offset payments you receive after retirement --

depends primarily on two things: your pay and your length of service. In computing your annuity,

the Government uses your 3 highest consecutive years of basic pay and your length of service (the

number of years and months you worked for the Federal Government and your creditable military

service). If you retire and receive an annuity right away, you will also get credit for any unused

sick leave.

Here is how the CSRS Offset annuity formula works:

CSRS Offset Annuity Formula

Years of Service What You Receive

For 5 years of service 1.5% of your high-3 average pay for each year,

or 7.50% of your high-3

For another 5 years of service 1.75% of your high-3 average pay for each year,

or 8.75% more for a total of 16.25%

For all years over 10

2% of your high-3 average pay for each year over 10

For example:

 20 years of service would give you an annuity

that is about 36% of your high-3.

 30 years of service would give you an annuity

that is about 56% of your high-3.
A Guide to Choosing Between FERS and CSRS Offset

Civil Service Retirement System (CSRS ) Offset

May 2002

8

The maximum annuity you can receive from CSRS Offset is 80% of your high-3 pay plus credit for

your sick leave. This limit generally affects only those who have more than 42 years of service

when they retire.

You will receive your full monthly annuity even if you have other retirement income or start a

second non-Federal career when you retire. There is no reduction in your annuity because of

other non-Federal employment.

This is a very generous annuity formula compared to those used by many other retirement plans.

As you can see, it rewards long service, because you receive more money for the years of service

that come late in your career. It's not quite as generous if you have less than 10 years of service.

When you retire under CSRS Offset, your annuity is computed under the same rules that apply to

all CSRS employees. However, when you become eligible for Social Security benefits (normally at

age 62), your CSRS Offset annuity is reduced, or offset, by the value of your CSRS Offset

service in your Social Security benefit. If you want to estimate the amount of the offset from

your future annuity, see the section on Social Security for instructions. If you do not become

eligible for Social Security benefits, there is no offset. If you are eligible for Social Security

benefits, the offset applies even if you have not applied for Social Security. Social Security rules

are discussed in detail in the Social Security section of this guide.

 How Your Annuity Can Increase After Retirement

Inflation is a fact of life, but the actual rate of increase varies from year to year. To help your

annuity keep pace with inflation, CSRS Offset gives all those who retire annual cost-of-living

adjustments or COLA's.

Your annuity may increase by a cost-of-living adjustment in the year after you retire, and every

year after that. The increases you receive each year actually match the rate of inflation, as

measured by the Consumer Price Index.

For example, if the increase in the Consumer Price Index is 2%, CSRS Offset retirement checks

will increase by 2%. If the increase in the Consumer Price Index is 5%, the cost-of-living

adjustments will also be 5%.

Cost-of-living adjustments help make sure that your retirement dollars keep the same buying

power year after year. CSRS Offset is better than many other retirement plans because it

provides complete protection against inflation.
A Guide to Choosing Between FERS and CSRS Offset

Civil Service Retirement System (CSRS ) Offset

May 2002

9

 How Much it Costs You to Participate

Your contributions and your agency’s contributions finance your CSRS Offset annuity. Your

contributions are automatically deducted from your pay. In general, your total CSRS Offset

contribution is 7.0% of your basic pay. Of that amount, 0.8% is paid into the Civil Service

Retirement and Disability Fund (the Fund) and 6.2% is for Social Security taxes. You only pay the

CSRS Offset contributions on basic pay. However, you pay Social Security tax on all your

earnings including overtime, bonuses, etc.

Your agency pays an amount equal to 8.51% of your basic pay to the Fund and also matches your

6.2% Social Security deduction.

If your earnings in a year exceed the maximum amount that is subject to Social Security taxes

($84,900 in 2002), the 6.2% Social Security tax stops, but the contribution to the Fund increases

from 0.8% to 7.0% on your earnings for the rest of the year. The Social Security tax will start

again on your earnings for the next year.

Since your CSRS Offset annuity cost more than the amounts you and your agency pay, the U.S.

Treasury pays the balance of the cost.

 Savings Options That Are Available

Thrift Savings Plan for CSRS Offset

CSRS Offset employees may participate in the TSP. The TSP gives you a way to save extra money

for the future and gives you a tax break today. The TSP allows you to contribute up to 7% of

your basic pay per pay period on a before tax basis. Effective in January 2003 and each following

January, you may increase your contribution by 1% each year until January 2006. At that time,

the percentage limit will be eliminated completely. The amount you contribute to TSP will be

limited only by the Internal Revenue Code annual dollar limit, which is $11,000 for 2002. CSRS

Offset employees do not receive Agency Matching or Automatic (1%) Contributions.

The TSP investment options, withdrawal and tax information are the same for both CSRS Offset

and FERS employees. The TSP is discussed in more detail in the explanation of FERS benefits

later in this guide.
A Guide to Choosing Between FERS and CSRS Offset

Civil Service Retirement System (CSRS ) Offset

May 2002

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Voluntary Contributions for CSRS Offset

CSRS Offset employees may make voluntary contributions if they do not owe any deposits or

redeposits for prior civilian service.. Total contributions may not exceed 10% of the total pay an

employee has received to date in his or her Federal career.

At retirement, each $100 in voluntary contributions (including interest earned) will provide an

additional annuity of $7 a year, plus 20 cents for each full year you are over age 55 at the time

you retire. You may also elect a survivor benefit under this annuity. Voluntary contributions paid

out as additional annuity are not increased by cost-of-living adjustments.

You can also get a refund of your voluntary contributions at any time before you retire.

Voluntary contributions earn a variable interest rate determined by the Treasury Department

each calendar year, based on the average yield of new investments purchased by the Fund during

the previous fiscal year. The interest rate payable for 2002 is 5.5%. Interest accrues to the

date of the refund calculation, separation, or transfer to a position not subject to CSRS Offset or

FERS, whichever is earliest.

Employees who choose to stay in FERS may keep a voluntary contributions account they opened

while covered under CSRS, but may not add to it after becoming covered by FERS.

Interest on voluntary contributions is not taxed until the tax year in which it is paid out. At that

time, you may roll interest over to an Individual Retirement Arrangement to further defer taxes.

However, in contrast with TSP contributions, voluntary contributions are not pre-tax dollars that

permit you to reduce your taxable income. For further information on voluntary contributions, ask

your servicing human resources office for the pamphlet RI 83-10, Voluntary Contributions Under

the Civil Service Retirement System, or get it from OPM’s web site at www.opm.gov/benefits.

The U.S. Office of Personnel Management administers the voluntary contributions program. This

program is not part of the TSP.

 Important Conclusions About CSRS Offset

There are some important advantages to CSRS Offset:

 You can retire as early as age 55 with 30 years of service and begin receiving a full annuity.

Even if you start a second career somewhere else, your annuity isn’t affected.
A Guide to Choosing Between FERS and CSRS Offset

Civil Service Retirement System (CSRS ) Offset

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11

 Once you begin receiving monthly payments, you also receive annual cost-of-living

adjustments that match the increases in the Consumer Price Index. So your retirement

dollars keep the same buying power.

 The annuity formula is very generous when compared to many other retirement plans. It

especially rewards employees who spend many years in Federal service.

 If you take an immediate retirement, you get retirement credit for your unused sick leave.

 You have the flexibility of Social Security coverage that continues to build if you leave

Federal Government to work elsewhere.

 You may contribute to the TSP to save for retirement. If you separate before

retirement, you may transfer your TSP account balance to an Individual Retirement

Arrangement or other eligible retirement plan. You may also leave your TSP account

balance in the TSP where it will continue to accumulate earnings based on your

investment decisions.

 You receive the value of the CSRS Offset annuity formula and cost-of-living adjustments,

but pay a small amount for this annuity.

There are also some disadvantages to CSRS Offset that apply if you leave the Federal

Government before you're eligible to retire:

 The earliest you can begin receiving monthly retirement checks is at age 62. While you're

waiting to become eligible for your annuity, the buying power of your retirement dollars

goes down because of inflation. You don't receive cost-of-living adjustments until your

annuity begins. Also, the monthly payments you receive will be smaller than if you had

stayed in Federal service and continued to get pay increases. Your annuity is calculated

according to the pay and service you had when you left Federal service.

 If you die before you become eligible for an annuity, all that will be paid to your spouse (or

other heirs) is a lump sum payment of the money you contributed.

In general, the CSRS Offset is a good retirement plan for employees who know that they will stay

with the Federal Government until they are eligible to retire and who retire young. It is not very

well suited to employees who may not spend their entire careers in Federal service, particularly if

they leave before retirement.
A Guide to Choosing Between FERS and CSRS Offset

Federal Employees Retirement System (FERS )

May 2002

12

Federal Employees Retirement System (FERS)

 Overview

FERS is a retirement plan that provides benefits from three different sources: a Basic Benefit

Plan, Social Security, and the TSP. Two of the three parts of FERS (Social Security and the

TSP) can go with you to your next job if you leave the Federal Government before retirement.

FERS gives you more control over the retirement benefits you receive.

The Basic Benefit and Social Security parts of FERS require you to pay your share each pay

period. Your agency withholds the cost of the Basic Benefit and Social Security from your pay

as payroll deductions. Your agency pays its part too. Then, after you retire, you receive annuity

payments each month for the rest of your life. The TSP part of FERS is an account that your

agency automatically sets up for you. Each pay period your agency deposits into your account an

amount equal to 1% of the basic pay you earn for the pay period. You can also make your own

contributions to your TSP account and your agency will also make a matching contribution.

Although FERS is a single retirement plan, the three benefit sources have different rules. The

Basic Benefit and Social Security portions will be discussed together first. The TSP will be

explained by itself later.

Information about Social Security appears throughout this section on FERS. A brief overview

of the Social Security program prepared by the Social Security Administration is also

presented in this guide.

 When You Can Receive Retirement Benefits

Basic Benefit Plan

If You Stay Until Retirement Age

With FERS, you can retire with a Basic Benefit as soon as you reach the Minimum Retirement

Age (MRA) and have just 10 years of service. The MRA is the first year in which you can

receive an annuity. It varies according to the year you were born. For anyone born before

1948, the MRA is age 55. It increases gradually to age 56 for those born before 1965 and goes

up to 57 for those born in 1970 and after.

The following chart will help you determine what your MRA is:
A Guide to Choosing Between FERS and CSRS Offset

Federal Employees Retirement System (FERS )

May 2002

13

Minimum Retirement Age (MRA)

If you were born Your MRA is age

Before 1948 55

In 1948 55 and 2 months

In 1949 55 and 4 months

In 1950 55 and 6 months

In 1951 55 and 8 months

In 1952 55 and 10 months

In 1953 - 1964 56

In 1965 56 and 2 months

In 1966 56 and 4 months

In 1967 56 and 6 months

In 1968 56 and 8 months

In 1969 56 and 10 months

In 1970 and after 57

Under FERS, you can retire with a full annuity as soon as your age and years of Federal service

match any of the retirement combinations below.

 at least your MRA with 30 years of service or more

 at least age 60 with 20 years of service or more

 at least age 62 with 5 years of civilian service or more.

In addition, FERS allows you to retire voluntarily with a reduced annuity at your MRA with at

least 10 years, but less than 30 years of service. This is known as an MRA+10 immediate

retirement.

These are all immediate annuities that also allow you to keep your Federal Employees Health

Benefits (FEHB) and Federal Employees' Group Life Insurance (FEGLI) coverage as a retiree if

you have been enrolled for enough time (usually the 5 years immediately preceding your

retirement) before you retire.
A Guide to Choosing Between FERS and CSRS Offset

Federal Employees Retirement System (FERS )

May 2002

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Postponing Your Benefits

If you leave Federal employment at:

 Your Minimum Retirement Age with at least 10, but less than 30 years of service or

 Age 60 with at least 10, but less than 20 years of service

you can wait and take a postponed annuity at age 62 with full benefits. You can begin receiving a

reduced annuity any time before age 62. Your monthly annuity will be reduced 5/12 of 1% for

each month (up to 5% per year) you are younger than age 62 when you start receiving the

annuity. For example, if you retire at age 56 with 10 years of service, you are 6 years away

from age 62. Your retirement benefit checks will be reduced by 30% if you start receiving your

annuity right away. In contrast, if you wait until age 58, the reduction in your payments would

be 20%.

Additionally, if you are at your minimum retirement age and have at least 20 years service, you

may postpone your annuity until age 60 and receive full benefits.

