Recently, The Bureau of Labor Statistics reported that on average, federal government employees are underpaid by 26.3% compared with similar non-federal jobs. This “pay gap” has widened over the last couple years while federal salaries were frozen.
With such a large difference in pay, I wondered, why would anyone want to work for the federal government? Do the benefits make up for the lower salary?
One of the most important benefits to consider is retirement. Often, retirement packages across both private and public sectors include a market-dependent contribution plan, such as a 401(k). In addition, although relatively rare nowadays, some retirement plans include a traditional pension, or a defined benefit plan, as part of the retirement package. While guaranteed, the amount that is paid out during retirement until the end of the life is dependent on years of service and pay at career’s end.
Let’s take a look at the retirement benefits for a job with a federal government agency.
Civilian federal government employees hired after 1984 (about 80% of current employees, approximately 2 million employees) retire under the Federal Employees Retirement System (FERS).
FERS is a retirement package with 3 different components:
1. Social Security – This component is funded through the Federal Insurance Contributions Act tax (FICA) imposed on both the employee (through payroll deductions) and government agency employer. This tax is a percentage (4.2% in 2012) on your salary (up to $110,100, the maximum taxable earnings amount). Your Social Security benefits follow you if you leave the federal government or any job before retirement. For more details on Social Security, visit http://www.ssa.gov/
2. Basic Benefit Plan – This is the pension component of the federal retirement package. Most federal employees contribute 0.8% of their salary to this pension plan. Upon retirement, most will receive a pension that is calculated as the highest average basic pay you earned during any 3 consecutive years of service, multiplied by the number of years of creditable service, and multiplied by the “pension multiplier,” which for most people is 1%. This benefit becomes a fixed monthly income from retirement until death. For example, if your 3-year average salary at the end of your 30-year career in the government was $100,000, then your pension would be ($100,000 x 30 x 1%) $30,000 per year for the rest of your life after retirement.
3. Thrift Savings Plan – This is a retirement savings and investment plan for federal employees that offers the same types of savings and tax benefits that many private corporations offer their employees under 401(k) plans. Under the Thrift Savings Plan, depending on eligibility and your contributions, 1% of your basic pay is contributed by the government agency employer, and you may be eligible to receive up to 4% of your pay in matching contributions from the government agency employer.
So are these retirement benefits in the federal government better than those found in other sectors? Let me know what you think.
The views expressed in this column are those of the author and do not necessarily reflect the views or policies of the U.S. Government.
Wenny Lin, PhD, MPH, is a Cancer Research Training Award fellow at the National Cancer Institute. Prior to joining the Nutritional Epidemiology Branch in the Division of Cancer Epidemiology & Genetics, Wenny earned her MPH from the Harvard School of Public Health in 2009 and her PhD in Cell & Molecular Biology from the University of Pennsylvania in 2008.