How Does the Civil Service Retirement System (CSRS) Work?
The Civil Service Retirement System (CSRS), created by the Civil Service Retirement Act of 1920, is a defined benefit and retirement savings system for certain federal employees. The CSRS was replaced by the Federal Employees Retirement System (FERS) for federal employees who started service on or after January 1, 1987.
So while new federal employees are not in the CSRS system, millions of Americans are still impacted by it.
As such, it is important to understand the basic eligibility requirements, pension benefit, impact on other retirement benefits, and survivor benefits. For a review of the differences between the FERS and CSRS click here.
Changes to the System
Throughout the decades it was in effect, the CSRS underwent multiple changes and modifications. As such, not all individuals covered under the CSRS have identical benefits. Additionally, air traffic controllers, law enforcement, and certain other federal employees have special retirement provisions that do not apply to all members of the CSRS.
Calculating Your Benefit
The main retirement benefit in the CSRS is an annuity that is computed based on your length of service and “high-3” average salary.
- The “high-3” average salary is determined by the highest three consecutive years of average basic pay. As your years of service increase, so does the annuity formula calculation.
- For the first five years of service, the CSRS annuity is calculated as 1.5 percent times your “high-3” times your years of service up to five.
- The next five years are added to the first calculation but at 1.75 percent times your “high-3” for this period.
- After the first ten years, the calculation is two percent times your “high-3” for this period.
The system rewarded long-service employees by increasing their benefits after the first five years and more after ten years. Additionally, the “high-3” average basic pay tends to increase the longer you work, as most federal employees make more money over time than in their earlier work years with the government.
Early retirement before age 55 generally resulted in a significant benefit reduction of 1/6 of a percent for each full month you retired before age 55. For instance, if you retired 12 months early, it would be a full 2 percent reduction in benefits.
There is also a maximum benefit capped at 80 percent of your “high-3” average salary, plus credit for certain sick leave. The annuity benefit is also subject to periodic cost-of-living adjustments that occur after retirement.
Employees covered by the CSRS could also make additional voluntary contributions to their retirement annuity in multiples of $25. However, total contributions could not exceed 10 percent of pay.
Separation of Service
Benefits under the CSRS can be paid out due to a variety of different types of separation of service besides normal retirement, including:
- Disability retirement: In order to be eligible for disability retirement you must meet several requirements and apply for CSRS disability retirement.
- Involuntary separation of service: This typically occurs when there is a major reorganization, reduction in force, or other significant change in the federal workforce. Voluntary retirement eligibility is mostly determined by the employee’s age and number of years of credible service.
- Early separation: Lastly, if an employee separated from federal service early, but met certain requirements, they might be eligible for a deferred annuity that starts at age 62.
Under the CSRS, covered employees contribute 7, 7.5 or 8 percent of pay to help fund their benefit, which is matched by their agency. However, CSRS-covered employees generally do not pay into Social Security, except for the Medicare tax of 1.45 percent of pay. As such, while working as a federal employee covered by the CSRS, these employees would not be generating their own Social Security worker’s benefits.
Generally, if you receive a benefit from the CSRS, it will reduce any spousal or widow’s benefit you otherwise would be entitled to, by two-thirds of what you receive from your CSRS pension. For instance, if you receive $900 a month from the CSRS, that would cause a $600 dollar-to-dollar reduction in any Social Security spousal or widow’s benefits.
CSRS employees could still be eligible for a spousal or survivor benefit based on their spouse’s work history in some situations. However, non-covered government pensions like the CSRS can impact and reduce what you would receive as a spousal or survivor Social Security benefit due to the Government Pension Offset (GPO).
Another retirement savings option for federal employees covered by the CSRS is the Federal Thrift Savings Plan (TSP). The TSP is a tax-advantaged retirement savings and investment vehicle for Federal employees.
In many ways the TSP is similar to a 401(k) plan that might be offered in the private workplace. Since the TSP was created by the Federal Employees’ Retirement System Act of 1986, many CSRS employees had left service before its establishment. However, CSRS employees covered by the TSP can contribute to the plan but are not generally eligible for any matching or automatic contributions to their account. TSP investment, withdrawal, and tax options are the same for both FERS and CSRS covered employees. For more information on the TSP click here.
While the CSRS no longer covers new Federal employees, millions of Americans rely on the system as a part of their retirement. Because CSRS benefit statements, eligibility, and distribution options can vary, it is important to understand when to take benefits, incorporate TSP withdrawals, and the impact of any CSRS benefit on potential Social Security benefits for everyone covered under the CSRS.
Jamie Hopkins is the retirement expert of The Balance, retirement research director at Carson Wealth, and an author.