If you choose to postpone the starting date of your annuity, your FEHB and FEGLI coverage will

terminate. When you start receiving your annuity, you may reinstate your FEHB and FEGLI

coverage if you met the eligibility requirements to continue coverage into retirement when you

left Federal employment.

If You Leave Before Retirement Age

If you leave Federal service before you are eligible to retire, and you have less than 10 years of

service, you must wait until age 62 to receive a monthly annuity. If you have at least 10 years of

service when you leave, you may begin to receive a monthly annuity as early as your MRA. If you

begin receiving an annuity at your MRA and you have less than 30 years of service, your annuity

will be subject to the reduction described in the “Postponing Your Benefits” section above.

If you do not want to wait until retirement age, you can withdraw all the money you have

contributed toward the FERS Basic Benefit Plan. It will be paid to you with a market rate of

interest; that is, the same rate of interest earned by the U.S. Treasury securities purchased by

the Civil Service Retirement and Disability Fund (the account that contains all employee and

employer contributions to CSRS and FERS). However, you permanently give up your right to a

Basic Benefit based on that service. If you take your money out, you cannot put it back in if you

return to work with the Federal Government later. It is usually better to leave your money in

FERS so that you can receive a monthly annuity when you retire. This is because you pay very

little compared to the benefits you will eventually receive from the Basic Benefit.
A Guide to Choosing Between FERS and CSRS Offset

Federal Employees Retirement System (FERS )

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Social Security

For almost all American workers, Social Security is the basic retirement plan to which other

benefits are added. To qualify for Social Security retirement benefits, you must have paid

Social Security taxes for at least 10 years (or 40 credits or ‘quarters’) over the course of your

lifetime. (This 40-credit rule applies if you were born after 1928. If you were born before

1929, you need fewer credits to qualify.) The Social Security credits you earn as a Federal

employee are added to those you have earned in other employment throughout your career.

You can receive unreduced Social Security benefits if you wait until your full retirement age.

For anyone born before 1938, the full retirement age is 65. It increases gradually to age 66 for

anyone born between 1938 and 1954, and goes up to age 67 for anyone born in 1960 or later.

You can also retire at age 62 and receive reduced benefits. Your monthly Social Security

checks will be reduced about 20% from the full benefit amount you would receive if you waited

until the full retirement age. (This gradually increases to a 30% reduction for those born in

1960 or later.)

Leaving the Federal Government before you retire has no effect on the Social Security benefits

you receive later. All the Social Security credits you earned under FERS-covered employment

still count. You may continue to add more Social Security credits as long as you work under

Social Security. You can still receive reduced Social Security benefits at age 62 or full

benefits at age 65 (or later as the Social Security retirement age goes up to 67).

 How Much You Will Receive After Retirement

Basic Benefit Plan

The amount of your FERS Basic Benefit annuity -- the monthly checks you receive after

retirement – depends primarily on two things: your pay and your length of service.

As in most other retirement plans, an annuity formula is used to determine your benefits. The

Government averages your highest 3 consecutive years of basic pay in your Federal career. This

"high-3" average pay, together with your length of service, is used in the annuity formula. Your

length of service is the total number of years and months you were covered under FERS.
A Guide to Choosing Between FERS and CSRS Offset

Federal Employees Retirement System (FERS )

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Here is the annuity formula:

FERS Annuity Formula

One Percent of your high-3 average pay for every year of service.

(Exception: If you are age 62 or older and have at least 20 years of service when

you retire, you will receive 1.1% of your high-3 pay for every year of service.)

According to this formula, if you retire at age 55 with 30 years of service, you will be eligible

for an annual annuity that is 30% of your high-3 pay. If you retire at age 62 with 30 years of

service, you would get 33% of your high-3 pay.

In addition, if you have at least one calendar year (January 1 to December 31) of service

creditable under FERS, you may be eligible for the Special Retirement Supplement. The Special

Retirement Supplement is also known as the FERS Annuity Supplement. You may receive the

Supplement if you retire:

 After 30 years of service at your MRA,

 After 20 years of service at age 60, or

 Under the discontinued service or early voluntary retirement provisions. (You do not

begin to receive the Special Retirement Supplement until you reach your MRA.)

The Supplement represents the amount you would receive from the Social Security

Administration for your FERS service as if you were 62 on the day you retire. This annuity

substitutes for the Social Security part of your total FERS benefit until age 62, when most

people become eligible for Social Security. Like Social Security benefits, the Supplement is

subject to an earnings test, which means your benefits are reduced if your income from

earnings or self-employment is higher than an allowable amount.

If you take advantage of the FERS MRA+10 retirement option (retiring at your MRA after

leaving the Government with at least 10 years of service), your annuity will be calculated

according to the FERS annuity formula shown at the beginning of this Guide. Then, if you have

less than 30 years of service, it will be reduced 5% for each year you are younger than age 62

when you retire or elect to receive an annuity. If you are 60 with 20 years of service, there is

no reduction.

Remember, the Basic Benefit is just one of the three sources of benefits you will receive. You

may also get Social Security and TSP benefits.
A Guide to Choosing Between FERS and CSRS Offset

Federal Employees Retirement System (FERS )

May 2002

17

Social Security

It is difficult to predict exactly how much you will receive from Social Security.

A number of factors can affect your Social Security benefits, such as your complete salary

history, whether or not you plan to work after retirement, and whether your spouse has been

covered by Social Security.

Social Security benefits are determined by a three-part formula that is applied to your lifetime

earnings under Social Security. Those who postpone receiving Social Security benefits until the

full retirement age get a benefit that is not reduced for early retirement.

Your Social Security benefits could be reduced by the Windfall Elimination Provision or the

Government Pension Offset. These 2 reductions are discussed in greater detail in the Social

Security section of this guide.

If you start receiving Social Security benefits before the full retirement age, you should be

aware that continuing to work might result in what is called an earnings offset under the Social

Security Earnings Test. If you work at any job after you start receiving Social Security

payments, your benefits will be reduced if you earn over the allowable amount. The same rules

apply to the Special Retirement Supplement.

 How Your Annuity Can Increase After Retirement

Basic Benefit Plan

Cost-of-Living Adjustments, or COLA's Under the FERS Basic Benefit Plan Begin When You

Reach Age 62.

FERS cost-of-living adjustments match the rate of inflation when the increase in the Consumer

Price Index (CPI) is 2% or less. (The CPI is a monthly survey that measures changes in consumer

prices.) If the increase in the CPI is between 2 and 3%, the cost-of-living adjustments will be

2%. If the CPI increases 3% or more, the cost-of-living adjustments will be the rate of

increase in the CPI minus 1%. This means that FERS cost-of-living adjustments are sometimes

less than the rate of inflation.

For example, if the increase in the CPI is 2%, FERS Basic Benefit payments will increase by 2%.

If the increase in the CPI is 5%, your FERS retirement annuity will increase by 4%.
A Guide to Choosing Between FERS and CSRS Offset

Federal Employees Retirement System (FERS )

May 2002

18

The Special Retirement Supplement paid to age 62 is not increased by cost-of-living

adjustments.

Social Security

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

How Much It Costs You to Participate

Basic Benefit Plan

FERS Basic Benefits, including the Special Retirement Supplement, are financed by very small

contributions from you and much larger contributions from your agency. Your contributions are

automatically deducted from your paychecks. The Basic Benefit deduction for most employees

is 0.8% of the total basic pay (basic pay does not include overtime, bonuses, etc.) earned in a pay

period. However, in contrast, your agency pays 10.7% of your basic pay for your Basic Benefit.

Social Security

Your contributions to Social Security are actually a tax. This means that there are no refunds -

- even if you never gain enough years of Social Security credit to qualify for benefits.

Social Security taxes are a percentage of your pay, including overtime and bonuses. They are

limited to earnings below the maximum taxable wage base, which in 2002 is $84,900. This

amount increases each year based on the annual average increase in earnings of the American

work force as a whole. (You do not pay Social Security taxes on any earnings above the

maximum taxable wage base. However, these excess earnings are not used in calculating your

Social Security benefits, either.) The Social Security tax rate, not counting Medicare, in 2002

is 6.2% of salary up to the maximum taxable wage base. Your agency also pays the same amount.

Total Cost to Participate

As a general rule, the total cost to you of the FERS Basic Benefit contribution and Social Security

is currently 7.0% of your basic pay. This 7.0% is made up of 0.8% of pay for the Basic Benefit

and 6.2% for Social Security. However, FERS will cost you less than 7.0% if you earn more than

the maximum taxable wage base because the Social Security tax stops when your earnings reach
A Guide to Choosing Between FERS and CSRS Offset

Federal Employees Retirement System (FERS )

May 2002

19

this amount. You will then pay only 0.8% of basic pay for the Basic Benefit on your earnings for

the rest of the year. You will start paying Social Security tax again on earnings for the next year.

 Savings Options that Are Available

Thrift Savings Plan for FERS

The TSP is an important part of the total FERS retirement package. It gives you a way to save

extra money for the future and to get a tax break today.

When you join FERS, your agency sets up a TSP account in your name. Every pay period, your

agency automatically puts in an amount equal to 1% of your basic pay. This money is called your

Agency Automatic (1%) Contribution. It is not a deduction from your basic pay. It is an amount

your agency contributes for you based on your basic pay per pay period.

In addition, you can contribute up to 12% of your basic pay per pay period to your TSP account.

This percentage will continue rising until it reaches 15% in 2005. In 2006, the percentage limit

will be abolished. In no case, however, can you save more than the Internal Revenue Service

annual limit on tax-deferred contributions. For 2002, the limit is $11,000, This limit is indexed

to cost-of-living adjustments referred to in the Tax Code and may change from year to year.

If you contribute to your TSP account, you will also receive Agency Matching Contributions as

follows:

 The first 3% you save each pay period will be matched dollar for dollar, and

 The next 2% you save each pay period will be matched 50 cents on the dollar.

Your own contributions and your Agency Matching Contributions as well as the earnings on these

contributions belong to you right away. There is no waiting (vesting) period. You are vested in

the Agency Automatic (1%) Contributions and attributable earnings after you have completed 3

years of Federal (generally, civilian) service (2 years for some noncareer participants). The

following chart shows how your agency matches your contributions:
A Guide to Choosing Between FERS and CSRS Offset

Federal Employees Retirement System (FERS )

May 2002

20

Percent of Basic Pay Contributed to Your

Account (FERS Participants Only)

If You Put In Then Your

Agency Puts In

And the Total

Contribution is

0% 1% 1%

1% 2% 3%

2% 3% 5%

3% 4% 7%

4% 4.5% 8.5%

5% 5% 10%

6-12% 5%

5% plus the

percentage you

contribute

You can invest the money in your TSP account in any of the five investment funds: the

Government Securities Investment (G) Fund, the Common Stock Index Investment (C) Fund, the

Fixed Income Investment (F) Fund, the Small Capitalization Index Investment (S) Fund, and the

International Stock Index Investment (I) Fund. The C, F, S and I Funds are riskier than the G

Fund but have the potential for earning higher rates of return. For example, during the 10-year

period 1990 through 1999, the C Fund's compound annual rate of return was 18.2%.

Twice each year there is a TSP open season. During the open season, you can start, stop, increase

or decrease your TSP contributions. You can change the investment of your TSP contributions at

any time. You may move any portion of your existing account balance among the five funds by

requesting an interfund transfer in any month you choose, without an annual limit.

You can stop contributing to the TSP at any time. However, if you stop contributing outside an

open season, you must wait until the second open season after you stop before you can contribute

again. If you stop contributing during an open season, you may resume contributions during the

next open season.

You get a tax break for saving in the TSP because your TSP contribution comes out of your basic

pay before Federal and many State and local income taxes are figured. You will not owe taxes on

your contributions and attributable earnings until you withdraw your TSP account. You can

withdraw your account when you separate or retire from Federal service. If you transfer all or

any portion of your TSP account balance to an Individual Retirement Arrangement or other

eligible retirement plan, you do not pay taxes on the funds transferred when they are
A Guide to Choosing Between FERS and CSRS Offset

Federal Employees Retirement System (FERS )

May 2002

21

transferred. You will, however, be subject to applicable taxes when you withdraw your funds from

the Individual Retirement Arrangement or other eligible retirement plan.

