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Note: The material in this publication is based on the law in effect at the time it went to publication. Under the Balanced Budget Act of 1997, Public Law 105-33, for fiscal year 1998, employee retirement contributions will increase as follows. Deductions for the Civil Service Retirement System and the Federal Employees Retirement System would be increased by 0.25% in January 1999, by an additional 0.15% in January 2000, and by 0.1% more in January 2001, for a total increase of 0.5%. These higher contribution rates would be in effect through 2002. Additional retirement information and all publications of the U.S. Office of Personnel Management listed in this handbook are available on the Internet. OPM Web site for retirement publications - http://www.opm.gov/asd/htm/pub.htm

Transcript of Table of Contents - Postal - Postal Employees - …2 Maybe you're not planning to spend the...

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Note: The material in this publication is based on the law in effect at the time it went to publication.

Under the Balanced Budget Act of 1997, Public Law 105-33, for fiscal year 1998, employee retirementcontributions will increase as follows. Deductions for the Civil Service Retirement System and the FederalEmployees Retirement System would be increased by 0.25% in January 1999, by an additional 0.15% inJanuary 2000, and by 0.1% more in January 2001, for a total increase of 0.5%. These higher contributionrates would be in effect through 2002.

Additional retirement information and all publications of the U.S. Office of Personnel Management listed inthis handbook are available on the Internet.

OPM Web site for retirement publications - http://www.opm.gov/asd/htm/pub.htm

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Table of Contents

Introduction ...................................................................................................................................1

Your Chance to ChooseSimplifying Your DecisionMaking Your Own DecisionWhat Happens If I Do Nothing?How This Handbook is OrganizedWhat Things Do You Need To Make Your Choice?Making Your Election

Points to Consider .........................................................................................................................5

CSRS and FERS: How Do They Work? ....................................................................................6

Federal Employees Retirement System (FERS) .........................................................................7

OverviewWhen You Can Receive Retirement BenefitsHow Much You Will Receive After RetirementCost-of-Living Adjustments (COLA's)Cost to ParticipateThrift Savings Plan for FERSImportant Conclusions About FERS

Civil Service Retirement System (CSRS)..................................................................................15

OverviewWhen You Can Receive Retirement BenefitsHow Much You Will Receive After RetirementCost-of-Living Adjustments (COLA's)Cost to ParticipateThrift Savings Plan for CSRSVoluntary Contributions for CSRSImportant Conclusions About CSRSCSRS Offset BenefitsImportant Conclusions About CSRS Offset

Special Transfer Rules: CSRS to FERS...................................................................................20

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OverviewWhen You Can Receive Retirement BenefitsHow Much You Will Receive After RetirementCost-of-Living Adjustment (COLA's)Disability BenefitsHow CSRS Offset Service Is CreditedCost to ParticipateSurvivor BenefitsImportant Conclusions

Making Your Decision ................................................................................................................24

Choosing Based on When You Expect to RetireClose to Retirement AgeA Special Note for Career Couples Near RetirementFar From Retirement AgeIn Between -- Neither Close to Retirement nor Far from ItThe Trade-offsFERS FlexibilitySome Important CautionsIf You Are Unable to Meet Social Security Eligibility RequirementsIf You Are Unable to Contribute Enough to the Thrift Savings PlanIf You Should Die Soon After ChoosingSummary of Situations That Could Make Switching to FERS a Problem

Disability Benefits Under CSRS and FERS..............................................................................32

IntroductionEligibilityDefinition of DisabilityHow Much Disability Benefits Will BeContinuing Eligibility for Disability PaymentsConclusion

Survivor Benefits Under CSRS and FERS ...............................................................................35

IntroductionRecipients of Survivor BenefitsIf You Die as an EmployeeIf You Die After You RetireIf You Die After You Leave Federal Service, But Before You Retire Under FERSTransfer ConsiderationsConclusion

Involuntary Retirement and "Early-Out" Retirement ...........................................................38

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IntroductionSpecial Transfer RulesTransfer Considerations for Involuntary Retirees and Early Voluntary Retirees

Brief Description of the Social Security Program ....................................................................40

IntroductionHow the Program Is FinancedQualifying for BenefitsWho Is Eligible for BenefitsBenefits to Family MembersAmount of Social Security BenefitsTaxation of Social Security BenefitsSocial Security Earnings TestWhat Is the Social Security Earnings Test?Who Is Affected?How the Social Security Earnings Test WorksConclusionWindfall Elimination ProvisionWhat the Windfall Elimination Provision IsWho Is AffectedHow the Windfall Elimination Provision WorksConclusionHow to Estimate the Reduction in your Social Security Benefit Resulting from the Windfall

Elimination ProvisionUse of PEBES Benefit Estimates to Estimate CSRS-Offset ReductionsGovernment Pension OffsetWhat the Government Pension Offset IsWho Is Affected?What Is a Social Security Spouse or Survivor Benefit?How the Government Pension Offset WorksWhat Is the Effect of Transferring to FERS?Conclusion

Special Employee Groups ...........................................................................................................50

Law Enforcement and Firefighting PersonnelCSRSFERSSpecial Transfer RulesTransfer Considerations for Law Enforcement and Firefighting PersonnelAir Traffic ControllersCSRSFERSSpecial Transfer RulesTransfer Considerations for Controllers

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Military Reserve TechniciansCSRSFERSThrift Savings Plan Considerations for Special Groups

Service Credit Deposits and Refunds ........................................................................................54

Civilian ServiceCSRSFERSMilitary ServiceCSRSService in the National GuardFERSConclusion

Glossary........................................................................................................................................58

Acronyms

EXAMPLES.................................................................................................................................64

CSRS/FERS Special Transfer Rules..........................................................................................71

Comparison Table

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IntroductionYou have an opportunity that few workers have --the chance to choose your retirement plan. Youcan keep the retirement coverage you now have, oryou can choose to be covered by the FederalEmployees Retirement System (FERS). This is avery important decision. Depending on what thefuture holds for you, your decision can make adifference to you in how early you can retire fromthe Federal government and how much retirementincome you will have.

FERS was created by Congress in 1986, and itbecame effective on January 1, 1987. Since thattime, new Federal civilian employees who haveretirement coverage are covered by FERS.

However, when the Congress created FERS, oneof the rules it established was that people whoalready had enough Federal civilian service topotentially be eligible for a benefit some day underthe old Civil Service Retirement System (CSRS)would have a choice whether or not to be coveredby FERS. Your agency has identified you, basedon your current appointment and employmenthistory, as someone who meets this criterion. As aresult, you have a choice whether to keep theretirement coverage you now have or to transfer toFERS.

Depending on your current appointment andemployment history, you currently may haveCSRS coverage, CSRS Offset coverage, or onlySocial Security coverage. CSRS Offset coveragenormally applies to employees who are going to ajob with retirement coverage after a break in bothservice and CSRS coverage of more than 1 year,and who also had at least 5 years of civilian serviceas of the break in service.

If you have a term or indefinite appointment, youare not eligible for CSRS coverage, but you canelect FERS coverage.

This handbook is written primarily for employeeswho have a choice between CSRS or CSRS Offsetcoverage and FERS coverage. The Standard Form50 (or equivalent personnel form) that shows yourcurrent appointment will say whether you currentlyhave CSRS coverage, CSRS Offset coverage, oronly Social Security coverage. If you have anyquestions about what your current retirement statusis or should be, contact your servicing personneloffice. Be sure that they have accurate records ofall your Federal service. Even a few days canmake a difference.

If you are already covered under FERS, you do notneed to read this handbook. The U.S. Office ofPersonnel Management (OPM) booklet called TheFederal Employees Retirement System (RI 90-1)describes your benefits. If you are a Member ofCongress or a congressional staff person, youshould see your servicing personnel office.

The information in this handbook is based on thelaw in effect as of the printing date.

Your Chance to Choose

You have a personal election opportunity for 6months from the date of your reemployment oryour conversion to an appointment that offersFERS coverage. If you choose FERS, you can'tchange your mind later, so you want to choose theplan that fits best with your future plans.

Both CSRS/CSRS Offset and FERS are goodretirement plans. Each plan has advantages anddisadvantages. Neither plan is best for all Federalemployees. That's why you are being given achoice.

In general, CSRS may be better if you think thatyou will retire from the Federal Government aftera long career -- 20 or 30 years and before age 62.But what if you're not sure what the future holds?

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Maybe you're not planning to spend the remainderof your career with the Federal Government, oryou may want to retire before you have 20 or 30years of Federal service. In either case, FERS maybe the retirement plan you want.

Simplifying Your Decision

If you are like many people, your initial reactionmay be that this will be a complicated decision. For some people who have complex situations, itmay be. However, for most people, it becomes afairly simple decision when they think about thechoices in terms of their own situations. You needto consider factors such as your work history,when you want to retire, and whether or not youplan to stay in Federal service until then. To helpyou organize your thoughts about what isimportant to you, we have included a checklist atthe end of this section. It contains a list of factorsthat are important to many people in making theirdecisions. Some of them will be important to you,too.

The same transfer considerations apply, whetheryou are working full time or on a part-time basis. If you are married, we encourage you to discussyour choice with your spouse.

This handbook takes you through importantconsiderations and shows you why they’redifferent in CSRS/CSRS Offset and FERS. Manypeople reach a decision without reading very muchof this handbook, but we encourage you to at leastreview the first 23 pages because there are somespecial circumstances that may change your mind. You should look at the table of contents toidentify topics that may be of interest to you. When you finish reading, you should be preparedto make a choice based on the plan overviews,comparisons and examples. In most cases, youshouldn’t have to do any calculations to decidewhich retirement plan is better for you.

Making Your Own Decision

Remember, the decision whether to choose FERSis yours to make. This handbook contains theinformation you need to consider, but it won’t tellyou what to do. You must decide based on whatyou know about yourself, your past, and yourexpectations for the future. You shouldn’t decidebased on what someone else did. There may beone key factor in that person’s situation that wouldmake his or her choice inappropriate for you.

We have tried to keep this handbook as simple aspossible, but if you have questions, your agencyshould have personnel who can help answer yourquestions. So, if there is a part of the handbookthat’s important to your situation and that youdon’t understand, you should ask for help. However, while your agency should help answeryour questions about the handbook, they will nottell you what to do.

Finally, remember that you are choosing betweentwo very different retirement systems. Thehandbook stresses the differences. If you try tounderstand the differences between the systems interms of what’s important to you, your choice willbe easier. If you try to master exactly how eachsystem works, your decision will take more timeand effort on your part. Of course, this handbookin no way replaces the many pages of regulationsthat govern benefits under CSRS, FERS basicbenefits, the Thrift Savings Plan, and SocialSecurity, but it should contain all of theinformation you need to make your decision.

What Happens If I Do Nothing?

If you do nothing, your current coverage (CSRS,CSRS Offset, or Social Security) will stay thesame. Most people will not have another chance tochoose FERS coverage unless they leave Federalservice for more than 3 days.

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How This Handbook is Organized

This handbook begins with a review of theimportant features of CSRS and FERS, so you canunderstand how each plan works.

Next there's a section called "Making YourDecision" that explains how to determine whichplan better meets your needs. It also discussessome important cautions to consider when makingyour decision.

The next section provides a brief description of theSocial Security Program.

Another section contains examples using severalhypothetical employees that portray typicalemployee situations. Looking at them may helpyou make your decision.

This handbook also has an appendix that containsa handy reference chart for comparing the basicelements of CSRS and FERS as well as the specialrules for employees who transfer.

As you go through the handbook, you'll see a tableof contents for each section. This should make iteasy for you to find the information you need.

Also, you'll come across some words that areprinted in bold type. These words are important toknow. They're explained in the text, and are alsoincluded in the Glossary Section in the back of thebook.

What Things Do You Need To MakeYour Choice?

For many employees, this handbook will give youenough information to decide which retirementplan you like better. You will need only a pen tofill out the retirement plan election form.

If you have already earned some Social Securitycredits, but are not sure how many, you may wantto request this information from the Social

Security Administration. You can request astatement online on Social Security’s Web site athttp://www.ssa.gov, or you can use form SSA-7004, Request for Earnings and Benefit EstimateStatement to request a statement. You also candownload the form from Social Security's Web siteat http://www.ssa.gov, or your personnel officemay have the form or you can request it by calling1-800-SSA-1213.

Some employees want to do some calculationsbefore deciding. For you, there is a computerprogram that allows employees like yourself toenter data about your work history and futurecareer expectations to compare CSRS and FERSbenefits. To use this program, you may want tohave your Social Security earnings history and theamount of your Thrift Savings Plan balanceavailable.

This program is a projection into the future thatrequires making assumptions that may or may notturn out to be accurate, so you should not use thenumbers it produces as estimates of the futurebenefits. Instead, the results allow employees toevaluate the relative benefits of the two retirementsystems as they apply to the data provided.

The program is available for downloading onOPM’s Internet site at http://www.opm.gov/asd. Italso should be available through your agency.

Finally you need some time to read at least thebeginning of this handbook. Choosing yourretirement coverage is an important decision, so setaside some time to read the parts of this handbookthat are important to you, and to fill out yourretirement plan election form.

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Making Your Election

Whether you switch to FERS or decide to keep theretirement coverage you have, you shouldcomplete an election form, SF 3109, Election ofCoverage, and return it to your servicing personneloffice. An election to transfer to FERS is effectiveat the beginning of the next pay period after youragency receives the completed form. An electionto transfer to FERS is irrevocable once it hasbecome effective. If you transfer to FERS, youthen have a personal 30-day period to enroll in theThrift Savings Plan or to change your enrollment.

Your spouse does not need to consent to a decisionto change retirement plans. However, if 1) youhave a former spouse who is entitled, by courtorder, to a portion of your CSRS annuity or CSRSsurvivor benefits, 2) the court order is on file atOPM, 3) the former spouse has not remarriedbefore reaching age 55, and 4) the former spouseis still living, you cannot transfer to FERS withoutthat former spouse's consent. Your former spouse needs to complete SF 3110,Former Spouse’s Consent to FERS Election inorder for you to be able to transfer.

OPM can waive this requirement only in verylimited circumstances. If you don't know whetherOPM has a qualifying court order on file, or wantto request a waiver of the consent requirement, askyour servicing personnel office for Standard Form3111, Request for Waiver, Extension, or Search.

Finally you may want to file a new designation ofbeneficiary form, SF 3102, Designation ofBeneficiary, Federal Employees’ RetirementSystem, since CSRS designations are cancelledupon a transfer to FERS.

All of these forms are available from OPM’s Website at http://www.opm.gov/asd.

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Points to Consider

The following is a list of points that experience hasshown are important to many people in making adecision to keep their existing retirement coverageor switch to FERS. If you review the list andcheck off the points that are important to you, itshould help organize your thoughts before youstart reading about the features of the retirementplans. There are some blank lines so you can addadditional points that aren’t on the list. Remember, we are all different, so what isimportant to someone else may not be important toyou.

ü I plan to retire from my Federal job in thenot too distant future.

ü I want to keep my options open because Iexpect (or want) to leave my Federal jobbefore I am eligible to retire.

ü I want to be eligible to retire earlier than Ican under CSRS rules.

ü I am participating in the Thrift SavingsPlan and want to get matchingcontributions.

ü I can save at least 3% of my pay in theThrift Savings Plan.

ü I don’t expect to be able to save verymuch extra money for my retirement for along time.

ü I don’t have any (or very many) SocialSecurity credits and don’t expect to worklong enough to earn a benefit.

ü I would like to earn a Social Securitybenefit.

ü I would like to increase the Social Securitybenefit I already have earned.

ü I would like the portability that SocialSecurity gives in case I change jobs.

ü After I retire, I plan to work somewhereelse or have my own business.

ü I don’t expect to have my own SocialSecurity benefit, but want to be able toreceive one based on my spouse’s (orformer spouse’s) work.

ü My health is a concern to me.

ü I want to provide maximum survivorbenefits to my spouse.

ü I am a long-service employee who is at ornear maximum CSRS benefits, so I wouldlike a way to continue to increase myretirement benefit.

ü I already have a substantial number ofyears under CSRS Offset coverage anddon’t want to lose the CSRS benefit Ialready have.

ü I would like a tax break on my savings.

ü I am concerned about having as much ofmy retirement income protected frominflation as is possible.

ü I want more control over planning for myretirement and the amount of myretirement income.

ü ü ü

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CSRS and FERS: How Do They Work?

This section of the handbook will help you understand how both retirement plans work. It reviews the keyfeatures of FERS, then it describes CSRS. Here's what will be covered for each plan:

ü An overview,

ü When you can receive retirement benefits,

ü How much you will receive,

ü How your benefits can increase after retirement,

ü How much it costs you now,

ü Savings options that are available, and

ü Some important conclusions.

This section describes how the plans work for the majority of Federal employees. Other topics, such asinformation on special employee groups (law enforcement officers, firefighters, air traffic controllers, andmilitary reserve technicians), are covered in a later section of the handbook. Early retirement, disability anddeath benefits are covered in more detail in the section titled "Making Your Decision."

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Federal Employees Retirement System (FERS)

Overview

FERS is a retirement plan that provides benefitsfrom three different sources: a Basic Benefit Plan,Social Security, and the Thrift Savings Plan. Twoof the three parts of FERS (Social Security and theThrift Savings Plan) are portable should you leavethe Federal Government before retirement. FERSgives you more control over the retirement benefitsyou receive.

The Basic Benefit and Social Security parts ofFERS require you to make contributions each payperiod. The cost of the Basic Benefit and SocialSecurity are withheld from your pay as payrolldeductions. The Government makes contributionstoo. Then, after you retire, you receive benefitchecks each month for the rest of your life. This iswhat is called an annuity. The Thrift SavingsPlan part of FERS is an account that isautomatically set up for you. Each pay period youremploying agency deposits into your account anamount equal to 1% of the basic pay you earn forthe pay period. You can also make your owncontributions to your TSP account and youragency will contribute even more.

Although FERS is a single retirement plan, thethree benefit sources have different rules. TheBasic Benefit and Social Security portions will bediscussed together first. The Thrift Savings Planwill be explained by itself later.

Information about Social Security appearsthroughout this section on FERS. A brief overviewof the Social Security program prepared by theSocial Security Administration begins on page 40.

There also are some special rules for employeeswho transfer from CSRS/CSRS Offset to FERS.Be sure to read about them in the section thatbegins on page 20.

When You Can Receive RetirementBenefits

Basic Benefit Plan

If You Stay Until Retirement Age

With FERS, you can retire with a Basic Benefit assoon as you reach the Minimum Retirement Age(MRA) and have just 10 years of service. TheMRA is the first year in which you can receivebenefits. It varies according to the year you wereborn. For anyone born before 1948, the MRA isage 55. It increases gradually to age 56 for thoseborn before 1965 and goes up to 57 for those bornin 1970 and after.

The following chart will help you determine whatyour MRA is.

Minimum Retirement Age

If you were born... Your MRA is...

Before 1948 55

In 1948 55 and 2 months

In 1949 55 and 4 months

In 1950 55 and 6 months

In 1951 55 and 8 months

In 1952 55 and 10 months

In 1953 - 1964 56

In 1965 56 and 2 months

In 1966 56 and 4 months

In 1967 56 and 6 months

In 1968 56 and 8 months

In 1969 56 and 10 months

In 1970 and after 57

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Under FERS, you can retire when your age andyears of Federal service match any of theretirement combinations shown below. These areall immediate annuity benefits that also allowyou to keep your Federal Employees HealthBenefits (FEHB) and Federal Employees' GroupLife Insurance (FEGLI) coverage as a retiree ifyou have been enrolled for enough time (usuallythe 5 years immediately preceding your retirement)before you retire.

Retiring Under FERS

If you leave with thismuch service

You get Basic Benefitsat this age

At least 5 years 62 years

At least 10 years Your MinimumRetirement Age, withreduced annuity

At least 20 years 60 years*

At least 30 years Your MinimumRetirement Age*

*With these combinations, your Basic Benefitincludes the Special Retirement Supplement ifyou have at least 1 full calendar year of FERScoverage. See page 9 for more informationabout the supplement.

Postponing Your Benefits

If you retire at your Minimum Retirement Agewith only 10 years of service or less than 30 yearsof service or less than 20 years of service if age 60,you can wait until age 62 for full benefits and get apostponed annuity. You can begin receivingreduced benefits any time before age 62. Yourmonthly benefits will be reduced 5/12 of 1% foreach month (up to 5% per year) you are youngerthan age 62 when you start receiving benefits. Forexample, if you retire at age 56 with 10 years ofservice, you are 6 years away from age 62. Yourretirement benefit checks will be reduced by 30%.

If You Leave Before Retirement Age

One real advantage to FERS is that you do nothave to stay with the Federal Government untilretirement to receive good value from yourretirement plan. This value comes from the factyou get an Agency Automatic Contribution toyour Thrift Savings Plan (TSP) account equal to1% of your salary. Plus, if you contribute to theTSP, you can get up to 4% more. In addition, youwill probably earn more Social Security creditswherever you work next. If you leave theGovernment long before retirement, with littleservice, FERS will always be best.

Let's say that you leave before you have the rightcombination of age and service to retire. Once youreach the age shown in the chart on the previouspage, you may elect to begin receiving benefits. Ifyou don't have 30 years of service, you may alsochoose to put off receiving benefits until as late asage 62. This will allow you to receive a biggerbenefit by avoiding part or all of the 5% per yearreduction, and you can collect on your SocialSecurity and your TSP benefits.

If you don't want to wait until retirement age, youcan withdraw all of the money you havecontributed toward the FERS Basic Benefit Plan.It will be paid to you with a market rate ofinterest; that is, the same rate of interest earned bythe U.S. Treasury securities purchased by theRetirement Fund (the account that contains allemployee and employer contributions to CSRSand FERS). However, you give up your right toyour Basic Benefit after retirement. If you takeyour money out, you cannot put it back in if youreturn to work with the Federal Government later.It's usually better to leave your money in FERS sothat you can receive monthly benefits when youretire. This is because you pay very little comparedto the benefits you will eventually receive from theBasic Benefit.

