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friend2u  
#1 Posted : Thursday, September 25, 2008 10:40:49 AM(UTC)
friend2u

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This may be the best comparative analogy regarding CSRS vs. FERS that I have seen to date. Most people think CSRS has it all over FERS but this article addresses the pros and cons quite well!

GovExec

FRIDAY, SEPTEMBER 19, 2008

CSRS vs. FERS: 2008 Edition
By Tammy Flanagan, National Institute of Transition Planning

If you work in the federal government, you've no doubt heard people either brag or lament (depending on when they were hired, usually) that the Civil Service Retirement System is much better than its successor, the Federal Employees Retirement System. I hear these kinds of comments all the time.

There is no denying that some parts of CSRS truly are superior to FERS, such as:

* Inflation Protection: CSRS retirees who are old enough and have selected an immediate retirement benefit start getting cost of living adjustments right away. And the COLAs are the same as they are for Social Security recipients and military retirees -- the full increase in the Consumer Price Index for urban wage earners and clerical workers. The FERS basic benefit also features a COLA, but it is less generous and usually not payable until the retiree is 62 years old.
* No Need to Save: CSRS is a single benefit retirement plan. It's possible to live comfortably on CSRS benefits without a dime of Social Security and with little in retirement savings -- although most people need to have 30 or more years of federal service for this to be true.
* Support for Survivors: Full survivor benefits for a spouse equal 55 percent of the unreduced CSRS benefit and the reduction to provide this benefit is less than 10 percent of the overall benefit. Full survivor benefits for a spouse of a FERS annuitant are 50 percent, and the reduction to the FERS benefit is a full 10 percent. Surviving spouses of FERS retirees also generally will inherit the balance in the spouse's Thrift Savings Plan account and may qualify for widow's benefits under Social Security.
* Better Basic Benefits: The CSRS basic benefit is almost twice as large as its FERS counterpart. But CSRS employees are exempt from Social Security and receive no matching on their TSP contributions. And unused sick leave is added in the CSRS computation, while FERS employees currently receive no credit for it. (Although the House voted this summer to give FERS retirees the same sick leave credit as those under CSRS.)
* Lifetime Security: Under CSRS, you do not have to worry that your money might run out before you do. The CSRS annuity is for life, and is indexed to inflation. The FERS basic benefit and Social Security also are lifetime benefits, but it is possible to outlive your retirement savings in your TSP account if you neglect to plan for the future.

What FERS Offers

So if CSRS has all that going for it, what does FERS offer? Here are a few advantages:

* More Flexibility: FERS offers Social Security coverage that's the same as you would have if you worked in private industry -- or any other job sector. Your Thrift Savings Plan funds belong completely to you, even if you don't spend your entire career in federal service. The automatic 1 percent agency contribution is vested after three years of service. Your contributions and agency contributions matching them are immediately vested. If you resign from federal service, you can transfer these funds to a new employer's retirement savings plan, or continue to leave them invested in the TSP. Also, the FERS basic retirement benefit is vested after only five years of civilian service.
* More Control: Some people are very good at managing their investments, knowing the importance of diversification and the value of compound interest. FERS employees who have maximized the potential of their TSP investments probably would not choose to switch to CSRS if it meant they had to give up the agency contributions on their TSP accounts, along with the accompanying interest growth.
* Disability Benefits: The FERS disability program is more generous than CSRS for employees with as little as 18 months of federal service. FERS employees also may be eligible for additional Social Security disability benefits. Most CSRS employees would not qualify for Social Security disability because they don't have recently earned Social Security credits.
* Dependent's Benefits: FERS employees who work for only a portion of a full career and spend the other part working at home to raise a family and take care of a household can receive either their own Social Security benefits or the dependent's benefits earned by their spouse -- whichever is higher. A CSRS retiree is affected by the Government Pension Offset, which usually eliminates or greatly reduces any dependent's benefit.
* Support for Family Members: Social Security provides not only for workers, but also their dependents, upon death, disability or retirement. CSRS provides survivor benefits only for spouses.
* Leaving a Legacy: For those who are unmarried and not concerned about survivor annuity benefits for spouses, FERS allows anyone to be named as the beneficiary of TSP funds. For the annuities that make up the core of a CSRS retirement, only a spouse or a person having an "insurable interest" in you can receive a benefit if you die first.

Asking for It

I know that in even raising the CSRS vs. FERS question, I'm asking for it. I went through this a couple of years ago with my most controversial column to date. Many of you already questioned my mental state at that point, so you can save your breath this time around.

