What Is FERS-FRAE? Contributions, Annuity, and Eligibility

FERS-FRAE, short for the Federal Employees Retirement System — Further Revised Annuity Employees, is the retirement tier that covers most federal civilian workers first hired on or after January 1, 2014. Employees in this tier contribute 4.4% of their basic pay toward the pension, more than five times the 0.8% paid by the original FERS cohort, and yet they earn the same annuity benefit at retirement. Congress created the higher contribution rate in Section 401 of the Bipartisan Budget Act of 2013 to strengthen the long-term funding of federal pensions without changing the benefit formula.¹

Who Falls Into the FRAE Tier

Classification comes down to when you first entered federal civilian service and how much prior service you had already earned. If your first day of federal employment fell on or after January 1, 2014, and you did not have at least five years of creditable civilian service before that date, you are a FERS-FRAE employee.¹ The classification sticks for your whole career, no matter how many agencies you move through or whether you take a break in service.

The five-year prior-service exception matters for people who previously worked for the federal government, left, and returned after 2014. If you had already accumulated five or more years of creditable civilian service before the FRAE cutoff, you may be placed back into an earlier tier (original FERS or FERS-RAE) based on your original hire date. Payroll offices track your tier through a retirement code on your personnel record, and mistakes there can affect your paycheck for years, so confirm your code early.

For context, employees first hired during calendar year 2013 fall under FERS-RAE (Revised Annuity Employees), and those hired before January 1, 2013, are generally in the original FERS tier.²

What the 4.4% Contribution Looks Like on Your Paycheck

The defining financial feature of the FRAE tier is the pension contribution deducted from every paycheck. At 4.4% of basic pay, FRAE employees pay substantially more than original FERS members at 0.8% and FERS-RAE members at 3.1%.² The deduction comes out of gross basic pay before taxes and other withholdings, so it hits take-home pay from day one.

The gap adds up. On a $70,000 salary, a FRAE employee contributes roughly $3,080 per year toward the basic pension. An original FERS employee earning the same amount pays about $560. Over a 30-year career the cumulative difference runs well into five figures, and the annuity paid out at the end is identical across all three tiers.¹ That is the trade Congress made. Newer employees subsidize the pension fund at a higher rate, but they earn the same annuity formula as everyone else.

What the 4.4% Actually Buys

The contribution funds the pension piece of a three-part retirement package that is the same for every FERS tier: the Basic Benefit Plan (the pension), Social Security, and the Thrift Savings Plan.

The Basic Benefit Plan

The pension is the guaranteed piece. It pays a monthly amount for life based on your salary history and years of service. The formula is the same across FERS tiers, so FRAE employees pay more into the fund but calculate their annuity the same way an original FERS member does.¹

Social Security

Federal employees under FERS pay into Social Security at the same rate as private-sector workers and earn credits under the same rules. This is a departure from the older Civil Service Retirement System, which did not include Social Security coverage. Your Social Security benefit at age 62 or later reflects your full earnings history, including any non-federal work.

The Thrift Savings Plan

The TSP works like a 401(k). You pick your contribution rate, choose from a menu of index-style funds, and the balance grows tax-deferred, or tax-free in a Roth TSP. The government automatically contributes 1% of your basic pay whether you put in anything or not. Contribute at least 5% of your pay and the agency match brings the total government contribution to 5%: the first 3% of your contribution is matched dollar-for-dollar, and the next 2% is matched at 50 cents on the dollar.³

That match is the single easiest return in the federal benefits package. Contributing less than 5% is the most common financial mistake new federal employees make, because the TSP is also the component most within your control. The pension formula is fixed and Social Security is what it is, but your TSP choices drive a meaningful share of your retirement income.

How the Pension Itself Is Calculated

The formula starts with your “high-3” average salary: the highest average basic pay you earned during any three consecutive years of service. For most people that is the final three years before retirement, though it can be an earlier period if your pay was higher then. The high-3 includes locality pay but not overtime, bonuses, or premium pay.⁴

The standard formula multiplies the high-3 by 1% for each year of creditable service. So 25 years of service with a high-3 of $95,000 produces a gross annual annuity of $23,750, or about $1,979 per month before deductions. One important bonus: if you retire at age 62 or older with at least 20 years of service, the multiplier rises to 1.1% for every year served, not just the years after 62.⁴ Using the same example, that lifts the annuity to $26,125 per year.