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Social Security

For almost all American workers, Social Securityis the basic retirement plan to which other benefitsare added. To qualify for Social Securityretirement benefits, you must have paid SocialSecurity taxes for at least 10 years (or 40 creditsor “quarters”) over the course of your lifetime.(This 40-credit rule applies if you were born after1928. If you were born before 1929, you needfewer credits to qualify). The Social Securitycredits you earn as a Federal employee are addedto those you have earned in other employmentthroughout your career.

You can receive unreduced Social Securitybenefits if you wait until age 65. Starting in theyear 2000, this age will gradually increase to 67.Or, you can retire at age 62 and receive reducedbenefits. Your monthly Social Security checks willbe reduced about 20% from the full benefitamount you'd receive if you waited until age 65.(This gradually increases to a 30% reduction forthose born in 1960 or later.) Leaving the FederalGovernment before you retire has no effect on theSocial Security benefits you receive later. All ofyour FERS Social Security credits (years ofcovered employment) still count. You maycontinue to add more Social Security credits aslong as you work under Social Security. You canstill receive reduced Social Security benefits at age62 or full benefits at age 65 (or later as the SocialSecurity retirement age goes up to 67).

How Much You Will Receive AfterRetirement

Basic Benefit Plan

The amount of your FERS Basic Benefit annuity --the monthly checks you receive after retirement --depends on two things: your pay and your lengthof service.As in most other retirement plans, an annuityformula is used to determine your benefits. The

Government averages your highest 3 consecutiveyears of basic pay in your Federal career. The"high-3" average pay, together with your lengthof service, are used in the annuity formula. Yourlength of service is the total number of years andmonths you were covered under FERS.

Here is how the annuity formula is calculated:

FERS Annuity Formula

One Percent of your high-3 average pay for everyyear of service.

(Exception: If you are age 62 or older and have atleast 20 years of service when you retire, you willreceive 1.1% of your high-3 pay for every year ofservice.)

According to this formula, if you retire at age 55with 30 years of service, you will be eligible for anannual annuity that is 30% of your high-3 pay. Ifyou retire at age 62 with 30 years of service, youwould get 33% of your high-3 pay.

In addition, if you have at least 1 calendar year(January 1 to December 31) of FERS service, youwill be eligible for the Special RetirementSupplement. The Special Retirement Supplement(also known as the FERS Annuity Supplement) isa special benefit for those who have at least 1 fullcalendar year of FERS coverage, and who retire

(1) after 30 years of service at their MRA,

(2) after 20 years of service at age 60, or

(3) under the discontinued service or earlyvoluntary retirement provisions. (Theseemployees do not begin to receive theSpecial Retirement Supplement until theyreach the MRA.)

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The Supplement represents the amount you wouldreceive from the Social Security Administrationfor your FERS service as if you were 62 on the dayyou retire. This benefit substitutes for the SocialSecurity part of your total FERS benefit until age62, when most people become eligible for SocialSecurity. Like Social Security benefits, theSupplement is subject to an earnings test, whichmeans your benefits are reduced if your incomefrom earnings or self employment is higher than anallowable amount.

If you take advantage of the FERS earlyretirement option (retiring at your MRA afterleaving the Government), your annuity will becalculated according to the FERS annuity formulashown at the beginning of this section. Then, ifyou have less than 30 years of service, it will bereduced 5% for each year you are away from age62 when you retire or elect to receive benefits. Ifyou are 60 with 20 years of service, there's noreduction.

Remember, the Basic Benefit is just one of thethree sources of benefits you'll receive. You mayalso get Social Security and Thrift Savings Planbenefits.

Social Security

It's difficult to predict exactly how much you willreceive from Social Security.

A number of factors can affect your SocialSecurity benefits, such as your complete payhistory, whether or not you plan to work afterretirement, and whether your spouse has beencovered by Social Security.

Social Security benefits are determined by a three-part formula that is applied to your lifetimeearnings under Social Security. Those whopostpone receiving Social Security benefits untilthe full retirement age get higher benefits from thesystem.

Whether you start receiving Social Securitybenefits at age 62 or at the full retirement age, youshould be aware that continuing to work mayresult in what is called an earnings offset underthe Social Security Earnings Test. If you work atany job after you start receiving Social Securitypayments, your benefits will be reduced if youearn over the allowable amount. If you are underyour full retirement age, for every $2.00 you earnover the amount, you'll give up $1.00 in SocialSecurity benefits. The same rules apply to theSpecial Retirement Supplement. (See SpecialNotes on the Social Security Earnings Test onpage 43 for more information on this topic.)

More information about Social Security ispresented on page 40 and in the Overview section.

Cost-of-Living Adjustments (COLA's)

Basic Benefit Plan

Cost-of-living adjustments, or COLA's under theFERS Basic Benefit Plan begin when you reachage 62.

FERS' cost-of-living adjustments match the rate ofinflation when the increase in the ConsumerPrice Index (CPI) is up to 2%. (The CPI is amonthly survey that measures changes inconsumer prices.) If the increase in the CPI isbetween 2 and 3%, the cost-of-living adjustmentswill be 2%. If the CPI increases 3% or more, thecost-of-living adjustments will be the rate ofincrease in the CPI minus 1%. This means thatFERS cost-of-living adjustments are sometimesless than the rate of inflation.

For example, if the increase in the CPI is 2%,FERS basic benefit payments will increase by 2%.If the increase in the CPI is 5%, FERS retirementchecks will increase by 4%.

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The Special Retirement Supplement paid throughage 62 is not increased by cost-of-livingadjustments.

Social Security

Social Security gives cost-of-living adjustmentsthat match the rate of inflation.

Cost to Participate

Basic Benefit Plan

FERS Basic Benefits, including the SpecialRetirement Supplement, are financed by verysmall contributions from you and much largercontributions from the Government. Yourcontributions are automatically deducted fromyour paychecks. The Basic Benefit deduction for1998 is .80% of the total basic pay (basic pay, notincluding such things as overtime, bonuses, etc.)you earn in a pay period. However, in contrast,your agency pays 11.5% of your pay each payperiod for your Basic Benefit.

If you leave the Federal Government beforeretirement, you can take out all of your BasicBenefit Plan contributions, and you will receivemarket rate interest, but you lose any right to afuture Basic Benefit based on that service. Thismeans that the service covered by the refund willnot count toward eligibility to retire if you becomea Federal employee again, However, taking arefund does not affect creditability of the servicefor non-retirement purposes such as reduction inforce credit or leave.

Social Security

Your contributions to Social Security are actually atax. This means that there are no refunds -- even ifyou never gain enough years of Social Securitycredit to qualify for benefits.

Social Security taxes are a percentage of your pay,including overtime and bonuses. They are limitedto earnings below the maximum taxable wage

base, which in 1998 is $68,400. This amountincreases each year based on the annual averageincrease in earnings of the American work force asa whole. (You do not pay Social Security taxes onany earnings above the maximum taxable wagebase. However, these excess earnings are not usedin calculating your Social Security benefits,either.) The Social Security tax rate, not countingMedicare, in 1998 is 6.2% of salary up to themaximum taxable wage base. Your agency alsopays the same amount.

Total Cost to Participate

The total cost to you of the FERS Basic Benefitcontribution and Social Security in 1998 is 7.0%. This 7% is made up of .80% of pay for the BasicBenefit and 6.2% for Social Security. However,FERS will cost you less than 7.0% if you earnmore than the $68,400 maximum taxable wagebase because the Social Security tax stops whenyour earnings reach this amount. In other words,the FERS employee contribution rate is .80%. This is different from CSRS Offset which for 1998is 7.0% minus Social Security taxes. If FERSsalary exceeds the Social Security maximum wagebase, contributions stay in 1998 at .80%; thus take-home pay goes up. However, if CSRS Offsetsalary exceeds the Social Security maximum wagebase, when Social Security deductions stop, 1998retirement contributions go up to 7.0% - thus take-home pay is unchanged.

Thrift Savings Plan for FERS

The Thrift Savings Plan is an important part of thetotal FERS retirement package. It gives you a wayto save extra money for the future and to get a taxbreak today.

When you join FERS, your agency sets up a ThriftSavings Plan account in your name. Every payperiod, your agency automatically puts in anamount equal to 1% of your basic pay. This moneyis called your Agency Automatic (1%)Contribution. It is not a deduction from yourbasic pay. It is an amount your agency contributesfor you based on your basic pay per pay period.

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In addition, you can contribute up to 10% of yourbasic pay per pay period to your Thrift SavingsPlan account. If you contribute to your ThriftSavings Plan account, you will also receiveAgency Matching Contributions as follows:

• The first 3% you save each pay period will bematched dollar for dollar, and

• The next 2% you save each pay period will bematched 50 cents on the dollar.

Your own contributions and your AgencyMatching Contributions as well as the earningsattributed to these contributions belong to youright away. There is no waiting (vesting) period.You are vested in the Agency Automatic (1%)Contributions and attributable earnings after youhave completed 3 years of Federal (generally,civilian) service (2 years for some noncareerparticipants).

The money in your Thrift Savings Plan accountcan be invested in any of the three investmentfunds: the Government Securities Investment (G)Fund, the Common Stock Index Investment (C)Fund, and the Fixed Income Investment (F) Fund.The C and F Funds are riskier than the G Fund buthave the potential for earning higher rates ofreturn. For example, during the 10-year period1988 through 1997, the C Fund's compoundannual rate of return was 17.49%.

Twice each year there is a Thrift Savings Planopen season. During the open season, you canstart, stop, increase or decrease, and change theinvestment of your Thrift Savings Plancontributions. The investment election you makeduring the open season affects only your futurecontributions. You may move any portion of yourexisting account balance among the three funds byrequesting an interfund transfer in any month youchoose, without an annual limit.

The following chart shows how your agencymatches your contributions:

Percent of Basic Pay Contributed to YourAccount (FERS Participants Only)

If You PutIn:

Then Your AgencyPuts In:

And theTotalContributionIs:

0% 1% 0% 1%

1% 1% 1% 3%

2% 1% 2% 5%

3% 1% 3% 7%

4% 1% 3.5% 8.5%

5% 1% 4% 10%

6-10% 1% 4% 5%Plus the

percentageyou

contribute

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You can stop contributing to the Thrift SavingsPlan at any time. However, if you stop contributingoutside an open season, you must wait until thesecond open season after you stop before you cancontribute again. If you stop contributing during anopen season, you may resume contributions duringthe next open season.

You get a tax break for saving in the Thrift SavingsPlan because your Thrift Savings Plan contributioncomes out of your basic pay before Federal andmany State and local income taxes are figured.There is, however, an Internal Revenue Serviceannual limit on tax-deferred contributions. For1998, the limit is $10,000; this limit is indexed tocost-of-living adjustments referred to in the TaxCode and may change from year to year. You won'towe taxes on your contributions and attributableearnings until you withdraw your TSP account. Youcan withdraw your account when you separate orretire from Federal service. If you transfer all or anyportion of your Thrift Savings Plan account balanceto an Individual Retirement Arrangement or othereligible retirement plan, you do not pay taxes on thefunds transferred when they are transferred. Youwill, however, be subject to applicable taxes whenyou withdraw your funds from the IndividualRetirement Arrangement or other eligible retirementplan.

You may withdraw money from your Thrift accountwhile you are working for the Government if youare age 59 ½ or older or document financialhardship. You will be liable for taxes on theamount withdrawn and, if you are under age 59 ½,for the 10% early withdrawal penalty. You also canborrow from it. There are two types of TSP loans:general purpose and residential. You must have atleast $1,000 in your own contributions andassociated earnings to be eligible for a loan.

The Thrift Savings Plan is managed by the FederalRetirement Thrift Investment Board, anindependent Government agency. The Boardmanages the G Fund and contracts with aprofessional asset manager to manage the C and FFunds. This book describes the elements of the

Thrift Savings Plan that are most important inmaking a transfer decision. To find out moreabout the Thrift Savings Plan, ask your employingagency for the most recent booklet prepared andissued by the Board. You should read the Board'sdetailed information on each of the InvestmentFunds and review each Fund's performance beforemaking any investment decision. The Board alsoissues a Fact Sheet each month containing themonthly returns for the Thrift funds. This isavailable from your agency. TSP publications,forms, and rates of return are also available fromthe TSP Web site http://www.tsp.gov.

Important Conclusions About FERS

FERS is flexible for a work force that is morelikely to work for several different employers overthe course of a career. It allows for the fact thatmany employees may not retire from the Federalgovernment. FERS builds on the Social Securitycredits that employees already have or may earn inthe future from non-Federal work. Also, the ThriftSavings Plan keeps its value after an employeeleaves Federal service.

There are some important advantages to FERS:

• Portability - FERS lets you take most of yourretirement benefits with you when you leaveFederal service and add to them in your futurejobs. Instead of decreasing in total value, most ofyour benefits will continue to grow. You'llprobably earn more Social Security creditswherever you work next. Also, your contributionsand attributable earnings, Agency MatchingContributions and attributable earnings, and ifvested, the Agency Automatic (1%) Contributionsand attributable earnings, in your Thrift SavingsPlan account can be transferred to an IndividualRetirement Arrangement or other eligibleretirement plan. You may also leave your ThriftSavings Plan account balance in the Plan where itwill continue to accumulate earnings based on

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your investment decisions. The part of FERSthat does decrease in value, the BasicBenefit, only requires a small contributionfrom you. If you withdraw your BasicBenefit contributions, you receive intereston that money.

• Flexibility - You have more control over theamount of your retirement benefits. Forexample, you decide how much to contributeto the Thrift Savings Plan and where money isinvested. If you contribute, the first 5% of yourcontributions are matched by agencycontributions.

• Minimum Service Requirement - You canreceive a reduced benefit after only 10 years ofservice once you reach your MinimumRetirement Age, whether or not you reach thatage while a Government employee. You do nothave to wait until age 62.

• Early Annuity Eligibility - If you leave theFederal Government before retirement andwith at least 30 years of service, FERS lets youbegin to receive full retirement benefits assoon as you reach the Minimum RetirementAge or with 20 years of service when you areat least 60 years old. You do not have to waituntil age 62.

FERS has some disadvantages too:

• To get the most out of FERS, you have to paymore than the 7.0% that the Basic Benefit andSocial Security require. You also need to takeadvantage of the Thrift Savings Plan,especially if you are an upper incomeemployee, for whom Social Security will makeup a smaller percentage of retirement income.

• If you continue to work after you startreceiving the FERS Special RetirementSupplement or Social Security, you could losesome benefit dollars if your earnings are morethan the allowed amount.

• The cost-of-living adjustment that FERSprovides (CPI minus 1%) does not completelymake up for inflation if the increase in theConsumer Price Index is more than 2%. Also,cost-of-living adjustments do not start untilyou are age 62, even if you retire sooner.

FERS is a good retirement plan, especially foremployees who are not sure whether they will staywith the Federal Government until they retire.FERS gives employees more control over theamount of their retirement benefits. It also allowsyou more flexibility in deciding when to retire.

If you do stay with the Federal Government untilretirement, you will also receive good benefitsbased on your FERS coverage. FERS comes outahead of CSRS if you retire late because theannuity value of your Social Security benefit andThrift Savings Plan go up quickly if you continueto work past age 62. The Windfall EliminationProvision penalty reduces (see page 45) as you gofrom 20 to 30 years of service under FERS. Thereduced cost-of-living adjustments have less effectif you retire later.

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Civil Service Retirement System (CSRS)

Overview

The Civil Service Retirement System (CSRS) hastraditionally been a single benefit retirement plan.Employees have had one payroll deduction for theplan and, after retirement, have received one checkfrom CSRS each month for the rest of their lives.

CSRS employees may also contribute to the ThriftSavings Plan in order to receive additionalretirement income. If you stay with CSRS, you cancontribute up to 5% of your basic pay each payperiod and receive a tax break today. (CSRS,including CSRS Offset employees, receive noagency contributions to their Thrift accounts.)

If you have CSRS Offset coverage, you should readboth this section, which gives the basic CSRSrules, as well as the following section beginning onpage 20. It tells you what is different under theoffset rules. If you are a law enforcement officer,firefighter, air traffic controller, or military reservetechnician, you also need to read the SpecialEmployee Groups section that begins on page 50.

When You Can Receive RetirementBenefits

If You Stay Until Retirement Age

With CSRS, you can retire with full benefits assoon as your age and years of Federal servicematch one of the retirement combinations shownbelow:

Retiring Under CSRS

• At least age 55 with 30 years of service ormore.

• At least age 60 with 20 years of service ormore.

• At least age 62 with 5 years of service ormore.

Except in limited circumstances, CSRS does notallow you to retire voluntarily before you have therequired age and service combination and take areduced benefit (a reduced annuity) like FERS andmany other modern plans do.

If You Leave Before Retirement Age

The chart above shows when you can retire andbegin receiving CSRS benefits as an immediateannuity. If you leave Federal service before youare eligible to retire, you must wait until age 62 toreceive monthly benefits, no matter how manyyears of service you have.

For example, let's say you simply stop working forthe Federal Government at age 53 with 30 years ofservice. You're not 55 yet, so you don't qualify forretirement. Your monthly checks from CSRS won'tstart until you turn 62. Your monthly benefitamount is based on your pay when you leave. Withinflation, those dollars don't buy as much by thetime you receive them at age 62. You can'tcontinue your health or life insurance as a retiree,either.

If you don't want to wait until age 62 to getbenefits, you can withdraw all of the money you'vecontributed when you leave. However, in mostcases, your money will be returned to you withoutany interest, and, you will not get monthly checksfrom CSRS, even at age 62.

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How Much You Will Receive AfterRetirement

The amount of your annuity -- the monthly checksyou receive after retirement -- depends on twothings: your pay and your length of service.

In computing your annuity, the Government usesyour 3 highest consecutive years of basic pay and

your length of service (the number of years andmonths you worked for the Federal Governmentand your creditable military service). If you retireand receive a benefit right away, you will also getcredit for any unused sick leave.

Here is how the CSRS annuity formula iscalculated:

Note: The maximum benefit you can receive fromCSRS is 80% of your high-3 pay plus credit foryour sick leave. This limit generally affects onlythose who have more than 41 years of service whenthey retire.

According to the formula above, if you retire at age55 with 30 years of service, you will be eligible foran annual annuity that is about 56% of your high-3pay.

You will receive your full monthly annuity even ifyou have other retirement income or start a secondnon-Federal career when you retire. There is noreduction in your annuity because of otheremployment.

This is a very generous annuity formula comparedto those used by many other retirement plans. Asyou can see, it rewards long service, because youreceive more money for the years of service thatcome late in your career. It's not quite as generousif you have less than 10 years of service.

CSRS Annuity Formula

Years of Service What You Receive

First 5 years of service 1.5% of your high-3 average pay foreach year, or 7.50% of your high-3.

Second 5 years of service Plus1.75% of your high-3 average pay foreach year, or 8.75% more for a total of16.25%.

For all years of service over 10 Plus2% of your high-3 average pay for eachyear.

10 more years (20 total years) 20% more, for a total of about 36% ofyour high-3.

15 more years (25 total years) 30% more, for a total benefit of about46% of your high-3.

20 more years (30 total years) 40% more, for a total benefit of about56% of your high-3.

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Cost-of-Living Adjustments (COLA's)

Inflation is a fact of life, but the actual rate ofincrease varies from year to year. To helpretirement benefits keep pace with inflation, CSRSgives all those who retire annual cost-of-livingadjustments or COLA's.

Your retirement benefits are eligible to beincreased by a cost-of-living adjustment in the yearafter you retire, and every year after that. Theincreases you receive each year actually match therate of inflation, as measured by the ConsumerPrice Index (CPI).

For example, if the increase in the Consumer PriceIndex is 2%, CSRS retirement checks will increaseby 2%. If the increase in the Consumer Price Indexis 5%, the cost-of-living adjustments will also be5%.

Cost-of-living adjustments help make sure thatyour retirement dollars keep the same buyingpower year after year. CSRS is better than manyother retirement plans because it provides completeprotection against inflation.

Cost to Participate

CSRS retirement benefits are financed bycontributions from you and much largercontributions from the Government. Yourcontributions are automatically deducted from yourpaychecks. Your deduction in 1998 is 7.0% of thetotal basic pay you earn in a pay period. Youragency pays 7.0% of your basic pay each payperiod. The balance of the cost of CSRS benefitsare paid from the U.S. Treasury.

Thrift Savings Plan for CSRS

CSRS employees may participate in the ThriftSavings Plan. The Plan gives you a way to saveextra money for the future and gives you a taxbreak today. The Plan allows you to contribute upto 5% of your basic pay per pay period on a beforetax basis to your Thrift Savings Plan account.CSRS employees do not receive Agency Matchingor Automatic (1%) Contributions.

The Thrift Savings Plan investment options,withdrawal and tax information are the same forboth CSRS and FERS employees. See page 11 forthis information.

Voluntary Contributions for CSRS

CSRS employees also may make voluntarycontributions. Total contributions may not exceed10% of the total pay an employee has received todate. At retirement, each $100 in voluntarycontributions (including interest earned) willprovide an additional annuity of $7 a year, plus 20cents for each full year you are over age 55 at thetime you retire. You may also choose to share theannuity by electing a survivor annuity. Voluntarycontributions paid out as additional annuity are notincreased by cost-of-living adjustments. Voluntarycontributions can also be paid out as a lump sumrefund at any time before retirement.

Voluntary contributions earn a variable interest ratedetermined by the Treasury Department eachcalendar year, based on the average yield of newinvestments purchased by the CSRS fund duringthe previous fiscal year. The interest rate payablefor 1998 is 6.75%. Interest accrues to the date ofthe refund calculation, separation, or transfer to aposition not subject to CSRS or FERS, whicheveris earliest. Employees who transfer to FERS mayretain a voluntary contributions account, but maynot add to it after transferring.

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Interest on voluntary contributions is not taxeduntil the tax year in which it is paid out. At thattime, interest may be rolled over to an IndividualRetirement Account to further defer taxes.However, in contrast with Thrift Savings Plancontributions, voluntary contributions are not pre-tax dollars that permit you to reduce your taxableincome. For further information on voluntarycontributions, ask your servicing personnel officefor the pamphlet "Voluntary Contributions Underthe Civil Service Retirement System," (RI 83-10),or get it from OPM’s Web site athttp://www.opm.gov/asd. Voluntary contributionsare administered by the U.S. Office of PersonnelManagement. This program is not part of the ThriftSavings Plan.

