Civil Service Retirement System (CSRS)

The Civil Service Retirement System is the defined-benefit pension that covered most U.S. federal civilian workers hired before January 1, 1984. It was established under 5 U.S.C. chapter 83, subchapter III, and it pays a lifetime annuity calculated from an employee's length of service and highest average salary. CSRS is closed to new entrants, having been superseded by the Federal Employees Retirement System for anyone first hired in 1984 or later, but it is not abolished: it continues to pay the annuitants and survivors who earned benefits under it. A defining feature is that CSRS employment was generally excluded from Social Security coverage under 42 U.S.C. 410(a)(5), so those workers paid no Social Security retirement, survivor, or disability tax on that federal service and built no Social Security retirement credits from it. They did pay the Medicare portion of the payroll tax, which is why the same service still counts toward premium-free Medicare Part A.

CSRS was built for a world in which a federal employee spent a career in government and drew a single, generous annuity in retirement. Employees contribute 7, 7.5, or 8 percent of pay toward the annuity depending on the category of service, and because the system stood outside Social Security, that contribution replaced rather than supplemented the Social Security portion of the payroll tax on their federal wages. The 1983 Social Security amendments brought newly hired federal workers into Social Security, and Congress then created the Federal Employees Retirement System to sit on top of Social Security for that group. The line between the two systems is drawn as an exclusion: under 5 U.S.C. 8402(b), FERS does not reach an employee whose federal service has been of the older, non-Social-Security-covered kind continuously since December 31, 1983, nor an employee with at least five years of CSRS-creditable civilian service performed before January 1, 1987. The practical effect is a hire date. Someone whose continuous federal career began before 1984 generally stayed in CSRS; someone first hired after 1983 went into FERS. The Office of Personnel Management puts the same rule the other way round: CSRS was replaced by FERS for federal employees who first entered covered service on or after January 1, 1987.

Because CSRS is a defined-benefit plan, the retirement risk sits with the government, not the employee: the annuity is promised as a formula and does not rise or fall with investment markets. That is the same structure any private defined benefit plan uses; what makes CSRS distinct is its no-Social-Security design and its full inflation adjustment. A CSRS annuity is adjusted each year under 5 U.S.C. 8340 and receives the full change in the price index, which is the sort of cost-of-living adjustment that has become rare in the private sector. There is also a hybrid variant, CSRS Offset, covering certain employees whose service was Social Security-covered; their CSRS annuity is reduced ("offset") when they become eligible for the Social Security benefit attributable to that offset service.

One historical point that has now changed: because CSRS wages were not Social Security-covered, retirees who also qualified for a Social Security benefit from other work, or for a spousal or survivor benefit, were for decades subject to the Windfall Elimination Provision and the Government Pension Offset, which reduced those Social Security benefits. Those offsets have been repealed by the Social Security Fairness Act, which is where the current treatment belongs; older descriptions of the pension-offset rules no longer state the law.

A CSRS annuity is computed from two inputs: the "high-3" average pay (the highest average basic pay over any three consecutive years of service) and total years of creditable service. Under 5 U.S.C. 8339 the standard formula is 1.5 percent of high-3 pay for each of the first 5 years of service, plus 1.75 percent for each of the next 5 years, plus 2 percent for every year beyond 10. The percentages accumulate, so a long career produces a large fraction of pre-retirement salary.

A hypothetical example, using made-up figures. Suppose a retiree has a high-3 average salary of $90,000 and 30 years of creditable service. The multiplier is (1.5% multiplied by 5) plus (1.75% multiplied by 5) plus (2% multiplied by the remaining 20 years), which is 7.5 percent plus 8.75 percent plus 40 percent, or 56.25 percent of high-3 pay. That produces a starting annuity of 0.5625 multiplied by $90,000, which is $50,625 per year before any survivor election or other reduction. Each year after retirement, that amount is increased by the full cost-of-living adjustment under 5 U.S.C. 8340.

Pros

• The annuity is a defined benefit: it is promised as a formula and does not depend on how investment markets perform.
• CSRS annuities receive the full annual cost-of-living adjustment, which protects purchasing power over a long retirement.
• A long federal career produces a high replacement rate, because the 2 percent per year of service accumulates.

Cons

• Most CSRS service earned no Social Security credit, so a retiree without substantial other covered work may have little or no Social Security of their own, though the Medicare tax was still withheld.
• The system is closed, so it is only relevant to people hired before 1984 and their survivors; everyone else is in FERS.
• As a pure pension with no individual account, it offers no lump sum a retiree can pass to heirs beyond the survivor-annuity elections the plan allows.