Retirement Plans for Congress/Senate

[NorthCarolina]

While we are all awaiting the recommendations of Obama's Deficit Commission on how our elected officials will "save" Social Security for the masses by raising the retirement age and cuts to COLA and general benefits, I thought it would be interesting to see what our elected officials have provided for themselves.

Here's an excerpt from the CRS Report for Congress, Retirement Benefits for Members of Congress.
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Retirement Plans Available to Members of Congress

Members First Elected Before 1984. Members of Congress who were first
elected before 1984 may be covered under one of four retirement plans:

Dual Coverage. This is full coverage by both CSRS and Social
Security.

CSRS Offset. This is coverage by CSRS and Social Security, but
with CSRS contributions and benefits reduced (“offset”) by the
amount of Social Security contributions and benefits.

FERS. This is composed of the FERS basic annuity, Social Security,
and the Thrift Savings Plan (TSP).

Social Security only. This occurs if the Member declines other
coverage.

Members First Elected Since 1984. Members of Congress who were first
elected in 1984 or later are covered by the Federal Employees’ Retirement System
unless they decline this coverage, in which case they are covered only by Social
Security. FERS is composed of three elements:

Social Security,

the FERS basic annuity, a monthly pension based on years of service
and the average of the three highest consecutive years of basic pay,

the Thrift Savings Plan (TSP), into which participants can deposit up
to a maximum of $15,500 in 2007. Their employing agency matches
employee contributions up to 5% of pay.

Members who enter Congress with at least five years of previous federal
employment covered by CSRS can choose to participate in the CSRS Offset plan
rather than FERS.

Age and Length-of-Service Requirements

Members become vested in (legally entitled to) a pension benefit under CSRS
or FERS after five years of service. The age and service requirements for retirement
eligibility are determined by the plan under which a Member is covered at the time
of retirement, regardless of whether he or she has previous service covered under a
different plan.2 Depending on a Member’s age and years of service, a pension can
be taken immediately upon retirement or only on a deferred basis. Likewise, the
Member’s age and years of service, as well as the starting date of the annuity, will
determine whether he or she is eligible for a full pension or a reduced pension.

Retirement Under CSRS. Four retirement scenarios are possible for
Members covered by CSRS or the CSRS Offset Plan:

Retirement with an immediate, full pension is available to Members age 60 or
older with 10 years of service in Congress, or age 62 with five years of civilian
federal service, including service in Congress.

Retirement with an immediate, reduced pension is available to Members aged
55 to 59 with at least 30 years of service. It is also allowed if the Member
separates for a reason other than resignation or expulsion after having
completed 25 years of service, or after reaching age 50 and with 20 years of
service, or after having served in nine Congresses.

Retirement with a deferred, full pension is available if the Member leaves
Congress before reaching the minimum age required to receive an immediate,
unreduced pension and delays receipt until reaching the age at which full
benefits are paid. A full pension can be taken at age 62 if the Member had five
through nine years of federal service, or at age 60 if the Member had at least 10
years of service in Congress. At the time of separation, the Member must leave
all contributions in the plan in order to be eligible for the deferred pension.
Retirement with a deferred, reduced pension is available to a Member at age
50 if he or she retired before that age and had at least 20 years of federal service,
including at least 10 years as a Member of Congress.

Retirement Under FERS. There are four possible retirement scenarios for
Members who are covered by FERS:

Retirement with an immediate, full pension is available to Members at age 62
or older with at least five years of federal service; at age 50 or older with at least
20 years of service; and at any age to Members with at least 25 years of service.

Retirement with an immediate, reduced pension is available at age 55 to
Members born before 1948 with at least 10 years of service. The minimum age
will increase to 56 for Members born from 1953 through 1964 and to 57 for
those born in 1970 or later.

Retirement with a deferred, full pension is available at age 62 to former
Members of Congress with at least five years of federal service.

Retirement with a deferred, reduced pension is available at the minimum
retirement age of 55 to 57 (depending on year of birth) to a former Member who
has completed at least 10 years of federal service. The pension annuity will be
permanently reduced if it begins before age 62.

Coordination of FERS Benefits with Social Security. The FERS basic
annuity was designed to supplement Social Security retirement benefits. FERS
retirees under age 62 who retire with an unreduced pension are eligible for a
temporary supplement to their FERS pension to fill in until Social Security eligibility
is reached at age 62. The supplement is an amount estimated to equal the Social
Security benefits accrued from federal service, and is paid from the time of retirement
until age 62. The FERS supplement ends at age 62 regardless of whether the
individual applies for Social Security at that time. Like Social Security benefits paid
before the full retirement age (65 years and 8 months in 2007), the supplement
reduced if the retiree has earnings above a specified annual limit. This “FERS
supplement” is payable to Members who retire at ages 55 to 57 (depending on year
of birth) or older with at least 20 years of service. A former Member with at least 20
years of service also may begin to draw the supplement upon reaching age 55 to 57.