Important Conclusions About CSRS

CSRS was designed for a workforce that was likelyto retire from the Federal Government after manyyears of service. For that reason, it providesexcellent benefits to employees who put in manyyears of service, especially if they retire before age60. Employees who join the Federal Governmentlate in their careers and can't retire before age 60are less well off. CSRS does not provide goodbenefits to employees who leave the FederalGovernment before they are eligible to retire.

There are some important advantages to CSRS:

• You can retire as early as age 55 with 30years of service and begin receiving fullbenefits. Even if you start a second careersomewhere else, your benefits aren'taffected.

• Once you begin receiving monthly checks,you also receive annual cost-of-livingadjustments that match the increases inthe Consumer Price Index. So, yourretirement dollars keep the same buyingpower.

• The annuity formula is very generouswhen compared to many other retirement

plans. It especially rewards employeeswho spend many years in Federal service.

• If you work until retirement, you getretirement credit for your unused sickleave.

There are also some disadvantages to CSRS thatapply if you leave the Federal Government beforeyou're eligible to retire:

• The earliest you can begin receivingmonthly retirement checks is at age 62. Itdoesn't matter how many years of Federalservice you have. While you're waiting tobecome eligible for your benefit, thebuying power of your retirement dollarsgoes down because of inflation. You don'treceive cost-of-living adjustments untilyour benefits begin. Also, the monthlychecks you receive will be smaller than ifyou had stayed in Federal service. Yourannuity is calculated according to the payand service you had when you left Federalservice.

• Unless you are a CSRS Offset person,under CSRS, you do not have SocialSecurity coverage. This means that if youleave the Federal Government beforeretirement, you have not been earningcredits under Social Security. If you get anew job in the private sector, you andyour family may not have any benefit ifyou become disabled or die until you haveworked long enough to have earned thesebenefits.

In general, the Civil Service Retirement System is agood retirement plan for employees who know thatthey will stay with the Federal Government untilthey are eligible to retire and who retire young. It isnot very well-suited to employees who may notspend their entire careers in Federal service,particularly if they leave before retirement.

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CSRS Offset Benefits

If you have CSRS Offset coverage, the regularCSRS rules described in the preceding sectionabout when you can receive retirement benefits,how the benefit is computed, and cost-of-livingadjustments apply to you. Also, the rules forparticipating in the Thrift Savings Plan are thesame for both CSRS and CSRS Offset employees.

What is different for CSRS Offset employees is thefact that you are paying Social Security taxes andearning a Social Security benefit at the same timethat you are paying CSRS deductions and earning aCSRS annuity. However, instead of paying 6.2% ofpay for Social Security plus 7.0% for CSRS, theSocial Security tax is subtracted from, or offset,from the 7.0% for CSRS. The amount you pay forCSRS in 1998 is .80% of your basic pay. If yourtotal pay in a year exceeds the maximum amountthat is subject to Social Security taxes ($68,400 in1998), the Social Security deduction stops and yourCSRS deduction increases to 7.0% of your basicpay. Thus, you pay the same 7.0% cost forretirement as a CSRS employee, but the amount isdivided between CSRS and Social Security.

When you retire, your annuity is computed underthe same rules that apply to all CSRS employees.However, when you become eligible for SocialSecurity benefits (normally at age 62), your CSRSbenefit is reduced, or offset, by the value of yourCSRS Offset service in your Social Securitybenefit. If you want to estimate the amount of the

offset from your future annuity, see page 48 forinstructions.

Note: If you do not become eligible for any SocialSecurity benefit, there is no offset.

Important Conclusions About CSRSOffset

You receive the value of the CSRS benefit formulaand cost-of-living adjustments, but pay a smalleramount for this benefit. You also enjoy theflexibility of having Social Security coverage thatcontinues to build if you leave the Federalgovernment to work elsewhere.

If you leave the Federal government beforeretirement, the same drawbacks that apply to CSRSemployees who leave early also apply to you.However, you have paid far less for your benefitand your Social Security benefit is portable.

WARNING: If you are considering electingFERS you must keep in mind that any CSRSOffset service (service under both CSRS and SocialSecurity) will then change to FERS service. SinceFERS pays a lower percentage of your "high 3"average salary, this could make a significantdifference in the amount of your Federal retirementbenefits. See Special Transfer Rules on page 20.

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Special Transfer Rules: CSRS to FERS

Overview

For most people, transferring to FERS means youmay take advantage of the features of both CSRSand FERS. You keep the benefits you have alreadyearned and build on them. All of your CSRSservice is creditable toward eligibility for death anddisability benefits, as well as retirement, so you andyour family do not risk any gaps in protection ifyou transfer to FERS.

However, if you have very many years of CSRSOffset coverage, you need to think carefully abouttransferring to FERS. This is because all of yourOffset service will be credited under the lessgenerous FERS rules. In addition, if you have lessthan 5 years of creditable civilian non-Offset CSRSservice, all of your CSRS service will be switchedover to FERS.

When You Can Receive RetirementBenefits

If you transfer, your past CSRS service and allfuture FERS Service will be added together todetermine when you can retire. Instead of theCSRS retirement rules, you will follow the moreflexible FERS rules that appear below:

Retiring With Full Benefits

• At least the Minimum Retirement Age(see page 7) with 30 years or more ofcombined service

• At least age 60 with 20 years or more ofcombined service

• At least age 62 with 5 years or more ofcombined service

Retiring with Reduced Benefits

• At least the Minimum Retirement Age(see page 8) with 10 years or more ofcombined service

Example: If you have 18 years of CSRS servicewhen you transfer and you work 2 more years, yourtotal service is 20 years. According to thepreceding chart, you can retire with full benefits atage 60, or with reduced benefits at age 55-57(depending on your Minimum Retirement Age).

One advantage that FERS offers is the opportunityto retire early -- at the Minimum Retirement Agewith as little as 10 years of service, and transfereesdon't have to work under FERS for any minimumamount of time. If you retire early, you will receivereduced combined CSRS and FERS benefits. Thereduction will be 5% for each year you are awayfrom age 62 when you retire. However, there is noreduction if you are 60 when you retire and youhave at least 20 years of service. You also can keepyour Federal health and life insurance coverage asa retiree if you met participation requirements as anemployee.

Example: If you transfer to FERS and then leavethe Federal Government at age 55 with 20 years ofservice, you'll receive combined FERS and CSRSbenefits that are 35% lower than the full benefityou would have received if you waited until age62. You will, however, receive full cost-of-livingadjustments on the CSRS part of your benefit. Formany people, receiving benefits earlier and for alonger period of time will make the reductionworthwhile.

FERS rules will also apply if you leave the FederalGovernment before you have the right combinationof age and service to retire. You'll keep your

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service credit and, once you reach the necessaryage, will start receiving benefits. This is animportant advantage to transferring to FERS. If youstay with CSRS and leave before retirement, youwill not receive any benefits until age 62.

How Much You Will Receive AfterRetirement

The retirement benefits you actually receivenormally will come from both CSRS and FERS.The higher CSRS annuity formula will be used forthe years of non-Offset service you put in underCSRS. You can get credit for your unused sickleave (the amount you have when you transfer orretire, whichever is less) if you work until yourMRA.

The lower FERS Basic Benefit (and the SpecialRetirement Supplement) formula will apply only tothe years you spent under FERS and CSRS Offset,so you're probably not giving up all the CSRSbenefits you've already earned. You are trading ahigher CSRS benefit after you transfer forincreased flexibility with FERS.

The high-3 pay that determines your benefits atretirement will be the highest 3 years in your entireFederal career, under CSRS or FERS. Your SocialSecurity benefits will be based on all of the SocialSecurity credits you've earned in your lifetime.

Cost-of-Living Adjustment (COLA's)

Once you start receiving retirement benefits, theCSRS part of your benefit will receive cost-of-living adjustments (COLA's) right away, even ifyou are receiving your CSRS benefit before youcould have under CSRS rules. The FERS part ofthe benefit won't be eligible for a cost-of-livingadjustment until you reach age 62. The FERS cost-

of-living adjustment will usually be 1% less thanthe rate of inflation.

Disability Benefits

If you transfer to FERS and become disabled, yourdisability benefit will be determined totally underFERS rules. The Social Security disability portionof your benefit generally can't begin until you arefully insured and have paid Social Security taxesfor 5 out of the last 10 years before you becomedisabled. For more information on disabilitybenefits, see page 32.

How CSRS Offset Service Is Credited

If you are covered by CSRS Offset provisions, andyou transfer to FERS, your Offset service becomessubject to the less generous FERS rules. Inaddition, you will have missed out on theopportunity to get government contributions toyour Thrift account for that service.

You must have at least 5 years of non-Offsetservice to be eligible for an annuity with acomponent computed under CSRS rules -- in otherwords you must have at least 5 years of civilianservice other than your Offset service. (Count allservice, even it you didn't pay CSRS deductions oryou received a refund.)

If you have less than 5 years of civilian serviceother than CSRS Offset at the time you transfer toFERS, all of that CSRS service will become FERSservice. You can request a refund of the extramoney you paid for CSRS and receive it plusinterest. Employees whose CSRS service willbecome FERS service may also receive a partialrefund of any military deposits they may have paidunder CSRS rules.

Example 1: Susan had 6 years of CSRS-coveredemployment when she resigned and got a refund ofher deductions in 1985. When she was reemployedin June 1998, she was covered under the CSRSOffset provisions. She transferred to FERS inNovember 1998. When Susan retires, the 6 years of

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CSRS service will be computed under CSRS rules.However, since Offset service is treated underFERS rules once you transfer to FERS, her servicefrom June through November becomes FERSservice.

Example 2: In contrast, Bob's employment historyshows that he had 4 years of CSRS-coveredemployment, a break, 2 years of CSRS Offsetservice, and another break in 1986. When hereturned to Federal employment, he was coveredunder CSRS Offset provisions until he transferredto FERS. Since Bob had less than 5 years of non-Offset service, all of his service is now subject toFERS rules. Bob is also entitled to a refund of theextra money he paid for CSRS since he didn'tpreviously receive a refund for his first 4 years ofservice.

Bob thinks he has made a good decision becausehe is far from retirement, and he isn’t sure he willstay with the Government. In addition, since he isalready contributing 5% of pay to the Thrift Plan,switching to FERS gets him the full 5%Government contribution.

Example 3: Ed had 15 years of CSRS service, a3-year break, and now has 12 years of CSRS Offsetservice. He chooses to stay in CSRS Offsetbecause he does not want to lose CSRS credit forhis Offset service. If he were to transfer to FERS,his Offset service would become subject to FERSrules. This means that, instead of getting 24% ofhis high-3 for this period of service under CSRSrules, he would only get 12% under FERS rules.

WARNING: Since all Offset service becomessubject to FERS when an employee transfers toFERS, it is particularly important that CSRS Offsetemployees give careful consideration to their firsttransfer opportunity. Even though youremployment history may result in your havinganother opportunity to elect FERS at a later date,

the more Offset service you have, the more you canlose by having waited to transfer to FERS. Inaddition, you will have missed out on theopportunity to get a government match on yourThrift Account for that service.

Cost to Participate

For most employees, the cost to participate isessentially the same under CSRS, CSRS Offset,and FERS -- in 1998, 7.0% of your basic pay.However, if you are a high salaried employee,earning more than the $68,400 maximum 1998taxable wage base, FERS will cost less than 7.0%because the 6.2% for Social Security drops out at$68,400 leaving only the .80% for the FERS basicbenefit. This is different from CSRS Offset, whichis 7.0% even when Social Security taxes drop out.If FERS salary exceeds the maximum taxable wagebase, contributions in 1998 stay at .80%; thus take-home pay goes up. However, if CSRS Offset salaryexceeds maximum taxable wage base, when SocialSecurity deductions stop, retirement contributionsgo up to 7.0% --thus take-home pay is unchanged.

Survivor Benefits

If you transfer to FERS, all your CSRS servicecounts toward eligibility of your survivor forbenefits. The benefits for your survivor will bedetermined entirely under FERS rules. These rulesinclude: (1) a 5 or 10% reduction in your benefitsto provide survivor benefits for your spouse; (2) aspousal benefit defined as either 25 or 50% of yourbenefit; (3) cost of living increases generally equalto the Consumer Price Index increases minus 1%;and (4) a 10-year service requirement before anymonthly annuity is payable to your spouse.

Important Conclusions

CSRS usually provides better benefits to those whoretire from the Federal service before age 62.Switching to FERS lets you take advantage of thefeatures of both retirement systems: flexibility andearly retirement from FERS and a generous annuity

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formula and full cost-of-living adjustments fromCSRS for your service before you transfer.Switching gives you the ability to get governmentcontributions to your Thrift account and have theportability that Social Security coverage gives ifyou leave the Federal government and go toanother job.

The next section of the handbook, called "MakingYour Decision", will point out some importantretirement plan considerations that can make one ofthe plans a better choice for you.

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Making Your Decision

This decision about your retirement plan normally comes when you have just begun a new job and wouldn'totherwise have thought about all of this. You may be uncomfortable trying to consider a lot of details abouta retirement plan now, especially if retirement is far away for you.

Rather than sorting through every detail of how the two plans are structured, perhaps it would be easier tothink about what your future career plans are. Consider whether or not you think you'll stay with the Federalgovernment for the rest of your career, and, if you are married, what your spouse's career plans are.

This section will help you consider some important factors about yourself and your work history that maymake either CSRS or FERS clearly a better choice for you.

The factors are separated into groups according to your current age, how far from retirement you are now,and special situations. You may want to read all four groups, but:

• If you expect to retire within 10 years, the section "Close to Retirement Age" will be mostimportant to you.

• If you expect to work another 20 or more years before retirement, concentrate on the section "FarFrom Retirement Age".

• If you are in between the two categories just mentioned, you want to carefully consider the factorsdiscussed in the section "In Between -- Neither Close to Retirement nor Far From It".

• If you may retire because of special situations such as disability or as a result of an involuntaryseparation or early out, read those sections.

After reading this chapter, you should know which plan you want to choose.

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Choosing Based on When You Expect toRetire

Close to Retirement Age

If you are within 10 years of retiring from theFederal government, things are probably prettyclear for you.

You may have already earned most of yourretirement benefit under CSRS. You will take thatbenefit, including the full CSRS cost of livingadjustment (COLA), with you if you transfer toFERS. You already know a lot about your life andyour career: things like your marital status, yourspouse's work history, your non-Federal workhistory. You may also have some idea about whatyou want to do after you retire from theGovernment: turn your hobby into a business, starta second career, or concentrate on your golf game.

The fact that you know much more about yourselfand your career now than you did 10 or 15 yearsago, makes the choice much clearer.

CSRS Is Probably Better For You If:

• You expect to retire from the Federalgovernment at age 55 with 30 years ofservice.

The CSRS retirement benefit, with itsgenerous annuity formula and full cost-of-living adjustment(COLA), is generallybetter than the FERS retirement benefitunder these circumstances. CSRS paysCOLA's immediately after you retire,regardless of age. FERS doesn't pay aCOLA until age 62. Then it's generally1% less than the Consumer Price Indexinflation rate.

If you transfer to FERS, you get COLA'sunder CSRS rules for any portion of yourannuity that is computed under CSRSrules and adjustments based on FERSrules for the part of your annuity that iscomputed under FERS rules. Forexample, if you transfer to FERS after 25years of CSRS service, work 5 years, andretire at 55, you will receive full COLA'simmediately under CSRS rules for yourCSRS service. However, you will receiveno COLA for your 5 years of FERSservice until age 62, and when you beginreceiving a COLA, it generally will be 1%less than the increase in cost of living.

• Earning additional Social Security creditsisn't important to you. It may not beimportant because you already haveenough Social Security credits to qualifyfor a benefit, or because you plan to getenough credits by working after you"retire" from the Government, or becauseyou have few or no Social Security creditsalready and no expectation of everreceiving a Social Security benefit fromthis service.

However, if you have CSRS Offsetcoverage, you will earn Social Securitycredits whether you transfer to FERS ornot.

• You have a substantial number of years ofCSRS Offset coverage. You probablydon’t want these years of service treatedunder FERS rules at 1% of your high-3instead of 2% under CSRS.

FERS Is Probably Better For You If:

• You are uncertain whether you will staywith the Federal government until you areeligible to retire.

Switching to FERS allows you to beearning Social Security coverage that

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continues to build if you leaveGovernment for other employment.

• Your work history includes substantial(that is, 5 or more) years of SocialSecurity coverage, but not the full 10years (or 40 credits) of coverage generallyrequired for Social Security benefits, andyou're within 5 years of retiring underCSRS.

Joining FERS can allow you to get areturn on the Social Security taxes youpaid in the past. If you don't "lock up"your Social Security benefit by earningyour 40 quarters either under FERS orelsewhere, you can lose whatever moneyyou've paid in Social Security taxes.

• Your work history includes many years ofsubstantial Social Security coverage, butnot the 30 years required to avoid thewindfall elimination provision.

Joining FERS can allow you to reduce theimpact of the windfall eliminationprovision or avoid it entirely.

• You want to retire before age 60, but youwon't have 30 years of service.

FERS is more flexible than CSRS. Itallows you to take a reduced benefit asearly as age 55 with as few as 10 years ofservice and there's no minimum period ofFERS service required. If you join FERS,you can take advantage of this flexibilityand begin to receive your retirementbenefits, including the CSRS benefit thatwas transferred to FERS, earlier than youcan under CSRS.

Your entire benefit, including the partearned under CSRS, will be reduced at the

rate of 5% a year for each year you elect to receivebenefits before age 62. Once you begin to receiveit, the value of the CSRS portion of your benefitwill be maintained because it will receive a fullcost-of-living adjustment. The portion of thebenefit computed under FERS rules will notreceive a cost-of-living adjustment until you areage 62. Then the cost-of-living adjustment will be1% less than the inflation rate whenever inflation is3% or more a year.

• You will have 30 years of service beforeyour minimum retirement age (MRA) andyou want to leave Federal service early.FERS gives you the flexibility to leavethen. Later, at your MRA, you can startgetting benefits.

• You plan to work to a fairly lateretirement age.

FERS can provide more valuable benefitsto those who plan to work until later ages,that is, age 65 or beyond. You willcontinue to receive Governmentcontributions to your TSP account anduntil you withdraw it, earnings willcontinue to compound.

In addition, you continue adding to yourbasic benefit. Under CSRS, your annuityis limited to 80% of your high-3, (about42 years of service). FERS does not havethis cap.

A Special Note for Career Couples NearRetirement

The considerations outlined above apply to marriedcouples as well as single individuals. But there is aspecial circumstance that may apply to marriedcouples where both individuals had a career andonly one member of the couple ("the Federalspouse") worked for the Government. Often the Federal spouse has little or no Social Securitycredit. In this case, he/she would normally qualify

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for a spousal benefit based on the non-Federalspouse's earned Social Security benefit. But theSocial Security law contains a Public PensionOffset to reduce or eliminate Social Securityspousal benefits for most Federal retirees (thosereceiving recurring retirement payments).

The Social Security law requires that, if the Federalspouse gets CSRS benefits after separating from aposition not subject to Social Security, any SocialSecurity spousal benefits otherwise payable tohim/her will be offset by two-thirds of the CSRSbenefit. In most cases, this eliminates the spousalbenefits. This provision does not apply to peoplewho were required by law to have Social Securitycoverage. Consequently, it does not apply to peoplewho have CSRS Offset coverage.

If you have only CSRS coverage, the PublicPension Offset will not apply if you transfer andcomplete 5 years of service in FERS beforeretiring. You can still qualify for full SocialSecurity spousal benefits even if you also receive apension from employment not subject to SocialSecurity (for example, CSRS service).

NOTE: During the original FERS open season in1987, an employee could transfer to FERS, retireimmediately, and avoid the Public Pension Offset. This rule only applied during the 1987 openseason.

Remember that the spousal benefit is only paid if itis higher than the employee's own earned SocialSecurity benefit. The Federal spouse who joinsFERS earns Social Security credits. These will beadded to any credits previously earned. Onceenough quarters have been earned, the Federalspouse's own earned Social Security benefit willoften be higher than the spousal benefit.

Also, if you are concerned about the survivorbenefits that your retirement plan will provide, youshould keep in mind that the FERS survivor ruleswill apply to all of your benefit -- even the CSRSpart. This formula is less generous than the oneused under CSRS.

Far From Retirement Age

It's difficult to predict the future, and especiallydifficult to guess what might happen over the next15 to 20 years or so. Most people who are about 20years away from retiring don't know with anycertainty whether or not they will actually retirefrom the Federal Government. If you are one ofthese people, FERS is probably the plan for you.Here's why:

• The Social Security and Thrift SavingsPlan parts of FERS are both portable. Ifyou leave Federal service, your new jobwill continue adding to your SocialSecurity account. As for your ThriftSavings Plan account, you can transferyour funds (your contributions, AgencyMatching contributions, and, if vested, theAgency Automatic (1%) Contributions) toan Individual Retirement Arrangement(IRA) or other eligible retirement plan.You can also leave your account balancein the Plan. While you may not continueto contribute after you leave Governmentservice, your Thrift Savings Plan accountbalance will continue to accumulateearnings based on your investmentdecisions.

• While the value of the FERS Basic Benefitwill decrease if you leave the Federal Governmentshort of retirement, it will not decrease as much asthe value of the CSRS benefit will. This is becauseFERS gives you the flexibility to choose to receivea reduced benefit as soon as you reach theMinimum Retirement Age (age 55-57) with only10 years of Government service. CSRS makes youwait until age 62. Under both plans, the basicannuity benefits become fixed when you leaveGovernment. Getting the benefit earlier underFERS may be important if inflation is reducing thevalue of the fixed benefit. Also, the FERS basicbenefit costs you less (in 1998, .80% of pay versus7.0% under CSRS), so less of your money is atrisk.

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Should you decide you want your money back,FERS will pay market rate interest on yourcontributions toward the Basic Benefit. CSRS paysno interest in most cases. However, you can payback a CSRS refund and regain your service creditif you return to Federal service. FERS refundscannot be repaid.

