PERS is a pension, NOT a 401K.
From the site https://www.opm.gov/retirement-services/fers-information/computation/:
Your basic annuity is computed based on your length of service and “high-3” average salary. To determine your length of service for computation, add all your periods of creditable service, then eliminate any fractional part of a month from the total.
Your “high-3” average pay is the highest average basic pay you earned during any 3 consecutive years of service. These three years are usually your final three years of service, but can be an earlier period, if your basic pay was higher during that period. Your basic pay is the basic salary you earn for your position. It includes increases to your salary for which retirement deductions are withheld, such as shift rates. It does not include payments for overtime, bonuses, etc. (If your total service was less than 3 years, your average salary was figured by averaging your basic pay during all of your periods of creditable Federal service).
| Age | Formula |
|---|---|
| Under Age 62 at Separation for Retirement, OR Age 62 or Older With Less Than 20 Years of Service |
1 percent of your high-3 average salary for each year of service |
| Age 62 or Older at Separation With 20 or More Years of Service | 1.1 percent of your high-3 average salary for each year of service |
Is your retirement compensation different?
FERS is a retirement plan consisting of three parts.
Part 1.
Is an annuity (pension if you will) based upon average highest three annual salaries as you mentioned but its capped at a maximum of 33 percent of your high 3 average salary. If you work 50 years you are not going to get 50 percent of you average high 3 salaries. You get a maximum of 33 percent.
Part 2.
Is Social Security, which is deducted from your pay check throughout your years of service like any other Social Security participant in the private sector.
Part 3.
Is a 401k plan with multiple investment options from US Treasury Bonds to an S&P 500 Index fund. Employee contributions to the 401k in effect will be matched up to 50 cent on the dollar for up to 10 percent of your pre-tax income. The rules of standard 401k’s apply to this component of ones retirement after one retires.
If you fully participate, 16.5 percent of your paycheck is applied to your Soc. Sec. and annuity before your W-2 form withholdings for taxes are pulled.
I had years wear 40 plus percent of my Gross pay was with held for taxes and Soc. Sec and retirement.
I further annually saved 10 percent of my salary and invested it because I don’t believe Social Security will be solvent and available at some point in my retirement. I doubt I’ll receive a penny of Soc. Sec. benefits when I’m eligible because it will be insolvent and planned as best as possible accordingly.
Well, sort of. I retired under an unusual arrangement with a lump sum and a small amount until a certain age so the details are a bit foggy.
But what we usually received was mostly a 401k type arrangment where we could assign money to a few different categories like T-Bills and such. One contributed and it grew. Hopefully. But you are right there was a small defined benefits plan also which I had forgotten about. In our cases it would probably amount to 20-25% of your high 3 so frankly wasn’t worth much. So you are partially correct.
The problem isn’t the pay or the benefits. It is the size of government and that government employement is used as a welfare program. Uncle sugar needs to be cut to 20% of its current size and continued employment should be based on performance.
Wow - that 1% or 1.1% multiplier is worse than the teacher retirement plan I’m in that uses 2% per year across the average of the high-5.