What is the Federal Employee Retirement System?

The Federal Employee Retirement System (FERS) is a three-part plan that provides retirement benefits for civilian employees within the federal branch of the United States government. It consists of a core Basic Benefit Plan, Social Security benefits and a Thrift Savings Plan (TSP). The Federal Employee Retirement System was enacted by Congress in 1986 and went into full effect in January 1987. Created to take the place of the Civil Service Retirement System, the Federal Employee Retirement System allows annuity-based retirement benefits to employees upon their attaining minimum retirement age (MRA).

The Basic Benefit Plan portion of the Federal Employee Retirement System is a form of defined benefit plan, also traditionally known as a pension plan. This means that each year that the employee remains a federal employee, he or she accrues a portion of his or her future monthly retirement benefit based on his or her earnings at the time. The longer an employee works, the larger the eventual monthly benefit will be when he or she reaches MRA. In some cases, if an employee leaves before reaching MRA, he or she still will be eligible for a certain percentage of his or her accrued monthly benefit upon retirement.

The Social Security component of the Federal Employee Retirement System is a social insurance plan that provides an array of financial benefits, including retirement and disability payments. Social Security also offers financial aid in the case of a retiree's death that can be paid out to the spouse or surviving children. Mandatory tax deductions, also known as Federal Insurance Contributions Act (FICA) deductions, are received from both the government agency and its employees and are used to fund the plan itself.

Governed by the Federal Retirement Thrift Investment Board, the Thrift Savings Plan portion is similar to a savings account to which the employer contributes on behalf of the employee. Each paycheck, the government agency places the equivalent of 1 percent of the employee's base pay into his or her TSP account. Employees can make tax-deferred contributions to their own accounts, matched up to a certain percentage by their employer, in order to further benefit from the plan and increase their retirement fund. Upon retirement, the employee is allowed to access the funds that have accumulated in his or her TSP with no tax implications.

Federal employees who change jobs over the course of their career progression are allowed to port their Social Security benefits and Thrift Savings Plan with them to their next job. Social Security benefits continue to accrue as long as the individuals remain actively employed. The Thrift Savings Plan generally will be converted into a standard 401(k) account. The Basic Benefit Plan portion of the retirement plan, on the other hand, is not portable and will continue to accrue benefits only if the employees are remaining within the federal government system.