A defense contractor offer at $115,000 looks better than a GS-12 offer around $100,000. That math is correct — until you add the pension, the TSP match, the subsidized health insurance, and the leave. Then the comparison gets more complicated.
Federal salary is posted. Federal benefits are not. Most people comparing a government offer to a contractor offer only see half the picture.
This article explains what the full federal compensation package actually includes — and what it’s worth compared to a contractor role.
Quick Answer
Federal employee compensation includes: base pay, locality pay, FEHB health insurance, a FERS pension, TSP retirement matching, paid annual leave, sick leave, 11 federal holidays, and job stability tied to civil service protections. A contractor may offer a higher base salary, but a federal offer narrows that gap — or closes it entirely — when the full package is counted.
Salary Is Only One Part of Federal Compensation
Federal pay follows a structured grade-and-step system. If you’re new to how GS grades, locality pay, and step increases work, read How Federal Pay Works before continuing. If you’re looking at a USAJobs posting and aren’t sure how to read the salary range, this guide on USAJobs salary ranges covers that.
The short version: the salary you see on a posting is usually the locality-adjusted salary for that grade, step, and duty station. What it doesn’t show is the value sitting on top of that number — FERS, TSP matching, FEHB, and leave — which together represent a substantial portion of your total compensation.
Federal benefits can represent a significant share of total compensation, especially when you include the government’s share of FEHB premiums, TSP agency contributions, paid leave, and FERS pension accrual. The exact value depends on your salary, health plan, family coverage, tenure, and retirement eligibility.
FERS: The Federal Pension
FERS — the Federal Employees Retirement System — is a three-tier retirement plan that covers almost all federal employees hired after 1983.
The three components:
- Basic Benefit Plan — a traditional pension based on years of service and high-3 average salary
- Social Security — federal employees under FERS contribute to and receive Social Security
- Thrift Savings Plan (TSP) — the government-administered retirement savings account, covered in the next section
The Basic Benefit Plan formula: 1% × years of service × high-3 average salary. Employees who retire at 62 or later with at least 20 years of service use a 1.1% multiplier instead of 1%.
Reality check: FERS only pays out if you stay. The minimum retirement age ranges from 55 to 57 depending on birth year. Vesting for the Basic Benefit Plan requires 5 years of creditable service. If you leave before vesting, you can request a refund of your FERS contributions rather than receiving the pension. If you leave after vesting but before retirement age, you may be eligible for a deferred retirement later — the benefit just won’t start until you reach the applicable age.
That means FERS is valuable for long-term employees and much less valuable for people who plan to move back to the private sector after a few years. The honest answer on pension value depends on your actual tenure intentions.
TSP: The Federal 401(k)-Style Plan
The Thrift Savings Plan is a defined-contribution retirement account — the government’s version of a 401(k). FERS employees receive automatic and matching contributions from their agency that make it one of the strongest retirement matching programs available.
How the matching works
| Contribution | Employer contribution |
|---|---|
| Automatic (no employee contribution required) | 1% of base pay |
| First 3% employee contributes | Matched dollar-for-dollar |
| Next 2% employee contributes | Matched at 50 cents per dollar |
| Employee contributes 5% total | Agency/service contributes 5% total |
If you contribute 5% of basic pay, your agency contributes another 5% of basic pay when the automatic 1% and matching contributions are combined. That means 10% of basic pay is going into TSP before investment growth.
Reality check: You do not receive the full match unless you contribute at least 5%. The automatic 1% still deposits regardless, but the rest of the match depends on what you contribute. Every FERS employee should contribute at minimum 5% to avoid leaving free money behind.
Traditional vs. Roth TSP
TSP offers both traditional (pre-tax) and Roth (post-tax) options. The matching contributions always go into the traditional side regardless of which you choose. You can contribute to both within IRS annual limits.
Lifecycle funds
TSP offers L Funds (Lifecycle Funds) that automatically shift from aggressive to conservative allocation as you approach a target retirement date. They’re a reasonable default for employees who don’t want to actively manage their allocation.