If you have CSRS Offset coverage, you will get thevalue of the CSRS annuity computation formulaand cost-of-living adjustment rules if you stay untilretirement. However, if you don't stay untilretirement, the more flexible FERS rules aboutwhen you can get your annuity may be important.In addition, under FERS you can take advantage ofthe government match for your TSP account andthe opportunity to put more of your pay into theaccount.

In conclusion, the flexibility and portability FERSoffers is important in cases where the future isunclear or uncertain. This flexibility and portabilitycome at the price of slightly lower benefits for thesame investment on your part if you do stay in theFederal service until retirement. Only with ThriftSavings Plan participation are the benefitscomparable. Investing a higher percentage of yourpay in the Thrift Savings Plan could result in yourbenefits exceeding those that you would haveearned under CSRS.

So, if you feel sure that you will retire from theFederal Government in 20 years and be under age62, you may want to stay with CSRS. There is oneexception: low-salaried employees who are able towork long enough (30 years) under Social Securityto avoid the Windfall Elimination Provision (seepage 45) will benefit from the fact that the SocialSecurity benefit formula favors people with lowcareer earnings. If you are low-salaried and expectto retire from the Government, you should considerFERS with its Social Security coverage, if you canavoid the Windfall Elimination Provision.

So, if you're not sure about the next 15 to 20 years,FERS may be a better choice for you.

In Between -- Neither Close toRetirement nor Far from It

If you're about 15 years away from retiring, youmay or may not be sure of your future work plans.If you're sure about your plans and know whetheror not they include retiring from Federal service,you're probably ready to decide based on whatyou've read so far. You know FERS portability andflexibility are real pluses if your career includesboth Federal and non-Federal service, andespecially if you don't plan to retire from a Federalposition. You also know that CSRS can providebetter benefits if you can retire from the FederalGovernment before age 62.

If you haven't made your decision based on whatyou've read so far, keep reading. Maybe thisdiscussion will help clarify things for you.

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The Trade-offs

With CSRS, you have a plan that offers superiorretirement benefits, if you're able to take advantageof them. With FERS, you get more flexibility andportability, but you may have to give up a little inthe way of benefits, or pay more in contributionswhile you're working, if you want to reach the samebenefit level.

The Thrift Savings Plan under FERS is veryattractive if you're in mid-career and can contributeto your Thrift account. If you can contribute 5% ofyour basic pay each pay period, the AgencyMatching Contributions plus the AgencyAutomatic (1%) Contributions you receive will addto your account an amount equal to another 5% ofyour basic pay for that pay period. This, coupledwith the effect of compounding, may provide asignificant source of retirement income. In fact, thiskind of Thrift Savings Plan account balance, whenadded to your FERS Basic Benefit and SocialSecurity payments, can easily produce a FERSbenefit that exceeds the CSRS benefit.

If you switch to FERS and can make contributionsto your Thrift Savings Plan account, you will gainthe portability of the Social Security and ThriftSavings Plan portions of FERS. And you will gainthe flexibility to choose to receive benefits earlierwith fewer years of service. You will minimizeyour investment in CSRS, which offers noportability.

So, switching to FERS involves some trade-offs.For the advantages of lower risks and equal orbetter benefits, you have to make greatercontributions. In fact, you may need to contributemore of your pay each pay period than you wouldunder CSRS because some FERS employees(especially those with higher incomes) mustcontribute more in order to receive equivalentretirement benefits to those received by CSRSemployees.

If you have little or no previous employment thatcounts as years of "substantial coverage" under

Social Security you should think about whether youwill earn enough of a benefit under Social Securityto avoid or minimize the impact of the WindfallElimination Provision.

On the other hand, if transferring will give yousubstantial Social Security coverage by retirement,FERS offers an opportunity to provide a SocialSecurity benefit for your spouse.

If you are married and your spouse will not beeligible for his/her own Social Security benefit orfor a retirement benefit other than Social Security,FERS benefits can come close to CSRS benefitseven if you can't contribute 5% of pay to the ThriftSavings Plan. This is because your spouse canreceive a Social Security spousal benefit. Thismakes FERS more attractive. But, you may stillneed to make contributions to the Thrift SavingsPlan if you want your total benefit to equal whatyou could have earned under CSRS. Again, there'sa trade-off involved. FERS generally costs youmore if you want to match the CSRS benefit level,but FERS is more portable and more flexible.

If you now have CSRS Offset coverage, you havethe benefits of the good CSRS benefit formula andcost-of-living adjustments, as well as the advantageof Social Security coverage. However, there is anoffset of your CSRS benefit by the amount ofSocial Security attributed to your CSRS OffsetService at 62. This is an excellent package if youretire from the Federal government. However, ifyou do not expect to retire from the government,the more flexible FERS rules about when you canreceive your benefits may be better for you. Inaddition, you can take advantage of the ThriftSavings Plan Government match and Agency 1%Automatic Contribution and the ability tocontribute more to your account.

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FERS Flexibility

FERS allows you to begin getting benefits at anearlier age with fewer years of service. This can bean important advantage, depending on your futureplans.

Keep in mind that FERS lets you start getting boththe benefit you earned under the CSRS formulaplus the annuity you earn under FERS with as fewas 10 years of service when you reach theMinimum Retirement Age (55-57, depending onwhen you were born). Your benefit will be reduced5% a year for each year you choose to receivebenefits before you are age 62. Under CSRS,though, you can't receive any benefits until age 62if you leave the Federal Government withoutretiring.

This kind of flexibility is important if you thinkyou may leave the Federal service before retiring.It's also important if you would have to work untilage 60 or 62 under CSRS rules, but would ratherleave earlier.

Some Important Cautions

There are some factors that can make FERS clearlya better choice for you. There are other factors thatcan mean switching to FERS is not the best thingfor you to do. Although you can't predict the future,use what you know now to make the best decisionyou can. This section contains some informationyou should consider before you make your finaldecision.

If You Are Unable to Meet SocialSecurity Eligibility Requirements

In general, switching to FERS can be a mistake ifyou are not able to earn the 10 years or 40 quartersof Social Security coverage that will allow you toreceive a Social Security benefit. Here's what couldhappen:

Example: Say you're close to retiring and youswitch to FERS. You've never worked in theprivate sector, so you've earned no SocialSecurity credits. Six years after switching, youdecide to retire.

You will make a mistake by not thinking aheadabout how much longer you wanted to work whenyou switch to FERS. You cannot receive a SocialSecurity benefit unless you've earned the requiredyears of coverage. In most cases, 10 years arerequired. So, you've lost one of the three parts ofyour FERS benefit.

Also, if you do not qualify for a benefit, thepercentage of salary that you pay in for SocialSecurity taxes is simply lost.

CSRS, then, normally is a better choice if you willnot be able to earn enough years of Social Securitycoverage to qualify for that portion of your FERSbenefit. In addition, even if you will qualify for aSocial Security benefit, you need to look at theimpact on you of the Windfall EliminationProvision.

Exceptions: There are several cases whereswitching to FERS and not being able to "lockup" your Social Security benefit are not a problem.One is that you're not interested in earning a SocialSecurity benefit because you want to avoid havingyour spousal Social Security benefit reduced by thePublic Pension Offset. Page 48 gives you moreinformation on this topic.

In addition, if your reason for transferring to FERSis to take advantage of its more flexible rules aboutwhen you can receive your benefits, then eligibilityfor Social Security benefits may not be a concern toyou. For example, if you work in an agency that isdownsizing, FERS more flexible rules may be veryimportant to you.

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If You Are Unable to ContributeEnough to the Thrift Savings Plan

The Thrift Savings Plan portion of FERS canprovide a valuable benefit if you're able tocontribute to it. If you're not, switching to FERScan be a mistake. Here's what could happen if youdon't carefully consider how much you are able tosave, or if you don't decide correctly.

Example: Suppose you transfer because youthink the growth potential of your ThriftSavings Plan account can allow you to retirefrom the Federal Government with a largerbenefit under FERS than under CSRS.

You're counting on your agency contributingan amount equal to 5% of your basic pay eachpay period. To get that rate of agencycontribution, you know you have to contributeat least 5% of your basic pay each pay period.

After you transfer, you find that youmiscalculated your ability to save and yourbudget will not let you make any contributionto the Thrift Savings Plan. All you're able toget is your agency's contribution equal to 1%of your basic pay each pay period.

If you are not able to begin contributing to yourTSP account soon after you transfer to FERS, yourbenefit will probably be significantly less than thebenefit you could have received by retiring underCSRS. If you are concerned about whether you canparticipate adequately in the Thrift Savings Plan,you may want to review your financial situationcarefully to see what level of savings you canexpect to be able to make.

If You Should Die Soon After Choosing

It is not likely you will base your choice ofretirement plan on the possibility that you may diesoon after choosing. However, if you are married,you should be aware that you must have 10 yearsof service before your spouse can receive asurvivor annuity under FERS.

You must have also earned the minimum numberof Social Security credits required before yoursurvivors can receive Social Security benefits ifyou die. The number of credits required dependson when you were born and how old you are whenyou die. The least number of credits required is 6credits or quarters or 18 months.

Whether you are under CSRS or FERS, all ThriftSavings Plan contributions, including the AgencyAutomatic (1%) and Matching Contributions, willbe paid to your beneficiary (or beneficiaries).

Survivor benefits are discussed further on page 35and in the Social Security section starting on page41.

Summary of Situations That CouldMake Switching to FERS a Problem

You've now seen some factors that could maketransferring to FERS a problem for you. They are:

• Switching to FERS and then being unableto earn the 40 credits needed to qualify forSocial Security benefits;

• Switching and then being unable tocontribute as you had planned to yourThrift Savings Plan account;

• Dying before you've earned adequateSocial Security coverage for your family toreceive FERS and Social Security survivorbenefits.

If you believe any of these factors are likely toapply in your case, you may decide to minimizeyour risk by staying in CSRS.

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Disability Benefits Under CSRS and FERS

Introduction

CSRS and FERS both provide disability benefits. The benefits offered by the two plans are alike insome ways and different in others. Depending onyour personal situation, the benefits offered by oneplan or the other may be better for you.

Unless you have a serious chronic illness or a life-threatening medical condition, you will probablybase your choice between CSRS and FERS moreon what you want your retirement benefit to bethan on the disability benefits offered. You shouldbe aware of the differences between the plans,though, in case one or the other clearly meets yourneeds better. Note that, if you transfer to FERS,all of your disability benefits will be paidaccording to FERS rules.

This section explains the key features of thedisability benefits given by both plans. It alsopoints out some areas to think about in decidingwhich plan is better for you.

Eligibility

CSRS requires you to have at least 5 years ofcreditable civilian service before you can qualifyfor disability benefits. FERS requires 18 monthsof civilian service.

Those who apply for disability benefits underCSRS Offset or FERS must also apply for SocialSecurity disability benefits or show that they arenot eligible for them.

There are separate eligibility requirements that youmust meet in order to qualify for Social Securitydisability benefit. You must meet Social Securityeligibility requirements and have earned aspecified number of Social Security credits beforebecoming disabled.

Definition of Disability

CSRS and FERS both use the same definition ofdisability. In order to be declared disabled undereither plan, you must be unable to do your job, andmust not turn down a suitable vacancy within youragency that is within your commuting area and atthe same grade or pay level as your currentposition.

The definition used to determine your eligibilityfor Social Security disability payments is morestrict than under CSRS and FERS. It requires youto be unable to perform any job, rather than justyour current job. So even if you have the requirednumber of Social Security credits, you may qualifyfor FERS or CSRS disability payments, but notqualify for Social Security disability payments.

How Much Disability Benefits Will Be

CSRS

Under CSRS, your disability benefit will generallybe equal to your projected benefit at age 60 or 40percent of your high-3 average salary, whichever isless. If you have more than 22 years of servicewhen you become disabled, you will receive youraccrued benefit, which will amount to more than40% of pay. Cost-of-living adjustments will beadded annually at the full rate of inflation. SeeRetirement Facts 4, Disability Retirement Underthe Civil Service Retirement System (RI 83-4)available from your personnel office and on theInternet at http://www.opm.gov/asd/htm/pub.htm.

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CSRS Offset

Under CSRS Offset, your basic annuity iscomputed under CSRS rules described in thepreceding paragraph. In addition, if you qualifyfor Social Security benefits, OPM must reduceyour annuity by the value of your Offset service inyour Social Security disability benefit. Thecalculation is the same as was described earlier fora regular retirement.

FERS

FERS uses a different benefit formula that takesinto account any Social Security disability benefitsyou may be eligible for.

During your first year of disability, FERS will payyou 60% of your high-3 average salary minus100% of an approximation of any Social Securitybenefit you qualify for. No COLA’s will be paidduring this year.

(Note that Social Security disability payments andthe reduction in your FERS benefit will not beginuntil 5 months after you qualify for Social Securitydisability. You will receive full FERS benefitsduring this period.)

During your second and any future years until age62, your basic FERS benefit will amount to 40%of your high-3 salary. If you are entitled to SocialSecurity disability benefits, your FERS annuitywill be reduced by 60% of the approximateamount of your Social Security benefit. COLA’smatch the inflation rate if it is 2% or less. If theinflation rate is more than 3%, the COLA will be1% less than the inflation rate.

The total FERS and Social Security benefit youreceive will be equal to at least 40% of your high-3salary plus 40% of your Social Security disabilitybenefits. You may also get your Thrift SavingsPlan account when you become disabled.

Your basic FERS disability benefit will berecomputed at age 62. At that time, you will

receive your accrued FERS retirement benefit. Inthis case your accrued FERS benefit would bebased on years of service that include the time youwere receiving disability benefits. Also, theaverage salary used would be based on what youwere earning at the time you became disabled,increased by all cost-of-living adjustments underFERS during that period.

CSRS and FERS

Under the Social Security law, your SocialSecurity disability check must be reduced if thecombined amount of your employees'compensation payment and/or public disabilitybenefit is more than 80% of what is called your"average current earnings." Public disabilitybenefits come from employment not subject toSocial Security taxes, such as CSRS. Since FERSincludes Social Security, this type of reduction isless likely under FERS.

Continuing Eligibility for DisabilityPayments

Under both CSRS and FERS, if you retire ondisability and then decide to work again, yourdisability benefits may be affected. If your totalincome from work is more than 80% of the currentsalary of the position you retired from, yourdisability benefits will end. They may also end ifyou go back to work for the Federal Government.

Also, at times you may be required to prove thatyou still meet the CSRS and FERS definition ofdisability.

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Conclusion

In general, the combined FERS and SocialSecurity disability benefit (if you qualify for theSocial Security benefit) will be larger than the CSRS benefit. However, it is more difficult toqualify for the Social Security disability benefit.and you must be covered for the number of yearsrequired by Social Security. Even if you do notqualify for Social Security, the FERS benefit islikely to be larger. Depending on your recentcoverage under Social Security, you may have towork under FERS for 5 years before SocialSecurity disability protection is available.

Note also that, when your FERS benefits arerecomputed at age 62, you may stand to lose a

significant portion of your benefit. Rememberwhen you transfer to FERS, you take your CSRScredit with you. If your combined CSRS andFERS benefits (under regular rules) are more thanthe benefit produced by the FERS disability rules,you will receive the combined benefit. This meansthat the possibility of becoming disabled may beless of a concern for CSRS employees withsubstantial CSRS service because of the largeraccrued benefit that transfers to FERS based onthat service. However, if disability benefits are aserious concern for you, you should ask youragency to do estimates of benefits under bothCSRS and FERS before you make a transferdecision.

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Survivor Benefits Under CSRS and FERS

Introduction

CSRS and FERS both provide survivor benefits,but the benefits offered by the two plans differgreatly. Depending on your personal situation, thebenefits offered by one plan may be better for youthan the other plan's benefits.

Recipients of Survivor Benefits

Under CSRS, FERS, and Social Security, survivorbenefits can be paid under various conditions tocurrent and former spouses and children. SocialSecurity benefits can also be paid to dependentelderly parents. Surviving spouses must meetcertain age and length of marriage requirements inorder to qualify for benefits. You can also electbenefits for a spouse you marry after retirementunder both FERS and CSRS. The rules for who iseligible for spousal benefits are the same for FERSBasic Benefits and CSRS. Under both CSRS andFERS, children’s benefits are payable to eachunmarried child:

ü up to age 18;ü up to age 22 if a full-time student; andü at any age if the child became disabled before

age 18.

Also, under both CSRS and FERS, your ThriftSavings Plan account will be available to yourdesignated survivor. If you want more informationabout CSRS and FERS survivor benefits(including court ordered benefits for a formerspouse), several pamphlets on OPM’s Web site have more information. Go tohttp://www.opm.gov/asd/htm/pub.htm.

If You Die as an Employee

CSRS

CSRS will pay benefits to the eligible survivors ofan employee who had at least 18 months ofcreditable civilian service.

Under CSRS, if you die while you are a Federalemployee, your eligible spouse will receive 55% ofyour accrued benefit. If a larger benefit wouldresult, your spouse would receive the smaller ofthe following computations: 55% of 40% of yourhigh-3 annual salary or 55% of what your annuitywould have been if you had worked until age 60.

Your eligible children will receive an annuity thatis based on how many children you have andwhether or not your spouse is still living. This istrue under CSRS whether you die as an employeeor retiree.

If you are a CSRS Offset employee and yourspouse or children are eligible for survivor benefitsbased on your service, OPM must reduce thebenefit that is paid to your surviving spouse andchildren. This reduction is computed in the sameway as the reduction in a retirement annuity. Seepage 48 for an example of how the reduction isdone.

FERS

FERS also pays benefits to the eligible survivorsof an employee who had at least 18 months ofcreditable civilian service. Your CSRS servicecounts to meet this requirement.

Under FERS, if you die while you are a Federalemployee, and have more than 18 months ofcreditable civilian service but less than 10 years oftotal service, your eligible spouse will receive a

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two-part FERS benefit. It includes a lump-sumpayment that is adjusted each year for inflation($21,783.34 for 1998), plus the greater of half ofyour high-3 average pay or half of your annual rateof pay at death. Social Security and other survivorbenefit payments will not affect this lump-sumbenefit.

In addition, if you had 10 years of service, youreligible spouse will also receive an annuity equalto one-half of your accrued Basic Benefit.

FERS childrens’ benefits also depend on whetheryour spouse is still living and how many childrenare eligible for benefits. In addition, children’sbenefits are reduced dollar for dollar by SocialSecurity children’s benefits that may be payable.

Social Security also provides survivor benefits tothe eligible survivors of an employee who met theminimum Social Security eligibility requirements. The number of Social Security credits needed toqualify depends on when the employee was bornand how old he/she was at the time of death. Theminimum number of credits required is 18 months.

Under CSRS and FERS these benefits areavailable without additional cost to you, that is, atthe regular deduction rate for CSRS and FERSbenefits.

If You Die After You Retire

CSRS

If you are a CSRS retiree when you die, youreligible spouse will be paid 55% of the amountyou were receiving as your annuity or a lesseramount that you and your spouse agreed on whenyou retired.

As a married retiree, your annuity will be reducedin order to provide for this survivor benefit unlessyou and your spouse waive this benefit. Theamount of the reduction is 2.5% of the first $3,600of your annual benefit, plus 10% of the amountover $3,600. For most career retirees, thisamounts to a 7% to 8% reduction. Note that the

55% benefit is based on the amount of yourannuity before this reduction is taken. You mayalso choose, if your spouse agrees, a smallersurvivor benefit.

If you want more information about survivorbenefits, see the pamphlet Retirement Facts 5,Survivor Benefits Under the Civil ServiceRetirement System (RI 83-5) available at yourpersonnel office or on the Internet athttp://www.opm.gov/asd/htm/pub.htm.

If you are a CSRS Offset retiree, OPM mustreduce the survivor annuity if your widow(er) orchildren are entitled, or would be entitled uponproper application, to Social Security benefits asyour widow(er) or children. This reduction isdone in the same manner as the reduction in aretiree’s annuity.

FERS

If you are a FERS retiree when you die, youreligible spouse will be paid 50% of the amount ofyour annuity, plus a Special RetirementSupplement if your spouse is younger than age 60and not yet eligible for Social Security benefits.

As a married retiree under FERS, your annuitywill be reduced in order to provide for thissurvivor benefit unless you and your spouse waivethe reduction. Under FERS, the reduction is largerthan under CSRS. It is a full 10% of your entireannual benefit amount. Again, the 50% benefit isbased on the amount of your annuity before thisreduction is taken. You and your spouse also canchoose a smaller survivor benefit of 25% of yourannuity, with a 5% reduction in your benefit. However, under FERS you cannot choose otherbenefit levels as you can under CSRS.

Children’s benefits are the same for both retireesand employees.

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If You Die After You Leave FederalService, But Before You Retire UnderFERS

If you have at least 10 years of service and dieafter you leave Federal service but before youbegin to receive your annuity, a survivor benefit ispayable to your spouse under FERS. The amountof the benefit payable to the surviving spouse isone-half of your accrued basic retirement benefit. The benefit will begin at the time you would havereached age 62, or sooner if your survivor elects areduced benefit. For your spouse to be eligible,you must not take a refund of your contributions. No similar benefit exists in CSRS. Social Securitybenefits are also payable to survivors of employeeswho meet the Social Security requirements. Thesebenefits are based on the Social Security benefitfor which the employee was eligible. Benefitsvary based on the age and situation of the survivor.

Transfer Considerations

If you transfer, the FERS survivor rules will applyto all of your benefit--even the CSRS part. Thisincludes:

(1) the 10% or 5% reduction to providesurvivor benefits after you retire;

(2) the 50% or 25% benefit levels (this wasup to 55% under CSRS); and

(3) Cost of living increases generally equal toconsumer price index increase less 1%;and

(4) the 18 month FERS service requirementfor lump sum death-in-service benefits.

Conclusion

The survivor benefits under FERS and CSRSdiffer substantially. Your individualcircumstances will determine which system isbetter for you. Also, you need to remember thatFERS rules apply to all of your survivor benefits.

As a general rule, surviving spouses who willreceive a substantial spousal Social Securitybenefit will be better protected by FERS. Surviving spouses who are employed and/or earn aSocial Security benefit on their own will receivegreater benefits from CSRS.

