When it comes to retirement benefits, very few Americans working in the private sector are covered by a defined-benefit plan like your Federal Employee Retirement System (FERS). In fact, since the 1980s, private sector employers have been using 401(k) plans to replace defined-benefit plans bringing them to the brink of extinction. Today, only 15% of workers in private industry have access to a defined-benefit plan commonly known as a pension.* When you think about it, as your employer, Uncle Sam foots the bill for a good portion of all your retirement benefits.
Your Agency Contribution To FERS
When FERS when into effect in 1987, it was designed to ensure federal agencies contributed enough to avoid any shortfalls. According to recent changes reported by OPM in October of 2023, agency contributions for regular FERS employees have remained at 18.4%; for regular FERS-RAE workers, the agency contribution has decreased from 16.6% to 16.5%. For special category employees like Law Enforcement Officers, Firefighters and Air Traffic Controllers, your agency contributes a higher percentage.**
“Considering the federal government is your employer, Uncle Sam is also contributing to your Social Security benefit.”
Social Security was established in 1935 by the Social Security Act to provide a financial safety net for older Americans who could no longer work. Before that, your retirement wasn’t a concern of the federal government. Today, Social Security is mainly funded through a payroll tax paid by employees and their employers. Under the Federal Insurance Contributions Act (FICA), employers and employees each pay a tax rate of 6.2% of your wages each pay period. Considering the federal government is your employer, Uncle Sam is also contributing to your Social Security benefit.
TSP Agency Matching Contributions
Similar to a 401(k) plan, the TSP is a defined-contribution plan that offers federal workers another source of retirement income. While TSP participants can get a generous 5% agency match, the median private sector employer match for a 401(k) plan is approximately 3%.*
The 5% TSP agency match starts with a non-elective 1% automatic agency contribution even if you contribute nothing to your TSP (and it’s not deducted from your pay). When you choose to contribute to your TSP, the first 3% is matched by your agency, dollar-for-dollar, each pay period. The next 2% of your contribution is matched at 50-cents on the dollar until the agency match reaches 5%.
Add to this, Uncle Sam also pays up to 75% of your FEHB healthcare insurance premiums when you’re eligible to carry your coverage into retirement. To ensure you’re getting the most out of all your federal benefits, connect with an FRC® trained advisor.