The five individual funds — G, F, C, S, I — correspond to government bonds, fixed income, large-cap, small-cap, and international stocks. Most employees either pick an L Fund or build their own allocation from those five.
FEHB: Federal Health Insurance
The Federal Employees Health Benefits program is one of the largest employer-sponsored health insurance programs in the country. Federal employees choose from a menu of plans — including BCBS Federal, Aetna, Kaiser (in covered regions), and others — during open season each year.
What makes FEHB different
The government pays a significant portion of the premium. The formula: the government contribution is generally the lesser of 72% of the program-wide weighted average premium or 75% of the specific plan’s premium. In plain terms: the government usually pays a major share, but the employee’s cost still depends heavily on the plan selected. That employee share is paid pre-tax, which reduces taxable income.
FEHB covers health insurance. Dental and vision coverage are available separately through FEDVIP. Employees can carry FEHB coverage into retirement if they’ve been enrolled continuously for the five years immediately before retirement — which is a significant retention benefit that private-sector plans rarely match.
Reality check: FEHB premium costs vary by plan and by whether you’re covering self-only, self-plus-one, or self-and-family. The government contribution formula caps out based on the weighted average of all plans, so premium growth above that cap falls to the employee. The subsidy is strong, not unlimited.
For someone transitioning from active duty — where TRICARE coverage ends — or from a contractor role where the employer offers bare-minimum insurance, FEHB can represent several thousand dollars per year in real compensation.
Leave, Holidays, and Predictability
This section is where the federal offer often beats contractor roles in ways that don’t appear in any compensation calculator.
Annual leave
Federal employees accrue paid annual leave based on years of service:
| Years of federal service | Annual leave accrual |
|---|---|
| 0–3 years | 4 hours per pay period (13 days/year) |
| 3–15 years | 6 hours per pay period (19.5 days/year) |
| 15+ years | 8 hours per pay period (26 days/year) |
Annual leave carries over year-to-year up to a cap (240 hours for most employees). Unused leave is paid out at separation.
Sick leave
Federal employees also accrue 4 hours of sick leave per pay period — 13 days per year — indefinitely, with no cap on accumulation. Sick leave does not convert to cash at separation, but under FERS, accumulated sick leave is added to years of service when calculating the pension — another benefit that compounds over a career.
Federal holidays
Federal employees receive 11 paid federal holidays per year. That’s on top of annual leave. Most contractor employers offer fewer.
Predictability
Federal salaries follow a public schedule. Step increases happen on a fixed timeline — barring a performance issue. Shutdowns and continuing resolutions create uncertainty at the margins, but the day-to-day employment stability of a federal position is structurally higher than a contract position that can end when the contract does.
Reality check: Contractors working on single-award contracts tied to one agency are more exposed than they often assume. If the contract doesn’t get renewed, or if the agency’s budget is cut, the position disappears regardless of performance. Federal civil service protections don’t apply.
What Federal Benefits Are Worth in Plain English
Before the side-by-side comparison, here’s what each component actually represents in concrete terms:
| Benefit | Simple value |
|---|---|
| TSP match | Up to 5% of basic pay from your agency |
| FEHB subsidy | Employer-paid share of health premiums — often the majority of the cost |
| FERS pension | Long-term pension accrual after 5-year vesting |
| Annual leave | 13–26 days per year depending on tenure |
| Sick leave | 13 days per year, accumulates without a cap |
| Federal holidays | 11 paid days per year |
| Job stability | Lower layoff and contract-loss risk than most contractor positions |
None of these appear in a posted salary. All of them affect what the job actually pays.
Federal vs. Contractor: Total Compensation Comparison
This is the section most comparison guides skip because it requires being honest about both sides.