Here are my basic beliefs, and I'm sticking to them:

* I believe that FERS employees who spend their entire career in federal service can expect to retire comfortably if they understand that FERS requires employee participation and involvement.
* Compared to most private sector retirement plans, FERS has the advantage of a basic benefit. Most companies are no longer offering their workers such pension plans.

I will agree that, in general, CSRS provides more security for much less effort. In the long run, FERS will be less expensive to the government, since it places more responsibility on the employee to save.

That presents a problem, because not everyone manages their retirement savings to optimum advantage. Many people neglect to save for retirement in their younger years, and it's very hard, if not impossible, to make up for that lost time in later years.

I hope those of you who are new to federal service will recognize early in your career that you will not be able to live comfortably on just Social Security. Even adding in the FERS basic benefit won't be enough if you want to retire at a young age (55 - 62). You need to save and invest. Take the time to understand retirement planning early in your career. It will pay off in the future.

Tammy Flanagan is the senior benefits director for the National Institute of Transition Planning Inc., which conducts federal retirement planning workshops and seminars. She has spent 25 years helping federal employees take charge of their retirement by understanding their benefits.
Halfbreed  
#2 Posted : Thursday, September 25, 2008 12:13:18 PM(UTC)
Halfbreed

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I guess one would have to consider the source of this information as to whether one is better than another.

The governments ONLY concern was to reduce the governments outlay and put it on your back.

Flexibility is a non-issue, as The money in the TSP acct belongs to you anyway....regardless of what system you are under. FERS auto investment of 1% is yours after 3 years (Fully Vested)

quote:
MORE CONTROL....Some people are very good at managing their investments, knowing the importance of diversification and the value of compound interest. FERS employees who have maximized the potential of their TSP investments probably would not choose to switch to CSRS if it meant they had to give up the agency contributions on their TSP accounts, along with the accompanying interest growth.


TSP Participants would probably WANT to change over to CSRS, since the money in the TSP is basically theirs to begin with (- the Gov't match)
and would still belong to the employee. After all, it IS their OWN contributions that make up the lions share of their own retirement, as far as TSP is concerned.

There actually IS a disability benefit for CSRS employees. Hopefully, no one would need it tho.

quote:
I believe that FERS employees who spend their entire career in federal service can expect to retire comfortably if they understand that FERS requires employee participation and involvement.



Yep, if you take 10% (or more) of your own money to make up the difference.

Sorry to say, this is typical of management (HR)blather....in the old days, they called them "Soothesayers". One thing mentioned above is certain...put away as much of YOUR money to fund your future. The government has already gotten themselves OFF the hook, and you ON the hook.
IRA - ALL THE WAY !!!

Thank god the majority of us (95% PLUS) did not believe the Feds when FERS was suggested as a better alternative, and chose to stay CSRS.
crpetersen  
#3 Posted : Thursday, September 25, 2008 11:38:31 PM(UTC)
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I've never seen the two retirement plans compared without prejudice - this is great! Thanks for posting it for us. Carolyn
ILDOD  
#4 Posted : Friday, September 26, 2008 12:24:19 AM(UTC)
ILDOD

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I agree, this is one of the best comparisons I have seen. MS Flanagan forgot to mention that CSRS employees can contribute to TSP, so we can enjoy some of the TSP benefits she mentioned.

I am not sure why MS Flanagan would write this type of article but if it for employees who have a choice between the two systems she missed the mark by not covering CSRS-offset. This option can be far superior to FERS for many employees who have the option.
zinger1457  
#5 Posted : Saturday, September 27, 2008 11:32:59 AM(UTC)
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If you run the numbers you might reconsider which one is better.

Lets assume we have an employee that started working 30 years ago at a $27K starting salary and averaged a 4% increase per year over 30 years. This would result in a high 3 of ~$80K after 30 years.

If this employee was in CSRS they would get an annuity of $45K/year. For CSRS the employee contributes 7% of their salary towards CSRS, this would cost the employee ~$106K over 30 years.

Under the same circumstances if the employee was in FERS they would only get an annuity of $24K/year. The FERS employee annuity contribution is a lot less than CSRS, .8% compared to the 7% CSRS employee contribution. If the FERS employee invested this difference (6.2% of salary) in TSP they would have a savings of ~$435K after 30 years. This assumes money was invested in the C Fund. The average stock market return over the past 30 years is 12%, I used a conservative 10% return for these calculations. FERS would also get a 5% government match based on the 6.2% TSP contribution which would come to $351K after 30 years.

