1 See CSRS/FERS Handbook, Section 30A1.1-2 for definition of basic pay.

Office of Personnel Management

Retirement and Insurance Service

1920 1954 1959 

 

1986

 

Federal Employee Benefit Programs

FINANCIAL MANAGEMENT LETTER

Number: F-98-07 Date: October 19, 1998 

Subject: 1998 Cost Factors for Pension and Other Retirement Benefits Expenses

As required by Statement of Federal Financial Standards No. 5 (SFFAS-5) -- Liabilities of

the Federal Government – we are providing you with the “costs factors” for the Federal

civilian benefit programs. These factors will enable you to determine your “service

costs” for pensions and other retirement benefits (ORB), as they relate to the Civil

Service Retirement System (CSRS), Federal Employees Retirement System (FERS),

Federal Employees Health Benefits Program (FEHB) and Federal Employees Group Life

Insurance Program (FEGLI).

PENSIONS

CIVIL SERVICE RETIREMENT SYSTEM

Service Cost represents an estimate of the amount of funds which, if accumulated

annually and invested over the careers of covered employees, will be enough to pay their

future benefits. For most “regular” CSRS covered employees, the service cost is 24.2

percent of basic pay1. Since this exceeds the 14 percent of basic pay that is contributed

by and for covered employees, the CSRS is less than fully funded. Employing agencies

must recognize the difference between the service cost and the contributions by and for

their employees as an imputed financing source. 
Attachment A presents the 1998 cost factors for all categories of CSRS coverage,

expressed as a percentage of basic pay. Please note that the 1998 cost factor for

“regular” coverage, under which the vast majority of employees are covered, is 24.2

percent of basic pay, the same as the 1997 factor.

FEDERAL EMPLOYEES RETIREMENT SYSTEM

Unlike the CSRS, FERS is a fully funded retirement plan. That is, the cost of FERS is

financed completely by contributions made by and for covered employees. As a

consequence, no imputed financing sources are necessary for FERS. The 1998 cost

factors for FERS are presented as Attachment B.

CALCULATION OF IMPUTED FINANCING FOR PENSIONS

To determine the amount of imputed financing you must recognize for the CSRS and

FERS, follow these steps:

1. Determine the basic pay of covered employees in each category of

CSRS and FERS coverage. 

 2. Multiply the basic pay for each category of covered employee by the

associated cost factor.

 3. Compute the grand total of each of the individual calculations in

step 2 for both CSRS and FERS -- this is your service cost.

 4. Subtract, from the amount derived in step 3, the total contributions

by and for all employees covered by CSRS and FERS. This is your

imputed financing.

For your information, Attachment C is a comprehensive illustration provided by the

Financial Management Service of the entries needed to record pension cost.

ILLUSTRATION: CALCULATION OF IMPUTED FINANCING FOR PENSIONS

Agency XYZ as “regular” CSRS employees, who earn total basic pay of $500,000, and

“regular “ FERS employees, who earn basic pay of $250,000. 

Contributions by and for these employees during 1998 were $106,300, computed as

follows: 
A B C D E F

Annual 

Gross

Basic Pay

Employee

Withholding

Rate

(%)

Agency

Contributio

n 

Rate 

(%)

Employee 

Deductions

[A*B]

Employer 

Contribution

s

[A*C]

Total

Contribution

s

[D+E]

CSRS $500,000 7.00 8.51 $35,000 $42,550 $77,550

FERS $250,000 .80 10.7 $2,000 $26,750 $28,750

TOTAL $37,000 $69,300 $106,300

After it receives the cost factors, the agency computes its imputed financing cost as

$43,450, as follows:

A B C D E

Annual Basic 

Pay

Cost 

Factor

(%)

Service Cost

[A*B]

Total

Annual

Contributions

Imputed 

Financing

[C - D]

CSRS $500,000 24.2 $121,000 $77,550 $43,450

FERS $250,000 11.5 $28,750 $28,750 $0

TOTAL $149,750 $106,300 $43,450

OTHER RETIREMENT BENEFITS – HEALTH BENEFITS

We have computed the cost factor you need to determine your cost for postretirement

health benefits. The cost factor for 1998 is $2,529 per employee enrolled in the FEHB. 

Since neither your agency nor your employees make any contributions for

postretirement health benefits, the entire service cost must be recognized as an imputed

cost.

To determine your service cost , perform the following steps: 

1. Determine enrollment in the FEHB at three points in time: 

October 1, 1997; March 31, 1998; and September 30, 1998.

2. Multiply the October 1, 1997 enrollment by one; the March 31, 1998
enrollment by two; and the September 30, 1998 enrollment by one.

3. Calculate the grand total of each of the individual computations in 

step 2.

4. Divide the total in Step 3 by four – this is your computed FEHB

enrollment.

5. Multiply the computed FEHB enrollment by the FEHB cost factor –

this is your service cost.

