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Can someone please explain the cost of the 2014 changes to the federal government FERS annuity calculations.
The new category was created a few years ago –FERS-FRAE (Further Revised Annuity Employees) -- which has a standard contribution rate of 4.4% of gross pay, and applies to employees newly hired on or after 1/1/2014, or rehired with less than 5 years of civilian service that is potentially creditable under FERS.
So I can keep it simple and understand it myself....
-- if a person's salary is 36,000 a year -- 4.4 percent of that is taken out of what he or she makes (pre tax, I presume)...and put aside, into the 'annuity/pension."
I'm lost because.....I can't figure out how taking 4.4 percent of my salary (out of my paycheck) while I'm working -- only to pay me back a retirement annuity of -- .01 x your high-3 x all years and full months of service -- is that great a deal.
Aren't I losing money? Where'd the other 3% of my pay go?
Am I missing something?
Can someone please explain the cost of the 2014 changes to the federal government FERS annuity calculations.
The new category was created a few years ago –FERS-FRAE (Further Revised Annuity Employees) -- which has a standard contribution rate of 4.4% of gross pay, and applies to employees newly hired on or after 1/1/2014, or rehired with less than 5 years of civilian service that is potentially creditable under FERS.
So I can keep it simple and understand it myself....
-- if a person's salary is 36,000 a year -- 4.4 percent of that is taken out of what he or she makes (pre tax, I presume)...and put aside, into the 'annuity/pension."
I'm lost because.....I can't figure out how taking 4.4 percent of my salary (out of my paycheck) while I'm working -- only to pay me back a retirement annuity of -- .01 x your high-3 x all years and full months of service -- is that great a deal.
Aren't I losing money? Where'd the other 3% of my pay go?
Am I missing something?
Thanks.
your calculation is flawed. The idea is you give up 1500 annually to get $10800 annually. Does that make more sense? That is using 36k even as a final three after 30 years.
^^ If I get a Fed job at age 57 and work until 65 -- so only 8 years.
My calculation come out 36,000 (let's say that's the high 3 average x .01 x 8 = 2,880.00 a year. Divided by 12 that's $240 a month.
That comes to (without COLAs) a 20 year retirement total of $57,600. I don't mean to dismiss that amount. But it just doesn't seem like it's that much money.
^^ If I get a Fed job at age 57 and work until 65 -- so only 8 years.
My calculation come out 36,000 (let's say that's the high 3 average x .01 x 8 = 2,880.00 a year. Divided by 12 that's $240 a month.
That comes to (without COLAs) a 20 year retirement total of $57,600. I don't mean to dismiss that amount. But it just doesn't seem like it's that much money.
but it is twice as much as you put in for those 8 years and you get that for life. If you live 25 years in retirement you have more than made up for the late start.
So, on a total contribution out of your pocket of maybe $15,000, you're gonna get $57,000? Assuming an 8% return, over 20 years, $15,000 will create an annuity of only $125.41 - the govt is picking up the other $115.
Over 20 years, assuming a 2% COLA, the total payout will be closer to $70,000. First year, you get $240/mo. Second year, $245/mo., and so on and so forth. If you live longer, so much the better.
Fwiw, the decent pensions come after 25-30 years of service, not eight. All things considered, the pension is quite fair. My private employer froze its pension plan after I'd been there ten years. That plan did NOT have a COLA. I've been paid $268.50/per month for the past eight years. It never changes. The frozen pension plan was replaced w/a defined contribution plan. Overall, in the end, between the two plans, the benefit is 75% LESS than the original plan. Most of my coworkers have now exhausted the puny balance in the defined contribution plan and are only collecting on the db plan. I never drew on the DC plan - instead left it in the market to grow and have since converted all of it to a Roth. My son might get lucky and inherit several hundred thousand dollars if I live another 20 years and can leave this money untouched. We'll see.
Be grateful. Any employer pension with a COLA is going the way of the dodo bird. Congress will attack govt benefits for the new hires, next. Hopefully, you'll get in before they get around to it.
Last edited by Ariadne22; 09-28-2017 at 06:16 PM..
