The Effect of Government Pensions on Financial Well-Being

June 2019

The past several decades have seen major changes in the nature of retirement benefits for workers, including pension programs for public-sector employees.


In 1986, the Federal Employees' Retirement System Act created a new three-tiered system (FERS) to replace the existing Civil Service Retirement System (CSRS), which had provided a traditional annuity benefit for federal government workers since 1920. The new system’s benefits include annuity payments from FERS and Social Security that are lower in total than the annuity under CSRS, as well as a defined-contribution component in the Thrift Savings Plan. This study examines this landmark reform’s effects on the financial outcomes of civilian personnel in the Department of the Army.

Key Insights
There has been significant compliance with the regulation, which specified that employees hired before 1984 would remain in CSRS, while those hired subsequently would be enrolled in FERS.
Besides pension plan enrollment, other employee characteristics do not change sharply at the 1984 threshold.
Very few employees opted in to FERS during the initial open season in 1987; instead, they elected to stay with the traditional CSRS pension.
FERS coverage reduced consumer indebtedness by more than $11,000 in the long run, primarily via less mortgage debt.
FERS coverage had little effect on consumer credit scores.

The researchers combined administrative personnel data from the Department of the Army with payroll data from the Department of Defense for all federal civilian employees hired by the Army between January 1, 1981, and December 31, 1987. To measure the effects of the pension program change on financial outcomes, they combined the administrative data with individual-level data from a national credit bureau.