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Pension Vesting
Old 08-22-2013, 04:03 PM   #1
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Pension Vesting

With constant chatter about federal pensions disappearing, I often worry how that will affect me. I plan to start working under FERS in the next few years and after buying my military time back I will be very close to hitting the 5 year point where you become vested (and yes the FERS handbook confirms military time bought back counts towards vesting).

My question is what happens after someone is vested if they change how the system works? Do your vested year benefits remain the same or can they change everything? It makes it very difficult to plan for ER if I think I have a certain benefit earned but they can take it away at any point.

Thoughts?
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Old 08-22-2013, 04:25 PM   #2
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I'm about to retire from the fed under the old CSRS (Civil Service Retirement System) which pre-dates FERS. There is so much going on these days, tinkering with the fed retirement and pay systems that is really unprecedented, I don't know how to answer your question. I would have to venture a guess that if you are relatively new to the FERS system (once you actually begin) that you might get caught in some of the changes. What I mean is that just because you're already in the system, you might not be protected from some tampering. If you're pretty far down the line in your career, say within just a few years of retirement eligibility, you're less likely to be affected, but if you only have 2 or 3 years in, you are more likely. I've worked for the fed long enough (36 years) to have learned that they (the fed) will do pretty much whatever they want, whenever they want. While I personally feel fairly safe from any changes now to currently working employees, I still have to worry about changes that are being proposed for my post-retirement situation. Yes....after I'm retired later this year, there is still a chance (I'd say liklihood) that the formula for calculating my pension will be changed....as in modified to reduce my COLA. Go in with the idea that nothing is static, not even in, actually.....ESPECIALLY in the federal government. All said, I still reccommend the fed as an employer of choice, as long as you're not looking to earn CEO/lawyer/physician size paychecks. Best of luck to you!
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Old 08-22-2013, 07:46 PM   #3
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You still must do 5 years in the Federal Government as a FERS employee before you qualify to get any type of pension. Your military time (if you buy it back) only kicks in after the minimum 5 years.
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Old 08-22-2013, 09:05 PM   #4
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Quote:
Originally Posted by Boxkicker View Post
You still must do 5 years in the Federal Government as a FERS employee before you qualify to get any type of pension. Your military time (if you buy it back) only kicks in after the minimum 5 years.
From the FERS Handbook:

Quote:
To be vested (eligible to receive your retirement benefits from the Basic Benefit plan if you leave Federal service before retiring), you must have at least 5 years of creditable civilian service.

Creditable service generally includes:

Military service, subject to a deposit requirement. To receive credit for military service, generally, you must deposit 3% of your military base pay. Interest begins 2 years after you are hired. With certain exceptions, you cannot receive credit for military service if you are receiving military retired pay. Also, see the note that follows on credit for National Guard service.
To me that says if I buy back 4 of my military years and work 1 year under FERS, I am now considered vested because I have 5 years of credible service. Do you read that differently?
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Old 08-22-2013, 09:15 PM   #5
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Thanks Marty! I was afraid that might be the answer. With the government sometimes "we're not sure" is the only answer available. I'll just have to save aggressively and hope for the best!
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Old 08-22-2013, 09:27 PM   #6
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I am retiring Jan 11, 2014, FERS LEO/ATC/FF Retirement. I can't wait.

My understanding is once you are retired they can not screw with your retirement, however, they can mess with the annual COLA calculations.
As long as you are a working FED, they can change the retirement system. So far in the past few years the changes made and proposed have only applied to newly hired FEDS, i.e., higher retirement contributions. But who knows. I am watching the news and may have to push my retirement up to Dec 31, 2013 if they throw some crazy changes in place during debt limit/2014 budget negotiations. Which if they do would more than likely be effective Jan 1, 2014.



Quote:
Originally Posted by ATC Guy View Post
With constant chatter about federal pensions disappearing, I often worry how that will affect me. I plan to start working under FERS in the next few years and after buying my military time back I will be very close to hitting the 5 year point where you become vested (and yes the FERS handbook confirms military time bought back counts towards vesting).

My question is what happens after someone is vested if they change how the system works? Do your vested year benefits remain the same or can they change everything? It makes it very difficult to plan for ER if I think I have a certain benefit earned but they can take it away at any point.

Thoughts?
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Old 08-22-2013, 09:36 PM   #7
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I'm currently in FERS, and I appreciate your concern about its future. There definitely appear to be some politicians that want to stop the FERS part of the Federal retirement package. However, what congress did most recently was to increase the employee contribution (for new employees only) to FERS, which is not in the direction of getting rid of it. Regardless, I believe that a reasonable person could expect that any major changes to FERS would grandfather the current employees in, just as the increase in FERS employee premiums did.

Here is another link about creditable service, Creditable Service
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Old 08-22-2013, 10:20 PM   #8
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You must have 5 years of actual civilian creditable service to get a pension.

Like I said, your military buyback goes into effect after that 5 years is up. In your example, you do 5 years civilian service and if you buy back your military time, you would have 9 years retirement credit.

Retirement Eligibility for FERS requires that you must have at least five years of creditable civilian service and be covered under the FERS retirement system on the date of retirement. Therefore, you cannot be a civilian employee for just one year and pay back your four years of military service to equal five years for retirement eligibility. You must have at least five years of civilian service for civilian retirement eligibility.
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Old 08-24-2013, 10:31 AM   #9
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Good to see you posting here again, Boxkicker!

How's it going? How about an update?
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Old 08-24-2013, 11:21 AM   #10
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Originally Posted by ATC Guy View Post
It makes it very difficult to plan for ER if I think I have a certain benefit earned but they can take it away at any point.
Yep. Unfortunately, we all deal with the uncertainty that we could do everything right and still experience a major discontinuity that ruins our plans. I think the best we can do is use conservative estimates for everything and diversify. I wouldn't bet everything on getting a full pension, or receiving full Social Security benefits, or seeing historically average returns from a certain type of asset.

Even then, as Bill Bernstein wrote: "History’s best-case scenario was the Roman Empire, which survived more or less intact for about seven centuries... A wildly optimistic historian might give us another few centuries of economic, political, and military continuity. Back-of-the-envelope, that’s about an 80% survival rate over the next 40 years. Thus, any estimate of long-term financial success greater than about 80% is meaningless... since all you are doing is increasing the probability of failure for political, economic, and military reasons relative to the failure of banal financial planning."

Tim
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