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Involuntary Retirement and "Early-Out" Retirement

Introduction

Earlier parts of this handbook discussed forms ofvoluntary retirement (retiring under CSRS withfull benefits, retiring under FERS with full orreduced benefits) and leaving the Federal servicebefore retirement age. This section discusses whatyour benefits will be under CSRS and FERS if youmust retire involuntarily because of a reduction inforce, reorganization, transfer of function, orsimilar circumstance, or you choose to retire earlyunder a voluntary “early out” opportunity. (Theseprovisions do not apply if you are separatedbecause of misconduct or delinquency or if yourefuse a reasonable offer of another position.)

CSRS

Under CSRS if you retire involuntarily, you areeligible for an immediate annuity at any age with25 years or more of service, or age 50 with 20years of service or more. Your benefit will bereduced 2% for each year that you retire under age55. This is a permanent reduction that will beapplied to your entire annuity, including yourpayments after you reach age 55. The same rulesapply for early voluntary retirements.

FERS

Under FERS, if you retire involuntarily, you arealso eligible for an immediate annuity at any agewith 25 or more years of service, or at age 50 with20 years of service or more. The differencebetween CSRS and FERS in this case, however, isthat your FERS annuity is not reduced if you retirebefore age 55. However, you would not begin toreceive the Special Retirement Supplement untilyou reach your Minimum Retirement Age (55-57).

This benefit continues until age 62. The samerules apply for early voluntary retirements.

Special Transfer Rules

If you transfer to FERS and retire involuntarily,you are eligible for an immediate annuity at anyage with 25 or more years of service or at age 50with 20 or more years of service. Your retirementbenefit will be calculated using the CSRS formulafor your years of service under CSRS, and theFERS formula for the years after you transfer. Any CSRS Offset service will be converted toFERS. The CSRS portion of your benefit will bepermanently reduced by 2% for each year that youare below age 55 when you retire. No reductionwill be applied to the FERS portion of your benefitbut you will not begin to receive a SpecialRetirement Supplement until your MinimumRetirement Age. The same rules apply for earlyvoluntary retirements.

Transfer Considerations forInvoluntary Retirees and EarlyVoluntary Retirees

Whether or not you may be involuntarily retiredshould not be a key factor in determining whichretirement plan you choose. You should be awareof the differences between CSRS and FERS,however.

If you meet the age and service requirements andretire early, your CSRS benefit will be reduced ifyou are under age 55; your FERS benefit will not.However, the CSRS retirement benefit is largerthan the FERS benefit to begin with. Even withthe reduction, the CSRS benefit is likely to belarger than the FERS benefit. This is especiallytrue if you retire below your Minimum Retirement

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Age under FERS, because your Special RetirementSupplement will not be paid until you reach yourMinimum Retirement Age. FERS COLA’s do notbegin until age 62, but CSRS COLA’s startimmediately.

If you think you may leave Government serviceinvoluntarily and you will not meet the age andservice requirements for early voluntary orinvoluntary retirement, FERS is probably thebetter choice, as it is in general for those who donot plan to retire from the Federal service. This isespecially true if transferring to FERS could giveyou eligibility for an MRA + 10 retirement, whichcould allow you to keep your Federal health andlife insurance as a retiree.

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Brief Description of the Social Security Program

Introduction

Social Security is a national system of old-age,survivors and disability insurance (OASDI) cashbenefits. The program's basic plan is a simple one:During working years, employees, their employers,and self-employed persons pay Social Securitytaxes; when their earnings stop or are reduced dueto retirement, severe disability, or the death of anemployee, monthly cash benefits are paid toreplace part of the earnings the employee and thefamily have lost.

How the Program Is Financed

The primary sources of financing are the SocialSecurity taxes paid by employees and theiremployers and by the self-employed. In 1998,employers and employees each contribute 7.65%of the employee's wages, which includes 1.45%for Medicare hospital insurance (HI). Themaximum amount of earnings taxed for SocialSecurity purposes ($68,400 in 1998) is subject toautomatic adjustment under a formula related tothe increase in wages.

Qualifying for Benefits

To become eligible for old-age, survivors, anddisability insurance benefits, an employee musthave credit for a required amount of work that iscovered by Social Security. Social Security workcredits are measured in credits of coverage. In1998, a credit is earned for each $700 in coveredannual earnings up to a total of four credits($2,800) for the year.

The minimum requirement is 6 credits for deathand disability benefits and the maximum is 40credits of coverage. An employee who hasaccumulated the required number of credits isconsidered to be fully insured and eligible for mosttypes of benefits.

An additional insured status test must be met byemployees in order to qualify for disabilityinsurance benefits. Employees who becomedisabled after age 31 must have worked underSocial Security at least 5 of the last 10 yearspreceding the onset of disability. Employeesbetween ages 24 and 31 must have worked at leasthalf of the credits from age 21 and beforedisablement, and employees under age 24 mayqualify for benefits with a minimum of 1½ years(18 months) of work in the 3 years prior tobecoming disabled.

Who Is Eligible for Benefits

Fully insured employees are eligible for benefits asearly as age 62, but benefits are permanentlyreduced for each month of entitlement prior to thefull-benefit retirement age, currently age 65. Theage at which unreduced benefits are payable willbe increased gradually from age 65 to 67 over a21-year period beginning with individuals whoreach age 62 in the year 2000. (The age ofeligibility for Medicare is not affected by thesechanges.)

Employees who are fully insured and who becomedisabled, are eligible for unreduced benefits,regardless of age. Under the Social Security law, aperson is considered disabled if he/she is unable toengage in any substantial gainful activity due to aphysical or mental impairment that lasts for at least12 months or is expected to result in death. Theterm "substantial gainful activity" refers to theperformance of significant productive physical ormental duties, generally for pay or profit.

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Benefits to Family Members

Auxiliary benefits may be payable to members ofthe employee's family (as listed below) wheneverthe indicated requirements for entitlement are met.As explained later in this section, there is a limiton the amount of family benefits payable on anemployee's record. (References to age 65 are usedbecause that is the current retirement age at whichunreduced benefits can be paid.)

Note: While the following benefits are expressedas a percentage of an employee's benefits, theirpayment does not reduce the employee's benefit.For example, the spousal benefit [in (1) below] canbe paid in addition to the employee's SocialSecurity benefit.

• Spouse (of employee receiving retirement ordisability benefits):

1. Married to the employee for at least 1year, or, if less than 1 year, is the parentof the employee's child, and meets one ofthe following age requirements:

a. Any age, with entitled child underage 16 or disabled in care (paymentrate is 50% of employee's fullbenefit).

b. Age 65 (50% of employee's fullbenefit).

c. Age 62-64 (50% of employee's fullbenefit, permanently reduced for eachmonth of entitlement prior to age 65).

2. Divorced spouse, married to theemployee at least 10 years, and meets oneof the following age requirements:

a. Age 65 (50% of employee's fullbenefit).

b. Age 62-64 (50% of employee's fullbenefit, permanently reduced for eachmonth of entitlement prior to age 65).

• Child (of employee receiving retirement ordisability benefits):

1. Under age 18 and unmarried (50% ofemployee's full benefit).

2. Attending elementary or secondaryschool full-time at age 18 and through theend of the school term in which age 19 isattained (50% of employee's benefit).

3. Disabled child, age 18 or over, who wasdisabled before age 22 (50% ofemployee's full benefit).

Monthly cash benefits are also payable, as follows,to the survivors of a deceased employee:

• Widow/Widower (of deceased employee):

1. Married to the employee at least 9 months(3 months in the case of accidentaldeath), or married to the employee and isthe parent of the employee's child, andmeets one of the following agerequirements:

a. Any age with entitled child in care(75% of employee's full benefit)

b. Age 65 (100% of employee's fullbenefit)

c. Age 60-64 (permanently reducedbenefit)

d. Age 50-59 and disabled (permanentlyreduced benefit)

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2. Surviving divorced spouse, married to theemployee at least 10 years, age 60 or over(permanently reduced benefit if entitledprior to age 65)

3. Disabled surviving divorced spouse,married at least 10 years, age 50-59(permanently reduced benefit).

• Child (of deceased employee):

1. Under age 18 and unmarried (75% ofemployee's full benefit)

2. Attending elementary or secondaryschool full-time at age 18 and throughend of school term in which age 19 isattained (75% of employee's full benefit)

3. Disabled child, age 18 or over, who wasdisabled before age 22 (75% ofemployee's full benefit).

• Dependent Parent Age 62 or Older (ofdeceased employee):

1. One surviving parent (82½% of theemployee's full benefit)

2. Two surviving parents (75% ofemployee's full benefit payable to eachparent).

Lump-Sum Death Payment--A one-time paymentof $255 is payable, upon the death of an employee,to a spouse with whom the employee was living atthe time of death or to a spouse or child who iseligible for monthly survivor benefits in the monthof the employee's death.

Amount of Social Security Benefits

An employee's primary insurance amount (PIA)is the monthly benefit amount payable at disabilityor at the full-benefit retirement age. All othermonthly benefit amounts are derived from the PIA.

• The employee's PIA is derived byapplying a three-step benefit formula tothe employee's lifetime average earningsin employment covered by SocialSecurity. Before averaging the earnings,the yearly earnings are adjusted to reflectwage levels prevailing shortly beforeretirement, disability, or death. (These areknown as adjusted career earnings.)

• For employees who receive an annuitybased on CSRS service (including thosewho transfer to FERS from CSRS) amodified benefit formula may be used incomputing the Social Security retirementor disability benefit. (See WindfallElimination provision on page 45.)

As previously noted, benefits taken before the fullbenefit retirement age are permanently reduced.For example, retirement benefits for employeesentitled at age 62 are currently reduced by 20%and benefits for spouses entitled at age 62 arereduced by 25%. As the full-benefit retirement ageincreases in the future, reduced benefits willcontinue to be available at age 62 for employeesand spouses (age 60 for surviving spouses), but thereduction factors will be revised so that there is afurther reduction. The maximum reduction willincrease gradually to 30% for employees entitledat age 62 and to 35% for spouses entitled at age62. There is no increase in the maximum reductionin the case of widows and widowers entitled at age60 (28.5%).

Family benefits payable on an employee's SocialSecurity record are limited to a maximum set bylaw. The maximum family benefit is generally

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related to the employee's PIA. The maximummonthly benefit that can be paid to a family(including the employee) ranges from 150% to188% of the employee's PIA in retirement andsurvivor cases. In disability cases, it ranges from100% of the PIA to 150% of the PIA. Generally,the maximum family benefit amount applieswhenever there is more than one auxiliary orsurvivor beneficiary entitled on the employee'srecord.

Under the "dual-entitlement" provision, a personwho qualifies for benefits based on the earnings ofmore than one employee (for example, a benefit asan employee and a benefit as a spouse of anotheremployee) cannot receive both benefits in full. Theamount of the spouse's or surviving spouse'sbenefit is offset dollar for dollar against theperson's own employee's benefit so that the spousereceives the larger of the two benefits.

Similar to the dual entitlement provision discussedabove, under the Government Pension OffsetProvision, the amount of a person's Social Securitybenefit as a spouse or surviving spouse will bereduced by two-thirds of the amount of theGovernment pension (for example, a CSRSannuity) the person receives based on his/her ownwork that was not covered by Social Security. (Seefurther discussion of this provision on page 48.) Note: If you transfer to FERS and are not coveredunder FERS for 5 years before retirement, theGovernment Pension Offset will still apply to you.

Social Security benefits are increasedautomatically each year whenever the cost ofliving, as measured by the Consumer Price Indexrises.

Taxation of Social Security Benefits

Social Security benefits are subject to income taxif a beneficiary's total income exceeds specifiedlimits. The limits generally are $25,000 for asingle taxpayer; $32,000 for a married couplefiling a joint tax return. If the appropriate limit isexceeded, up to 85% of the benefit is taxable.

Revenues generated by this tax are deposited to theSocial Security Trust Fund.

Social Security Earnings Test

This section applies to you if you plan to workafter you begin receiving your FERS SpecialRetirement Supplement or your Social SecurityBenefit.

What Is the Social Security EarningsTest?

The Social Security Earnings Test is part of theSocial Security law. It means that your SocialSecurity benefits may be reduced if you work afterretirement and earn more than the allowableamount.

Who Is Affected?

If you switch to FERS, this provision could affectparts of your benefit.

Note that this provision also applies if you remainwith CSRS or CSRS Offset and have enoughSocial Security credits to qualify for a benefit.Your CSRS benefit will not be affected in thiscase, but your Social Security benefit will be.

Benefits you receive from the Thrift Savings Planare not included as income for the Social SecurityEarnings Test.

How the Social Security Earnings TestWorks

If you work after you start receiving SocialSecurity benefits and are under age 70, the amountof money you earn by working can reduce yourSocial Security benefits. Earnings from savings,most investments, and insurance will not affectyour Social Security benefit. Wages and earningsfrom self-employment can, however.

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Under the Social Security earnings test, SocialSecurity counts wages for services rendered duringthe year on net earnings from self-employmentminus any net loss from self-employment.

Whether or not your Social Security benefit isreduced depends on how much you earn when youwork. In 1998, the annual exempt amount ofearnings is $9,120 if you're under 65, and $14,500if you're age 65-69. You can earn up to theseamounts without affecting your Social Securityincome. If you earn more than these amounts,however, your Social Security benefit will bereduced. If you are under age 65, it will be reducedby $1 for every $2 above the limit that you earn bywork. For people age 65 and over, $1 in benefits iswithheld for each $3 in earnings above the limit. Ifyou are age 70 or above, your Social Securitybenefits will not be reduced because of yourearnings.

The amount you can earn each year before yourbenefit is affected increases yearly. How much itincreases is based on how much average wagelevels increase in the United States as a whole.

Similar rules, including the $9,120 limit, apply tothe Special Retirement Supplement provided tothose who retire under FERS before age 62.

Conclusion

If you are eligible for the FERS SpecialRetirement Supplement (that is, you retire at yourMRA with 30 or more years of service, at age 60with 20 or more years of service, or other rules thatallow receipt of the Supplement), the earnings testmay reduce the amount of your Supplement. If youplan to work past age 62, you can delay yourapplication for Social Security benefits in order toreceive higher benefits. In any case, you shouldremember that the earnings test only applies whenyou have substantial earned income during your"retirement" years.

Windfall Elimination Provision

The rules concerning the Windfall EliminationProvision (WEP) may be a transfer considerationif:

• You are under CSRS (not CSRS Offset);and

• You will reach age 62 after 1985 and areeligible for a Social Security benefit; and

• You will have had "substantial" earningsunder Social Security for less than 30years; and

• You are first eligible to retire underCSRS after December 31, 1985.

Benefits you receive from the Thrift Savings Planwill not reduce your Social Security Benefits underthe WEP.

If you already have Social Security coverage as aCSRS Offset employee, the WEP is not a transferconsideration, but you may want to read thissection to find out if your future Social Securitybenefits will be reduced by the WEP.

What the Windfall EliminationProvision Is

Social Security law includes a provision thatreduces Social Security benefits for those whohave less than 30 years of "substantial coverage"under Social Security and who have earned aretirement benefit from employment not coveredby Social Security; for example, CSRS service. (In1998, the amount of substantial coverage is$12,675. In contrast, the amount needed to earnfour credits of coverage in 1998 is $2,800.) If itapplies to you, your benefits will be figured at adifferent formula from the one used for those withlonger covered service.

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Who Is Affected

If you have fewer than 30 years of substantialSocial Security coverage and become eligible for aSocial Security benefit, this provision will affectyou if you are also eligible for a retirement benefitthat includes service performed under CSRS rules.

NOTE: The provision will apply to you even ifyou have past CSRS (non-Offset) service that willbecome subject to FERS rules when you transfer.See the example on page 46.

If you do not earn at least 10 years (or 40 credits)of Social Security coverage, you will not beeligible for a Social Security benefit (unless youwere born before 1929, in which case fewer creditsof coverage are required). This provision would, ofcourse, not apply to you if you are not eligible forSocial Security benefits. Likewise, it does notapply to you if you already have 30 years ofsubstantial Social Security coverage. If you areuncertain how many years of substantial SocialSecurity coverage you have and this issue is aconsideration in deciding to transfer to FERS,request your earnings history from the SocialSecurity Administration.

How the Windfall EliminationProvision Works

The WEP was designed to eliminate the "windfall"that could result if you were to receive a CSRSannuity based on many years of employment notcovered by Social Security and also receive a fullSocial Security benefit because you did have a fewyears of covered employment. If you're subject tothe WEP, your earned Social Security benefits willbe figured using a modified benefit formula.

The modified formula is not used in computingsurvivor benefits upon your death or the SpecialRetirement Supplement. It is used in computingSocial Security retirement as well as disabilitybenefits if you become disabled.

The regular Social Security benefit formula usesthree levels of earnings. Each level of earnings ismultiplied by a different percentage. The first levelof earnings is multiplied by 90%. The second by32%, and the third by 15%. Those amounts areadded together to determine a person's basicbenefit rate.

Under the modified benefit formula, the first levelof earnings is not multiplied by 90%, but by asmaller percentage, depending on the number ofyears of substantial Social Security coverage youhave. The modified formula reduces your SocialSecurity Benefit to the greatest extent if you haveless than 21 years of substantial Social Securitycoverage. In that case the first level of earnings ismultiplied by 40% instead of 90%. For each yearof coverage over 20 years the percentage increasesby 5% increments (e.g., 45% for 21 years, 50% for22 years, etc.). However, in no case will thereduction in your Social Security benefit becauseof the WEP be greater than one-half of the portionof your pension from employment not subject toSocial Security taxes; for example, your CSRSannuity.

That aspect of the WEP will only help if theamount of your CSRS benefit is relatively low. Ifyou could earn between 21 and 30 years ofsubstantial Social Security coverage, you shouldconsider whether or not you could earn therequired years by transferring to FERS. If you can,it will reduce or cancel out the effect of thisprovision. For example: Two employees with thesame date of birth retire at age 65. Both haveworked for the same employer for their entireworking career and have identical wages posted totheir earnings records. However, one also workedfor the Federal government and is receiving aCSRS pension of $800 per month, based on thatnon-covered work. When Social Security benefitsare computed, the worker entitled only to SocialSecurity will receive a benefit of $567 per month.The second worker is subject to the WEP modified

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formula and will receive a benefit of $354 permonth.

These benefit amounts are computed using thedifferent percentages as follows:

The average indexed monthly earnings for eachworker is $1000.

1st worker

426 x .90 = 383.40574 x .32 = 183.60

Total 567.00

2nd worker

426 x .40 = 170.40574 x .32 = 183.60

Total 354.00

Conclusion

If you become eligible for a Social Securitybenefit, you may be subject to the WEP whetheryou choose to stay with CSRS or transfer to FERS.This is because, either way, you may not be able toacquire 30 years of substantial Social Securitycoverage.

If you earn 21 or more years of substantial SocialSecurity coverage, though, you can lessen theeffects of this provision. Depending on your age,your previous Social Security coverage, and thenumber of years you plan to work, transferring toFERS could allow you to earn some or all of theadditional Social Security coverage you need toavoid the WEP. This could be especially valuablefor lower paid employees.

Social Security generally provides a higherproportion of benefits to lower income employeesthan it does to those who are higher paid. Thereduction that results from the WEP, however,tends to cancel out this effect. Lower salariedemployees who are subject to the WEP will findFERS a less attractive alternative than those whoare not. If you are low salaried, staying with CSRSis usually a better choice if you are sure you willretire from the Federal Government and will not beable to earn enough Social Security substantialearnings years to avoid the Windfall reduction bytransferring to FERS.

How to Estimate the Reduction in yourSocial Security Benefit Resulting from theWindfall Elimination Provision

Upon request by a worker (using form SSA-7004),the Social Security Administration (SSA) will senda Personalized Earnings and Benefit EstimateStatement (PEBES) that will list the worker'searnings in employment covered by SocialSecurity and provide a Social Security retirementbenefit estimate assuming retirement at alternativeages -- 62, 65 and 70. The benefit estimate isbased on the person's own estimate of his or herfuture annual earnings in employment covered bySocial Security.

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The following table shows how the PEBES benefitestimate for a person reaching age 62 in 1998 orlater can be adjusted to reflect the WEP in mostcases by subtracting a specified amount from theage-62 or age-65 benefit estimate. The amount tobe subtracted depends on the number of years of"substantial" Social Security earnings (seeGlossary) the worker will have acquired by thetime he or she begins to receive Social Securitybenefits.

Years ofSubstantialEarnings

Retirementat

Age 62

Retirementat

Age 65

30 or more $ 0 $ 0

29 19 24

28 38 48

27 58 72

26 77 96

25 96 120

24 115 144

23 134 168

22 154 192

21 173 216

20 or less 192 240

These amounts apply only to PEBES benefitestimates generated in 1998. To use PEBESgenerated in subsequent years, these amounts needto be adjusted by the increase in average wages inthe economy--currently estimated to be about 5%per year. Thus, to use with PEBES generated in1999 and later, increase the amounts shown byabout 5% for each subsequent year after 1998.

You can request a PEBES online from SocialSecurity’s Web site at http://www.ssa.gov.

You also can obtain the PEBES request form(SSA-7004) at this Web address, from yourpersonnel office, or by calling (800) 772-1213.

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Use of PEBES Benefit Estimates toEstimate CSRS-Offset Reductions

If you are a CSRS-Offset employee consideringwhether to join FERS, you may want to know howmuch your CSRS annuity will be reduced underthe CSRS-Offset calculation. Generally, thisreduction is the smaller of:

(1) The difference between (a) the SocialSecurity benefit including futureFederal CSRS-Offset employmentand(b) the Social Security benefitexcluding future CSRS-Offsetemployment; and

(2) 1/40 of the Social Security benefit(including future Federal employment),multiplied by the number of years offuture CSRS-Offset employment.

