The FERS deduction is the mandatory payroll withholding that funds your future federal pension under the Federal Employees Retirement System, and the percentage taken from your paycheck depends on when you were first hired. Employees hired before 2013 pay 0.8% of basic pay. Those first covered during 2013 pay 3.1%. Anyone first covered on or after January 1, 2014, pays 4.4%. The rate is set once and stays with you for your whole federal career.
The Three Rate Tiers
Congress created three tiers, and your hire date locks you into one of them. Promotions, transfers, and raises do not move you between tiers.
- Original FERS, for employees hired before January 1, 2013: 0.8% of basic pay. You also fall in this group if you were already in a FERS-covered position on December 31, 2012, or you had at least five years of prior creditable civilian service by that date.
- FERS-RAE (Revised Annuity Employees), for those first covered between January 1 and December 31, 2013: 3.1% of basic pay. The Middle Class Tax Relief and Job Creation Act of 2012 created this rate to shift more of the pension cost from agencies onto employees.
- FERS-FRAE (Further Revised Annuity Employees), for those first covered on or after January 1, 2014: 4.4% of basic pay. The Bipartisan Budget Act of 2013 pushed the rate up again.
The statute turns on more than the appointment date. You qualify as a revised annuity employee only if, on December 31, 2012, you were not in a covered position and had fewer than five years of creditable civilian service. The same logic applies to the FRAE tier using December 31, 2013.1Office of the Law Revision Counsel. 5 USC 8401 Definitions Someone who left federal service after five or more years and returned after 2013 generally keeps the 0.8% rate rather than being bumped up.
What Counts as Basic Pay
The deduction is calculated against your basic pay. For most General Schedule employees, that means your base salary plus locality pay. It does not include overtime, bonuses, holiday premium pay, military pay, or workers’ compensation supplements.2U.S. Office of Personnel Management. Basic Pay If your pay stub has line items you are not sure about, your agency HR office can confirm which ones the deduction applies to.
Part-time employees pay the same percentage. The dollar amount is just smaller because the paycheck is smaller. A part-time FRAE employee still pays 4.4%.
Is the FERS Deduction Pre-Tax or After-Tax?
It’s after-tax. Unlike traditional Thrift Savings Plan contributions, which lower your taxable income in the year you make them, FERS deductions come out of money you have already paid federal income tax on. The trade-off comes later: when you collect your annuity in retirement, the portion of each payment that represents a return of your own contributions is not taxed again.
Higher Rates for Special Category Employees
Law enforcement officers, firefighters, and air traffic controllers pay an extra 0.5% on top of the standard tier rate. They get enhanced retirement benefits in return, including earlier mandatory retirement and a richer annuity formula for their first 20 years.
- Original FERS special category (pre-2013): 1.3% of basic pay
- FERS-RAE special category (2013): 3.6% of basic pay
- FERS-FRAE special category (2014 or later): 4.9% of basic pay
An air traffic controller hired after December 31, 2013, contributes 4.9%.3Federal Aviation Administration. Benefits Members of Congress first covered under FERS after 2013 pay 10.6% of basic pay, minus the Social Security tax equivalent.4Federal Register. Retirement: Members of Congress and Congressional Employees
What Your Deduction Actually Buys
The FERS deduction funds only the defined benefit annuity, one of the three pieces of federal retirement. Social Security (funded through FICA taxes on your paycheck) and the Thrift Savings Plan are separate, with their own withholdings.
The annuity itself pays a guaranteed monthly income for life once you retire. It’s calculated from three things: your high-three average salary, your years of creditable service, and a multiplier.
Your high-three is the average of your basic pay during the 36 consecutive months when your pay was highest. For most employees that lines up with the last three years before retirement, but it can fall earlier if you took a demotion or moved to a lower-paying position.5U.S. Office of Personnel Management. Computation
Creditable service is the total time in FERS-covered employment. Unused sick leave converts to additional service at retirement: every 2,087 hours counts as one extra year.
The multiplier is 1% per year of service in most cases. It rises to 1.1% per year if you retire at age 62 or older with at least 20 years of service.6Office of the Law Revision Counsel. 5 USC 8415 Computation of Basic Annuity That 0.1% sounds small, but on a $90,000 high-three with 25 years of service, it adds roughly $2,250 a year to the annuity for life.
Special category employees use a different formula: 1.7% per year for the first 20 years, then 1% for each year beyond 20.6Office of the Law Revision Counsel. 5 USC 8415 Computation of Basic Annuity
If You Leave Federal Service
Separate before you’re eligible for retirement and you can request a refund of every FERS contribution you paid in. If your creditable service exceeds one year, OPM adds interest at the rate earned by government securities.7Office of Personnel Management. FERS Refund Fact Sheet
Two catches are worth understanding before you take the money. First, a refund wipes out the creditable service it covers. If you come back to federal work later, you lose credit for those years, which means a smaller annuity down the road.8eCFR. Part 842 Federal Employees Retirement System – Basic Annuity Second, that same erased service can drop you below the five-year threshold and reclassify you into a higher contribution tier when you’re rehired. Someone who paid 0.8% originally could return as a 4.4% employee.
If you have at least five years of service and there is any chance you might come back, leaving your contributions in place and claiming a deferred annuity later is almost always the better move. If you leave with fewer than five years, you are not vested in the annuity at all; a refund is your only way to recover the money.9U.S. Office of Personnel Management. Eligibility