You may withdraw money from your Thrift account while you are working for the Government if

you are age 59 1/2 or older or document financial hardship. You are limited to one withdrawal as

an employee at age 59 1/2 or older during your lifetime. You will be liable for taxes on the

amount withdrawn. In addition, if you are under age 59 1/2, when you make a withdrawal for

financial hardship, you will owe a 10% early withdrawal penalty.

When you retire, you will be eligible to withdraw your TSP account. You may receive your entire

account as a single payment, receive your account in a series of monthly payments, or have the

TSP purchase an annuity for you. If you elect a single payment or certain monthly payments, you

may have TSP transfer all or any portion of the payment(s) to an Individual Retirement

Arrangement (IRA) or other eligible retirement plan.

TSP payments are taxable as ordinary income for Federal income tax purposes for the year in

which they are disbursed. In addition, if you retire before the year in which you reach age 55 and

receive a direct single payment or monthly payments determined by dollar amount or number of

months before you reach age 59-1/2, the payment(s) will be subject to the Internal Revenue

Service 10% early withdrawal penalty tax. If you transfer all or any portion of the payment(s) to

an IRA or other eligible retirement plan, the amount transferred is not taxable income when it is

transferred (it becomes taxable income when it is disbursed from the plan to which it was

transferred) and, consequently, is not subject to early withdrawal penalty tax. If you receive a

TSP annuity, or monthly payments computed by your life expectancy, the payments are not

subject to the early withdrawal penalty.

You can borrow from your account. There are two types of TSP loans: general purpose and

residential. You must have at least $1,000 of your own contributions and associated earnings to

be eligible for a loan.

The Federal Retirement Thrift Investment Board, an independent Government agency, manages

the TSP. The Board manages the G Fund and contracts with a professional asset manager to

manage the C, F, S, and I Funds.

This guide describes the elements of the TSP that are most important in making a decision

about FERS or CSRS Offset. To find out more about the TSP, ask your employing agency for

the most recent booklet prepared and issued by the Board. You should read the Board's

detailed information on each Investment Fund and review each Fund's performance before

making any investment decision. The Board also issues a Fact Sheet each month containing the

monthly returns for the Thrift funds. This is available from your agency. TSP publications,

forms, and rates of return are also available from the TSP web site www.tsp.gov.
A Guide to Choosing Between FERS and CSRS Offset

Federal Employees Retirement System (FERS )

May 2002

22

Special Considerations about TSP

As a FERS employee, you may be contributing up to 12 percent of salary to your TSP account.

You may also have already begun to receive Agency Automatic (1%) and Government Matching

contributions.

If you decide CSRS Offset is best for you, you are not entitled to the agency contributions

made to your TSP account and attributable earnings. They will be removed from you account.

Also, you will not be permitted to contribute beyond the maximum contribution rate for CSRS

Offset employees. Any contributions you may have already made in excess of the CSRS Offset

limit, and the attributable earnings, may remain in your TSP account.

If you decide to stay in FERS, then your agency may owe you additional Agency Automatic (1%)

contributions. You may also have an opportunity to make-up missed TSP contributions. This is

because when you choose to be covered by FERS, you immediately become eligible to contribute

to the TSP and receive Government contributions. Your agency should have allowed you to

immediately begin contributing rather than serving a waiting period of up to 1 year.

 Some Important Conclusions About FERS

FERS is flexible for a work force that is more likely to work for several different employers

over the course of a career. It allows for the fact that many employees may not retire from

the Federal government. FERS builds on the Social Security credits that employees already

have or may earn in the future from non-Federal work. Also, the TSP keeps its value after an

employee leaves Federal service.

There are some important advantages to FERS

 FERS allows you to take most of your retirement benefits with you when you leave

Federal service and add to them in your future jobs. You will probably earn more Social

Security credits wherever you work next. Also, you may transfer your TSP account

balance to an Individual Retirement Arrangement or other eligible retirement plan. You

may also leave your TSP account balance in the TSP where it will continue to accumulate

earnings based on your investment decisions. The part of FERS that does decrease in

value, the Basic Benefit, only requires a small contribution from you. If you withdraw

your Basic Benefit contributions, you receive interest on that money.

 You have more control over the amount of your retirement benefits. For example, you

decide how much to contribute to the TSP and where the money is invested. If you
A Guide to Choosing Between FERS and CSRS Offset

Federal Employees Retirement System (FERS )

May 2002

23

contribute, your agency pays matching contributions on your contributions up to 5% of

your basic pay.

 Minimum Service Requirement - You can receive a reduced annuity after only 10 years of

service once you reach your Minimum Retirement Age, whether or not you reach that age

while a Government employee. You do not have to wait until age 62.

 Early Annuity Eligibility - If you leave the Federal Government before you are old enough

to retire, but with at least 30 years of service, FERS lets you begin to receive a full

annuity as soon as you reach the Minimum Retirement Age. If you leave with at least 20

years of service, you may begin to receive a full annuity at age 60. You do not have to

wait until age 62.

FERS has some disadvantages too

 To get the most out of FERS, you have to pay more than the 7.0% that the Basic Benefit

and Social Security require. You need to take advantage of the TSP, especially if you are

an upper income employee, for whom Social Security will make up a smaller percentage of

retirement income.

 If you continue to work after you start receiving the FERS Retirement Supplement or

Social Security, you could lose some benefit dollars if your earnings are more than the

allowed amount.

 The cost-of-living adjustment that FERS provides (CPI minus 1%) does not completely

make up for inflation if the increase in the Consumer Price Index is more than 2%. Also,

cost-of-living adjustments do not start until you are age 62, even if you retire sooner.

FERS is a good retirement plan, especially for employees who are not sure whether they will

stay with the Federal Government until they retire. FERS gives you more control over the

amount of your retirement benefits. It also allows you more flexibility in deciding when to

retire.
A Guide to Choosing Between FERS and CSRS Offset

Special Rules for Employees Who Choose FERS

May 2002

24

Special Rules for Employees who choose FERS

 Overview

For most people, choosing to stay in FERS means you may take advantage of the features of both

CSRS Offset and FERS. You keep most of the annuity you have already earned and build on it. All

of your prior CSRS or CSRS Offset service is creditable toward eligibility for death and disability

benefits, as well as retirement, so you and your family do not risk any gaps in protection if you

choose FERS.

However, if you have very many years of CSRS Offset coverage, you need to think carefully about

staying in FERS. This is because all of your Offset service will be credited under the less

generous FERS annuity formula. In addition, if you have less than 5 years of creditable civilian

non-Offset CSRS service, all of your CSRS service will be switched over to FERS. These rules

are explained in more detail in the following section.

 How CSRS Offset Service Is Credited

If you have service that was covered by CSRS Offset provisions and you choose FERS, your

Offset service becomes subject to the less generous FERS annuity formula. You will not be able

to make-up TSP contributions at the FERS level to cover the CSRS Offset service period. Also,

you will not get TSP Government contributions for the period you were covered under CSRS

Offset.

You must have at least 5 years of non-Offset civilian service to be eligible for an annuity with a

part (component) computed under CSRS rules – in other words you must have at least 5 years of

civilian service other than your Offset service. (Count all civilian service, even if you didn't pay

CSRS deductions or you received a refund. Do not count any military service.)

If you have less than 5 years of civilian service other than CSRS Offset at the time you became

covered by FERS, all of that CSRS service will become FERS service if you decide to stay in FERS.

You can request a refund of the extra money you paid for CSRS and receive it plus interest.

Employees whose CSRS service will become FERS service may also receive a partial refund of any

military deposits they may have paid under CSRS rules.

WARNING: Since all Offset service becomes subject to FERS when an employee chooses FERS, it

is particularly important that employees with past service that was CSRS Offset give careful

consideration to their first opportunity to elect FERS. Even though your employment history may

result in your having another opportunity to elect FERS at a later date, the more Offset service
A Guide to Choosing Between FERS and CSRS Offset

Special Rules for Employees Who Choose FERS

May 2002

25

you have, the more you can lose if you wait to transfer to FERS. You may not make TSP

contributions or get a Government TSP match on CSRS Offset service that is credited under

FERS rules.

 When You Can Receive Retirement Benefits

If you stay in FERS, your past CSRS service and all FERS Service will be added together to

determine when you can retire. Instead of the CSRS retirement rules, you will follow the more

flexible FERS rules.

FERS rules will also apply if you leave the Federal Government before you have the right

combination of age and service to retire. You'll keep your service credit and, once you reach the

necessary age, can start receiving an annuity. This is an important advantage to transferring to

FERS. If you choose CSRS Offset and leave before retirement, you will not receive any benefits

until age 62.

 How Much You Will Receive After Retirement

If you had at least 5 years of non-Offset civilian service, the annuity you actually receive normally

will come from both CSRS and FERS. The higher CSRS annuity formula will be used for the years

of non-Offset service you put in under CSRS if you had at least 5 years of non-Offset civilian

service. If you do, and you retire on an immediate annuity, you can also get credit for your unused

sick leave. The amount of the sick leave that can be credited in your annuity equals the amount of

sick leave you had when you were erroneously put in FERS or the amount you have when you retire,

whichever is less.

The lower FERS Basic Benefit formula will apply only to the years you spent under FERS and CSRS

Offset if you had at least 5 years of non-Offset civilian service, so you're probably not giving up

all the CSRS annuity you've already earned. By staying in FERS, you are trading a higher CSRS

annuity for increased flexibility.

In addition, if you retire with an immediate, unreduced annuity, you will receive the Special

Annuity Supplement until the end of the month before you are eligible to receive Social Security

benefits, or when you reach age 62, whichever is earlier. All your years of CSRS Offset and

FERS coverage are used to determine your eligibility for and to compute this supplement.

The high-3 pay that determines your annuity at retirement will be the average of the 3 highest,

consecutive years of earnings in your entire Federal career, under CSRS or FERS. Your Social

Security benefits will be based on all of the Social Security credits you've earned in your lifetime.
A Guide to Choosing Between FERS and CSRS Offset

Special Rules for Employees Who Choose FERS

May 2002

26

 How Your Annuity Can Increase After Retirement

If you had at least 5 years of non-Offset civilian service, once you start receiving an annuity, the

CSRS part of your annuity will receive cost-of-living adjustments (COLA's) right away, even if you

are receiving your CSRS annuity before you could have under CSRS rules. The FERS part of the

annuity won't be eligible for a COLA until you reach age 62. Remember that the FERS part of

your annuity will include your CSRS Offset service. The FERS COLA usually is 1% less than the

rate of inflation.

 Important Conclusions

If you have many years of CSRS Offset coverage, you need to think carefully about staying in

FERS. This is because all of your Offset service will be credited under the less generous FERS

annuity formula. In addition, if you have less than 5 years of creditable civilian non-Offset CSRS

service, all of your CSRS service will be switched over to FERS. You may not make TSP

contributions or get a Government TSP match on CSRS service that is credited under FERS rules.
A Guide to Choosing Between FERS and CSRS Offset

Making your Decision

May 2002

27

Making Your Decision

This decision about your retirement plan normally comes when you wouldn't otherwise have

thought about all of this. You may be uncomfortable trying to consider a lot of details about a

retirement plan now, especially if retirement seems far away.

Rather than sorting through every detail of how the two plans are structured, perhaps it would be

easier to think about your future career plans. Consider whether or not you think you'll stay with

the Federal Government for the rest of your career, and, if you are married, your spouse's career

plans.

This section will help you consider some important factors about yourself and your work history

that may make either FERS or CSRS Offset clearly a better choice for you.

 Which plan is better?

CSRS Offset Is Probably Better For You If:

 You have a substantial number of years of CSRS Offset coverage. You probably don’t want

these years of service treated under FERS rules at 1% of your high-3 instead of 2% under

CSRS Offset. You also would not be able to make a TSP contribution or get a Government

TSP contribution for your CSRS Offset service.

 You expect to retire from the Federal Government at age 55 with 30 years of service.

The CSRS Offset retirement annuity, with its generous annuity formula and full COLA, is

generally better than the FERS retirement annuity under these circumstances.

 If you are concerned about the survivor benefits that your retirement plan will provide,

you may want to stay with CSRS Offset. The FERS survivor benefit rules apply to all the

benefit -- even the CSRS part if you decide to stay in FERS. This formula is less generous

than the one used under CSRS Offset.

 You aren’t able to contribute very much money to the TSP. Only with TSP participation are

FERS benefits comparable to the benefits you would receive under CSRS Offset.
A Guide to Choosing Between FERS and CSRS Offset

Making your Decision

May 2002

28

FERS Is Probably Better For You If:

 You are uncertain whether you will stay with the Federal Government until you are eligible

to retire. FERS gives you options for receiving a deferred annuity as early as your

Minimum Retirement Age (MRA) with as little as 10 years of service. CSRS Offset doesn’t

pay a deferred annuity until age 62.

