Separation and Retirement Incentives in the Federal Civil Service

A Comparison of the Federal Employees Retirement System and the Civil Service Retirement System

by Beth J. Asch, John T. Warner

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In 1987 a new retirement system, called the Federal Employees Retirement System (FERS), was introduced for federal civil service personnel. Some observers have hypothesized that FERS would alter the retirement and separation outcomes produced by FERS' predecessor, the Civil Service Retirement System (CSRS). This report compares the retirement and separation incentives embedded in FERS versus those in CSRS to see whether the incentives embedded in FERS are consistent with these hypotheses. It also examines which system is more generous in terms of providing greater expected net lifetime earnings and retirement wealth. To compare the systems, the authors compute expected net wealth associated with different separation and retirement ages for a representative individual. The authors also conduct sensitivity analyses to see how their comparisons differ under alternative assumptions. Finally, the authors use data on Department of Defense civil service personnel from fiscal year 1983 through fiscal year 1996 to examine empirically how separation rates differ for early and mid-career personnel under FERS and under CSRS.

Table of Contents

  • Preface

  • Figures

  • Tables

  • Summary

  • Acknowledgments

  • Chapter One

    Introduction

  • Chapter Two

    Simulation Approach and Assumptions

  • Chapter Three

    Simulation Results

  • Chapter Four

    Data and Empirical Approach

  • Chapter Five

    Empirical Analysis of Mid-Career Separation Rates

  • Chapter Six

    Summary and Conclusions

  • Appendix A

    Summary of FERS and CSRS

  • Appendix B

    Problems with the Nonsequential YOS Variable in DOD Civil Service Data

  • Appendix C

    Variable Definitions, Descriptive Statistics, and Regression Results

  • References

The research described in this report was sponsored by the Office of the Secretary of Defense,and conducted in RAND's National Defense Research Institute.

This report is part of the RAND Corporation monograph report series. The monograph/report was a product of the RAND Corporation from 1993 to 2003. RAND monograph/reports presented major research findings that addressed the challenges facing the public and private sectors. They included executive summaries, technical documentation, and synthesis pieces.

The RAND Corporation is a nonprofit institution that helps improve policy and decisionmaking through research and analysis. RAND's publications do not necessarily reflect the opinions of its research clients and sponsors.