Social Security Retirement Benefits. Since January 1, 1984, all Members
of Congress have been required to pay Social Security taxes. The laws governing
payment of Social Security taxes and eligibility for Social Security benefits apply to
Members of Congress in the same way they apply to any other covered worker.

Retirement with full benefits. The “full retirement age” under Social Security
is 65 years and 8 months in 2007. Forty quarters of covered employment are
required to be eligible for retired worker benefits. Under current law, the age
for full benefits is gradually increasing, beginning with people born in 1937,
until it reaches age 67 for those born in 1960 or later.

Retirement with reduced benefits. The earliest that retired worker benefits can
be taken under Social Security is age 62. Benefits taken at 62 are permanently
reduced, based on the number of months between the person’s age at retirement
and the full retirement age. A worker retiring at age 62 in 2007 would receive
a benefit equal to 75% of the benefit that would be payable if the beneficiary
had reach the full retirement age of 65 years and 8 months. When the full
retirement age reaches age 67, the monthly benefit paid at 62 will be 70% of the
amount that would be paid if the beneficiary were age 67.

Social Security Earnings Limit. Social Security benefits are reduced for
beneficiaries under age 65 who have earnings from paid employment that exceed
thresholds that are defined in statute. In 2007, Social Security beneficiaries under
age 65 are subject to a reduction in benefits if their annual earnings exceed $12,960
($1,080 per month). The earnings threshold is adjusted annually for average wage
growth in the U.S. economy. Beneficiaries under age 65 lose $1 in benefits for every
$2 in earnings above the threshold. Retirees aged 65 or older receive full benefits
regardless of earnings.

The Thrift Savings Plan: An Integral Component of FERS. The TSP
is a defined contribution retirement plan similar to those authorized under Section
401(k) of the tax code for employers in the private sector. For all federal employees
covered by FERS, their employing agency contributes an amount equal to 1% of base
pay to the TSP, whether or not the employee chooses to contribute anything to the
plan. In 2007, employees covered by FERS can make voluntary contributions of up
$15,500. Employee contributions of up to 5% of pay are matched by the employing
agency. Contributions are made on a pre-tax basis, and neither the contributions nor
investment earnings that accrue to the plan are taxed until the money is withdrawn.
Employees covered by CSRS can participate in the TSP, but they receive no
employer matching contributions. (See "The Thrift Savings Plan" section for more
information.)

Pension Plan Benefit Formulas

Pension benefits under both CSRS and FERS are computed according to (1) the
retiree’s average annual salary for the three consecutive years of highest pay (known
as “high-3” salary); (2) the number of years of service covered by the pension plan;
and, (3) the “accrual rate” at which benefits accumulate for each year of service. The
pension is the product of these factors, expressed as:

High-3 Years of Accrual Annual
Salary X Service X Rate = Pension

Pension Benefits Under CSRS. The accrual rate for each year of
congressional service covered by CSRS is 2.5%. Therefore, the CSRS pension
equals:

High-3 Years of CSRS
Salary X Service X .025 = Pension

For example, after 30 years of congressional service and a high-3 average salary
of $161,800, the initial annual CSRS pension for a Member who retired in December
2006 at the end of the 109th Congress would be:

$161,800 x 30 x .025 = $121,350

Federal law limits the maximum CSRS pension that may be paid at the start of
retirement to 80% of the Member’s final annual salary (see 5 U.S.C. § 8339(f)). To
receive an initial pension equal to 80% of final salary, a Member must complete 32
years of congressional service covered by CSRS (32 x .025 = .80). The smallest
starting pension under CSRS is 12.5% of high-3 salary for a Member with five years
service. (Pensions based on less than 10 years of service cannot begin before age 62.)

Most Members who entered Congress before 1984 and who chose to stay in the
CSRS elected the “CSRS offset” plan. When a Member who has retired under the
offset plan is age 62 or older, the CSRS pension is reduced by the amount of Social
Security benefits that he or she earned during congressional service. In the example
above, the offset would be approximately $12,500 in 2007.

Pension Benefits Under FERS. The accrual rate for congressional service
covered by FERS is 1.7% for the first 20 years and 1.0% for each year beyond the
20th. The basic retirement annuity under FERS is equal to:

Years of Years of
High 3 x 0.17 Service + High 3 x 0.01 x Service Over = Annual Pension
Salary Through Salary 20
20

Members who began congressional service before 1984 and who elected to join
FERS will receive credit under FERS from January 1, 1984, forward. Thus, at the
close of the 109th Congress in December 2006, participants had a maximum of 23
years of service under FERS. Assuming that a Member retired at the end of 2006
with 20 years of congressional service under FERS, and a high-3 average salary of
$161,800, the initial annual FERS pension in 2007 would be:

<$161,800 x .017 x 20> = $55,012

There is no maximum pension under FERS. (It would take 66 years of service
under FERS to reach the 80% maximum permissible under CSRS.) The smallest
unreduced FERS pension is 8.5% of high-3 salary with five years of service (.017
x 5 years), which is payable no earlier than age 62. A Member with 10 years of
service who takes a FERS pension at the earliest allowable age of 55 would receive
a reduced pension equal to 11% of high-3 salary (.017 x 10 years, reduced by .05
times the seven-year difference between the individual’s age at retirement and age
62).