For approximately the same employee cost:

CSRS employee gets $45K/year with COLA.

FERS employee gets $24K/year with COLA-lite plus $786K in TSP savings. I didn't include social security since CSRS employees don't contribute to it.
dannyatdetpac  
#6 Posted : Saturday, September 27, 2008 4:02:21 PM(UTC)
dannyatdetpac

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quote:

The FERS employee annuity contribution is a lot less than CSRS, .8% compared to the 7% CSRS employee contribution. If the FERS employee invested this difference (6.2% of salary) in TSP they would have a savings of ~$435K after 30 years.




I think there may be a flaw in your calculations.
It is true that CSRS employees pay 7% of their
salary into the CSRS fund, and it is true that
FERS employees pay .8% of their salary into the
FERS fund, however the 6.2% difference is not a
gain for the FERS employee since they must pay
6.2% of their salary (up to a max of $97,500) into
FICA (Social Security Retirement fund).
Therefore look at the figures. CSRS employees pay
7% into CSRS and FERS employees pay .8% into FERS
and 6.2% into FICA, which when added together (.8
6.2) comes to 7%. Looks like FERS folks and
CSRS folks are paying the same amount of
retirement tax. Also, both CSRS employees and
FERS employees pay 1.45% of their salary into
Medicare.

I will be retiring from FERS in about 2 years. I
have run the figures through the calculator for a
FERS retirement amount and a CSRS retirement
amount. With the same pay-in of 7% of my salary
I will get $43,000 a year under "FERS PLUS"
(which is FERS and the Supplemental Annuity), and
I would get $60,000 a year under CSRS. I am not
taking into account any TSP money, since most of
it was mine anyway and I could have put that into
CD's in a bank somewhere. I would also have been
able to have the 1300 hours of sick leave I have
accumulated converted to CSRS retirement time,
but I will lose it all under FERS (right now it
is use or lose, and I don't think that is going
to change in the next two years).

I consider the CSRS retirement system to be
a "Mercedes" and the FERS retirement system to be
a "Volkswagen". Both types of cars will get you
where you want to go, but I personally would
rather be driving a Mercedes than a Volkswagen.

[This message was edited by DannyAtDetpac on September 28, 2008 at 03:16 AM.]

[This message was edited by DannyAtDetpac on September 28, 2008 at 03:17 AM.]
postalwiz  
#7 Posted : Saturday, September 27, 2008 9:31:04 PM(UTC)
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Some little flaws that needs to be taken into
consideration. FERS is portable, that is if
you leave Government your Social Security
Credits if you get a job with SS keeps adding
to your quarters and SS earnings. Earnings under
SS are adjusted for inflation once you are eligible to retire, that is if you made 2000
in 1960 it is worth a lot more after adjusting
for inflation. Your SS Suplement is only based
on the years you were a Fed and at 62 when it
stops SS will compute your SS by using all
years you contributed into Social Security (35 years)which should give you more than the supplement. Under FERS you are also forgetting
the matching funds you get from the Feds which
may be yours but is part of the benefits FERS
employees get under TSP. My sick leave under
CSRS which 1 year and 3 months only gave me
a 2.1% on my retirement about 4% of my high 3;
I think if you look at the matching funds
for FERS employees under TSP that it actually
I would have been better under CSRS if my
I would have received matching funds from the
FEDS. FERS was designed to make FEDS put money
into TSP as a savings account, same thing has
been discussed under Social Security. No I do not think you have the Volkswagen retirement system (and by the way old Volkswagen's are worth
a lot of money) and back when we went into FERS
I ran computations of both at a return rate of
only 4% on my tsp contributions, FERS was slightly better and when making analysis of both
systems everything needs to be factored in. I
as a CSRS retiree with enough credits to qualify
for SS got also wacked of $300 under WEP.
charliesangel  
#8 Posted : Saturday, September 27, 2008 11:50:08 PM(UTC)
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quote:
Originally posted by DannyAtDetpac:
I am not
taking into account any TSP money, since most of
it was mine anyway and I could have put that into CD's in a bank somewhere.



Not taking "into account" the TSP 5% match that that FERS get and CSRS do not is a HUGE flaw.

To make it easy....Let's assume that your salary over your career of 35 years was $43K. Starting year and ending year and all in between.