You can estimate these reductions by firstrequesting two Personalized Earnings and BenefitEstimate Statements (PEBES) from the SocialSecurity Administration (see How to Estimate theReduction in Your Social Security BenefitResulting From the Windfall EliminationProvision in the previous section). On one PEBESrequest form, you should indicate the annualFederal pay you estimate that you would have (intoday's dollars) until age 62; on the other PEBESrequest form, you should show no future earningsunder Social Security. When you receive the twostatements from SSA, adjust each benefit estimatefor the windfall elimination provision (WEP) asexplained in the previous section (page 46).

After adjusting for the WEP, the differencebetween the two Social Security benefit estimatesat age 62 can be used as an estimate of (1), above--assuming that you continue to work under CSRS-Offset until age 62. If you plan to work until age65, use the age-65 benefit estimates on the PEBESoutput.

The reduction under (2), above, can be estimatedby taking one-fortieth of the estimated Social

Security benefit including future CSRS-Offsetemployment (as adjusted for the WEP) and thenmultiplying by the number of years of futureCSRS-Offset employment.

Government Pension Offset

This section applies to you if:

• ...You are covered by CSRS (or you transferto FERS, but do not serve 5 years underFERS); and

• ...Based on your work history you areeligible for no Social Security benefit oronly a small Social Security benefit; and

• ...Based on your spouse's (or formerspouse's) work history, he or she is eligiblefor a full Social Security benefit.

This section does not apply to you if you arecovered by CSRS Offset provisions. People whoare mandatorily covered under Social Security areexempt from the Government Pension Offset.

What the Government Pension Offset Is

Under the Government Pension Offset, the amountof the benefit a person receives from SocialSecurity as a spouse, former spouse, or survivingspouse will be reduced if that person also receivesa pension based on his/her own work in Federal,State, or local government that was not covered bySocial Security.

Who Is Affected?

Federal employees who remain with CSRS aresubject to the Government Pension Offset. Inaddition, CSRS employees who transfer to FERSmust serve 5 years in FERS before becomingexempt from the offset.

The Government Pension Offset does not affectany benefits you receive from your Thrift SavingsPlan account.

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What Is a Social Security Spouse orSurvivor Benefit?

In some cases, Social Security law provides forwhat is known as a spouse or survivor benefit. Ifyour spouse has earned a Social Security benefitand you have earned little or no benefit, you canreceive an additional Social Security benefit basedon your spouse's Social Security benefit. If youbegin taking this benefit at age 65, it will amountto one-half (50%) of the amount your spousereceives. If you start receiving this benefit at age62, it will amount to a little over one-third (37.5%)of the amount your spouse receives.

Example: Your spouse receives a monthly checkfrom Social Security in the amount of $1,200. Ifyou begin receiving Social Security benefits as adependent of your spouse at age 65, you willreceive a monthly check from Social Security inthe amount of $600. If you begin receiving yourspousal benefit at age 62, you will receive amonthly check from Social Security in the amountof $450.

How the Government Pension OffsetWorks

If you retire from the Federal service under CSRSand are also eligible for Social Security benefits asa spouse, former spouse, or survivor, your SocialSecurity benefit will be reduced. It is reducedbecause you are receiving a pension from theFederal Government based on earnings that are notcovered by Social Security. For every $3 youreceive from your CSRS annuity, your SocialSecurity spousal benefit will be reduced by $2.

Example: Using the above example where youwere eligible for a $600 Social Security spousalbenefit, suppose you were also receiving a CSRSbenefit that amounted to $1,200 a month. TheGovernment Pension Offset would be two-thirdsof your monthly $1,200 CSRS benefit, or $800.Since the offset amount is larger than your $600

Social Security benefit, your Social Securitybenefit would be eliminated.

What Is the Effect of Transferring toFERS?

Employees who transfer and work at least 5 yearsunder FERS before retiring are exempt from theGovernment Pension Offset.

Conclusion

This factor will probably not be significant foranyone who earns his/her own Social Securitybenefit based in whole or in part on FERS service.This is because earned Social Security benefits areusually larger than spousal benefits, and SocialSecurity will not pay both at the same time. Eventhose who are thinking of transferring FERSbecause of this factor should also consider the factthat non-Social Security survivor benefits underthe Basic Benefit Plan are slightly lower and morecostly under FERS (see page 35).

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Special Employee Groups

This section covers four types of employees; lawenforcement officers, firefighters, air trafficcontrollers, and military reserve technicians.

Law Enforcement and FirefightingPersonnel

CSRS

If you work in a position that your agency hasdetermined to be a law enforcement or firefightingposition, you are covered under special rules of theCivil Service Retirement System. You pay a higherretirement contribution rate (in 1998, 7.50% ofpay) for more generous retirement benefits, andyou have the ability to retire at age 50 after 20years of law enforcement officer/firefighter coveredservice. The benefits you receive will be computedbased on 2.5% of your high-3 average pay for eachof the first 20 years of law enforcement/firefighterservice, and 2% per year of service (covered or not)thereafter. Once you have 20 years of coveredservice, you are subject to mandatory retirement atage 55 if you are a firefighter and age 57 if you area law enforcement officer. Other CSRS rules applyto you in the same manner as to any otheremployee.

FERS

Under FERS, there are also special benefits for lawenforcement and firefighting personnel, but therules are different. First, the FERS definition of alaw enforcement or firefighting position includes arequirement that the positions be limited to "youngand vigorous" personnel. Second, in order toqualify for the special benefits, you must haveoccupied a primary or first-line law enforcement orfirefighting position for at least 3 years beforemoving to a secondary (that is an administrative orsupervisory) position. Agency heads maydetermine that some supervisory positions are"primary" because they meet the "young andvigorous" requirement. The FERS definition and

the 3-year requirement are generally more strictthat the CSRS rules.

The contribution rate for FERS special lawenforcement and firefighting benefits is a halfpercent more of pay than for regular benefits.FERS also has different rules for when you canretire: at age 50 with 20 years of covered service,like CSRS, or at any age with 25 years of coveredservice. Under FERS, the special benefits formulais 1.7% of your high-3 average pay for each of thefirst 20 covered years of FERS service, and 1% ofpay per year of service thereafter. The FERS cost-of-living adjustments will begin at retirementinstead of at age 62, the age when most FERSretirees begin to receive cost-of-living adjustments.In addition, law enforcement and firefightingretirees will receive the FERS Special RetirementSupplement until age 62. The earnings test doesnot apply to the Special Retirement Supplementuntil you reach the Minimum Retirement Age.NOTE: The following sentence is incomplete inthe April 1998, printed copy of the FERSTransfer Handbook; the sentence should readas follows. Once you have 20 years of coveredservice, you are subject to mandatory retirement atage 55 if you are a firefighter and age 57 if you area law enforcement officer. Other FERS provisions,including those for Social Security and the ThriftSavings Plan, are the same as for regularemployees.

Special Transfer Rules

In general, the same transfer rules apply to CSRSlaw enforcement and firefighting personnel whoelect FERS as they do to regular employees. Thatis, you take with you your credit for your CSRSservice, including your 2.5% credits, and the fullCSRS cost-of-living adjustments payable on thosecredits. (You must retire under the specialprovisions to get the 2.5% credits.)

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However, there are two points that you should keepin mind:

•... All of your covered (law enforcement/firefighting) service that was subject to the7.50% deduction rate (or the CSRS Offsetrate) counts toward the required 3 years ofservice in a primary position when youtransfer to FERS, even if some of theservice was in an administrative orsupervisory position. If you now occupy acovered position but will not meet the 3-year requirement at the time you transfer,you may want to check to see that you willaccumulate enough additional service in aposition that your agency head hasdesignated as a primary lawenforcement/firefighting position to meetthe 3-year requirement under FERS.

•... Your law enforcement-firefighter servicethat was subject to the 7.5% deduction rate(or the CSRS Offset rate) will not countagainst the 20-year limitation for the moregenerous FERS benefit formula.

Example: If you transfer to FERS after 13years of CSRS law enforcement/firefighterservice, you can still earn up to 20 years ofadditional service at the 1.7% rate underFERS. In effect, the period of time duringwhich you can earn special benefits isextended by transferring to FERS.However, mandatory retirement agerequirements are not affected bytransferring.

Transfer Considerations for LawEnforcement and Firefighting Personnel

If you will perform, or have already completed 25years of covered (law enforcement-firefighting)service before attaining age 50, the FERS

provisions permitting retirement at any age after 25years of service permit you to retire earlier underFERS than under CSRS.

If you are close to meeting the 20-year limitationfor the special benefit formula under CSRS butcontemplate working beyond 20 years, you maywish to consider FERS as a means of extendingyour eligibility for the special benefit formula. TheFERS 1.7% rate, plus Social Security and theThrift Savings Plan, generally provide more basicvalue than the regular 2% per year CSRS formulayou earn after 20 years of covered service underCSRS.

Because the FERS definitions of law enforcementofficer and firefighter differ from the CSRSdefinitions, you will not necessarily be covered byFERS special provisions if you transfer, eventhough your position now qualifies under CSRSprovisions. Your agency head must determinewhich positions qualify. If there is any question asto whether your current position meets the FERSdefinition or whether you can meet the 3-yearrequirement for primary lawenforcement/firefighting duties under FERS, youshould consider staying with CSRS.

Of course, as has been stated throughout thishandbook, if you plan to leave Federal serviceshort of retirement, FERS is almost always thebetter choice. This is especially important for thosewho leave before becoming eligible to retire underthe law enforcement/firefighters provisions. Theywill be treated the same as any other employeeunder CSRS or FERS

Air Traffic Controllers

The definition of an Air Traffic Controller, orController is the same under CSRS and FERS.

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CSRS

Under CSRS you can retire at age 50 after 20 yearsof service as a controller, or at any age after 25years as a controller. While there is no specialbenefit formula, there is a guaranteed benefit afterat least 20 years of controller service. Theguarantee is 50% of your high-3 average pay. Ifyou retire after 25 years, it works out to earning 2%per year. If you retire after 27 years, the guaranteeprovides no more than the regular formula wouldhave. Other than the guaranteed benefit andmandatory retirement, there are no special CSRSrules for controllers.

FERS

While FERS has the same rules as CSRS for whena controller can retire, FERS doesn't have aguaranteed benefit. Instead, FERS provides thesame special benefits that are provided to lawenforcement and firefighting personnel, discussedon the previous page. FERS also requirescontrollers to pay a 1/2% more for the specialbenefits, as must law enforcement and firefightingpersonnel.

Special Transfer Rules

There are no special rules for controllers whotransfer to FERS.

Transfer Considerations for Controllers

When a controller transfers to FERS, the regularCSRS formula is used to calculate the CSRS creditthat the controller will receive under FERS, and theguaranteed benefit is completely disregarded. Incases where a controller plans to retire beforecompleting 27 years of service, this can have theeffect of significantly reducing the value of theCSRS service performed before transferring.

Example: A controller who has between 20 and 25years of controller service has earned the CSRSguaranteed benefit of 50% of average pay. Whenthat service is transferred to FERS, its value will be

computed using the regular CSRS formula; 36%for 20 years and 46% for 25 years. This results in aloss of 4 to 14% of average pay compared to thevalue of the service under CSRS. Unless thecontroller expects to perform many years ofservice, the special formula for controllers underFERS won't make up the difference.

Of course, the CSRS guaranteed benefit is onlyavailable to employees who retire under thesystem. FERS is almost always a better system forthose who expect to leave Federal service short ofretirement.

Military Reserve Technicians

A military reserve technician, or National Guardtechnician is a civilian employee who is a memberof the Army National Guard of the United States,the Army Reserve, the Naval Reserve, the MarineCorps Reserve, the Air Force Reserve, or the CoastGuard Reserve who is assigned to duties in one ofthese components and who is required to maintaina specific military grade in order to continue inhis/her civilian employment.

CSRS

A technician is treated the same as any otheremployee under CSRS. A technician who isinvoluntarily separated (not for delinquency ormisconduct) from his/her position can get adiscontinued service annuity at any age with 25years of service, or at age 50 with 20 years ofservice. The annuity is reduced at a rate of 2% foreach year the employee is under 55 years of age.

A National Guard technician who is medicallydisqualified for military duty and who has 5 yearsof creditable civilian service may receive disabilitybenefits without meeting the usual CSRS disabilitycriteria. This special provision does not apply tomilitary reserve technicians.

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FERS

Under FERS, a technician who is separated fromcivilian service because he/she no longer qualifiesas a member of a military reserve component mayretire and receive an unreduced annuity at age 50with 25 years of service. If military status is lostdue to a disability, FERS disability benefits arepayable after only 18 months of FERS service.Also, the Special Retirement Supplement is paiduntil age 62. It is not subject to the Social SecurityEarnings Test until the employee reaches theMinimum Retirement Age. However, techniciansare not eligible for the 1.1% annuity formula underFERS, no matter how long they work or their ageat retirement.

Thrift Savings Plan Considerations forSpecial Groups

If you retire under any of the special retirementprovisions, you will be eligible to withdraw yourThrift Savings Plan account. You may receiveyour entire account as a single payment, receiveyour account in a series of monthly payments, orhave the TSP purchase an annuity for you. If you

elect a single payment or certain monthlypayments, you may have TSP transfer all or anyportion of the payment (s) to an IndividualRetirement Arrangement (IRA) or other eligibleretirement plan.

Thrift Savings Plan payments are taxable asordinary income for Federal income tax purposesfor the year in which they are disbursed. Inaddition, if you retire before the year in which youreach age 55 and receive a direct single payment ormonthly payments determined by dollar amount ornumber of months before you reach age 59 ½, thepayment (s) will be subject to the Internal RevenueService 10% early withdrawal penalty tax. If youtransfer all or any portion of the payment (s) to anIRA or other eligible retirement plan, the amounttransferred is not taxable income when it istransferred (it becomes taxable income when it isdisbursed from the plan to which it wastransferred) and, consequently, is not subject toearly withdrawal penalty tax. If you receive a TSPannuity, or monthly payments computed by yourlife expectancy, the payments are not subject to theearly withdrawal penalty.

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Service Credit Deposits and Refunds

Civilian Service

CSRS

Under CSRS, civilian service as a Federal orDistrict of Columbia employee is generallycreditable for retirement. Service while employedbut in a nonpay status is creditable for up to 6months per calendar year.

If you are covered by CSRS, all past civilianservice (including service for which no deductionswere withheld and service for which a refund ofdeductions has been paid) is used to determineyour eligibility for an annuity. If you received arefund, however, the service covered by the refundcannot be included in computing your length ofservice for your annuity, unless the refund isredeposited (repaid) after you become reemployed.Exception: Even if you do not pay a redeposit,refunded service that ended before October 1,1990, will still be credited when you retire, subjectto an actuarial reduction in your annuity. Thereduction is based on the amount of the redepositand your age at the time of retirement. Thisexception to the redeposit requirement does notapply if you retire for disability.

Non-deduction service (service for which nodeductions were taken) performed on and afterOctober 1, 1982 is not creditable in computingyour annuity unless a deposit is paid. Non-deduction service performed before October 1,1982, is not fully creditable in computing yourannuity unless a deposit is paid. However, if youdo not pay the deposit for pre-October 1, 1982service, the yearly amount of your annuity will bereduced by 10 percent of the unpaid deposit. ACSRS employee may make deposits and redepositsat any time, but not after the U. S. Office ofPersonnel Management has completed processingthe employee's annuity application. The redepositpayment is the amount of the refund, plus interestfrom the date of the refund. The amount of a

deposit is usually 7% of the basic pay for theperiod, plus interest from the midpoint of theperiod. Interest on deposits for non-deductionservice on and after October 1, 1982, and onrefunds based on applications received on andafter October 1, 1982, is computed at the rate of4% through 1947, 3% through 1984, and anannually variable rate beginning in 1985(reflecting certain U.S. Treasury Departmentinterest rates for the previous fiscal year). Thevariable interest rates since 1984 are as follows:

1985 13%

1986 11.125%

1987 9%

1988 8.374%

1989 9.125%

1990 8.75%

1991 8.625%

1992 8.125%

19937.125%

1994 6.25%

1995 7.0%

1996 6.875%

1997 6.875%

1998 6.75%

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Interest on deposits for non-deduction servicebefore October 1, 1982, and refunds based onapplications received before October 1, 1982, iscomputed at the rate of 4% through 1947, and 3%after 1947.

FERS

Under the rules for employees who transfer toFERS, civilian service covered by retirementdeduction or deposits is creditable for all purposes.If you receive a refund of FERS deductions afterthe effective date of your transfer to FERS, youcan never redeposit the FERS funds, and theperiod covered by the refund will not be creditablefor the purposes of entitlement or computation ofyour annuity. If there is a CSRS component. andCSRS contributions were also returned, theyfollow CSRS redeposit rules. You can alsorequest a refund of only your CSRS deductionsupon separation.

Non-deduction service cannot be credited unless itwas performed before 1989 and a deposit is made.(An exception in the law allows certain non-deduction service performed after 1988 to becredited if it is creditable under the ForeignService Pension System.)

If you transfer to FERS, any service subject toCSRS Offset deductions after 1983 (and beforethe effective date of your transfer to FERS)becomes subject to FERS rules. But, if thesedeductions were refunded upon separation fromservice, they may usually be redeposited upon laterreemployment subject to FERS. The treatment ofother civilian service performed before theeffective date of your transfer (that is, the civilianservice not subject to CSRS Offset deductions)depends on how much service you have. Forsimplicity, this past service will be called non-offset service. Non-offset service includes non-deduction service performed before transferring toFERS (except that such non-deduction service

performed after 1988 can be used only in a CSRScomponent), service for which a deposit orredeposit has been made at the full CSRS rate, andservice for which deductions were taken at the fullCSRS rate, whether refunded or not.

Military Service

CSRS

Under CSRS, honorable active military service isgenerally creditable. However, most militaryretirees are barred from receiving credit toward acivilian annuity unless they waive their militaryretired pay. The military retired pay need not bewaived if it is based on disability involving certaininjuries incurred in wartime or if it is Chapter 67(reservists') retired pay. If you are a militaryretiree, your retired pay center can tell you whetheryou fall under one of these exceptions.

Beginning in 1957, military service becamesubject to Social Security, and treatment ofmilitary service under retirement depends onwhether or not it was performed after December31, 1956. A 1982 change in law also distinguishedbetween pre-October 1, 1982 hires and thoseemployees who first became subject to CSRS onor after that date.

Employees first hired in positions subject to CSRSafter September 30, 1982 can receive credit formilitary service after 1956 only if they make adeposit covering this service. Employees hired inpositions subject to CSRS before October 1, 1982can receive credit for military service after 1956without making the deposit. However, credit forthis service will be eliminated if the individualbecomes eligible (or would become eligible uponproper application) for Social Security old-agebenefits at age 62 unless a deposit for the service ismade before retirement.

The deposit is made directly to the employingoffice. The amount of the deposit is 7% of themilitary basic pay for the period, plus interest. CSRS Offset employees pay the same amount.

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Interest is computed at the rate of 3% through1984 and an annually variable rate beginning in 1985 (see table on page 54). Interest begins onOctober 1, 1985, or 2 years after the employee isfirst hired in a position subject to CSRS;whichever is later. However, because the methodof computing the deposit calls for adding interestonly at the end of the year after it begins, nointerest is charged if the deposit has been paid infull by September 30, 1986, or within 3 years afterfirst becoming subject to CSRS, if later.

Service in the National Guard

Service in the National Guard, except whenordered to active duty in the service of the UnitedStates, is generally not creditable. However, youmay receive credit for National Guard service,followed by Federal civilian reemployment thatoccurs after August 1, 1990, when all of thefollowing conditions are met:

•... The service must interrupt civilian servicecreditable under CSRS (or FERS) and befollowed by reemployment in accordancewith the appropriate chapter of the lawsconcerning Veterans Benefits; and

•... It must be full-time (and not inactiveduty), and performed by a member of theU.S. Army National Guard, or U.S. AirNational Guard; and

•... It must be under a specified law and youmust be entitled to pay from the U.S. (orhave waived pay from the U.S.) for theservice.

The deposit for National Guard service that meetsthese criteria is limited to the amount that wouldhave been deducted from your pay for retirement ifyou had remained in the civilian service. Thismeans that CSRS Offset employees may pay adeposit of less than 7% for qualifying The depositis made directly to the employing office. Theamount of the deposit is 7% of the military basicpay for the period, plus interest. CSRS Offsetemployees pay the same amount. Interest iscomputed at the rate of 3% through 1984 and anannually variable rate beginning in National Guardservice.

FERS

Military service that would be creditable underCSRS is creditable under FERS, except that allmilitary service after 1956 must be covered by adeposit to receive credit. Even if an employeecovered by FERS was first hired before October 1,1982, military service after 1956 cannot becredited under FERS rules unless the requireddeposit is completed. The deposit must be madedirectly to the employing agency before retirement.

The amount of the deposit is 3% of the militarybasic pay for the period, plus interest. The depositrate for qualifying National Guard service islimited to the amount that would have beendeducted from pay had the person remained inhis/her civilian position. Interest is computed at thesame rate as applicable to CSRS deposits. Interestfor military service that will be credited underFERS rules begins 2 years after the effective dateof an election to join FERS. As under CSRS,however, no interest will actually be charged if thedeposit is completed before the end of the yearafter interest begins; that is, if the deposit iscompleted within 3 years of the effective date ofthe election to join FERS.

Whether your past military service is creditedunder CSRS rules or FERS rules depends on howmuch non-offset civilian service you have as of theeffective date of your transfer to FERS. Refer to

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the above FERS section under "Civilian Service"to determine whether your military service will besubject to FERS rules or CSRS rules. Note: Anymilitary service performed after your transfer andbefore retirement can be credited only under FERSrules. If you become subject to FERS rules buthave already made a deposit under CSRS rules, arefund is payable. The refund will be equal to thedifference between the 7% deposit and the 3%deposit. If you are eligible for this kind of refund,

your employing agency can give you moreinformation.

Conclusion

The varying rules for service credit deposits andrefunds under CSRS and FERS are not significantfactors in most transfer decisions.

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Glossary

Adjusted Career Earnings--A figure based on anemployee's earnings history that is used incalculating Social Security benefits amounts. Aworker's actual earnings through out his/her workhistory are indexed to reflect the national wagelevels in effect when he/she becomes eligible forSocial Security benefits.

