Way back in 1920, the first version of a retirement system for federal employees was created. That was called the Civil Service Retirement System, and as we know, a new system was formed to replace it back in 1986. Some federal employees opted to stay with the CSRS system, but all new employees were subject to the Federal Employees Retirement System (FERS) that we have today.
One intent of the FERS plan was to help shore up Social Security, by getting more employees to pay into it. But the larger – and more important to our conversation – point was to create a fully funded retirement system for federal employees, that would not require the Treasure to include a budget line item for federal pensions.
In other words, the Treasury does not have to decide, each year, whether and how to fund FERS annuities. The annuities are funded through employee and agency contributions, as well as with interest earned on the Treasury bonds held by the Civil Service and Retirement Disability Fund (CSRDF). You pay a percentage of your income into the annuity fund (according to your position and time of hire) and each agency includes their contribution within its own annual budget.
Not only do these contributions fund the pension; they also provide for future cost-of-living adjustments for retirees.
According to the CSRDF Annual Report and its language on plan termination: “Since the Plans have been established by an act of Congress, they cannot be terminated unless legislation should be enacted to do so. As there is no anticipation that such legislation will be introduced, the Plans are expected to continue indefinitely.”
Why are we telling you this? It’s important to understand how your benefits are actually funded, especially when you’re hearing and reading a lot of news lately about proposed changes to the system. Currently, lawmakers are looking at changes to the system, not scrapping the system altogether.
There are various reasons that politicians debate making changes to the FERS system, and it’s not our place to tell you how you should feel about these proposed changes. What we do want to do, is to help you learn about your benefits, so you can see how changes would affect you (both positive and negative), and decide for yourself how you feel about your benefits. You always have the right to contact your Congressional representatives and express your feelings.
In the meantime, we’re always here to answer questions about your retirement benefits, or to help you analyze your retirement options. Just give us a call, and we’ll set up an appointment to discuss your concerns.