5% (matching $$) of 43k is $2150.00. Now say your rate of return is 7% on that matching $$. That $$ alone would be $297,000. Invested in an annuity (worst case scenario return) calculated on the TSP website (with increasing payments - and 50% survivor annuity) you would be looking at $14,496 per year in addition to your 43k which would be $57,496. My guess is if you actually put that matching in a mix of funds at the beginning you'd get better than 7%.

Plus one component of FERS is the "incentive factor". Because you want the match (free money) you contribute the other 5% to get it whereas CSRS have no motivation to save that $$ and the statistics say that because of that they are less likely to do so. This is reflected in the statistics gathered based on TSP account balances of employees in both retirement systems.

AND regardless, if you are getting the match, then you also have the other 5% growth of your own 5% which could buy another anuuity of 14 K per year. This is not necessarily to compare against CSRS as it IS your own $$ bt.... because you have contributed 5% to get the match, at retirement, you are used to living on less than the typical CSRS retiree who did not "have to" save that 5% and therefore was less likely to and is probably spending it in other ways. (higher standard of living)

Given all stated above I think that a responsible FERS employee (always gets the match at least) will go into retirement with as much or more money per month as a CSRS retiree and be used to living on less and have the added benefit that if they die 3 years after they start to draw their annuity they are able to pass on a huge inheritance to their heirs regardless if they are married or not.
Halfbreed  
#9 Posted : Sunday, September 28, 2008 6:28:05 AM(UTC)
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While contributions to the TSP IS your money, and goes to your dependents upon your early demise, overall, it's a diminishing benefit, one that I found out about back in 81. I have been contributing to the TSP for over 18 yrs now, even tho I am CSRS.

The problem, as stated above, is that many do not contribute to the TSP as they should, early in their career. I've known folks who heard me for over a decade, then decided to do something, only to lament that they WISHED they didn't wait for 10-15 yrs before listening to me, or anyone who had good investment advice. Like I said earlier, is IS your money, and there are those in CSRS who contribute the same amt . To be fair, look at it on an equivalent basis.

Each employee (FERS, CSRS) contributes nothing to the TSP, then look at the stats 36 yrs later.
You see my point.....

Smart thing to do then, especially for FERS, is to save YOUR money for the future. Max it out and take what you can from Uncle Sam. Wink
maxketter  
#10 Posted : Sunday, September 28, 2008 10:28:16 AM(UTC)
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Its a moot point comparing the 2 systems, there is only 1 now so why all the crying over spilt milk??. The current system is gold plated inflation protested, there is not a better 1 out there so be thankful for what you have
ILDOD  
#11 Posted : Sunday, September 28, 2008 11:46:55 PM(UTC)
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That a responsible FERS employee (always gets the match at least) will go into retirement with as much or more money per month as a CSRS retiree. I mean real numbers of real retirees. I would like to see these numbers.

Again, I am not sure why these articles are written or why these comparisons are made because most people can not choose between the two. I suppose that these types of comparisons are made so that FERS employees will feel better. But for those very few employees who can choose, it is important for the comparisons to include CSRS-offset. Truly the best of the three.
postalwiz  
#12 Posted : Monday, September 29, 2008 12:00:31 AM(UTC)
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quote:
Originally posted by ILDOD:
That a responsible FERS employee (always gets the match at least) will go into retirement with as much or more money per month as a CSRS retiree. I mean real numbers of real retirees. I would like to see these numbers.

Again, I am not sure why these articles are written or why these comparisons are made because most people can not choose between the two. I suppose that these types of comparisons are made so that FERS employees will feel better. But for those very few employees who can choose, it is important for the comparisons to include CSRS-offset. Truly the best of the three.
Yes it has been said before that
being in the offset is the best of two worlds,
evidently some people do not believe that
and as far as the comparisons between CSRS
and FERS really is an old issue, nothing can
be done and I will reinterate that when FERs
came out and the matching funds at the time
was 3% and I ran a comparison by contributing
4% to TSP, tsp was slightly better than CSRS
if you contributed to TSP all your Federal
career, but it is beating on an old horse that
is already dead!
ILDOD  
#13 Posted : Monday, September 29, 2008 1:10:55 AM(UTC)
ILDOD

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What I am trying to do is encourage the comparison between FERS and CSRS-offset, because the bottom line is that these are the only two options left. Most employees have to choose FERS, however a few employees (those who were CSRS who left the government and are returning) have the option of choosing one or the other. So comparisons between FERS and CSRS are of no value, only a comparison between FERS and CSRS-offset would have any merit.

