CSRS vs. FERS
While most federal employees don’t have the luxury of choosing between the available retirement plans specifically for federal employees, it’s worth taking a look at which one is better – Civil Service Retirement System (CSRS) or the Federal Employees Retirement System (FERS). Change is hard to accept and the relatively newer FERS seems to have fewer admirers than the decades old CSRS, even if CSRS does not provide the same degree of compatibility with private retirement plans.
Federal employees with a previous stint of 5 years or more with CSRS who are rejoining service after an interval of a year or more are given the option of a choice between CSRS offset and FERS. Also, federal workers affected by the 2000 Federal Erroneous Retirement Coverage Corrections Act are still in the process of deciding which one to select.
CSRS was started in 1920 as a full fledged retirement savings plan for civil servants who started off young and would be spending their entire career as government employees. The requirement for another plan came about in 1983, when Congress mandated that all federal employees would be subject to social security tax withholding. To motivate more qualified people to apply for federal jobs, FERS was designed to be compatible with private retirement plans. Thus, federal employees leaving government service would be able to transfer out and continue to build their social security savings and rollover funds from the TSP to a new employer sponsored 401(k) plan, in case the outgoing federal employee has a job with a private employer.
CSRS has no such compatibility, does not offer matching funds for TSP contributions and there are no social security benefits. In fact, prior to 1987, CSRS employees were not even able to set up TSP accounts.
Thus, while CSRS is simple and offers full benefits based on a set formula adjusted for inflation and tied to the consumer price index, FERS benefits are based on the performance of the investments, with only social security benefits being adjusted for inflation. In summation, it can be said that each serves the exact purpose for which it was created. CSRS is ideal for employees who become a part of the federal workforce early in their career and have no plans to leave. FERS is ideal for those entering the federal system midway, with a fair chance of being requested to, or opting for, quitting employment and entering private life again.