 One advantage of coverage under FERS is the Government contribution to the TSP. FERS

employees are vested in their own contributions and the Government matching

contributions (plus all earnings) immediately. They are also vested in the Government

automatic contributions (plus all earnings) if they have at least 3 years civilian service. The

TSP account of a FERS employee will always be greater than that of a CSRS Offset

employee contributing an equal amount.

 You want to retire before age 60, but you won't have 30 years of service. FERS is more

flexible than CSRS Offset. It allows you to take a reduced annuity as early as your MRA

with as few as 10 years of service and there's no minimum period of FERS service

required. If you decide to stay in FERS, you can take advantage of this flexibility and

begin to receive your retirement annuity, including the CSRS annuity that was transferred

to FERS (if you had at least 5 years of non-Offset civilian service), earlier than you can

under CSRS Offset. Your entire annuity, including the part earned under CSRS, will be

reduced at the rate of 5% a year for each year you elect to receive an annuity before age

62. Exception: If you have at least 20 years creditable service and are 60 years old or

wait to receive your annuity until age 60, there is no reduction.

 You will have 30 years of service before your MRA and you want to leave Federal service

early. FERS gives you the flexibility to leave then. Later, at your MRA, you can start

getting an annuity. With 30 years of service, there is no age reduction. You won’t get

COLA’s on the part of your annuity that is based on FERS and Offset service until age 62,

but you will get COLA’s right away on the part that is based on CSRS-only service.

 You plan to work to a fairly late retirement age. FERS can provide more valuable benefits

to those who plan to work until later ages, that is, age 65 or beyond. You will continue to

receive Government contributions to your TSP account and until you withdraw it, earnings

will continue to compound. In addition, you continue adding to your Basic Benefit. Under

CSRS Offset, your annuity is limited to 80% of your high-3 (about 42 years of service).

FERS does not have this cap.
A Guide to Choosing Between FERS and CSRS Offset

Making your Decision

May 2002

29

 The Trade-offs

With CSRS Offset, you have a plan that offers superior retirement benefits, if you're able to

take advantage of them. With FERS, you get more flexibility and portability, but you may have to

give up a little in the way of benefits, or pay more in contributions while you're working, if you

want to reach the same benefit level.

The TSP under FERS is very attractive if you're in mid-career and can contribute to your TSP

account. If you can contribute at least 5% of your basic pay each pay period, the Agency

Matching Contributions and the Agency Automatic (1%) Contributions you receive will add an

amount equal to another 5% of your basic pay to your account for that pay period. This, coupled

with the effect of compounding, may provide a significant source of retirement income. In fact,

this kind of TSP account balance, when added to your FERS Basic Benefit and Social Security

payments, can easily produce a FERS benefit that exceeds the CSRS Offset benefit.

If you stay in FERS and can contribute to your TSP account, you will gain the portability of the

increased TSP portion of FERS. And you will gain the flexibility to choose to receive benefits

earlier with fewer years of service.

Staying in FERS involves some trade-offs. For the advantages of greater flexibility and equal or

better benefits, you have to make greater contributions. In fact, you may need to contribute

more of your pay each pay period to the TSP than you would under CSRS Offset because some

FERS employees (especially those with higher incomes) must contribute more in order to receive

equivalent retirement benefits to those received by CSRS Offset employees.

Under CSRS Offset coverage, you have the benefits of the good CSRS annuity formula and costof-living adjustments, as well as the advantage of Social Security coverage. However, there is an

offset of your CSRS Offset annuity at 62 by the amount of Social Security attributed to your

CSRS Offset service. This offset will apply if you’re eligible for Social Security even if you

decide to postpone receiving Social Security until a later date.

CSRS Offset is an excellent package if you plan to retire from the Federal Government on an

immediate annuity. However, if you do not expect to retire from the Government, the more

flexible FERS rules about when you can receive your annuity may be better for you. In addition,

you can take advantage of the TSP Government match and Agency 1% Automatic Contribution and

the ability to contribute more to your account.
A Guide to Choosing Between FERS and CSRS Offset

Making your Decision

May 2002

30

 Some Important Cautions

There are some factors that can make FERS clearly a better choice for you. There are other

factors that can mean switching to FERS is not the best thing for you to do. Although you can't

predict the future, use what you know now to make the best decision you can. This section

contains some information you should consider before you make your final decision.

If You Are Unable to Meet Social Security Eligibility Requirements

In general, choosing to stay in FERS can be a mistake if you are not able to earn the 10 years or

40 credits of Social Security coverage that will allow you to receive a Social Security benefit.

You will make a mistake by not thinking ahead about how much longer you want to work when you

choose FERS. You cannot receive a Social Security benefit unless you've earned the required

years of coverage. In most cases, 10 years are required. So you will have lost one of the three

parts of your FERS benefit. Also, if you do not qualify for a benefit, the percentage of salary

that you pay in for Social Security taxes is simply lost.

CSRS Offset normally is a better choice if you will not be able to earn enough years of Social

Security coverage to qualify for that portion of your FERS benefit. A CSRS Offset retiree also

is not eligible for Social Security benefits unless he or she has sufficient credits. However,

under CSRS Offset, you have the advantage of the more generous basic annuity. There is no

offset to that annuity if you are not eligible for Social Security benefits.

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

The TSP portion of FERS can provide a valuable benefit if you're able to contribute to it. If

you're not, choosing FERS can be a mistake.

If you are not able to begin contributing to your TSP account soon after you become covered by

FERS, your benefit will probably be significantly less than the benefit you could have received by

retiring under CSRS Offset. Also, if you have already been in FERS for a number of years and

have not contributed to the TSP, a FERS benefit will probably be less than the benefit you could

receive by retiring under CSRS Offset. If you are concerned about whether you can participate

adequately in the TSP, you may want to review your financial situation carefully to see what level

of savings you can expect to be able to make.
A Guide to Choosing Between FERS and CSRS Offset

Making your Decision

May 2002

31

If You Should Die Soon After Choosing

It is not likely you will base your choice of retirement plan on the possibility that you may die soon

after choosing. However, if you are married, you should be aware that you must have 10 years of

creditable Federal service before your spouse can receive a survivor annuity under FERS. All your

creditable civilian service counts toward meeting the 10-year requirement regardless of the

retirement coverage, i.e., CSRS, CSRS Offset, FERS.

You must have also earned the minimum number of Social Security credits required before your

survivors can receive Social Security benefits if you die. The number of credits required depends

on when you were born and how old you are when you die. The least number of credits required is

6 credits or 18 months.

Whether you are under CSRS Offset or FERS, all TSP contributions, including any Agency

Automatic (1%) and Matching Contributions, will be paid to your beneficiary (or beneficiaries).

Survivor benefits are discussed further in the Survivor Benefits section.
A Guide to Choosing Between FERS and CSRS Offset

Disability Benefits Under CSRS Offset and FERS

May 2002

32

Disability Benefits Under CSRS Offset and FERS

 Introduction

CSRS Offset and FERS both provide disability benefits. The benefits offered by the two plans

are alike in some ways and different in others. Depending on your personal situation, the benefits

offered by one plan or the other may be better for you.

Unless you have a serious chronic illness or a life-threatening medical condition, you will probably

base your choice between FERS and CSRS Offset more on what you want your retirement benefit

to be than on the disability benefits offered. You should be aware of the differences between

the plans, though, in case one or the other clearly meets your needs better. Note that, if you

stay in FERS, all of your disability benefits will be paid according to FERS rules.

This section explains the key features of the disability benefits of both plans. It also points out

some areas to think about in deciding which plan is better for you.

 Eligibility

CSRS Offset requires you to have at least 5 years of creditable civilian service before you can

qualify for a disability annuity. FERS requires 18 months of creditable civilian service.

If you apply for a disability annuity under CSRS Offset or FERS, you must also apply for Social

Security disability benefits or show that you are not eligible for them.

There are separate eligibility requirements that you must meet in order to qualify for a Social

Security disability benefit. You must meet Social Security eligibility requirements and have

earned a specified number of Social Security credits before becoming disabled.
A Guide to Choosing Between FERS and CSRS Offset

Disability Benefits Under CSRS Offset and FERS

May 2002

33

 Definition of Disability

CSRS Offset and FERS both use the same definition of disability. To be declared disabled under

either plan, you must

1) be unable to do your job, and

2) not turn down a suitable vacancy. A suitable vacancy is one that is

 in your agency,

 in your commuting area, and

 at the same grade or pay level as your current position.

The Social Security Administration uses a definition to determine your eligibility for Social

Security disability payments that is stricter than under CSRS Offset and FERS. It requires you

to be unable to perform any job, rather than just your current job. So even if you have the

required number of Social Security credits, you may qualify for FERS or CSRS Offset disability

payments, but not qualify for Social Security disability payments. However, if your medical

condition is progressive, you may qualify for Social Security benefits at a later date if your

condition gets worse.

 How Much a Disability Annuity Will Be

CSRS Offset

Under CSRS Offset, your disability annuity will generally be equal to what your annuity would have

been if you had worked until age 60, or 40 percent of your high-3 average salary, whichever is

less. If you have more than 22 years of service when you become disabled, you will receive the

annuity you have earned because it will be more than 40% of pay.

If you qualify for Social Security benefits, OPM must reduce your annuity by the value of your

Offset service in your Social Security benefit.

Cost-of-living adjustments (COLA’s) will be added annually at the full rate of inflation.

RI 83-4, Retirement Facts 4, Disability Retirement Under the Civil Service Retirement System

describes how disability annuities are computed. RI 83-19, Retirement Facts 13, CSRS Offset

Retirement explains the offset (reduction) to your CSRS Offset annuity if you qualify for Social

Security benefits. Both pamphlets are available from your human resources office and on our

www.opm.gov/benefits/ web site.
A Guide to Choosing Between FERS and CSRS Offset

Disability Benefits Under CSRS Offset and FERS

May 2002

34

FERS

FERS uses a different annuity formula that also takes into account any Social Security disability

benefits you may be eligible for.

During your first year of disability, FERS will pay you 60% of your high-3 average salary minus

100% of any Social Security benefit you qualify for. No COLA’s will be paid during this year.

(NOTE: Social Security disability payments and the reduction in your FERS annuity will not begin

until 5 months after you qualify for Social Security disability benefits. You will receive a full

FERS annuity during this period.) If the annuity you earned based on your years of service and

high-3 average salary produces a higher annuity, you receive your earned annuity.

During your second and any future years until age 62, your basic FERS annuity will amount to 40%

of your high-3 salary increased by FERS COLA’s. If you are entitled to Social Security disability

benefits, your FERS annuity will be reduced by 60% of your Social Security benefit. If the

annuity you earned based on your years of service and high-3 average salary produces a higher

annuity, you receive your earned annuity.

COLA’s match the inflation rate if it is 2% or less. If the inflation rate is more than 3%, the

COLA will be 1% less than the inflation rate.

The total FERS and Social Security benefits you receive will be equal to at least 40% of your

high-3 salary plus 40% of your Social Security disability benefits.

Your basic FERS disability annuity will be recomputed at age 62. At that time, you will receive

your accrued FERS retirement annuity. Your accrued FERS annuity will be based on years of

service that include the time you were receiving a disability annuity. Also, the average salary used

will be based on your average salary at the time you became disabled, increased by all COLA’s

under FERS during that period.

CSRS Offset and FERS

Under the Social Security law, the Social Security Administration must reduce your Social

Security disability benefit if the combined amount of your Social Security payment and/or public

disability benefit is more than 80% of what is called your "average current earnings." Public

disability benefits are from employment not subject to Social Security taxes, such as CSRS.

Since FERS and CSRS Offset include Social Security, this type of reduction is less likely when

you are covered under these retirement programs.
A Guide to Choosing Between FERS and CSRS Offset

Disability Benefits Under CSRS Offset and FERS

May 2002

35

If you retire under either a CSRS Offset or FERS disability retirement, you have the same

options to withdraw your TSP account as you would have under regular retirement.

 Continuing Eligibility for Disability Payments

Under both CSRS Offset and FERS, if you retire on disability and then decide to work again, your

disability annuity may be affected. If your total income from work is more than 80% of the

current salary of the position you retired from, your disability annuity will end. It may also end if

you go back to work for the Federal Government.