I would like to see real numbers on the retirement situations between FERS and CSRS (people who have actually retired from FERS, how do they compare). Many people say they have run the numbers and they will be much better off than if they were CSRS, some are predicting that they will be millionaires. Yet I see no real proof of this, I have yet to meet a FERS retiree who is a millionaire because of FERS. Most of my employees and friends who were CSRS retired on or around the age of 55. I have not seen this for FERS employees. There are lot of ifs with FERS; if the stock market does well, if you save for 30 years, if Social Security is still the same when you retire.

Recently the IRS reported that Federal Workers Owe Billions in Unpaid Taxes. What does this tell you about the ability of many federal workers to save.
ILDOD  
#14 Posted : Monday, September 29, 2008 1:16:05 AM(UTC)
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By the way, according to the IRS;

The agency with the most delinquent employees is the U.S. Postal Service. With more than 747,000 employees, the postal service is the largest employer in the federal government, but with a 4.16 percent delinquency rate, it is a full 1 percent above the average compliance rate this year.
postalwiz  
#15 Posted : Monday, September 29, 2008 2:56:04 AM(UTC)
postalwiz

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Well I did not retire until 60 I was a Postal
Employee do not owe the IRS a red cent and
as for FERS and TS, yes I do have friends
who retired and had money into TSP which
made them rich with big houses but unfortunately
I am not one to gamble with my money so not
rich, enough to pay my bills and eat! those who
made big money with TSP are not going to be
bragging as to how much money they made and yes
the stock market can vary up or down but until
now had made quite a bit of money for those who
had their monies in the appropriate funds and
remember what the Federal Government promises
you with your retirement the Federal Government
can change!
zinger1457  
#16 Posted : Monday, September 29, 2008 3:22:08 AM(UTC)
zinger1457

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My only reason for providing the example I did was because I read a lot of messages on this forum implying that the switch from CSRS to FERS was some big government conspiracy to screw the working people. If anyone did some research on the retirement plans being offered in the commercial sector they would see that FERS is better than most. FERS (TSP) does require some self discipline which unfortunately is in short supply in the American workforce. I'm also fairly certain that any CSRS employee that recently retire with 30 years of service would have been much better off if they could have invested their 7% employee contribution in a TSP type of stock fund. I know I would be much better off if I could have invested all of my SS contributions into a TSP type of stock fund.
charliesangel  
#17 Posted : Monday, September 29, 2008 8:24:48 PM(UTC)
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quote:
Originally posted by maxketter:
Its a moot point comparing the 2 systems, there is only 1 now so why all the crying over spilt milk??. The current system is gold plated inflation protested, there is not a better 1 out there so be thankful for what you have


I don't hear crying.... More like owners of the latest Mustang comparing with owners of the original or comparing Football today with Football of the past.... Just interesting stuff for folks to discuss that are common interests.
Wink
charliesangel  
#18 Posted : Monday, September 29, 2008 8:32:02 PM(UTC)
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I think the auto enrollment into TSP at hire is a huge step forward for FERS folks. When newbies come in the door there should be that pressure to explain that they are getting 100% interest on the first 5%. Putting into TSP early in career will make a average FERS retirement system a great retirement system.
angioid  
#19 Posted : Monday, September 29, 2008 9:47:52 PM(UTC)
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quote:
I'm also fairly certain that any CSRS employee that recently retire with 30 years of service would have been much better off if they could have invested their 7% employee contribution in a TSP type of stock fund.


I will be retiring in March 2009. For kicks . . . fully armed with my salary history and actual CSRS contributions and based on current TSP annuity rates, I determined that to yield the same income as the TSP annuity, my CSRS contributions would have had to earn a 15% annual return compounded over 35 years. it is not bloody likely that many people will be able to achieve this with their TSP accounts.
zinger1457  
#20 Posted : Tuesday, September 30, 2008 5:27:37 AM(UTC)
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quote:
Originally posted by angioid:
I will be retiring in March 2009. For kicks . . . fully armed with my salary history and actual CSRS contributions and based on current TSP annuity rates, I determined that to yield the same income as the TSP annuity, my CSRS contributions would have had to earn a 15% annual return compounded over 35 years. it is not bloody likely that many people will be able to achieve this with their TSP accounts.


Your saying I would need a 15% return on my TSP to equal your CSRS annuity? You need to recheck your calculations! If I contributed just $100/month to my TSP and averaged a 15% return for 35 years I would have over $1.4M. Add in the 5% government match for TSP and I would have an additional $1M after 35 years. How much would a $100/month CSRS contribution for 35 years give me? I do agree no one should expect a 15% return on their TSP.
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