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Replacement Rate

The replacement rate is the percentage of the pension benefit divided by earnings in the final year of work. Retirement plans compute benefits as a percentage of terminal earnings multiplied by years of service. For federal employees, terminal earnings are the average over a 3-year period. For most private-sector employees, terminal earnings are the average over a 5-year period.

Fast Facts

  • Private-sector retirees in each earnings category have higher replacement rates than their FERS and CSRS counterparts when a defined contribution plan is added. The rates range from 110.2 percent for maximum earners to 146.8 percent for low earners.
  • The basic pension benefit replaces 47.3ﾠpercent of the private-sector retirees' final salary. In each earnings category, that replacement rate is lower than the rate for CSRS retirees (about 63ﾠpercent) and higher than the rate for FERS retirees (about 36.5ﾠpercent).

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