Federal Employees' Retirement System: Normal Cost Percentages

Federal Employees' Retirement System; Normal Cost Percentages

DATES:

The revised normal cost percentages are effective at the beginning of the first pay period commencing on or after October 1, 2026. Agency appeals of the normal cost percentages must be filed no later than December 23, 2026.

SUPPLEMENTARY INFORMATION:

The FERS Act of 1986, Public Law 99-335, created a new retirement system intended to cover most Federal employees hired after 1983. Most Federal employees hired before 1984 are under the older Civil Service Retirement System (CSRS). Section 8423 of title 5, United States Code, as added by the FERS Act of 1986, provides for the payment of the Government's share of the cost of the retirement system under FERS. Employees' contributions are established by law and constitute only a portion of the cost of funding the retirement system; employing agencies are required to pay the remaining costs. The amount of funding required, known as "normal cost," is the entry age normal cost of the provisions of FERS that relate to the Civil Service Retirement and Disability Fund (Fund). The normal cost must be computed by OPM in accordance with generally accepted actuarial practices and standards (using dynamic assumptions). Subpart D of part 841 of title 5, Code of Federal Regulations, regulates how normal costs are determined. The normal cost calculations depend on two categories of actuarial assumptions: economic assumptions and demographic assumptions.

Demographic Assumptions

In its meeting on June 16, 2025, the Board of Actuaries of the Civil Service Retirement System (the Board) recommended revisions to the demographic assumptions used in the actuarial valuations of CSRS and FERS. The demographic assumptions include assumed rates of future mortality, employee withdrawal, retirement, and merit and longevity pay increases. The demographic assumptions are determined separately for each of a number of special groups, in cases where separate experience data is available.

Economic Assumptions

The economic assumptions are described under 5 CFR 841.402. The Board concluded that the long-term economic assumptions should remain unchanged from what was determined at the Board's meeting on April 2, 2020. The long-term economic assumptions continue to be:

1. a rate of investment return of 4.0 percent;

2. assumed inflation rate of 2.40 percent;

3. the assumed rate of FERS annuitant Cost of Living Adjustments remains at 80 percent of the assumed rate of inflation; and

4. the projected rate of General Schedule salary increases remains at 2.65 percent.

The general salary increases are in addition to assumed merit salary increases. These assumptions are intended to reflect the long-term expected future experience of the Systems.

Normal Cost Revision

OPM has adopted the Board's recommended demographic and economic assumptions and is revising the FERS normal cost. OPM has revised the normal cost percentage for each category of employees under section 841.403 of title 5, Code of Federal Regulations.

Within each category of employees there are three subdivisions of FERS that have differing normal costs. The first subdivision is regular FERS, generally covering FERS employees first hired before 2013.

The second subdivision was created by section 5001 of Public Law 112-96, The Middle Class Tax Relief and Jobs Creation Act of 2012 and established provisions for FERS-Revised Annuity Employees (FERS-RAE). The law generally covers employees first hired in 2013 and permanently increased retirement contributions by 2.30 percent of pay.

The third subdivision, established in section 401 of Public Law 113-67, the Bipartisan Budget Act of 2013, created FERS-Further Revised Annuity Employee (FERS-FRAE). FERS-FRAE generally covers employees first hired 2014 and after and requires an increase of 1.30 percent of pay above the retirement contribution percentage set for FERS-RAE.

Separate normal cost percentages apply for employees covered under FERS, FERS-RAE and for employees covered under FERS-FRAE.

The normal cost percentages for each category of employee, including the employee contributions under FERS, FERS-RAE, and FERS-FRAE, are as follows:

Under 5 CFR 841.408, these normal cost percentages are effective at the beginning of the first pay period commencing on or after October 1, 2026.

The time limit and address for filing agency appeals under 5 CFR 841.409 through 841.412 are stated in the DATES and ADDRESSES sections of this notice.