	Introduction

Federal employees participate in one of two retirement systems. The Civil Service Retirement System (CSRS) was established in 1920 and covers only employees hired before 1984. Participants in the CSRS do not pay Social Security payroll taxes and they do not earn Social Security benefits. For a worker retiring after 30 years of federal service, a CSRS annuity will be equal to 56.25% of the average of his or her highest three consecutive years of basic pay. Because the Social Security trust funds needed additional cash contributions to remain solvent, the Social Security Amendments of 1983 ( P.L. 98-21 ) required federal employees hired after 1983 to participate in Social Security. To coordinate federal pension benefits with Social Security, Congress directed the development of a new retirement system for federal employees hired after 1983. The result was the Federal Employees' Retirement System (FERS) Act of 1986 ( P.L. 99-335 ). Calculating the FERS Basic Retirement Annuity

The FERS basic retirement annuity is a defined benefit (DB) pension. The amount of the pension benefit is determined by multiplying three factors—the employee's number of years of service, the annual benefit accrual rate, and the salary base—as is shown in the following formula:
Pension A mount = Years of Service × Accrual Rate × S alary Base

			Salary Base

In both CSRS and FERS, the salary base is the average of the employee's three highest consecutive years of basic pay, sometimes called "high-three pay." Under FERS, retirement benefits accrue at the rate of 1.0% per year. The FERS supplement is paid until the age of 62 to workers who retire at the minimum retirement age (currently 56) or older with at least 30 years of service, or at the age of 60 with at least 20 years of service. The Thrift Savings Plan

The Thrift Savings Plan is a defined contribution (DC) retirement plan similar to the 401(k) plans provided by many employers in the private sector. In 2015, employees can contribute up to $18,000 to the TSP. Employees aged 50 and older can contribute an additional $6,000. In addition, contributions of up to 5% of pay made by employees under FERS are matched by the federal government according to the schedule shown in Table 2 . Federal workers covered by CSRS also may contribute to the TSP, but they receive no matching contributions from their employing agencies. Assuming a rate of return on investment of 8.0%, employees who contribute 10% of pay over a 30-year career can replace 47.0% of their final pay from the TSP. Additional Income Replacement from Social Security and the FERS Annuity

The TSP was designed to supplement retirement income from the FERS annuity as well as Social Security. For a federal employee who begins his or her career in 2015 and retires at the age of 62 after 30 years of service, the FERS basic annuity will provide first-year retirement income equal to 31.7% of the worker's final annual salary. The percentage of earnings replaced by Social Security is greater for low-wage workers than for high-wage workers. 111-31 :
provides for newly hired federal employees to be enrolled automatically in the Thrift Savings Plan (TSP) at a default contribution rate of 3% of pay; requires the Federal Retirement Thrift Investment Board to establish within the TSP a qualified Roth contribution program that provides for after-tax contributions and tax-free distributions; gives the Federal Retirement Thrift Investment Board authority to allow TSP participants to invest in mutual funds in addition to the five investment funds now included in the TSP; requires the Thrift Board to submit to Congress an annual report that includes demographic information about TSP participants and fund managers; requires participants to sign an acknowledgement of risk if they invest contributions in any investment option other than government securities; grants the executive director of the TSP authority to issue subpoenas under certain circumstances; allows funds held in an individual's TSP account to be subject to court orders with respect to payment of restitution to victims of certain crimes; requires the Secretary of Defense to report to Congress the estimated cost of an agency match on contributions to the TSP by members of the uniformed services; and allows the surviving spouse of a deceased TSP participant to maintain the decedent's account with the TSP.
Federal employees participate in one of two retirement systems. The Civil Service Retirement System (CSRS) was established in 1920 and covers only employees hired before 1984. Participants in the CSRS do not pay Social Security payroll taxes and they do not earn Social Security benefits. For a worker retiring after 30 years of federal service, a CSRS annuity will be equal to 56.25% of the average of his or her highest three consecutive years of basic pay.
The Social Security Amendments of 1983 (P.L. 98-21) required federal employees hired after 1983 to participate in Social Security. Because the CSRS was not designed to coordinate with Social Security, Congress directed the development of a new retirement plan for federal workers hired after 1983. The result was the Federal Employees' Retirement System (FERS) Act of 1986 (P.L. 99-335). The FERS has three elements: (1) Social Security, (2) the FERS basic retirement annuity and FERS supplement, and (3) the Thrift Savings Plan (TSP).
The amount of the FERS basic retirement annuity is determined by three factors: (1) the salary base, (2) the accrual rate, and (3) years of service. The salary base is the average of the worker's highest three consecutive years of pay. Under FERS, the benefit accrual rate is 1.0% per year of service, or 1.1% for workers retiring at the age of 62 or later with 20 or more years of service. A worker with 30 years of service retiring at the age of 62 will receive a FERS pension equal to 33% of the average of his or her highest three consecutive years of pay, or about 32% of final annual salary.
The TSP is a defined contribution retirement plan similar to the 401(k) plans provided by many employers in the private sector. The income that a retired worker receives from the TSP will depend on the balance in his or her account. In 2015, employees covered by FERS or CSRS can contribute up to $18,000 to the TSP. Employees aged 50 or older can contribute an additional $6,000. Contributions of up to 5% of pay made by workers under FERS are matched by the federal government. Workers covered by CSRS can contribute to the TSP, but they receive no matching contributions.
The TSP is a key element of the FERS, especially for workers at the upper ranges of the federal pay scale. The Social Security benefit formula is designed to replace a greater share of income for low-wage workers than for high-wage workers. The FERS basic annuity will replace about 32% of final salary for an employee retiring at the age of 62 with 30 years of service. Higher-wage federal workers need to contribute a greater percentage of pay to the TSP to reach the same level of income replacement as lower-paid workers can achieve from just the FERS retirement annuity and Social Security. At an annual rate of return of 6.0%, income from the TSP can replace about 33% of final pay for a federal employee who contributes 10% of pay over 30 years.