Also, at times you may be required to prove that you still meet the CSRS Offset and FERS

definition of disability.

 Conclusion

In general, the combined FERS and Social Security disability benefit (if you qualify for the Social

Security benefit) will be larger than the CSRS Offset annuity. However, it is more difficult to

qualify for the Social Security disability benefit, and you must be covered for the number of

years required by Social Security. Depending on how recently you have worked under Social

Security, you may have to work under CSRS Offset or FERS for as much as 5 years before you

have Social Security disability protection. See the Social Security Program section for more

information.

Note also that, when OPM recomputes your FERS annuity at age 62, you may stand to lose a

significant portion of your annuity. Remember that if you decide to stay in FERS, any prior CSRS

Offset service becomes FERS service.

If disability benefits are a serious concern for you, you should ask your agency to do estimates of

benefits under both CSRS Offset and FERS before you make a retirement coverage decision.
A Guide to Choosing Between FERS and CSRS Offset

Survivor Benefits Under CSRS Offset and FERS

May 2002

36

Survivor Benefits Under CSRS Offset and FERS

 Introduction

CSRS Offset and FERS both provide survivor benefits, but the benefits offered by the two plans

differ greatly. Depending on your personal situation, the benefits offered by one plan may be

better for you than the other plan's benefits.

 Recipients of Survivor Benefits

Current and former spouses and children can receive CSRS Offset, FERS, and Social Security

survivor benefits under various conditions. Dependent elderly parents can also receive Social

Security benefits. Surviving spouses must meet certain age and length of marriage requirements

in order to qualify for benefits. You can also elect an annuity for a spouse you marry after

retirement under both FERS and CSRS Offset. The rules for who is eligible for spousal benefits

are the same for FERS Basic Benefits and CSRS Offset. Under both CSRS Offset and FERS,

children’s annuities are payable to each unmarried child:

 up to age 18;

 up to age 22 if a full-time student; and

 at any age if the child became disabled before age 18.

Also, under both CSRS Offset and FERS, your TSP account will be paid to your designated

survivor. If you want more information about CSRS Offset and FERS survivor benefits (including

court ordered benefits for a former spouse), several pamphlets on OPM’s web site have more

information. Go to www.opm.gov/benefits.

 If You Die as an Employee

CSRS Offset

CSRS Offset will pay an annuity to the eligible survivors of an employee who had at least 18

months of creditable civilian service.

Under CSRS Offset, if you die while you are a Federal employee, your eligible spouse will receive

55% of your accrued annuity. If a larger annuity would result, your spouse would receive the

smaller of the following computations:
A Guide to Choosing Between FERS and CSRS Offset

Survivor Benefits Under CSRS Offset and FERS

May 2002

37

 55% of 40% of your high-3 annual salary, or

 55% of what your annuity would have been if you had worked until age 60.

Your eligible children will receive an annuity that is based on how many children you have and

whether or not your spouse is still living. This is true under CSRS Offset whether you die as an

employee or retiree.

OPM must reduce the CSRS Offset survivor annuity if your widow(er) or children are entitled, or

would be entitled upon proper application, to Social Security benefits as your widow(er) or

children. OPM computes this reduction the same way it does a reduction in a retiree’s annuity.

FERS

FERS also pays benefits to the eligible survivors of an employee who had at least 18 months of

creditable civilian service. Your prior service in CSRS and CSRS Offset counts to meet this

requirement.

Under FERS, if you die as a Federal employee, and have at least 18 months of creditable civilian

service but less than 10 years of total service, your eligible spouse will receive a two-part FERS

benefit. It includes a lump-sum payment that is adjusted each year for inflation ($24,018.48 in

2002), plus the greater of half of your high-3 average pay or half of your annual rate of pay at

death. This is the Basic Employee Death Benefit payment. Social Security and other survivor

benefit payments will not affect this lump-sum benefit.

In addition, if you have 10 years of service, your eligible spouse will receive an annuity equal to

one-half of your accrued Basic Benefit.

FERS children’s annuities depend on whether your spouse is still living and how many children are

eligible for benefits. In addition, children’s annuities are reduced dollar for dollar by Social

Security children’s benefits that may be payable.

Social Security also provides benefits to your eligible survivors if you meet the minimum Social

Security eligibility requirements. The number of Social Security credits needed depends on when

you were born and how old you are at the time of death. The minimum number of credits required

is based on 18 months’ work in the 3 years before your death.

Under CSRS Offset and FERS, these benefits are available without additional cost to you, that is,

at the regular deduction rate for CSRS Offset and FERS benefits.
A Guide to Choosing Between FERS and CSRS Offset

Survivor Benefits Under CSRS Offset and FERS

May 2002

38

 If You Die After You Retire

CSRS Offset

If you are a CSRS Offset retiree when you die, your eligible spouse will be paid 55% of the

amount you were receiving as your annuity or a lesser amount that you and your spouse agreed on

when you retired.

As a married retiree, your annuity will be reduced to provide for this survivor annuity unless you

and your spouse waive this annuity. The amount of the reduction is 2.5% of the first $3,600 of

your annual annuity, plus 10% of the amount over $3,600. For most career retirees, this amounts

to a 8% to 9% reduction. Note that the 55% annuity is based on the amount of your annuity

before this reduction is taken. If your spouse agrees, you may also choose a smaller or no survivor

annuity.

If you want more information about survivor benefits, see the pamphlet RI 83-5, Retirement

Facts 5, Survivor Benefits Under the Civil Service Retirement System available at your personnel

office or on the Internet at www.opm.gov/benefits/.

OPM must reduce the CSRS Offset survivor annuity if your widow(er) or children are entitled, or

would be entitled upon proper application, to Social Security benefits as your widow(er) or

children. OPM computes this reduction the same way it does the reduction in a retiree’s annuity.

Cost of living increases on survivor annuities are equal to the consumer price index, the same as

for CSRS Offset retirees.

Children’s benefits are the same for both retirees and employees.

Social Security benefits are also payable to survivors of former employees who meet the Social

Security requirements. These benefits are based on the Social Security benefit for which the

former employee was eligible. Benefits vary based on the age and situation of the survivor.

FERS

If you are a FERS retiree when you die, OPM will pay your eligible spouse 50% of your annuity,

plus a Retirement Supplement if your spouse is younger than age 60 and not yet eligible for Social

Security benefits.

As a married retiree under FERS, your annuity will be reduced to provide for this survivor annuity

unless you and your spouse waive the annuity. Under FERS, the reduction is larger than under
A Guide to Choosing Between FERS and CSRS Offset

Survivor Benefits Under CSRS Offset and FERS

May 2002

39

CSRS Offset. It is 10% of your entire annual annuity amount. The 50% annuity is based on the

amount of your annuity before this reduction is taken.

You and your spouse also can choose a smaller survivor annuity of 25% of your annuity. This would

reduce your annuity by 5%. However, under FERS you cannot choose other annuity levels as you

can under CSRS Offset.

Cost of living increases are generally equal to the consumer price index increase less 1%--the same

as for FERS retirees.

Children’s benefits are the same for both retirees and employees.

 If You Die After You Leave Federal Service, But Before

You Retire Under FERS

If you have at least 10 years of service and die after you leave Federal service but before you

begin to receive your annuity, your eligible spouse may receive a FERS survivor annuity. The

amount of the annuity payable to the surviving spouse is 50% of your accrued basic retirement

annuity.

The annuity will begin at the time you would have reached age 62, or sooner if your survivor elects

a reduced annuity. For your spouse to be eligible, you must not take a refund of your

contributions. No similar annuity exists in CSRS Offset.

Social Security benefits are also payable to survivors of former employees who meet the Social

Security requirements. These benefits are based on the Social Security benefit for which the

former employee was eligible. Benefits vary based on the age and situation of the survivor.

 Conclusion

The survivor benefits under FERS and CSRS Offset differ substantially. Your individual

circumstances will determine which system is better for you. Also, you need to remember that

FERS rules apply to all of your survivor benefits if you decide to stay in FERS.

As a general rule, surviving spouses will receive a greater benefit from CSRS Offset. However,

the value of the deceased’s TSP account could result in higher benefits under FERS.
A Guide to Choosing Between FERS and CSRS Offset

Involuntary Retirement and Early Retirement

May 2002

40

Involuntary Retirement and Early Retirement

 Introduction

This section discusses what your annuity will be under CSRS Offset and FERS if you must retire

based on involuntary separation because of a reduction in force, reorganization, transfer of

function, or similar circumstance, or you choose to retire early under a voluntary “early out”

opportunity. These provisions do not apply if your agency fires you because of misconduct or

delinquency or if you refuse a reasonable offer of another position.

CSRS Offset

Under CSRS Offset, if you are involuntarily separated, you are eligible for an immediate annuity

at any age with 25 years or more of service, or age 50 with 20 years of service or more. OPM will

reduce your annuity 2% for each year that you are under age 55. This is a permanent reduction

that applies to your entire annuity, including your payments after you reach age 55. The same

rules apply for early voluntary retirements. In addition, your annuity will be offset at age 62 if

you are eligible for Social Security benefits.

FERS

Under FERS, if you are involuntarily separated, you are also eligible for an immediate annuity at

any age with 25 or more years of service, or at age 50 with 20 years of service or more. The

difference between CSRS Offset and FERS in this case, however, is that OPM does not reduce

your FERS annuity if you are under age 55.

If you decide to stay in FERS and are involuntarily separated, you are eligible for an immediate

annuity at any age with 25 or more years of service or at age 50 with 20 or more years of service.

Your retirement annuity will be calculated using the CSRS formula for your years of service under

CSRS (if you had 5 or more years of non-Offset civilian service prior to your FERS coverage) and

the FERS formula for your FERS service. Any CSRS Offset service will be converted to FERS.

OPM will permanently reduce the CSRS part of your annuity by 2% for each year that you are

under age 55 when you retire.

No reduction applies to the FERS portion of your annuity but you will not begin to receive a

Special Retirement Supplement until your Minimum Retirement Age. The same rules apply for

early voluntary retirements.
A Guide to Choosing Between FERS and CSRS Offset

Involuntary Retirement and Early Retirement

May 2002

41

Considerations for Involuntary Retirees and Early Voluntary Retirees

Whether or not you may be involuntarily separated or have an opportunity for early voluntary

retirement may not be a key factor in determining which retirement plan you choose. You should

be aware of the differences between CSRS Offset and FERS, however.

If you meet the age and service requirements and retire early, your CSRS Offset annuity will be

reduced if you are under age 55. Your FERS annuity will not, unless part of your FERS annuity is

computed under CSRS rules. However, the CSRS Offset retirement annuity is larger than the

FERS annuity to begin with. Even with the reduction, the CSRS Offset annuity is likely to be

larger than the FERS annuity. This is especially true if you retire below your Minimum Retirement

Age under FERS, because your Special Retirement Supplement will not be paid until you reach your

Minimum Retirement Age. FERS cost-of-living adjustments (COLA’s) do not begin until age 62,

but CSRS Offset COLA’s start immediately.

If you think you may be involuntarily separated from Government service or want to take

advantage of an opportunity for early voluntary retirement, FERS is probably the better choice.

In general, FERS is better for those who do not plan to retire from the Federal service. This is

especially true if transferring to FERS could give you eligibility for retirement at your Minimum

Retirement Age with as little as 10 years of service (MRA+10 retirement), which could allow you to

keep your Federal health and life insurance as a retiree.
A Guide to Choosing Between FERS and CSRS Offset

Brief Description of the Social Security Program

May 2002

42

Brief Description of the Social Security Program

 Introduction

Social Security is a national system of old-age, survivors and disability insurance cash benefits.

The program's basic plan is a simple one: During working years, employees, their employers, and

self-employed persons pay Social Security taxes. When their earnings stop or are reduced due to

retirement, severe disability, or death, monthly cash benefits are paid to replace part of the

earnings the employee and the family have lost.

Both FERS and CSRS Offset include Social Security coverage, so you will earn credits toward a

Social Security benefit under either retirement system. This brief description of the Social

Security Program is included so you have information about this part of your benefits package

when you make your retirement coverage decision.

Beginning October 1, 1999, the Social Security Administration began mailing annual Social

Security Statements to all workers who are ages 25 and older and not receiving Social Security

benefits. You will automatically receive your statement about 3 months before your birth month

if you ever had any work under Social Security.