Can someone please explain the cost of the 2014 changes to the federal government FERS annuity calculations.
The new category was created a few years ago –FERS-FRAE (Further Revised Annuity Employees) -- which has a standard contribution rate of 4.4% of gross pay, and applies to employees newly hired on or after 1/1/2014, or rehired with less than 5 years of civilian service that is potentially creditable under FERS.
So I can keep it simple and understand it myself....
-- if a person's salary is 36,000 a year -- 4.4 percent of that is taken out of what he or she makes (pre tax, I presume)...and put aside, into the 'annuity/pension."
I'm lost because.....I can't figure out how taking 4.4 percent of my salary (out of my paycheck) while I'm working -- only to pay me back a retirement annuity of -- .01 x your high-3 x all years and full months of service -- is that great a deal.
Aren't I losing money? Where'd the other 3% of my pay go?
Am I missing something?
Thanks.
The info below should help answer your question.
FERS Revised Annuity Employees (FERS-RAE)
Most employees hired on/after January 1, 2013 are placed into FERS-RAE. The RAE is for “Revised Annuity Employee.” Ironically, despite the terminology, these new employees will NOT be receiving a revised annuity; instead, they will be paying a revised contribution to the retirement fund – 3.1% instead of 0.8%. It appears total service costs will be unchanged from the “old” FERS, with the only difference being more paid by the employee and correspondingly less paid by the agency.
In other words, FERS-RAE is identical to FERS except employees must pay more. This is the basis of the “savings” policy makers credit to FERS-RAE
In conclusion, for employees in the “old” FERS, the assertion that Government pays 95% of retirement costs is essentially correct. For those in FERS-RAE it is a different picture. The 3.1% they pay into the fund represents 22.6% of costs, with 77.4% paid by Uncle Sam..
^^ Thanks, that's old news, though. OR should I say not relevant for new hires.
You do know that's already been superseded by FERS-FRAE (Further Revised Annuity Employees) effect 1/12014?
The Bipartisan Budget Act of 2013 created yet another category of FERS employees thanks to a different employee contribution rate, and FERS-FRAE was born. The new category – FERS-Further Revised Annuity Employees – has a standard contribution rate of 4.4% of gross pay, and applies to employees newly hired on or after 1/1/2014, or rehired with less than 5 years of civilian service that is potentially creditable under FERS.
This makes the deal even less attractive for new hires who are putting in 4.4% -- more than even the 3.8 you mentioned.
^^ Thanks, that's old news, though. OR should I say not relevant for new hires.
You do know that's already been superseded by FERS-FRAE (Further Revised Annuity Employees) effect 1/12014?
The Bipartisan Budget Act of 2013 created yet another category of FERS employees thanks to a different employee contribution rate, and FERS-FRAE was born. The new category – FERS-Further Revised Annuity Employees – has a standard contribution rate of 4.4% of gross pay, and applies to employees newly hired on or after 1/1/2014, or rehired with less than 5 years of civilian service that is potentially creditable under FERS.
This makes the deal even less attractive for new hires who are putting in 4.4% -- more than even the 3.8 you mentioned.
Sorry if that was not helpful, and you are right the pension becomes less attractive for lower wage workers who are not able to devote many years of service. Below I hope will give you a better example of the contribution difference from FERS and FERS-FRAE using a high 3 salary of $36,000 with 14% of that amount being contributed toward your pension from both you and the Government.
14% of your $36,000 salary = $5,040 will be contributed towards the annuity part of your pension. Of that total contribution a FERS-FRAE employee contribution portion of that amount will be $2,218 and the Government will contribute $2,822. A FERS employee with the same salary and same total pension contribution will contribute $403 and the Government will contribute $4,637.
So, if you plan to work 5 years you have contributed a total of $11,090 towards your pension. With a high 3 salary of $36,000 your annual pension will be $1,800. With a $1,800 pension it will take you a little over 6 years to recoup back your contributions. A FERS employee with the same high 3 salary who for example worked 5 years from 2007-2011 they will have the same $1,800 pension, but they only contributed $2,050 toward it so in a little over a year they will recoup back their contribution.
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