Comparing replacement rates under private and federal retirement systems: Prevention to Intervention to what is just plain credible


The most significant factor affecting projected replacement rates at retirement is having access to a 401(k) plan. Projected replacement rates from 401(k) accumula- tions at retirement are reduced significantly when participants are not offered a 401(k) plan in all portions of their careers.

Most 401(k) participants tend to have contributions in any given year. Thus, projecting that participants always have contributions, in other words, their own and/or employer contributions, every year raises projected replacement rates, but not by much compared with the importance of being offered a plan to begin with.

Many of our forefathers of federalism would be shocked by the decline of the energetic federal service that he envisioned.  Even as those that helped create an inventory of great endeavors, these were federal officials used his position s secretary of the treasury to set the administrative state in order.  In setting precedents for the rest of government, these federalist officials pursued a tight chain of command from the top of his department to the bottom, placed experienced officers at key intersections in the hierarchy, recruited federal employees with the competence to do their jobs well, tried to establish a pipeline of future recruits, argued for steadiness in administration, and endorsed the need for transparency and competence as a guarantee of responsibility to the public.  In setting of these precedents for the rest of the country our predecesors were based on a set of implied attributes of an energetic federal service. 

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We must remember that federal services for retirements under CSRS and FERS[1] for both eligibility and computation purposes starts with after explaining what deposits and redeposits are, We need to use examples of both so that one may understand the advantages of using this service on your future retirement benefits.  Among the questions we need answers to are:  What is Deposit and Redeposit Service?  Why do some people call this a "buyback?"  How do people find out if they have unpaid Deposit or Redeposit Service?  How much does a person owe for unpaid deposit/redeposit service? How is interest on the unpaid amount computed?  Why would I want to make this payment? How does it affect my retirement planning? How does it affect my retirement benefits?  Are there scenarios where it's more favorable for some people to make these payments versus others? Is there a "rule of thumb" that someone might go by?  Is there anything that a federal employee who is retired from the military should be aware of in regards to this topic?  We need to addresses these various scenarios, and gives his best advice to those who might have unpaid deposit/redeposit service.


One measure of the adequacy of retirement income is the replacement rate or the percentage of pre-retirement salary that is available to a worker in retirement. This article compares salary replacement rates for private-sector employees of medium and large private establishments with those for federal employees under the Civil Service Retirement System and the Federal Employees Retirement System.  Because there is no standard benefit formula to represent the variety of formulas available in the private sector, a composite defined benefit formula was developed using the characteristics of plans summarized in the Bureau of Labor Statistics Medium and Large Employer Plan Survey. The resulting “typical” private sector defined benefit plan, with an accompanying defined contribution plan, was then compared with the two federal systems.  The Civil Service Retirement System (CSRS) is a stand-alone defined benefit plan whose participants are not covered by Social Security. Until passage of the 1983 Amendments to the Social Security Act, it was the only retirement plan for most federal civilian employees.  Provisions of the 1983 Amendments were designed to restore long-term financial stability to the Social Security trust funds. One provision created the Federal Employees Retirement System (FERS), which covers federal employees hired after 1983. It was one of the provisions designed to restore long-term financial stability to the Social Security trust funds. FERS employees contribute to and are covered by Social Security. FERS, which is a defined benefit plan, also includes a basic benefit and a 401(k)-type plan known as the Thrift Savings Plan (TSP).


To compare how retirees would fare under the three different retirement systems, benefits of employees retiring at age 65 with 35 years of service can be calculated using hypothetical workers with steady earnings. Workers may be classified according to a percentage of the average wage in the economy: low earners (45 percent), average earners (100 percent), high earners (160 percent), and maximum earners (earnings at the taxable maximum amount).[2]  Overall, we will find that:


Excluding Social Security benefits and TSP and defined contribution annuities, CSRS retirees have a higher pre-retirement salary replacement rate than either FERS or private-sector retirees. Private- sector retirees, however, have a higher replacement rate than their FERS counter- parts.

Including Social Security benefits but not TSP and defined contribution plan annuities, CSRS retirees who are maximum earners have a higher pre- retirement salary replacement rate, despite receiving no Social Security benefits than FERS retirees with the same earnings. Private-sector retirees in all earnings categories have a higher replacement rate than federal retirees with the same earnings.

Including Social Security and TSP and defined contribution plan annuities, private-sector retirees in all earnings categories have a higher replacement rate than all federal retirees, but their rate is close to that of FERS retirees. The rate is higher for FERS retirees than for CSRS retirees in all earnings categories.

We find that replacement rates could exceed 100 percent for FERS employees who contribute 6 percent of earnings to the TSP over a full working career. Private-sector replacement rates are quite similar for those with both a defined benefit and a defined contribution pension plan. Social Security replacement rates make up the highest proportion of benefits for the private sector’s lowest income quartile group. Meanwhile, the replacement rates for 401(k) plans and the TSP account for a higher proportion of benefits than does Social Security for all other income groups, assuming the absence of a defined benefit plan.

I believe we need to follow at least eight characteristics that are central to civil service’s success to remind ourselves what it means to be irreplaceable which are: extensive and arduous enterprise.  In other words, government exists to pursue extensive and arduous enterprise for the public benefit.  I do not see government as a passive instrument that would only react to threats but as a force for strengthening the nation’s economic, political, and social infrastructure.  Next, there is clarity of command.  We see clear links between the executive and the officers of government as essential for both effective administration and accountability to the public, and I believe that these officers should be subject to the president’s direct control, or subservience.  In turn, the federal service would, by implication, also be subject to the direct control of the senior officers of government.  Next, there are posts of honor.  Our forefathers of federalism repeatedly referred to the officers of government as the extension of an energetic executive.  These did not believe such officer would be perfect, but they did believe that the president’s appointees would have the moderation, firmness, and liberality with exactness to ensure a government well executed.  Next, there is vigor and expedition.  Executive control involves more than clear direction from the top; it also involves a commitment to effective execution of the laws down the hierarchy. However, our forefathers did not believe that civic duty would supply the needed incentive for faithful execution of the laws.  Instead, they argued that adequate compensation and the opportunity for promotion would do so.  Next, there is a spirit of service.  Federal officers who often talked about the duty of every citizen to answer the call to service, no matter how low the salary or great the unpleasantness to work.  Our forefathers, rarely, if ever, mentioned future public servants in their writings.  Next, there is a steadiness in administration.  Our forefather’s general belief in giving members of the federal service tenure in office was based on their notion that the chief executive should be allowed to serve long enough to pursue extensive and arduous enterprises to their completion.  Next, there is safety in the executive.  Our forefathers believed that a government well executed must provide safety through transparency of results.  Having defined safety in the republican sense as a due dependence on and responsibility to the people, means defining accountability as the publics ability to detect, censure, and punish national miscarriage or misfortune which would be infinitely easier to prevent under a single, not plural, executive.  Finally, there is an ever-expanding mission.  The threat to the federal service would not relevant today if government did not have such a large list of extensive and arduous enterprises.  After all, the federal agenda includes many of the most difficult and important problems the nation faces and Americans may not agree on every mission, but the federal government is given little choice but to implement them all.


Figure 1a.  Federalist Matrix  (Chapinski, D. 2013)





steadiness in administration çextensive and arduous enterpriseç clarity of commandç

A Government Well Executed

Posts of honorç vigor and expeditionç a spirit of service ever-expanding mission





[1] OPM.GOV.  2013.

[2] Martin, PP.  Comparing replacement rates under private and federal retirement systems.


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