The gross figure is before federal income tax, any state income tax, Federal Employees Health Benefits premiums, and any survivor benefit election. Those deductions can easily cut the net deposit to your bank account by 25 to 35% compared with the gross number, so planning around the gross alone leads to unpleasant surprises.

FERS employees who retire on an immediate annuity also receive service credit for their unused sick leave balance. The hours convert to months and days using a 2,087-hour work year and get added to actual service time in the annuity calculation. Sick leave credit cannot be used to meet the minimum service requirements for retirement eligibility or to calculate the high-3 salary. It only increases the service time in the formula.

When You Can Retire on a FRAE Annuity

Qualifying for an immediate, unreduced FERS annuity means hitting one of three age-and-service combinations:⁵

Minimum Retirement Age with 30 years of service. For anyone born in 1970 or later, which covers essentially all FRAE employees, the MRA is 57.
Age 60 with 20 years of service.
Age 62 with 5 years of service. This is also the only path that unlocks the enhanced 1.1% multiplier.

Because FRAE employees were first hired in 2014 or later, most will not accumulate 30 years of service until roughly 2044 at the earliest. That makes the age-60-with-20 path and the age-62-with-5 path the most realistic targets in this tier.

Retiring Early Under MRA+10

A fourth path exists. If you have reached your MRA and completed at least 10 years of service, you can retire and start receiving an annuity right away. But the annuity carries a permanent 5% reduction for each year you are under age 62.⁶ The reduction is calculated as 5/12 of one percent per month, and it applies for the rest of your life. For a FRAE employee retiring at MRA 57 with 15 years of service, the reduction is 25% (five years under 62 times 5%). On a gross annuity of $15,000 per year, that cuts $3,750 permanently. MRA+10 retirees also lose eligibility for the Special Retirement Supplement that other early FERS retirees receive.

You do not have to start the MRA+10 annuity the day you leave. Delay the start of payments and the reduction shrinks, because it is based on how far under 62 you are when payments begin, not when you left the job. Delay long enough and the penalty disappears entirely. The trade-off is that during the postponement period you receive no annuity payments, and your FEHB enrollment ends. You can temporarily continue FEHB for up to 18 months by paying the full premium plus a 2% administrative charge, after which coverage lapses until the annuity starts.⁷

If You Leave Federal Service Before Retirement

You have two options for the money you have paid in.

The first is a refund. Request it, and you get back the full 4.4% you contributed. OPM pays interest on the refund if your covered service totaled more than one year, at the rate earned by government securities. The catch is that taking a refund wipes out your service credit. If you later return to federal employment, that earlier service will not count toward retirement eligibility or the annuity calculation unless you redeposit the refunded amount plus interest. The interest portion of the refund is taxable income unless you roll it directly into a traditional IRA or another qualified plan; a cash payout triggers 20% withholding on the interest.⁸

The second option is a deferred annuity. If you have at least 5 years of creditable civilian service but do not meet the age-and-service requirements for an immediate annuity, you can leave your contributions on deposit and claim an annuity later, at age 62 with 5 years, age 60 with 20 years, or at your MRA with 30 years. The critical downside is that deferred retirees lose all eligibility to continue FEHB, life insurance, and dental and vision coverage into retirement.⁷ FEHB is one of the most valuable pieces of the federal benefits package, and losing it permanently can dwarf the pension itself in financial impact. Weigh that carefully before separating early.

1
U.S. Office of Personnel Management. Benefits Administration Letter 14-102 – FERS Further Revised Annuity Employees
2
U.S. Department of Commerce. Federal Employee Retirement System
3
Thrift Savings Plan. Contribution Types
4
U.S. Office of Personnel Management. FERS Information – Computation
5
U.S. Office of Personnel Management. FERS Information – Eligibility
6
U.S. Office of Personnel Management. What Is a Minimum Retirement Age (MRA) Plus 10 Annuity Under FERS?
7
U.S. Office of Personnel Management. Types of Retirement
8
U.S. Office of Personnel Management. FERS Refund Fact Sheet