If you’re comparing federal cyber or intelligence community roles, also understand the difference between GS and GG pay scales, since GG/DCIPS jobs may handle advancement and performance differently.
| Category | Federal GS/GG | Defense Contractor |
|---|---|---|
| Base salary | Structured by grade and locality | Often higher, market-driven |
| Retirement | FERS pension + TSP with up to 5% match | 401(k), varies by employer |
| Health insurance | FEHB — government pays major share of premium by formula | Varies; often employee pays more |
| Job security | Civil service protections | Contract-dependent |
| Annual leave | 13–26 days/year based on tenure | Typically 10–15 days |
| Sick leave | 13 days/year, unlimited accumulation | Varies; often lower |
| Federal holidays | 11 days | Varies |
| Salary growth | Step increases + annual pay adjustments | Performance/market-based |
| Long-term mobility | Internal federal ladder, portability across agencies | Company/contract switching |
| Best fit | Long-term stability, retirement-focused | Higher short-term cash |
Example: $115K Contractor vs. GS-12 Federal Offer
A realistic comparison for a cleared IT professional in the DC metro area:
Defense contractor offer:
- Base salary: $115,000
- 401(k) match: 3% ($3,450)
- Health insurance: Employee covers 40% of premium (~$4,800/year for family plan)
- Leave: 15 days PTO + 9 holidays
- Job security: Single-award contract, 2-year base period
Federal GS-12 Step 1, Washington, DC locality:
- Base salary: ~$102,431
- TSP match: 5% = $5,122
- FEHB: Government covers a major share of a family plan premium; employee pays the remainder pre-tax
- FERS pension: Accruing toward eventual benefit (1% × years × high-3)
- Leave: 13 days annual + 13 sick days + 11 holidays (accrual increases with tenure)
- Job security: Civil service protections
On paper, the contractor wins by roughly $12,500 in base salary. When you count TSP matching, the FEHB premium subsidy (a real dollar-for-dollar benefit), and the leave differential, the federal offer closes most of that gap. Add FERS pension accrual for an employee planning to stay 15+ years, and the federal total package can exceed the contractor offer in long-run value.
The honest summary: Contractors often win on short-term cash. Federal employment wins on stability, retirement structure, and long-term benefit compounding — if you stay long enough for those to matter.
For cleared salary benchmarks by clearance level and contractor vs. government comparisons, see Cleared Salary by Clearance Level.
Key Takeaways
- Posted salary is not total compensation. FEHB, TSP match, and FERS add substantial value that doesn’t appear in the job listing.
- TSP matching is part of your real pay. Contributing less than 5% means leaving government money behind.
- FERS pension has long-term value — with conditions. You must vest (5 years), and the benefit grows with tenure. It matters most for employees who plan to stay.
- Contractors often earn more upfront. That’s real. Don’t ignore it.
- Federal leave and FEHB are structurally better than what most contractors offer, especially on health insurance premium split and sick leave accumulation.
- Stability has a dollar value. Civil service protections, predictable step increases, and a public pay schedule reduce employment risk in ways that contractor compensation doesn’t offset.
- Cleared tech workers should compare total packages, not salary lines. The GS offer that looks worse on a paycheck stub may be closer — or better — when you do the full math.
Sources
- OPM: Federal Employees Retirement System (FERS) — opm.gov/retirement-services/fers-information/
- TSP.gov: Contribution matching for FERS employees — tsp.gov/making-contributions/contribution-types/
- OPM: Federal Employees Health Benefits Program — opm.gov/healthcare-insurance/healthcare/
- OPM: Annual and Sick Leave — opm.gov/policy-data-oversight/pay-leave/leave-administration/
- OPM: Federal Pay Scales — opm.gov/policy-data-oversight/pay-leave/salaries-wages/
For how the GS pay system works and what locality pay adds to your paycheck, see How Federal Pay Works. For how to read a USAJobs salary range before you apply, see How to Read a USAJobs Salary Range. For cleared salary benchmarks across Secret, TS, and TS/SCI roles, see Cleared Salary by Clearance Level. For how GG and DCIPS pay differs from standard GS, see GS vs. GG Pay Scale.
This article is informational, not financial or legal advice. Benefits details are based on OPM and TSP.gov published guidance and are subject to change. Verify current figures with OPM and your agency HR office.