You also may request a Social Security Statement at any time. Use the Social Security

Administration web site at www.ssa.gov to request a Statement, or you can use form SSA-7004,

Social Security Statement request form, to request the Statement. You can download the form

from the Social Security Administration web site, or you can request it by calling 1-800-SSA1213.

 How the Program Is Financed

The primary sources of financing are the Social Security taxes paid by employees and their

employers and by the self-employed. In 2002, employers and employees each contribute 7.65% of

the employee's wages, which includes 1.45% for Medicare hospital insurance. The maximum

amount of earnings taxed for Social Security purposes ($84,900 in 2002) is adjusted every year.

However, you pay Medicare taxes on all of your income.
A Guide to Choosing Between FERS and CSRS Offset

Brief Description of the Social Security Program

May 2002

43

 Qualifying for Benefits

You earn credits of coverage when you work in a job covered by Social Security. During your

working years, your wages are posted to your Social Security record, and you receive Social

Security earnings credits based on those wages. These credits are later used to determine your

eligibility for Social Security benefits. In 2002 you receive one Social Security credit for each

$870 of earnings, up to a maximum of 4 credits ($3,480) for the year.

The number of credits you need to be eligible for Social Security benefits depends on your age

and the type of benefit. Everybody born in 1929 or later needs 40 credits to be eligible for

Social Security retirement benefits. People born before 1929 need fewer credits.

The minimum requirement is 6 credits for death and disability benefits. An additional insured

status test must be met by employees in order to qualify for disability insurance benefits.

Employees who become disabled after age 31 must have worked under Social Security at least 5

of the last 10 years preceding the onset of disability.

Your family may be able to get survivors benefits if you die even if you had fewer credits than are

otherwise needed for retirement benefits.

 Who Is Eligible for Benefits

You are eligible for retirement benefits as early as age 62 if you are fully insured, or you can

choose to receive your benefit at any time between age 62 and your full retirement age.

However, if you begin receiving the Social Security benefit early, your benefit will be permanently

reduced. Your full retirement age is based on your year of birth. The following chart shows this

the full retirement ages:
A Guide to Choosing Between FERS and CSRS Offset

Brief Description of the Social Security Program

May 2002

44

Year of Birth Full Retirement Age

1937 or earlier 65

1938 65 and 2 mos.

1939 65 and 4 mos.

1940 65 and 6 mos.

1941 65 and 8 mos.

1942 65 and 10 mos.

1943 – 1954 66

1955 66 and 2 mos.

1956 66 and 4 mos.

1957 66 and 6 mos.

1958 66 and 8 mos.

1959 66 and 10 mos.

1960 and later 67

 Amount of Social Security Benefits

Your primary insurance amount (PIA) is the monthly benefit amount payable at disability or at

your full-benefit retirement age. All other monthly benefit amounts are based on the PIA.

If you receive an annuity based on CSRS service (including if you transfer to FERS from CSRS

Offset) a modified formula may be used to compute your Social Security retirement or disability

benefit. (See information about the Windfall Elimination provision in this section.)

Benefits taken before the full benefit retirement age are permanently reduced. For example, if

both your spouse’s and your full retirement ages under Social Security are 65 and you begin

receiving benefits at age 62, your benefits will be reduced by 20% and your spouse’s benefits will

be reduced by 25%.

Under the "dual-entitlement" provision, a person who qualifies for benefits based on the earnings

of more than one employee (for example, a benefit as an employee and a benefit as a spouse of

another employee) cannot receive both benefits in full. The amount of the spouse's or surviving

spouse's benefit is offset dollar for dollar against the person's own employee's benefit so that

the person receives the larger of the two benefits.

Social Security benefits increase each year whenever the cost of living, as measured by the

Consumer Price Index, rises.
A Guide to Choosing Between FERS and CSRS Offset

Brief Description of the Social Security Program

May 2002

45

 Spouse Benefits

Social Security law provides that a worker is entitled to the higher of the Social Security benefit

based on his or her own earnings or the Social Security benefit based on the spouse’s earnings. If

you are entitled to Social Security benefits based on your spouse’s earnings history and you begin

taking this benefit at full retirement age, it will be one-half (50%) of the amount your spouse

receives. If you start receiving this benefit at age 62, it will be permanently reduced.

 Social Security Earnings Test

The Social Security Earnings Test is part of the Social Security law. It means that your Social

Security benefits may be reduced if you work after retirement and earn more than the allowable

amount.

Who Is Affected?

If you choose to stay in FERS, this provision could also affect the FERS Retirement Supplement

part of your benefit. This provision also applies if you choose CSRS Offset and have enough

Social Security credits to qualify for a benefit.

How the Social Security Earnings Test Works

If you are under your Social Security full retirement age and you work after your Social Security

benefits begin, the amount of money you earn by working can reduce your Social Security

benefits. Income from savings, most investments, and insurance does not affect your Social

Security benefit. Earned income can affect your benefits. The Social Security Administration

counts wages for services you provide plus self-employment net earnings minus self-employment

net loss as earned income.

The money you receive from your FERS or CSRS Offset Basic Benefit and from the TSP are not

income for the Social Security Earnings Test.

Whether or not your Social Security benefit is reduced depends on how much you earn when you

work. In 2002, you can earn up to $11,280 a year if you are under your Social Security full

retirement age and your benefit will not be affected. If you earn more than that, your Social

Security benefit (or FERS Retirement Supplement) will be reduced by $1 for every $2 you earn

above that amount.
A Guide to Choosing Between FERS and CSRS Offset

Brief Description of the Social Security Program

May 2002

46

If you are at or older than your Social Security full retirement age, your Social Security benefits

will not be reduced because of your earnings.

The amount you can earn each year before your benefit is affected increases yearly. How much it

increases is based on how much the average wage levels increase in the United States as a whole.

If you plan to work past age 62, you can delay applying for Social Security benefits in order to

receive higher benefits. In any case, remember that the earnings test only applies when you have

substantial earned income before you reach your full retirement age for Social Security benefits.

How the Earnings Test Affects the FERS Retirement Supplement

If you are eligible for the FERS Retirement Supplement (that is, you retire at your Minimum

Retirement Age with 30 or more years of service, at age 60 with 20 or more years of service, or

under other rules that allow receipt of the Supplement), the earnings test may reduce the amount

of your Supplement.

It works exactly the same way as it does for Social Security benefits. In 2002, you can earn up

to $11,280 and your Supplement will not be affected. If you earn more, the Supplement will be

reduced by $1 for every $2 you earn above that amount. OPM uses the same definition of

“earnings” that the Social Security Administration uses.

How the Earnings Test Affects a CSRS Offset Benefit

When you retire under CSRS Offset, your annuity is computed under the same rules that apply to

all CSRS employees. However, when you become eligible for Social Security benefits, your CSRS

Offset annuity is reduced, or offset, by the value of your CSRS Offset service in your Social

Security benefit. This reduction occurs at age 62 if you are eligible for Social Security benefits,

even if you do not apply for Social Security or your Social Security benefit is reduced or

eliminated because of the earnings test.

Therefore, if you retire under CSRS Offset and do not apply for Social Security at age 62, your

CSRS Offset retirement annuity will still be reduced because you meet the age and credit

requirements to qualify for a Social Security benefit. Similarly, if you are working outside the

Government and your Social Security benefit is reduced or eliminated under the earnings test,

the reduction in your CSRS Offset annuity will still take place.

If you do not become eligible for Social Security benefits, there is no offset.
A Guide to Choosing Between FERS and CSRS Offset

Brief Description of the Social Security Program

May 2002

47

 Windfall Elimination Provision (WEP)

Regardless of whether you choose to stay in FERS or switch to CSRS Offset, you already have

Social Security coverage, so the Windfall Elimination Provision or WEP is not a consideration.

However, you may want to read this section to find out if your future Social Security benefits will

be reduced by the WEP.

What the Windfall Elimination Provision Is

Social Security law includes a provision that reduces Social Security benefits for those who have

less than 30 years of "substantial earnings" under Social Security and who have earned a

retirement annuity from employment not covered by Social Security; for example, CSRS service.

(In 2002, the amount of substantial earnings is $15,750. In contrast, the amount needed to earn

four credits of coverage in 2002 is $3,480.) If the WEP applies to you, the Social Security

Administration will figure your benefits under a different formula.

Who Is Affected

If you have less than 30 years of substantial earnings under Social Security and become eligible

for a Social Security benefit, this provision will affect you if you are also eligible for a retirement

annuity that includes service performed under CSRS where you did not pay Social Security taxes.

NOTE: The provision will apply to you even if you have past CSRS (non-Offset) service that will

become subject to FERS rules if you choose to stay in FERS.

If you do not earn at least 10 years (or 40 credits) of Social Security coverage, you will not be

eligible for a Social Security benefit (unless you were born before 1929, in which case fewer

credits of coverage are required). This provision would, of course, not apply to you if you are not

eligible for Social Security benefits. Likewise, it does not apply to you if you already have 30

years of substantial earnings under Social Security. Request your earnings history from the

Social Security Administration if you are uncertain how many years of substantial earnings you

have.

How the Windfall Elimination Provision Works

The WEP was designed to eliminate the "windfall" that could result if you were to receive a CSRS

annuity based on many years of employment not covered by Social Security and also receive a full

Social Security benefit because you had a few years of employment covered under Social

Security. If you're subject to the WEP, your earned Social Security benefits will be figured

using a modified benefit formula. Even though the modified formula provides a lesser benefit, you
A Guide to Choosing Between FERS and CSRS Offset

Brief Description of the Social Security Program

May 2002

48

still will be eligible to receive your Social Security benefit. The WEP never totally eliminates the

benefit you have earned. For example, in 2002, the maximum amount the WEP can decrease a

Social Security benefit is $296 per month.

The modified formula is not used to compute survivor benefits upon your death or the FERS

Special Retirement Supplement. It is used to compute Social Security retirement as well as

disability benefits if you become disabled.

The regular Social Security benefit formula uses three levels of earnings. Each level of earnings

is multiplied by a different percentage. The first level of earnings is multiplied by 90%, the

second by 32% and the third by 15%. Those amounts are added together to determine a person's

Basic Benefit rate.

Under the modified benefit formula, the first level of earnings is not multiplied by 90%, but by a

smaller percentage, depending on the number of years of substantial earnings under Social

Security that you have. The modified formula reduces your Social Security benefit the most if

you have less than 21 years of substantial earnings under Social Security. In that case the first

level of earnings is multiplied by 40% instead of 90%.

For each year of substantial earnings over 20 years the percentage increases by 5% increments

(e.g., 45% for 21 years, 50% for 22 years, etc.). However, in no case will the reduction in your

Social Security benefit because of the WEP be greater than one-half of the portion of your

pension from employment not subject to Social Security taxes; for example, that part of your

CSRS Offset or FERS annuity that is based on your CSRS-only service. This aspect of the WEP

will only help if the amount of your CSRS part of your CSRS Offset or FERS annuity is relatively

low.

You will be earning the same number of Social Security credits and years of substantial earnings

under Social Security whether you remain under FERS or decide to switch to CSRS Offset. If

you have between 21 and 30 years of substantial earnings under Social Security, they will reduce

or cancel the effect of the WEP.

 Conclusion

If you become eligible for a Social Security benefit, you may be subject to the WEP whether you

choose to stay with FERS or switch to CSRS Offset. This is because, either way, you may not be

able to acquire 30 years of substantial earnings under Social Security. If you earn 21 or more

years of substantial earnings under Social Security, you can lessen the effects of this provision.
A Guide to Choosing Between FERS and CSRS Offset

Brief Description of the Social Security Program

May 2002

49

Social Security generally provides a higher proportion of benefits to lower income employees than

it does to those who are higher paid. The reduction that results from the WEP, however, tends to

cancel out this effect. Lower salaried employees who are subject to the WEP will find FERS a

less attractive alternative than those who are not. If you are low salaried, choosing CSRS Offset

is usually a better choice if you are sure you will retire from the Federal Government and will not

be able to earn enough Social Security substantial earnings years to avoid the WEP reduction.

 How to Estimate the Reduction in your Social Security

Benefit Resulting from the WEP

Compare your earnings from the Social Security Statement to the table below to determine the

number of years of substantial earnings under Social Security that you have. Your earnings for

each year must be at least the amount shown to equal 1 year of substantial earnings.