Base pay for Representatives and Senators was $158,100 in 2004, $162,100 in 2005, and
$165,200 in 2006. Pay for House and Senate leadership positions is higher.

Social Security Benefits. Social Security benefits are determined by a
formula based on earnings in all Social Security-covered employment. The benefit
structure of Social Security was designed to replace a higher proportion of earnings
for lower-paid workers than for the higher-paid. For example, the initial benefit
payable to a low-wage worker retiring at the full retirement age in 2007 is $841 per
month, or $10,092 per year. This is equivalent to about 94% of the annual earnings
of a worker employed year-round, full-time at the minimum wage in 2007.11 For a
worker whose earnings each year were equal to or greater than the Social Security
maximum taxable wage base, the initial benefit paid to a new retiree the full
retirement age in 2007 is $2,120 per month, or $25,440 per year. This is equal to
about 26% of the maximum taxable wage base of $97,500 in 2005. It would
represent a still smaller percentage of the annual wages of workers whose earnings
exceeded the taxable wage base.

<---snip--->

Cost-of-Living Adjustments. CSRS annuities are adjusted for inflation
once each year on the same schedule and by the same percentage as Social Security
benefits. These “cost-of-living adjustments,” or COLAs, are based on the rate of
increase in the Consumer Price Index for Urban Wage Earners (CPI-W). CSRS
annuities and Social Security benefits are increased each January by the percentage
change in the CPI-W over the 12-month period ending on the preceding September
30. FERS annuities also are adjusted for inflation, but as a cost-control measure,
Congress has mandated that FERS annuities will increase by less than the percentage
change in the CPI-W whenever the annual rate of increase in that index exceeds
2.0%. If the CPI-W rises by 2% or less, FERS annuities are increased by the same
percentage as the increase in the CPI. If the CPI rises by 2.1% to 3%, FERS
annuities are increased by 2%. If the CPI rises by more than 3%, FERS annuities are
increased by one percentage point less than the rate of increase in the CPI.

Initial CSRS annuities may not exceed 80% of a Member’s final pay. Over
time, however, if Congressional pay were to remain unchanged, a retired Member’s
CSRS pension could exceed the nominal amount of his or her final pay.
Nevertheless, because COLAs merely prevent the purchasing power of an annuity
from being eroded by inflation, the real value of a CSRS pension does not increase
or decrease during retirement, provided that the price index on which the COLA is
based is an accurate measure of the rate of inflation.

The Thrift Savings Plan (TSP) is a tax-deferred investment program through
which federal employees can save money to supplement their pension income.
The
TSP is open to participants in both CSRS and FERS, but in consideration of the
smaller pensions paid by FERS, Congress has authorized more generous incentives
for workers covered by FERS to save for retirement through the TSP. In 2007, FERS
participants may invest up to $15,500 in the TSP. The maximum annual contribution
is indexed to inflation. Individuals covered by FERS who invest in the TSP also
receive a matching contribution from their employing agency on the first 5% of pay
that they invest in the plan. CSRS participants also may invest up to $15,500 in the
TSP, but they receive no employer matching contributions.

The government automatically deposits into the TSP an amount equal to 1.0%
of basic pay on behalf of all employees enrolled in FERS, regardless of whether the
individual voluntarily invests additional sums. Members of Congress and
congressional staff become vested in this 1.0% “agency automatic contribution,” plus
any investment earnings on it after completing two years of service. All participants
in FERS are immediately vested in their own contributions and in government
matching contributions to the TSP, as well as any investment earnings on these
contributions. Contributions to the TSP are made on a pre-tax basis, and neither the
contributions nor the investment earnings are taxable until money is withdrawn from
the plan.

Employees who leave federal service before age 55 can continue to defer taxes
on their accounts either by leaving the money in the TSP or by transferring all or part
of these funds to an Individual Retirement Account (IRA) or other eligible retirement
arrangement, such as a 401(k) plan. Withdrawals from the TSP before age 55 are
subject to a 10% tax penalty unless they are in the form of a life annuity or in a series
of payments based on the individual’s remaining life expectancy.
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The entire document can be viewed here: http://www.senate.gov/reference/resources/pdf/RL30631.pdf

Interesting read.

[newtothegame]

1. We've created a government where citizens can vote themselves unlimited benefits from the treasury..

why are you surprised that they've actually done it? :shrug: