Civilian Retirement Open Season Slated
American Forces Press Service
WASHINGTON, Jun. 16, 1998 Civilian DoD employees enrolled in the Civil Service Retirement System may transfer to the Federal Employees Retirement System during a six-month "open season" that begins July 1.
The controversial opportunity will be offered to some 1 million U.S. federal employees covered by CSRS -- more than one-third are DoD civilians. The open season, the first since the start of FERS in 1987, gives employees a choice between two distinct retirement plans.
CSRS dates back to 1920. Diane Disney, deputy assistant secretary of defense for civilian personnel policy, calls it a "defined benefit program." CSRS employees contribute to a pension plan but not Social Security (except Medicare). Retirees receive a specific monthly pension for the rest of their lives, but no Social Security unless they've earned benefits through other employment.
FERS is a three-part pension program. Civilians in the plan pay full Social Security and earn full benefits; they contribute a small amount to a pension fund, and that earns a much smaller pension compared to CSRS workers'. The third part, the Thrift Savings Plan, or TSP, is similar to tax-deferred private-sector 401(k) plans.
Every FERS employee has a TSP account that receives a government contribution equal to 1 percent of the worker's salary. In addition, FERS employees may contribute up to 10 percent of their pay and receive up to a total 5 percent government match -- for a maximum annual investment of 15 percent of their salary. (CSRS employees may invest up to 5 percent of their income in the TSP, but they receive no matching funds.)
Officials acknowledge that FERS employees who do not participate in the TSP will receive smaller total pensions than CSRS employees. FERS workers who do save, however, can ultimately collect more retirement pay.
All employees who joined the federal work force during the past 12 years have automatically been enrolled in FERS. As CSRS employees retire, FERS will eventually become the only employee retirement plan.
Disney acknowledged that CSRS employees have a big decision ahead as the FERS open season approaches.
"It's a difficult decision and a highly personal one," she said in an interview with the Armed Forces Radio and Television Service. "What might be right for one person might not be right for another."
She said CSRS employees need to consider their future financial obligations, the likelihood they will leave government service before retiring, and the amount of risk they are willing to assume for their retirement accounts.
The CSRS' guaranteed, specific pension is the lower-risk option. Except for cost-of-living allowance adjustments approved by Congress, the only factor that can affect an employee's retirement pay is any amount invested in the TSP.
FERS, on the other hand, can include higher risks, particularly if employees invest all or most of their TSP in the "C" stock fund, where investments fluctuate with the stock market. The current bull market has rewarded C fund investors with a 30 percent return during the past 12 months, but the news can be bad if the market stumbles.
To help employees decide which retirement plan is best for them, DoD has established a World Wide Web site to compare benefits and answer frequently asked questions about CSRS and FERS. The address is www.cpms.osd.mil.
In addition, the Office of Personnel Management has a handbook, "FERS Transfer Handbook, A Guide to Making Your Decision," posted on the Web at www.opm.gov. The interactive site allows people to project their retirement benefits under both systems.
Disney recommended that employees considering a switch use the available tools to help them make an educated decision before the Dec. 31 deadline. She said decisions to switch to FERS are irreversible, and based on past experience, employees are unlikely to get another chance to transfer from CSRS to FERS.
"I urge people not to make this decision hastily," Disney said. "I'd encourage people to look at the material very carefully, to calculate the alternatives, to think about it a little while and to look at the numbers again before making a decision."