The Social Security Statement lists your yearly earnings that were covered by Social Security

and provides a Social Security retirement benefit estimate assuming retirement at alternative

ages -- 62, your full retirement, and age 70.

Year Substantial

Earnings Year SubstantialEarnings Year SubstantialEarnings

1937-50 $900* 1979 $4,725 1992 $10,350

1951-54 $900 1980 $5,100 1993 $10,725

1955-58 $1,050 1981 $5,550 1994 $11,250

1959-65 $1,200 1982 $6,075 1995 $11,325

1966-67 $1,650 1983 $6,675 1996 $11,625

1968-71 $1,950 1984 $7,050 1997 $12,150

1972 $2,250 1985 $7,425 1998 $12,675

1973 $2,700 1986 $7,875 1999 $13,425

1974 $3,300 1987 $8,175 2000 $14,175

1975 $3,525 1988 $8,400 2001 $14,925

1976 $3,825 1989 $8,925 2002 $15,750

1977 $4,125 1990 $9,525

1978 $4,425 1991 $9,900

*Total credited earnings from 1937 through 1950 are divided by $900 to get the number of years of coverage with a maximum of 14

years.

The following table shows how you can adjust your Social Security Statement to reflect the WEP

by subtracting a specified amount from the age 62 or “full retirement age” benefit estimate. The

amount you need to subtract depends on the number of years of “substantial” Social Security

earnings (see Glossary) you will have by the time you begin to receive Social Security benefits.
A Guide to Choosing Between FERS and CSRS Offset

Brief Description of the Social Security Program

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50

If your full retirement age is over 65, the reduction shown at age 62 will be less.

Years of substantial

earnings

Retire at

age 62

Retire at

age 65

30 or more $0 $0

29 $24 $30

28 $47 $59

27 $71 $89

26 $95 $119

25 $118 $148

24 $142 $178

23 $166 $207

22 $190 $237

21 $214 $267

20 $237 $296

NOTE: The amounts shown apply only to Social Security Statements generated in 2002. To use

with Social Security Statements generated in 2003 and later, increase the amounts shown by

about 5% for each subsequent year after 2002. The increases adjust the wages by the average

increase in wages in the economy –currently about 5% per year.

 Use of Social Security Statement to Estimate CSRS Offset

Reductions

If you are considering whether to switch to CSRS Offset, you may want to know how much your

CSRS annuity will be reduced under the CSRS Offset calculation. Generally, this reduction is the

smaller of:

1. The difference between (a) the Social Security benefit including future Federal CSRS Offset

employment and (b) the Social Security benefit excluding all CSRS Offset employment; or

2. 1/40 of the Social Security benefit (including future Federal employment), multiplied by the

number of years of all CSRS Offset employment.

You can estimate the offset (reduction) to your CSRS annuity in one of two ways.

NOTE: Method 1 below does not work if you already have several years of Offset service. Use

Method 2 instead.
A Guide to Choosing Between FERS and CSRS Offset

Brief Description of the Social Security Program

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51

1. Request two Social Security Statements from the Social Security Administration. On one

Social Security Statement request form, indicate the annual Federal pay you estimate that

you would have (in today's dollars) until age 62. On the second Social Security Statement

request form, show no future earnings under Social Security. When you receive the two

statements from SSA, adjust each benefit estimate for the windfall elimination provision

(WEP) as explained in the previous section.

After adjusting for the WEP, the difference between the age-62 benefit on the two Social

Security Statements is an estimate of the offset to your CSRS annuity at age 62, assuming

that you continue to work under CSRS Offset until age 62. If you plan to work under CSRS

Offset until you are eligible for full Social Security benefits, adjust the full retirement age

amounts on each Social Security Statement for the WEP and use the difference in the two as

the estimate of the offset to your CSRS annuity.

2. Use the Social Security Statement that includes estimated earnings for all the years you

intend to work under CSRS Offset. Adjust that benefit amount on that statement for the

WEP. Divide the number of years you worked under CSRS Offset by 40, and multiply the

adjusted Social Security benefit by that result.

 Government Pension Offset

The Government Pension Offset is a law that reduces spouse or survivor Social Security benefits

for certain individuals who are also entitled to a Government pension. However, Federal employees

who are mandatorily covered under Social Security, such as CSRS Offset and FERS employees,

are exempt from the provisions of the Government Pension Offset. Therefore, it does not apply

to you.

Effect of Staying in FERS

If you choose to remain in FERS rather than switch to CSRS Offset, you continue to be exempt

from the Government Pension Offset
A Guide to Choosing Between FERS and CSRS Offset

Special Employee Groups

May 2002

52

Special Employee Groups

This section covers four types of employees; law enforcement officers, firefighters, air traffic

controllers, and military reserve technicians.

 Law Enforcement and Firefighting Personnel

CSRS Offset

If you work in a position that your agency has determined to be a law enforcement or firefighting

position, you are covered under special CSRS rules. You pay a higher retirement contribution rate

(in 2002, 7.5% total for CSRS Offset deduction and OASDI tax) for a more generous retirement

annuity. You can also retire at age 50 after 20 years of law enforcement officer/firefighter

covered service.

The annuity you receive will be computed based on 2.5% of your high-3 average pay for each of

the first 20 years of law enforcement/firefighter service, and 2% per year of service (covered or

not) thereafter. Once you have 20 years of covered service, you are subject to mandatory

retirement at age 57 if you are a firefighter or a law enforcement officer. Other CSRS Offset

rules apply to you in the same manner as to any other employee.

FERS

Under FERS, there are also special benefits for law enforcement and firefighting personnel, but

the rules are different. First, the FERS definition of a law enforcement or firefighting position

includes a requirement that the positions be limited to "young and vigorous" personnel. Second, in

order to qualify for the special benefits, you must have occupied a Federal primary or first-line

law enforcement or firefighting position for at least 3 years before moving to a secondary (that is

an administrative or supervisory) position. Agency heads may determine that some supervisory

positions are "primary" because they meet the "young and vigorous" requirement. The FERS

definition and the 3-year requirement are generally more strict than the CSRS Offset rules.

The contribution rate for the FERS special law enforcement and firefighting annuity is a half

percent more of pay than for a regular annuity. FERS also has different rules for when you can

retire: at age 50 with 20 years of covered service, like CSRS Offset, or at any age with 25 years

of covered service.

Under FERS, the special annuity formula is 1.7% of your high-3 average pay for each of the first

20 covered years of FERS service and 1% of pay per year of service thereafter.
A Guide to Choosing Between FERS and CSRS Offset

Special Employee Groups

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Law enforcement and firefighting retirees will receive cost-of-living adjustments at retirement.

The FERS cost-of-living adjustments begin at retirement instead of at age 62, the age when most

FERS retirees begin to receive cost-of-living adjustments.

In addition, law enforcement and firefighting retirees will receive the FERS Retirement

Supplement at retirement. The earnings test does not apply to the Special Retirement

Supplement until you reach the Minimum Retirement Age.

Once you have 20 years of covered service, you are subject to mandatory retirement at age 57

for firefighters and law enforcement officers. Other FERS provisions, including those for Social

Security and the TSP, are the same as for regular employees.

 Special Transfer Rules

In general, the same transfer rules apply to CSRS Offset law enforcement and firefighting

personnel who elect FERS as they do to regular employees. That is, you take your credit with you

for your previous CSRS service, including your 2.5% credits, and the full CSRS cost-of-living

adjustments payable on those credits. (You must retire under the special provisions to get the

2.5% credits.)

However, you should keep in mind that your law enforcement/firefighter service that was subject

to the higher CSRS or CSRS Offset deduction rate will not count against the 20-year limitation

for the more generous FERS annuity formula.

Example: If you choose to stay in FERS after 13 years of CSRS law enforcement/firefighter

service, you can still earn up to 20 years of additional service at the 1.7% rate under FERS.

In effect, the period of time during which you can earn special benefits is extended by

choosing FERS. However, mandatory retirement age requirements are not affected by

transferring.

 Additional Considerations for Law Enforcement and

Firefighting Personnel

If you will complete, or have already completed 25 years of work as a law enforcement officer or

firefighter before reaching age 50, the FERS provisions permitting retirement at any age after

25 years of service permit you to retire earlier under FERS than under CSRS Offset.
A Guide to Choosing Between FERS and CSRS Offset

Special Employee Groups

May 2002

54

If you are close to meeting or have met the 20-year limitation for the special annuity formula

under CSRS but contemplate working beyond 20 years, you may wish to consider FERS as a means

of extending your eligibility for the special annuity formula. The FERS 1.7% rate, plus Social

Security and the TSP, generally provide more value than the regular 2% per year CSRS formula

you earn after 20 years of covered service under CSRS.

However, keep in mind that if you choose to stay in FERS, any previous CSRS Offset service will

be computed under the FERS rules. For example, if you have 17 years under full CSRS and 3

years under CSRS Offset at the time you move to FERS, only the 17 years will be calculated at

2.5% and the remaining years of CSRS Offset and FERS service will be calculated at 1.7% (up to

20 years).

Of course, as has been stated throughout this handbook, if you plan to leave Federal service short

of retirement, FERS is almost always the better choice. This is especially important for those

who leave before becoming eligible to retire under the law enforcement/firefighter provisions.

They will be treated the same as any other employee under CSRS Offset or FERS.

 Air Traffic Controllers

The definition of an Air Traffic Controller, or Controller is the same under CSRS Offset and

FERS.

CSRS Offset

Under CSRS Offset you can retire at age 50 after 20 years of service as a controller, or at any

age after 25 years as a controller. You pay the same contribution rate as other employees (in

2002, 7.0% total for CSRS Offset deduction and OASDI tax).

While there is no special annuity formula, there is a guaranteed annuity after at least 20 years of

controller service. The guarantee is 50% of your high-3 average pay. If you retire after 25

years, it works out to earning 2% per year. If you retire after 27 years, the guarantee provides

no more than the regular formula would have. Other than the guaranteed annuity and mandatory

retirement, there are no special CSRS Offset rules for controllers. Keep in mind, however, that

your annuity will be offset if you become eligible for Social Security.

FERS

While FERS has the same rules as CSRS Offset for when a controller can retire, FERS doesn't

have a guaranteed annuity. Instead, FERS provides the same special annuity computation that is
A Guide to Choosing Between FERS and CSRS Offset

Special Employee Groups

May 2002

55

provided to law enforcement and firefighting personnel, discussed on the previous page. You pay a

higher retirement contribution rate (in 2002, 7.5% total for the FERS deduction and OASDI tax).

 Special Transfer Rules

There are no special rules for controllers who choose FERS.

 Additional Considerations for Controllers

If a controller chooses to stay in FERS, the regular CSRS formula is used to calculate the CSRS

credit that the controller will receive under FERS, and the guaranteed annuity is completely

disregarded. In cases where a controller plans to retire before completing 27 years of service,

this can have the effect of significantly reducing the value of the CSRS service performed

before the FERS service. All CSRS Offset service is calculated under FERS rules.

Example: A controller who has between 20 and 25 years of controller service under full CSRS

has earned the CSRS guaranteed annuity of 50% of average pay. When that service is

transferred to FERS, its value will be computed using the regular CSRS formula; 36% for 20

years and 46% for 25 years. This results in a loss of 4 to 14% of average pay compared to the

value of the service under CSRS. Unless the controller expects to perform many years of

service, the special formula for controllers under FERS won't make up the difference.

A CSRS or CSRS Offset air traffic controller is subject to mandatory separation at age 56 even

if he or she has not acquired sufficient years of air traffic controller service to qualify for

retirement under the special retirement provisions. A FERS air traffic controller who has

reached age 56 but has not acquired sufficient years of air traffic controller service to qualify

for retirement under the special provisions is subject to mandatory separation on the last day of

the month in which he or she acquires 20 years of service.

In general, all air traffic controllers are subject to mandatory separation at age 56. However,

CSRS and CSRS Offset controllers hired prior to specific dates are exempt from the mandatory

separation provision. There are no such exemptions under FERS. The exemptions granted

certain CSRS and CSRS Offset controllers are not extended to employees retiring under

FERS, and an exempt CSRS or CSRS Offset covered controller will lose the right to the

mandatory retirement exemption if he or she chooses to stay in FERS.