ILLUSTRATION: CALCULATION OF IMPUTED FINANCING FOR HEALTH BENEFITS

10/1/97 3/31/98 9/30/98

Enrollment 70 66 60

Multiplier 1 2 1

Product 70 132 60

Total 262

Divide Total by 4 = COMPUTED ENROLLMENT 65.5

Cost Factor $2,529

SERVICE COST = Computed Enrollment * Cost Factor $165,650

OTHER RETIREMENT BENEFITS – LIFE INSURANCE

The 1998 cost factor for FEGLI is the same as in 1997, that is, .02 percent of basic pay. 

You would use this cost factor to determine your imputed financing cost.

ILLUSTRATION: CALCULATION OF IMPUTED FINANCING FOR LIFE INSURANCE

You will recall that the employees in Agency XYZ above earned a total basic pay of

$750,000. The agency would determine its imputed financing cost for post-retirement

life insurance by multiplying this total basic pay by the cost factor of .02 percent. The

cost would be $150 [$750,000 * .0002]. 

ASSURANCE FOR AUDITORS

The cost factors (service costs) for regular CSRS and FERS coverage were disclosed in
the footnotes accompanying the 1997 Retirement Program financial statements. The

financial statements were audited by the independent public accounting firm of KPMG

Peat

Marwick (KPMG), which issued an unqualified opinion on them. As the cost factors for

“regular” CSRS and FERS employees (the vast majority) did not change for 1998, we

believe your auditors can rely upon their validity.

INQUIRIES

If you have any questions about the cost factors or the manner in which they were

computed, please contact the Financial Policy Staff on 202-606-0606 or email us at

finance@opm.gov. If your questions concern the accounting entries in Attachment C,

they should be referred to the Financial Management Service on 202-874-6308.

 

Robert A. Yuran, Chief

Financial Policy Staff

Retirement and Insurance Service

Attachments (3)

 

2 Offset employees contribute a percentage of basic pay equal to the full CSRS

contribution rate for their category of coverage minus the OASDI tax rate. When total

basic pay reaches the Social Security maximum taxable wage, the withholding rate

reverts to the full CSRS withholding rate. 

Attachment A

COST FACTORS - CSRS

CATEGORY

1998

COST FACTOR 

(%)

Regular 24.2

Regular offset2 19.3

Law enforcement officers 40.0

Law enforcement officers - offset2 36.2

Air traffic controllers 31.9

Air traffic controllers - offset2 28.2

Members of Congress 29.3

Members of Congress - offset2 27.0

Congressional employees 32.5

Congressional employees - offset2 27.8
Attachment B

COST FACTORS - FERS

CATEGORY FERS COST FACTOR (%)

Regular 11.5

Law enforcement officers 24.6

Air traffic controllers 23.1

Members of Congress 16.5

Congressional employees 16.7

Military reserve technicians 11.9
Attachment C

PENSION COST ENTRIES 

[Provided by the Financial Management Service]

SCENARIO

An agency has one employee, who makes $26,000 per year of basic pay or $1,000 per

pay period. Since he is a “regular” CSRS employee, he contributes 7% of his salary to

the Civil Service Retirement and Disability Fund and the agency contributes 8.51%. For

the sake of simplicity, the only deduction made from the employee’s salary is his

contributions to the CSRS. Entries to record payroll expense and the employer’s

portion of pension expense for contributions are made biweekly.

ACCRUAL ENTRY

Biweekly entries to record accrued payroll and contributions are, as follows [entries are

coded as “N” or “G” for elimination purposes on the Consolidated Financial Statements]:

6100N Operating/Program Expense (payroll) 1,000

6400G Benefit Program Expense (6100G may also be used) 85

2210N Accrued Funded Payroll & Benefits (employee pay, net) 930

2210N Accrued Funded Payroll & Benefits (employee contribution) 70

2210G Accrued Funded Payroll & Benefits (employer contribution) 85

CASH ENTRY

When the employee is paid, the entries are as follows:

2210N Accrued Funded Payroll & Benefits (employee pay, net) 930

2210N Accrued Funded Payroll & Benefits (employee contribution) 70 

2210G Accrued Funded Payroll & Benefits (employer contribution) 85

1010 Fund Balance with Treasury 1,085

- - and, if paid from an appropriation –

3100 Unexpended Appropriations 1,085

5700 Appropriations Used 1,085

Note: If the fiscal year-end falls in the middle of a pay period, an expense for the

closing fiscal year must be accrued. This accrual must be reversed at the

beginning of the new year.
IMPUTED FINANCING ENTRY

At fiscal year-end, the entry to record cost that will be covered by imputed financing is

calculated. $6,292 [24.2% of $26,000] is the service cost of CSRS for this year. 

Employees have contributed 7% or $1,820 for the year and the agency has contributed

another 8.51% or $2,213. $2,259 [$6,292 - $1,820 -$2,213] of additional cost will be

“financed” by an imputed financing source.

For FY 1998 reporting, the SGL Board implemented an Imputed Financing Sources

account. The entry will be:

6400G Benefit Program Expense 2,259

– or –

6100G Operating Expenses/Program Costs 

 5780 Imputed Financing Sources (“G” by definition) 2,259

For FY 1999 reporting, the SGL Board has voted to implement an “Imputed Cost”

account and delete account 6400. The entry will be:

6730 Imputed Cost (“G” by definition) 2,259

5780 Imputed Financing Sources (“G” by definition) 2,259