Agency Automatic (1%) Contribution--Anamount equal to 1% of a FERS employee's basicpay that his/her agency contributes to theemployee's Thrift Savings Plan account each payperiod. This contribution is made from agencyfunds; it is not a deduction from the employee'sbasic pay. It is made whether or not the employeecontributes to the Thrift Savings Plan.

Agency Matching Contributions--A FERSemployee who contributes a percentage of his/herpay to the Thrift Savings Plan receives additionalcontributions from the Government. TheseGovernment contributions are known as AgencyMatching Contributions.

Annuitant--An individual who is receiving aCSRS, CSRS-Offset or FERS annuity.

Annuity--The recurring monthly payments to aformer employee who has retired.

Annuity, Deferred--An annuity that begins morethan 1 month after separation from employment atsome future point when retirement age is reached.(Also called deferred benefits.)

Annuity, Immediate--An annuity that becomespayable within 1 month after separation fromFederal employment. (Also called immediatebenefits.)

Annuity, Postponed--Delaying your FERSannuity benefit to sometime in the future aftermeeting your Minimum Retirement Age but beforeage 62.

Annuity, Reduced--A retiree's basic annuity thatis reduced because of retirement before a certainage (for reasons other than disability). Annuitiesare also reduced because of unpaid deposits orredeposits, or to provide a survivor annuity. (Alsocalled reduced benefits.)

Annuity, Survivor--The recurring monthlypayments to a deceased employee's or retiree'ssurvivor(s). Survivor annuities may be paid tosurviving spouses, certain former spouses, andchildren. (Also called survivor benefits.)

Average Indexed Monthly Earnings (AIME)The adjusted earnings determined under the SocialSecurity Act formula used to determine SocialSecurity benefits. It is based on an individual'slifetime earnings subject to the Social SecuritySystem.

Basic Benefit Plan--The first tier of FERS(Federal Employees Retirement System). TheBasic Benefit Plan provides annuities and lump-sum payments based on years of service and pay.

Basic Pay--An employee's pay subject toretirement deductions under CSRS or the FERSBasic Benefit Plan, generally excluding suchcompensation as bonuses, overtime pay, specialallowances, etc.

COLA, CSRS--CSRS cost of living adjustments(COLA's) provide an increase that is equal to therate of inflation as measured by the ConsumerPrice Index (CPI). CSRS cost-of-livingadjustments are provided to retirees at all ages.

COLA, FERS--FERS cost of living adjustments(COLA's) provide an increase that is equal to the

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rate of inflation as measured by the ConsumerPrice Index (CPI) when the inflation rate is 2% orless. When the inflation rate is between 2% and3%, the cost-of-living adjustments will be 2%.When the inflation rate is 3% or more, FERS cost-of-living adjustments are 1% less than the rate ofinflation. FERS cost-of-living adjustments underthe Basic Benefit Plan are not provided until aretiree reaches age 62, except for disability andsurvivor benefits, and employees retired under thespecial provisions for law enforcement officers,firefighter, and air traffic controllers.

Common Stock Index Investment Fund ©Fund) One of the three Thrift Savings Planinvestment funds. This fund allows participants toinvest in common stocks and is invested in a fundthat tracks the Standard and Poor's 500 stockindex.

Consumer Price Index (CPI)--The measure ofchange in consumer prices as determined by amonthly survey of the U.S. Bureau of LaborStatistics. Among the Consumer Price Indexcomponents are the costs of housing, food,transportation, and electricity. Both CSRS andFERS benefits are adjusted for changes in the rateof inflation as measured by the Consumer PriceIndex. (See Cost-of-living adjustments entries.)

Cost-of-Living Adjustment (COLA)--Anadjustment of an annuity amount based on the rateof inflation as measured by the Consumer PriceIndex (CPI). It protects an annuity's buying powerin times of inflation.

Credits of Coverage –A measurement used tocredit work covered by Social Security. In 1998,earnings totaling $700 generally equal one creditof coverage. No more than four credits may beearned in any one calendar year. The term“quarters” of coverage is also used.

CSRS--The Civil Service Retirement System.

CSRS Offset--Generally applies to an employeewho was originally employed under CSRS, left theFederal service for more than a year, and returnedafter 1983 to be covered by both CSRS and SocialSecurity. If you elect FERS, CSRS-Offset servicechanges to FERS service.

Deductions--The amount withheld from the basicpay of an employee for the basic retirement benefitplan.

Deposit--A sum of money paid into CSRS orFERS by an employee (or a survivor) to get creditfor a period of Federal civilian service duringwhich retirement deductions were not withheldfrom pay.

Earnings Offset--A reduction in an employee'sSocial Security payments or Special RetirementSupplement made when he/she continues to workafter benefits begin and earns over an allowableamount ($9,120 in 1998). For every $2 earnedover this amount, the employee will give up $1 inbenefits. This offset does not apply to specialgroups of employees until the MinimumRetirement Age is attained.

Earnings Test--A method of connecting benefitsto income so that as income increases, benefitsdecrease. Used in the earnings offset.

FERS--The Federal Employees RetirementSystem.

Federal Retirement Thrift Investment Board--An independent Federal agency established toadminister the Thrift Savings Plan.

Fixed Income Investment Fund (F Fund)--Oneof the three Thrift Savings Plan investment funds.This fund allows participants to invest in fixedincome obligations and is invested in a funddesigned to closely track the Lehman BrothersAggregate bond index.

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Government Pension Offset --A part of theSocial Security law that affects CSRS retirees whoare also entitled to a Social Security spouse orsurvivor benefit. It is sometimes referred to as the"Public Pension Offset." The Social Securitybenefit is reduced because the CSRS retiree is alsoreceiving a pension from employment that was notcovered by Social Security. If you elect FERS,you must be covered for 5 years to avoidGovernment Pension Offset.

Government Securities Investment Fund (GFund) One of the three Thrift Savings planinvestment funds. This fund consists exclusivelyof investments in short-term nonmarketable U.S.Treasury securities specially issued to the TSP.

High-3 Average Pay--The average of anemployee's 3 highest consecutive years of basicpay earned during creditable service. Used inbenefit computations under both FERS and CSRS.

Market Rate of Interest--The percentage ofinterest paid on certain FERS deposits andrefunds. Based on the average interest earned bythe Civil Service Retirement and Disability Fundin the previous year. In 1998, the interest rate is6.75%.

Maximum Taxable Wage Base--The maximumamount of an employee's wages subject to SocialSecurity taxes. In 1998, the maximum taxablewage base is $68,400. An employee pays no SocialSecurity taxes on any earnings above the base.However, the excess earnings are not used incalculating the Social Security benefit, either. Themaximum taxable wage base increases yearlybased on the average increase in earnings of theAmerican workforce as a whole.

Minimum Retirement Age (MRA)--The earliestage at which a FERS employee may retirevoluntarily or elect to receive benefits if separatedfrom Federal service after at least 10 years ofservice. The MRA varies according to the year inwhich the employee was born. For anyone bornbefore 1948, the MRA is 55. It increases gradually

to 57 for those born later. The benefits of anemployee who has less than 30 years of service (orwho is not age 60 with 20 years of service) arereduced it he/she elects to receive them at theMRA.

Non-CSRS Offset Service--Civilian serviceperformed before the effective date of a transfer toFERS that was not subject to both CSRS andSocial Security deductions. Non-CSRS Offsetservice includes non-deduction service performedbefore transferring to FERS, service for which adeposit or redeposit has been made at the fullCSRS rate, and service for which deductions weretaken at the full CSRS rate, whether refunded ornot.

OASDI or Social Security Tax--The part of theSocial Security tax that goes to the old age,survivor, and disability insurance. Since 1990 thetax rate has been 6.2% up to the maximum taxablewage base. The total Social Security tax alsoincludes 1.45% for Medicare.

Offset Plan--(See CSRS Offset.)

OPM (U.S. Office of Personnel Management)--The Federal Government's central personnelagency. OPM administers the CSRS and the FERSBasic Benefit Plan.

Primary Insurance Amount--A worker's basicSocial Security benefit based on his/her adjustedcareer earnings. (See Adjusted Career Earnings.)

Quarters of Coverage ("Quarters")--Ameasurement used to credit work covered bySocial Security. In 1998, earnings totaling $700generally equal one quarter of coverage. No morethan four quarters of coverage may be earned inany one calendar year. The term "credit" is alsoused to refer to quarters of coverage.

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Reasonable Offer–For discontinued serviceretirement (early, involuntary), a reasonable offeris a written offer of another position in theemploying agency for which an individual isqualified, not lower than two grades below theindividual’s current grade, at the same tenure andwork schedule, and in the same commuting area. A different definition applies for disabilityretirement: A written offer of another position inthe employing agency for which an individual isqualified, at the same grade as the individual’scurrent grade, at the same tenure and workschedule, and in the same commuting area.

Redeposit--A sum of money paid into CSRS by anemployee (or a survivor) to get credit for a periodof Federal civilian service for which a refund ofretirement contributions was received. (Notallowable for FERS service.)

Refund--The amount of money a former Federalemployee withdraws from his/her retirementaccount. Under FERS, refunds are paid with amarket rate of interest.

Retiree--A former Federal employee who isreceiving recurring CSRS or FERS paymentsbased on his/her service.

Retirement, Deferred--Retirement under CSRSor FERS when the employee separates fromservice with at least 5 years of civilian service, butbefore meeting the requirements for an immediateannuity. A deferred retirement under CSRS beginson the employee's 62nd birthday. Under FERS, thedeferred retirement can begin as early as theemployee's MRA if the employee had at least 10years of service.

Retirement, Early, FERS--Retirement with atleast 10 but less than 30 years of service afterreaching the MRA and receiving a reducedannuity. Not available under CSRS. Also called"MRA + 10" benefit.

Retirement Fund--The Civil Service Retirementand Disability Fund. This is the account thatcontains the employee and employer contributions

to CSRS and FERS. It includes additionalpayments, as well, and is invested in FederalGovernment securities.

Retirement, Unreduced--Retirement under CSRSor FERS with full benefits after meetingappropriate age and length-of-servicerequirements: 62 with 5 years, 60 with 20 years,55 with 30 years under CSRS, or the MRA with30 years or involuntary and early out under FERS.(Also called unreduced benefits.)

Retirement, Voluntary, or Optional--Retirementfrom Federal service under CSRS or FERS at theindividual's option with an immediate annuity atany time following completion of the appropriateage and length-of-service requirements.

Service, Non-deduction–Periods of civilianservice for which no retirement deductions werewithheld from pay for retirement purposes.

Social Security--A social insurance program thatcovers most of the Nation's work force. It is oftenthe basic retirement plan to which other benefitsare added. It provides retirement, disability,survivor, and Medicare benefits.

Social Security Credits--When an employeeworks in a position and pays Social Security taxes,he/she earns Social Security credits. Minimumnumbers of credits are required in order to qualifyfor various Social Security benefits. (See Quartersof Coverage.)

Special Retirement Supplement--An annuitysupplement provided to some FERS employeeswho retire before age 62, because Social Securitybenefits cannot start before then. The supplementapproximates the portion of a full career SocialSecurity benefit earned while under FERS, andends at age 62 when Social Security benefits firstbecome available. The supplement is subject to anearnings test.

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Substantial Social Security Coverage orEarnings--Earnings above a certain amount thatcount toward reducing the effect of the WindfallElimination Provision (WEP). The effect of theWEP starts to be reduced when 21 or more yearsof substantial Social Security coverage are earned.(In 1998, $12,675 in earnings subject to SocialSecurity taxes are considered to be "substantial."In contrast, the amount needed to earn four creditsfor the year is $2,875.) (See Windfall EliminationProvision.)

Survivor--A person who is entitled to a benefitbased on the service of a deceased employee orannuitant.

Thrift Savings Plan (TSP)--A retirement savingsand investment plan established by Congress in theFederal Employees' Retirement System Act of1986 to provide eligible Federal employees

savings and tax benefits similar to those offered bymany private corporations. It is a definedcontribution plan administered by the FederalRetirement Thrift Investment Board. CSRSemployees can also contribute but receive noagency contributions.

Wage Base--(See Maximum Taxable WageBase.)

Windfall Elimination Provision (WEP)--Thisprovision of the Social Security law reduces SocialSecurity benefits for employees who have less than30 years of substantial coverage under SocialSecurity and get a pension from employment notcovered by Social Security (for example, a CSRSbenefit).

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Acronyms

AIME . Average Indexed Monthly Earnings

AIYE .. Average Indexed Yearly Earnings

COLA Cost-of-Living Adjustment

CPI .... Consumer Price Index

CSRS.. Civil Service Retirement System

FERS.. Federal Employees Retirement System

GIC .... Guaranteed Investment Contract

IRA .... Individual Retirement Arrangement

MRA .. Minimum Retirement Age

OASDI Old Age, Survivors, and Disability Insurance

PIA .... Primary Insurance Amount

TSP .... Thrift Savings Plan

WEP ... Windfall Elimination Provision

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EXAMPLES

The following examples represent projected annual retirement benefits that several hypothetical employeesmight receive by remaining under CSRS or transferring to FERS. These examples were developed usingthe 1996 version of the FERS transfer model. The 1998 version should be available through yourpersonnel office. It also is on the U.S. Office of Personnel Management’s Internet Web site(http://www.opm.gov/asd). In reviewing these examples, note that the benefits projections are based oncertain assumptions about future salary increases, investment returns, and other factors that directly affectyour final level of benefits. The economic scenario used in these examples is based on assumptions of3.5% inflation, 7.5% investment return and 3.5% salary growth. These assumptions are quite conservativebecause they are projections made over a period that would represent much of an employee's career.However, actual experience may vary. For example, the compound return for the C Fund from 1988through 1997 was 17.56%, and the compound annual inflation rate for the period was under 4%. Thus, theTSP account of an employee who invested heavily in the C Fund during this period would have become amuch more valuable part of his or her benefits package than the assumptions used in the examples wouldindicate.

All benefits are shown in 1996 dollars. Annual benefits have been rounded to the nearest hundred dollarsand may not total exactly due to rounding. Because the examples involve projections into the future, thebenefit amounts shown should not be taken as estimated benefits. Instead, the amounts should be taken asindicators of which plan may provide the better monetary benefits. You will also see, as you read throughthe examples, that several of our make-believe employees' decisions turned on other factors such as gettingthe portability of Social Security coverage or being able to retire earlier.

The decrease in FERS and Thrift Savings Plan benefits that appears by age 75 reflects the fact that FERSbenefits do not receive full cost-of-living adjustments and that the TSP option selected provides levelpayments that are not adjusted for inflation. The TSP does offer an option for an annuity that increases by aspecific percentage each year. In that case, the annuity will start at a lower value but the value will notdecline as rapidly as a fixed annuity.

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Example 1. Bernice

Bernice began her Federal career as a GS 2, Step 1. During the FERS open season in 1987, she chose tostay in CSRS. She recently had a 3-month break in service when the military base where she workedclosed.

Bernice is a GS 7, Step 10. She has more than 20 years of CSRS service, a Thrift Savings Plan balance of$5200, and essentially no Social Security-covered earnings. She currently is saving 5% of pay in the Thriftand plans to continue to do so whether she stays in CSRS or transfers.

Bernice plans to retire from Federal service in 2012 when she is age 60. She will have 38.6 years ofservice. She expects to be a GS 9 at retirement. Bernice looks forward to having time for volunteer workwhen she retires. If Bernice transfers to FERS and retires at age 60, she will receive the annuitysupplement until age 62 when Social Security benefits begin. Since Bernice does not have 30 years ofsubstantial earnings under Social Security, her benefit will be computed under the lower WindfallElimination Provision. The projection shows Bernice's total future benefits to be very similar under bothretirement plans.

Bernice expects that her husband will be transferred to a job in another State in the next year or so. Sinceshe doesn't know how readily she will be able to get another Federal job in that location, she decides totransfer to FERS because it is a more flexible package. She can add to her Social Security benefit no matterwhether she remains in Federal service or moves to the private sector. If she doesn't stay in Federal service,she can start receiving FERS benefits at her minimum retirement age, but under CSRS, she would have towait until age 62.

FutureEmployee

Contribution

Annual Retirement Benefits Year: 2012 2014 2027 Age: 60 62 75

Staying in CSRS

Pension 43,300 26,000 26,000 26,000

Social Security 0 0 0 0

Thrift Plan 30,900 4,100 3,800 2,500

Bal. $52,500

Total 74,200 30,100 29,800 28,400

Joining FERS

Pension - CSRS 0 13,700 13,700 13,700

Pension - FERS 4,900 5,700 5,400 4,700

Supple or Soc Sec 38,300 4,200 4,900 4,900

Thrift Plan 30,900 7,500 7,000 4,500

Bal. $95,400

Total 74,200 31,200 30,900 27,800

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Example 2. Sam

Sam began his civilian career as a GS 5, Step 1. He resigned after 10 years. After a break of more than 1 year, hereturned to Federal service as a CSRS Offset employee. During his 6-month opportunity to transfer to FERS, Samwas very busy with work and family obligations, so he never even finished reading the transfer information hisagency provided. After another 5 years of service, he now has had another break in service, so he has anotheropportunity to transfer to FERS.

Sam currently is a GS 11, step 3. Based on his prior service, his Thrift balance is $7,500. He is contributing 5% andplans to continue at that percentage. He has 6 years of military service and has paid his military deposit. He has atotal of 10 years of Social Security coverage before he came under the CSRS Offset coverage. Sam expects to retireas a GS 12.

Sam had planned to remain in Federal service until age 62. However, his brother is urging him to leave in 2002 whenSam will be age 58 so that they can go into business together. At that point, Sam would have 27 years of service - notenough for a benefit under CSRS, but more than enough for a FERS MRA+10 benefit.

Sam's dilemma is whether to stick with his original plans to retire at age 62 under CSRS or to transfer to FERS so hecan retire earlier and fulfill a longtime dream of going into business with his brother. Sam is really sorry that he didnot pay attention to his earlier opportunity to transfer to FERS. Since CSRS Offset service comes under FERS rulesupon transfer, if Sam transfers to FERS now, when he retires, his 5 years of Offset service will be worth 5% of hishigh-3 average salary rather than the 10% that it is worth under CSRS rules. In addition, he will have lost theopportunity for the agency 1% and matching TSP contributions during his Offset service.

FutureEmployee

Contribution

Annual Retirement Benefits Year: 2002 2006 2019 Age: 58 62 75

Staying in CSRS

Pension 2,300 0 16,500 16,500

Social Security 18,100 0 7,200 7,200

Thrift Plan 14,600 0 2,400 1,500

Bal. $25,900

Total 35,000 0 26,100 25,200

Joining FERS

Pension - CSRS 000000 9,000 9,000 9,000

Pension - FERS 2,300 4,000 3,500 3,100

Supple or Soc Sec 18,100 0 7,200 7,200

Thrift Plan 14,600 3,200 2,700 1,800

Bal. $42,400

Total 35,000 16,200 22,400 21,000

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Example 3. Frank

Frank began his Federal career as a GS 5, Step 1. During the FERS open season in 1987, he chose to stay in CSRS.He recently had a 6-month break in service when he was unable to transfer with his function when it moved toanother location. Since his break in service was less than 365 days, he remains under CSRS coverage rather thancoming under CSRS Offset.

Frank is a GS 13, Step 3. He has 18 years of CSRS service. He also has 22 years of Social Security credits from hisprivate sector employment. He recently began participating in the Thrift Savings Plan, with a current balance of$1000. Frank saves 3% of pay in the Thrift Plan but would consider increasing the savings to 5% if he changes toFERS to take advantage of the agency matching.

Frank plans to retire from Federal Service in 2004 when he is age 62. He will have 24.3 years of Federal service. Heexpects to be a GS 13 at retirement. Frank plans on a life of leisure after retirement, traveling around the country.Since Frank has many years of Social Security credits from previous employment, transferring to FERS would allowhim to add enough to his existing credits to avoid the reduction for the Windfall Elimination Provision.

FutureEmployee

Contribution

Annual Retirement Benefits Year: 2004 2017 Age: 62 75

Staying in CSRS

Pension 35,300 27,400 27,400

Social Security 0 5,700 5,700

Thrift Plan 15,100 1,700 1,100

Bal. $18,200

Total 50,400 34,900 34,300

Joining FERS

Pension - CSRS 000000 17,500 17,500

Pension - FERS 4,000 5,000 4,400

Supple or Soc Sec 31,200 10,300 10,300

Thrift Plan 25,200 5,500 3,500

Bal. $57,800

Total 60,400 38,300 35,700

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Example 4. Reba

Reba began her Federal career as a GS 4, Step 1. She left Federal service after working for 5 years under CSRS toraise her family. During her absence from Federal service, she worked part-time in the private sector while herchildren were in school. She has 12.5 years of Social Security credits from this employment.

Reba has returned to Federal service now that her children are grown. She is a GS 6, Step 4 and is under the CSRSOffset with an opportunity to transfer to FERS. She currently is saving 3% of pay in the Thrift Plan with a balance of$1000 and plans to continue to do so whether she stays in CSRS Offset or transfers to FERS.

Reba plans to retire from Federal service in 2003 when she is age 62. She will have 12.6 years of service. Sheexpects to be a GS 7 at retirement. Reba looks forward to having time for her grandchildren when she retires. If Rebatransfers to FERS and retires at age 62, will receive a benefit equal to 35% of her final salary, whereas CSRS wouldprovide a benefit of 29%. This is because Social Security replaces a higher portion of the earnings of someone in thelower income level.

FutureEmployee

Contribution

Annual Retirement Benefits Year: 2003 2016 Age: 62 75

Staying in CSRS

Pension 1,600 4,800 4,800

Social Security 12,700 3,800 3,800

Thrift Plan 6,200 800 500

Bal. $8,400

Total 20,500 9,400 9,100

Joining FERS

Pension - CSRS 000000 000000 000000

Pension - FERS 1,600 3,400 3,000

Supple or Soc Sec 12,700 5,400 5,400

Thrift Plan 6,200 1,600 1,000

Bal. $17,900

Total 20,500 10,500 9,500

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Example 5. Irene

Irene began her Federal career as a GS 4, Step 1. She had a break in service at the time of the open season in 1987 tospend time with her newborn son. When she returned to Federal service in 1990, she was covered by CSRS Offsethaving had 15 years of prior CSRS service and a break in service of more than 365 days. She chose to remain underCSRS Offset. She recently had a 2-month break in service when her agency experienced a reduction in force.

