In addition to Social Security benefits as a base, FERS offers both an annuity that grows with length of service and a tax deferred savings plan. Employees pay less than 1 percent of salary to qualify for the annuity and are fully vested after 5 years of service and, for disability benefits, after just 18 months. Because the savings plan is tax deferred, no income tax is due on either the employee's contributions or the Government matching funds, or the earnings on those amounts, until retirement. Employees can choose to invest in any of five funds, or to spread investments across the funds. The Government pays one-third of the cost of this group term insurance.
Employees can also purchase optional insurance at their own expense.
Optional coverage includes additional insurance on the employee's life as well as coverage for the employee's spouse and eligible children, if any. Those younger than 45 receive an additional amount of coverage at no greater cost. The enhancement declines from double the basic amount for those 35 and younger to zero at age 45, when coverage becomes the basic amount. Accelerated death benefits are available to terminally ill enrollees so that they can receive life insurance proceeds while they are living. Many large organizations are cutting life insurance benefits to retirees.