New FERS Employees Pay 450% MORE Into the Same Retirement System
We were surprised to see there has been no conversation around such a large increase to new FERS employees. If you entered service after 2014 you are paying 450% MORE into the same system. New FERS employees are paying 4.4% for the same exact pension that at one time only cost 0.8%. In total new FERS employees are having 12.05% deducted from their paychecks right off the top for legacy retirement systems.
Overview of Different FERS Systems
- FERS = Federal Employees’ Retirement System
- 1/1/1987 – 12/31/2012
- 0.8% to FERS
- FERS-RAE = Federal Employees’ Retirement System – Revised Annuity Employees
- 1/1/2013 – 12/31/2012
- 3.1% to FERS
- FERS-FRAE = Federal Employees’ Retirement System – Further Revised Annuity Employees
- 1/1/2014 – Current
- 4% to FERS
Total Amount of Deductions for FERS Employees
- FERS
- 0.8% to FERS
- 6.2% to Social Security
- 1.45% to Medicare
- Total = 8.45%
- FERS-RAE
- 3.1% to FERS
- 6.2% to Social Security
- 1.45% to Medicare
- Total = 10.75%
- FERS-FRAE
- 4.4% to FERS
- 6.2% to Social Security
- 1.45% to Medicare
- Total = 12.05%
What Happens to Your FERS Contributions if You Leave Federal Service?
You have the option to receive a lump sum payment once you leave Federal service, however you must make a request to receive this amount. There are two options for receiving payment.
- Receive the total lump sum and pay ordinary incomes taxes on the full amount
- Rollover the funds into an IRA to avoid the increase in income and taxes
If you have accrued at least 5 years of service you may also defer your retirement until eligible which would be most likely age 60 are 62, however the pension may be severely reduced due to inflation by that time.
Should You Take The Lump Sum or Defer?
This is a tricky question that involves running the numbers on what would be more advantageous. If you are young in your career and absolutely know you will not be returning to Federal service then it may make sense to take the lump sum. If you receive the lump sum and join Federal service at a later date you are permitted to buy-back the time plus compounded interest.
Reach Out to Us!
If you have additional federal benefit questions, reach out to our team of CERTIFIED FINANCIAL PLANNER™ (CFP®) and Chartered Federal Employee Benefits Consultants (ChFEBC℠). At PlanWell, we focus on retirement planning for federal employees. Learn more about our process designed for the career federal employee.
Preparing for a federal retirement? Check out our scheduled federal retirement workshops. Sign up for our no-cost federal retirement webinars here! Make sure to plan ahead and reserve your seat for our FERS webinar, held every three weeks. Interested in having PlanWell host a federal retirement seminar for your agency? Reach out, and we can collaborate with HR to arrange an on-site FERS seminar.
Want to fast-track your federal retirement plan? Skip the FERS webinar and start a one-on-one conversation with a ChFEBC today. You can schedule a one-on-one meeting here.