Irene is a GS 13, Step 6. She has nearly 23 years of service, of which more than 7 are under CSRS Offset. She currentlyis enrolling in the Thrift Savings Plan and will save 3% of pay if she stays in CSRS but would consider saving 5% if shetransfers to FERS.

Irene wants to retire as soon as she can to go back to school and finish her degree to start her own business. She expectsto be a GS 14 at retirement. Since she was born in 1954, under FERS, the earliest she can retire with full benefits is age56. Under CSRS, she can retire at age 55 with projected benefits of $47,700. As an Offset person, she is accumulatingSocial Security credits to add to the 10 years Social Security coverage she currently has. If she were to transfer to FERSnow, when she retires, her 7 plus years of Offset service will be worth 7% of her high-3 average salary rather than the14% that it is worth under CSRS rules because Offset service is treated as FERS service when an Offset person transfersto FERS. In addition, she will have lost the opportunity for the agency 1% and matching TSP contributions during herOffset service.

*CSRS benefit offset because of entitlement to Social Security benefits.

FutureEmployee

Contribution

Annual Retirement Benefits Year: 2010 2016 2029 Age: 56 62 75

Staying in CSRS

Pension 15,900 48,500 43,000* 43,000

Social Security 54,700 0 10,000 10,000

Thrift Plan 30,300 3,200 2,600 1,600

Bal. $39,700

Total 100,800 51,600 55,500 54,600

Joining FERS

Pension - CSRS 000000 15,700 15,700 15,700

Pension - FERS 8,100 16,300 13,300 11,700

Supple or Soc Sec 54,700 6,600 10,000 10,000

Thrift Plan 50,400 10,500 8,600 5,500

Bal. $132,300

Total 113,100 49,100 47,500 42,900

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Example 6. Susie

Susie began her Federal service as a GS 5, Step 1. During the FERS open season in 1987, she chose to stay in CSRS.She recently had a short break in service.

Susie currently is a GS 11, Step 1. She has 24 years of CSRS service, a Thrift Savings Plan balance of $10,000, andonly 5 years of private sector employment covered by Social Security. She is saving 5% of pay in the Thrift Plan andplans to continue to do so whether she stays in CSRS or transfers to FERS.

Susie plans to retire from Federal service in 2012 when she is age 60. She will have 38 years of service. She expects tobe a GS 13 at retirement.

The projections show Susie's total future benefits to be very similar under CSRS and FERS. However, her husband is ahighly paid private sector employee who will be entitled to maximum Social Security benefits. Since Susie plans towork for more than 5 years, she would be exempt from the Government Pension Offset if she transfers to FERS. Beforeshe makes a decision about transferring, she should find out if the Social Security spousal benefit would be greater thanher own benefit based on her employment.

FutureEmployee

Contribution

Annual Retirement Benefits Year: 2010 2014 2027 Age: 60 62 75

Staying in CSRS

Pension 60,400 44,000 44,000 44,000

Social Security 0 0 0 0

Thrift Plan 43,100 6,600 6,200 4,000

Bal. $76,500

Total 103,500 50,600 50,200 47,900

Joining FERS

Pension - CSRS 000000 24,400 24,400 24,400

Pension - FERS 6,900 9,800 9,100 8,000

Supple or Soc Sec 53,300 4,400 6,200 6,200

Thrift Plan 43,100 11,700 10,900 7,000

Bal. $134,700

Total 103,400 50,300 50,700 45,700

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CSRS/FERS Special Transfer Rules

Comparison Table

This chart applies to most Federal workers. Those in Special Employee Groups (law enforcement officers, firefighters, air traffic controllers, andmilitary reserve technicians) should also read the section of this book that discusses these groups.

Item CSRS FERS Transferees

A. Basic Benefit

1. Regular Annuity Guaranteed annuity based on serviceunder a single plan.

Guaranteed annuity based on service under theBasic Benefit Plan.

Guaranteed annuity based onyears of service under bothplans for those who transferwith at least 5 years ofcreditable civilian serviceunder CSRS (excludingCSRS Offset service).

2. When benefits can bereceived.

A. Voluntary retirement Benefits (unreduced)

Available at the following age andservice combinations:

• Age 55 with at least 30 years ofservice.

• Age 60 with at least 20 years ofservice.

• Age 62 with at least 5 years ofservice.

Available at the following age/servicecombinations:

• At least the Minimum Retirement Age(MRA)* with 30 years of service or more.

• At least age 60 with 20 years of service ormore.

• At least age 62 with 5 years of service ormore.

Follow FERS rules.

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Item CSRS FERS Transferees

*Minimum Retirement AgeIf you were born.. Your MRA is..Before 1948 55 in 1948 55 and 2 months in 1949 55 and 4 months in 1950 55 and 6 months in 1951 55 and 8 months in 1952 55 and 10 months in 1953-1964 56 in 1965 56 and 2 months in 1966 56 and 4 months in 1967 56 and 6 months in 1968 56 and 8 months in 1969 56 and 10 monthsIn 1970 and after 57

b. Immediate reducedvoluntary retirementbenefits

None Available. Available at the MRA with at least 10 years ofservice. (Benefit is reduced 5% a year for eachyear payment begins before age 62. Receipt ofbenefits can be postponed until as late as age62 to lessen or avoid the reduction.)

Follow FERS rules.

c. Immediate involuntaryearly retirement

Available at the following age andservice combinations providedseparation is not for cause ormisconduct:

• Age 50 with at least 20 years ofservice.

• Any age with at least 25 years ofservice.

(Benefit reduced 2% a year for eachyear payment begins before age 55.)

Unreduced benefits available at the followingage/service combinations:

• At age 50 with 20 years of service or more.

• At any age with 25 years of service or more.

(Special Retirement Supplement begins atMRA and continues until age 62.)

Follow FERS rules forbenefits earned under FERSand CSRS rules for benefitearned under CSRS.

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Item CSRS FERS Transferees

d. Deferred retirement Available at age 62 to formeremployees with at least 5 years ofcivilian service who did not withdrawtheir retirement contributions afterseparation from service. If your deathoccurs after separation but prior to age62, only a refund of deductions ispaid.

Unreduced benefit available at the followingage/service combinations:

• At age 62 to those who had at least 5 yearsof civilian service and did not take a refund.

• At age 60 with 20 years of service or more.

• At MRA with 30 years of service or more.

Reduced benefit (at 5% per year under age 62)available at MRA with 10 years of service ormore. Receipt of benefits can be postponeduntil as late as age 62 to lessen or avoid thereduction in annuity.

Follow FERS rules.

3. Basic annuity formula

a. Salary base

Average of highest 3 consecutiveyears of salary.

Average of highest 3 consecutive years ofsalary.

Average of highest 3consecutive years of salary.

b. Benefit calculationformula (For CSRSOffset employees, thebenefit is reduced at age62 by the amount of theirSocial Securityentitlement attributable toCSRS Offset service.)

General formula equal to:

[1] (1½%) X (High-3) X (first 5 yearsservice) +

[2] (1¾%) X (High-3) X (second 5years service) +

[3] (2%) X (High-3) X (all service over10 years).

1.00% x (High-3) x all years of service ifretiring before age 62 with less than 20 yearsof service.

1.10% x (High-3) x all years of service ifretiring at age 62 or older with at least 20 yearsof service.

Benefit is computed basedon both formulas:• The CSRS formula applies

to years worked underCSRS for employees whotransfer with 5 years ormore of creditable CSRScivilian service (excludingCSRS Offset service).

• The FERS formula appliesto years worked underFERS and CSRS Offset.

NOTE: Those who transferwith less than 5 years of non-

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Item CSRS FERS Transferees

Offset service have allbenefits computed accordingto the FERS formula.

4. Cost-of-Living Adjustments(COLA's)

Paid annually to all annuitantsbeginning the year after retirement.CSRS cost-of-living adjustments equalthe rate of inflation as measured by theConsumer Price Index (CPI).

Paid annually to retirees over 62 years of age,to those who have received disability paymentsfor more than 1 year, and to those receivingsurvivor benefits.

The following chart describes FERS cost-of-living adjustments:

Increase Annual COLA in CPI Percentage

Up to 2% Same as CPI2% to 3% 2%3% or more CPI increase minus 1%

The portion of the benefitcomputed under CSRS rulesreceives CSRS COLA’s.

The portion of the benefitcomputed under FERS rulesreceives FERS cost-of-livingadjustments if payable.

5. Special RetirementSupplement

Not paid under CSRS. An approximation of the portion of a full-career Social Security benefit earned whileunder FERS.

Paid to retirees receiving unreduced retirementbenefits from Minimum Retirement Age untilage 62. (Subject to Social Security EarningsTest.)

Applies to retirees whocompleted 1 or morecalendar years of servicecovered by FERS (January 1- December 31). Paidaccording to FERS rules.

6. Cost to participate In 1998, 7.0% of basic pay. CSRSOffset employers also pay 7%, dividedbetween 6.2% to Social SecurityAdministration and .80% to CSRS upto the Social Security Administrationmaximum taxable wage base. Abovetax base, entire 7% goes to CSRS.

In 1998, .80% of basic pay. (The cost of theFERS Basic Benefit plus Social Security taxesgenerally equals 7.0%.)

After transferring, employeescontribute at FERS rate.Those who transfer with lessthan 5 years of non-Offsetservice may request a refundof the difference between theFERS contribution rate and

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Item CSRS FERS Transferees

the CSRS rate.

7. Refund options May choose to withdrawcontributions- in lump sum whenyou leave. Will receive no annuitycredit unless contribution redepositedafter reemployment. Exception: fullcredit for refunded service will begiven without redeposit, subject to anactuarial reduction in annuity, ifrefunded service ended before October1, 1990. Contributions refundedwithout interest if you have 5 years ormore of service.

May choose to withdraw contributions- inlump sum when you leave. Will receive noannuity. Refunded contributions may not beredeposited. Refunds receive market rateinterest.

May withdraw contributionpaid under CSRS accordingto CSRS rules. (CSRS Offsetservice cannot be redepositedif refunded after employeetransfers to FERS.)

8. Disability benefitsa. Definition of disability

An employee must be unable toperform his/her duties and there mustbe no suitable vacancy in his/her ownagency within the same commutingarea and at the same grade or pay levelas the current position.

Same as for CSRS. Follow FERS rules.

b. Eligibility requirements An employee must have 5 or moreyears of civilian service.

CSRS Offset employee who appliesfor CSRS disability benefits must alsoapply for Social Security disabilitybenefits or show that they are noteligible for them.

An employee must have 18 months or more ofcivilian service.

Those who apply for FERS disability benefitsmust also apply for Social Security disabilitybenefits or show that they are not eligible forthem.

Follow FERS rules.

c. Disability benefit formula Disability benefits are the higher oftwo computations:

[1] the annuity computed using theemployee's years of service andHigh-3 under the generalformula; or

The formula used to determine FERSdisability benefits differs depending on howmany years an employee is disabled. Duringthe first year of disability, FERS pays 60% ofan employee's high-3 (average pay if less than3 years service) minus 100% of any SocialSecurity benefits received. No cost-of-living

Follow FERS rules.

Note: FERS disabilitybenefits are never less thanan employee's earnedbenefit, including the benefitearned under CSRS that was

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[2] the lesser of the following:

1) 40% of the High-3; or

2) annuity computedaccording to he generalformula after increasingthe length of service as ifthe employee had workedto age 60.

If the employee has at least 21 yearsand 11 months of service, or is age 60or older, the annuity is computedunder [1].

For CSRS Offset employees, thebenefit is reduced by the amount ofSocial Security disability entitlementattributable to CSRS Offset service.

adjustments are paid during this year.

During the second and any additional years ofdisability until an employee reaches age 62,the employee will receive 40% of his/her high-3 average pay minus 60% of any SocialSecurity benefits received. cost-of-livingadjustments are paid for these years, at thesame rate as noted under FERS in Item 4above.

FERS disability benefits are recomputed at age62. The employee then receives a nondisabilityFERS retirement benefit that includes creditfor years in receipt of disability annuity.

transferred to FERS.

9. Survivor benefits

1. Eligibility requirements

Survivor benefits are payable toeligible survivors of an employee whowas contributing to the CSRS on thedate of death with at least 18 monthsof civilian service.

Same as CSRS. Follow FERS rules.

b. Who may receive survivorbenefits.

Under CSRS, survivor benefits can bepaid under various conditions tocurrent and former spouses and tochildren. Survivors must meet certainage and length of marriagerequirements in order to qualify forbenefits.

Same as CSRS. In addition, under FERS, asurvivor's age can affect the amount of benefitshe/she may receive.

Follows FERS rules.

c. Survivor benefit payments An eligible spouse of an employee FERS pays the eligible spouse of an employee Follow FERS rules.

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Item CSRS FERS Transferees

1.) Spouses of deceasedemployees

who dies while a Federal employeewill receive 55% of the disabilityannuity that would have been payableif the employee had retired on the dateof death.

For CSRS Offset employees, thebenefit is reduced by the amount ofSocial Security survivor benefitentitlement attributable to CSRSOffset service when the SSA benefitbecomes payable.

who dies while a Federal employee a lumpsum payment of $15,000, adjusted forinflation, plus 50% of the employee's finalbasic pay (or average pay, if higher). The$15,000 portion has increased to $21,783.34with the 1998 cost-of-living adjustments. Inaddition to the above lump sum, FERS paysthe eligible spouse of an employee who has 10years of service or more an annuity equal to50% of the employee's accrued Basic Benefit.

2.) Spouses of deceasedannuitants

An eligible spouse of a retiree willreceive 55% of the retiree's unreducedannuity amount (or a lesser amount ifjointly elected by the retiree andspouse).

FERS will pay the eligible spouse of a FERSretiree 50% of the retiree's annuity amount (or25% if that lesser amount was jointly electedby the retiree and spouse), plus a SpecialRetirement Supplement if the spouse isyounger than age 60 and not yet eligible forSocial Security benefits.

Follow FERS rules.

3.) Spouses of employees who die after leaving Federal service, butbefore deferred annuity payments begin

A lump-sum death benefit consistingof the deceased's unrefundedretirement contributions is payableunless the deceased designated anotherperson as beneficiary.

FERS will pay a benefit to the spouse of anemployee who has 10 or more years of Federalservice, leaves the Federal workforce, and diesbefore his/her annuity payments begins. Thebenefit is payable if the employee did not takea refund of his/her contributions.

If the employee had not reached the MRAwhen separated, the survivor annuity willbegin when the employee would have reachedage 62 (age 60 if employee had 20-29 years ofservice; or employee's MRA if he/she had 30or more years of service). The annuity canbegin sooner if the spouse elects a reducedbenefit.

Follow FERS rules.

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Item CSRS FERS Transferees

If the employee had attained the MRA whenseparated (and had at least 10 years of service),the spouse receives ½ of employee's accruedannuity beginning the day after death.

4.) Death benefits paid tochildren.

CSRS pays an annuity to the eligiblechildren of employees or retirees whodie. The annuity varies depending onthe number of children and whether ornot there is a surviving spouse orformer spouse who is a parent of thechildren. The benefits of children ofCSRS Offset employees are offset forSocial Security benefits in the sameway that spousal benefits are offset.

FERS pays the eligible children of employeesor retirees who die an annuity that variesdepending on the number of children andwhether or not there is a surviving spouse orformer spouse who is a parent of the children.The annuity is reduced by any Social Securitybenefits the children may be receiving.

Follow FERS rules.

a. Cost of survivor benefitsfor retired employees

Unless waived by the retiree and thespouse, the annuity is reduced in orderto provide a survivor benefit. The first$3,600 of the retiree's annual benefitwill be reduced by 2.5%. Theremaining annuity benefit is reducedby 10%. For most career retirees, thisamounts to a 7-8% reduction. Note:the 55% spouse's benefit is based onthe amount of the annuity before thisreduction is made.

Unless waived by the retiree and the spouse,the annuity is reduced to provide a survivorbenefit. This reduction amounts to 10% (or5%, if elected) of the annual benefit. Note: The50% (or 25%) spouse's benefit is based on theamount of the annuity before this reduction ismade.

Follow FERS rules for all ofbenefit, including the benefitearned for the years coveredby CSRS.

b. Survivor benefits Cost-of-Living Adjustments(COLA's)

CSRS survivor benefits receive fullCSRS cost-of-living adjustments equalto the rate of inflation.

FERS survivor benefits receive FERS cost-of-living adjustments at any age.

Follow FERS rules.

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B. Thrift Savings Plan

1. Participation CSRS employees may use this plan attheir option.

FERS employees automatically have anamount equal to 1% of pay contributed to theirThrift Savings Plan account by the FederalGovernment. Additional contributions may bemade at the option of the employee. If made,the Government increases its contributions,also.

Follow FERS rules.

2. EmployeeContributions

CSRS employees may contribute up to5% of basic pay each pay period.

FERS employees may contribute up to 10% ofbasic pay each pay period.

Follow FERS rules.

3. Governmentcontributions

None available. The Federal Government automaticallycontributes an amount equal to 1% of basicpay into each FERS employee's Thrift SavingsPlan account each pay period.

If employee makes contributions, theGovernment also provides matching.

The GovernmentIf you save will add Total

0% 1% 1%1% 2% 3%2% 3% 5%3% 4% 7%4% 4.5% 8.5%5% 5% 10%6%-10% 5% (max) 11-15%

Follow FERS rules.

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Item CSRS FERS Transferees

4. Plan Options

a. Investment choices

Employees may invest any portion oftheir Thrift Savings account in any ofthe three investment Funds:

•G Fund--Government SecuritiesInvestment Fund

•C Fund--Common Stock IndexInvestment Fund

•F Fund--Fixed Income IndexInvestment Fund

Same as CSRS. Follow FERS rules.

b. Opportunities to change investment amounts andchoices.

CSRS employees have twoopportunities each year to change theamount and investment of futureThrift Savings Plan contributions.They may also elect to begin makingcontributions or to stop makingcontributions during these periods.

CSRS employees may change theinvestment of their existing accountbalance in any month they choose.

Same as CSRS. Follow FERS rules. Inaddition, transferees have 30days after their date oftransfer to enroll in the ThriftSavings Plan or change theamount or investment offuture contributions.

C.Social Security Benefits

1. Applicability

Not a part of the CSRS plan. For mostCSRS employees, applies only if theyhave enough covered service outsidethe Federal Government. CSRS Offsetemployees, are however, covered bySocial Security.

Employees covered by Social Security. After transferring, employeewill accumulate SocialSecurity credits to be addedto any past or future creditsearned.

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2. When benefits can bereceived

a. Eligibility

2. Unreduced SocialSecurity retirementbenefits.

1. Reduced Social Securityretirement benefits.

To qualify for Social Security benefits, an employee born after 1928must have paid Social Security taxes for at least 10 years (or 40"credits") of employment. Those born before 1929 need feweryears of coverage to qualify.

Available to eligible retirees at age 65. (Starting in the year 2000,this age will gradually increase to 67.)

Available to eligible retirees at age 62. (Benefit reduced 20% forthose born before 1938. Reduction gradually increases to 30% forthose born in 1970 or later.)

Follow Social Securityrules.

Follow Social Securityrules.

Follow Social Securityrules.

3. Social Security benefitformula.

Social Security benefits are based on a three-part formula appliedto career earnings. Other factors, such as whether or not anemployee's spouse is covered by Social Security, age atretirement, and earnings after retirement, also affect benefitamount. Windfall Elimination Provision may apply. (See SocialSecurity Section on page 40.)

Follow Social Securityrules.

4. Cost-of-Living Adjustments(COLA's)

Social Security cost-of-living adjustments equal the rate of inflation. Follow Social Securityrules.

Item Social Security Transferees

5. Disability benefits

a. Eligibility requirements

To qualify for Social Security disability payments, an employeemust have earned enough Social Security credits (generally 40"credits"), and have earned a specified number of quarters justbefore becoming disabled (generally 5 out of their last 10 workingyears).

Follow Social Securityrules.

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b. Definition of disability To be eligible for Social Security disability benefits, an employeemust be unable to perform any job.

Follow Social Securityrules.

3. Disability benefitscalculation

Social Security benefits are based on a three-part formula applied to earnings inthe same way as the Social Security retirement formula.

Follow Social Security rules.

7. Survivor benefits

1. Eligibility requirements

Social Security provides survivor benefits to the eligible survivors ofa worker who met the minimum Social Security eligibilityrequirements. The number of Social Security credits requireddepends on the employee's year of birth and age at death. Theminimum number of credits required is 18 months (or 6 "quarters").

Follow Social Securityrules.

b. Who may receivesurvivor benefits?

Under Social Security, survivor benefits can be paid under variousconditions to current and former spouses, children, and dependentelderly parents.

Survivors must meet certain age and length of marriagerequirements in order to qualify for benefits.

Also under Social Security, a survivor's age can affect the amountof benefits he/she may receive.

Follow Social Securityrules.

c. Survivor benefit payments

1. Benefits paid to a spouse of an employee who dies

Social Security benefits payable to a surviving spouse who wasmarried to the employee at least 9 months (3 months if death wasaccidental), or is the parent of the employee's child, and meets oneof the following age requirements:

• Any age with entitled child in care (75% of employee's full benefit),

• Age 65 (100% of employee's full benefit),

• Age 60-64 (permanently reduced benefits),

• Age 50-59 and disabled (permanently reduced benefits).

Follow Social Securityrules.

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Item Social Security Transferees

ii Benefits paid to a former spouse of an employee who dies

Social Security benefits are payable to the surviving former spouse(married to employee at least 10 years), as follows:

• Age 60 or over (reduced benefits if entitled prior to age 65),

• Age 50-59 and disabled (permanently reduced benefits).

Follow Social Securityrules.

ii Benefits paid to children of an employee who dies

Social Security pays survivor benefits to eligible children, asfollows:

• Under age 18 and unmarried (50% of employee's full benefit),• Attending school full-time at age 18 or over, who was disabled before age 22

(50% of employee's full benefit).

Follow Social Security rules.