Of course, the CSRS Offset guaranteed annuity is only available to employees who retire under

the special retirement provisions. FERS is almost always a better system for those who expect to

leave Federal service short of retirement.
A Guide to Choosing Between FERS and CSRS Offset

Special Employee Groups

May 2002

56

 Military Reserve and National Guard Technicians

A military reserve technician or National Guard technician is a civilian employee who is a member

of the Army National Guard of the United States, the Army Reserve, the Naval Reserve, the

Marine Corps Reserve, the Air Force Reserve, or the Coast Guard Reserve who is assigned to

duties in one of these components and who is required to maintain a specific military grade in

order to continue in his/her civilian employment.

CSRS Offset

A technician is treated the same as any other employee under CSRS Offset. A technician who is

involuntarily separated (not for delinquency or misconduct) from his/her position can get a

discontinued service annuity at any age with 25 years of service, or at age 50 with 20 years of

service. The annuity is reduced at a rate of 2% for each year the employee is under 55 years of

age.

A National Guard technician who is medically disqualified for military duty and has 5 years of

creditable civilian service may receive disability benefits without meeting the usual CSRS Offset

disability criteria. This special provision does not apply to military reserve technicians.

FERS

Under FERS, a technician who is separated from civilian service because he/she no longer qualifies

as a member of a military reserve component may retire and receive an unreduced annuity at age

50 with 25 years of service. If a FERS employee loses military status due to a disability,

disability benefits are payable after only 18 months of FERS service. Also, the Special

Retirement Supplement is paid immediately rather than at the Minimum Retirement Age (MRA).

It is not subject to the Social Security Earnings Test until the employee reaches the MRA.

However, technicians are not eligible for the 1.1% annuity formula under FERS, no matter how long

they work or their age at retirement.
A Guide to Choosing Between FERS and CSRS Offset

Service Credit Deposits and Redeposits

May 2002

57

Service Credit Deposits and Redeposits

 Civilian Service

As a general rule, Federal civilian service is creditable for retirement purposes under CSRS

Offset or FERS. You may have to pay a deposit if you didn’t pay retirement deductions when you

worked or a redeposit if you took a refund of your retirement deductions. In addition, certain

non-Federal service is creditable, such as service as a District of Columbia employee if the

District employed you before October 1, 1987.

Generally, service while you were employed but not working (such as leave without pay) is

creditable for up to 6 months in a calendar year. You don’t have to make a payment to get credit.

 Deposits

If you worked in jobs that were not covered by retirement (nondeduction service), you may have

to pay a deposit before OPM can credit the service. The deposit amount is a percentage of your

basic pay for the period of service (generally 7% for CSRS or CSRS Offset service and 1.3% for

FERS) plus interest computed from the midpoint of the service period. You may pay a deposit to

OPM any time before we finish processing your retirement application. Under FERS, you can’t pay

a deposit for service that occurred after 1988 and wasn’t covered by retirement deductions.

 CSRS Redeposits

If you were covered by CSRS retirement and took a refund of your CSRS contributions after you

left your Federal job, you may have to pay a redeposit before OPM can credit the service. The

redeposit is the amount of the refund plus interest from the date of the refund. You may pay a

redeposit to OPM any time before we finish processing your retirement application.

 Interest

OPM computes the interest at the rate of 4% through 1947 and 3% through the later of the date

paid or the retirement annuity begins for:

 Deposits for CSRS service before October 1, 1982

 CSRS redeposits based on refund applications received before October 1, 1982
A Guide to Choosing Between FERS and CSRS Offset

Service Credit Deposits and Redeposits

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OPM computes the interest at the rate of 4% through 1947, 3% through 1984, and an annually

variable interest rate beginning in 1985 through the date paid or the annuity begins, whichever is

later, for:

 CSRS deposits for service on and after October 1, 1982

 FERS deposits for service before January 1, 1989

 CSRS redeposits based on refund applications received on and after October 1, 1982

The variable interest rates are listed below:

YEAR RATE YEAR RATE

1985 13.0% 1994 6.25%

1986 11.125% 1995 7.0%

1987 9.0% 1996 6.875%

1988 8.374% 1997 6.875%

1989 9.125% 1998 6.75%

1990 8.75% 1999 5.75%

1991 8.625% 2000 5.875%

1992 8.125% 2001 6.375%

1993 7.125% 2002 5.5%

 Special Service Credit Provisions for Employees Erroneously

Put in FERS

Employees who were erroneously put in FERS have an additional option regarding payment of a

deposit or redeposit that is computed under CSRS rules.

The Federal Erroneous Retirement Coverage Correction Act allows OPM to give you credit for

your CSRS deposit and redeposit service even if you do not pay the deposit or redeposit. If you

don’t pay the deposit or redeposit, OPM will permanently reduce your retirement annuity by an

actuarial factor. The reduction is based on the amount of the deposit and/or redeposit and your

age when you retire. If you began to pay the deposit or redeposit but did not complete it before

OPM finalized your retirement claim, the actuarial reduction will be based on the amount you still

owe and your age.

The actuarial reduction applies to deposits or redeposits computed under CSRS rules for civilian

service performed before the date you were erroneously put in FERS. You can choose to receive
A Guide to Choosing Between FERS and CSRS Offset

Service Credit Deposits and Redeposits

May 2002

59

the actuarial reduction instead of paying the CSRS deposit and/or redeposit regardless of

whether you decide to stay in FERS or move to CSRS Offset. The actuarial reduction does not

apply to deposits that are computed under FERS rules or to deposit or redeposit service

performed after the date you were erroneously put in FERS.

 FERS Service Credit

If you decide to stay in FERS, the treatment of prior service depends on how much civilian service

you have that was not covered by CSRS Offset deductions. For simplicity, this past service is

called non-Offset service.

When you become covered by FERS, if you have 5 or more years of non-offset civilian service

that is creditable under CSRS, you will have a “CSRS component” to your FERS retirement annuity.

If you have a CSRS component, all creditable civilian and military service before the date you

were first covered by CSRS Offset is treated under CSRS rules. In addition, all nondeduction

service and military service you have after you were covered by CSRS Offset but before you

transferred to FERS is treated under CSRS rules. All your CSRS Offset service will be

treated under FERS rules.

If you decide to stay in FERS and have less than 5 years of non-Offset service, you will not have a

CSRS component to your FERS retirement annuity. All nondeduction service and military service

will be treated under FERS rules.

Refer to the previous section for the rules on how deposits and redeposits are calculated

under CSRS and FERS rules.

If you take a refund of retirement deductions after you become subject to FERS, you can never

redeposit the money. Additionally, the period covered by the refund is never creditable toward

eligibility to retire or to compute your retirement annuity.

Note: If you have a CSRS component and you request a refund, the CSRS contributions will

also be refunded. CSRS redeposit rules apply to that part of the refund only. You also have

the option of requesting that only CSRS funds be refunded.

IMPORTANT: If you decide to stay in FERS, any service subject to CSRS Offset

deductions becomes subject to FERS rules. Generally, you may redeposit previously refunded

CSRS Offset contributions. However, you cannot redeposit them if you take a refund after

deciding to stay in FERS.
A Guide to Choosing Between FERS and CSRS Offset

Service Credit Deposits and Redeposits

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60

 Military Service

Honorable active military service is generally creditable under both CSRS Offset and FERS.

However, most military retirees are barred from receiving credit toward a civilian annuity unless

they waive their military retired pay. The military retired pay need not be waived if it is based on

disability involving certain injuries incurred in wartime or if it is Chapter 1223 of title 10, United

States Code (reservists') retired pay. If you are a military retiree, your retired pay center can

tell you whether you fall under one of these exceptions.

Beginning in 1957, military service became subject to Social Security, and treatment of military

service under retirement depends on whether or not it was performed after December 31, 1956.

If you have military service that occurred before 1957, it is creditable under CSRS Offset and

FERS without a deposit. Generally, you must pay a deposit to get credit for military service that

was performed after December 31, 1956. Refer to the CSRS Offset and FERS sections below.

 Service in the National Guard

Service in the National Guard, except when ordered to active duty in the service of the United

States, is generally not creditable. However, you may receive credit for National Guard service,

followed by Federal civilian reemployment that occurs after August 1, 1990, when the service

meets all of the following conditions:

 The service must interrupt civilian service creditable under CSRS, CSRS Offset or FERS

and be followed by reemployment in accordance with the appropriate chapter of the laws

concerning Veterans Benefits; and

 It must be full-time (and not inactive duty), and performed by a member of the U.S. Army

National Guard, or U.S. Air National Guard; and

 It must be under a specified law and you must be entitled to pay from the U.S. (or have

waived pay from the U.S.) for the service, and

 In addition, you must pay required deposits for this service.

CSRS Offset

A 1982 change in law distinguished between pre-October 1, 1982 hires and those employees who

first became subject to CSRS on or after that date.
A Guide to Choosing Between FERS and CSRS Offset

Service Credit Deposits and Redeposits

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Employees first hired in positions subject to CSRS after September 30, 1982 can receive credit

for military service after 1956 only if they pay a deposit covering this service. Employees hired in

positions subject to CSRS before October 1, 1982 can receive credit for military service after

1956 without making the deposit. However, the law requires OPM to eliminate credit for this

service from your annuity if you become eligible (or would become eligible upon proper application)

for Social Security old-age benefits at age 62 if you haven’t paid a deposit for the service before

you retire.

You must pay the deposit to your agency. CSRS Offset employees generally pay 7% of the

military basic pay for the period, plus interest. (As a result of the Balanced Budget Act of 1997,

the rate is 7.25% if the military service was in 1999 and 7.4% if it was in 2000. In 2001, the rate

changed back to 7%.)

Interest begins on October 1, 1985, or 2 years after the employee is first hired in a position

subject to CSRS, whichever is later. However, because the method of computing the deposit calls

for adding interest only at the end of the year after it begins, no interest is charged if the

deposit was paid in full by September 30, 1986, or within 3 years after first becoming subject to

CSRS, if later.

When creditable military service interrupts civilian service, the 2-year period begins after you

return to civilian employment. The amount of the required deposit is limited to the amount that

would have been deducted from your pay for retirement if you had remained in your civilian job if:

 your honorable active duty interrupts creditable civilian service, and

 you are reemployed on or after August 1, 1990 in accordance with chapter 43 of title 38,

United States Code (as a general rule, you must return to your former agency).

FERS

Military service that is creditable under CSRS Offset is also creditable under FERS. However,

under FERS, you must pay a deposit for all military service after 1956 to receive credit. Even if

you were first hired before October 1, 1982, you cannot receive credit for military service after

1956 under FERS rules unless you pay the deposit.

You must pay the deposit directly to your agency before you leave Federal service. FERS

employees generally pay 3% of the military basic pay for the period, plus interest. (As a result of

the Balanced Budget Act of 1997, the rate is 3.25% if the military service was in 1999 and 3.4% if

it was in 2000. In 2001, the rate changed back to 3%.)
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Interest for military service that will be credited under FERS rules begins January 1, 1989 if you

were first hired before January 1, 1987, or 2 years after the effective date of FERS coverage if

you were first hired on or after January 1, 1987. If the military service interrupted your Federal

civilian service, interest begins 2 years after you return to your Federal civilian position. As under

CSRS Offset, however, you will not owe interest if you complete the deposit before the end of

the year after interest begins. The variable interest rates also apply to military deposits (see

table of variable interest rates previously in this section).

Whether CSRS rules or FERS rules apply to your past military service depends on how much nonOffset civilian service you have as of the effective date of your transfer to FERS. If your

military service is part of your CSRS component, the CSRS military deposit rules apply. Refer to

the above FERS section under "Civilian Service" to determine whether your military service will be

subject to FERS rules or CSRS rules.

FERS rules also apply to all military service performed after you decide to stay in FERS.

Note: If (1) you decide to stay in FERS and your military service becomes subject to FERS rules,

and (2) you already made a deposit under CSRS rules, you are due a refund. The refund equals the

difference between the 7% deposit and the 3% deposit. If you qualify for this kind of refund,

your employing agency can give you more information.

 Special Service Credit Provisions for Employees Erroneously

Put in FERS

Employees who were erroneously put in FERS and owe a military deposit that is computed under

CSRS rules have an additional option regarding payment of a deposit for military service.

The Federal Erroneous Retirement Coverage Correction Act allows OPM to give you credit for

your post-1956 military service even if you do not pay before retiring. If you don’t pay the

deposit, OPM will permanently reduce your retirement annuity by an actuarial factor. The

reduction is based on the amount of the deposit and your age when you retire. If you began to

pay the deposit but did not complete it before OPM finalized your retirement claim, the actuarial

reduction will be based on the amount you still owe and your age.