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9 Republicans Draft Letter To House Leaders Over Federal Retirement Systems Concerns

9 Republicans Draft Letter To House Leaders Over Federal Retirement Systems Concerns

 

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President Donald Trump’s 2018 economic budget request is facing opposition with at least nine House Republicans due to the major changes he’s seeking for the federal retirement system.

 

His changes would affect both present and future employees and retirees.

 

The June 17 letter was signed by Reps. Rob Wittman (R-Va.), Barbara Cornstock (R-Va.), Austin Scott (R-Ga.), Walter Jones (R-N.C.), Tom Cole (R-Okla.), Chris Smith (R-N.J), Rob Bishop (R-Utah) and Frank LoBiondo (R-N.J.) and sent to Majority Leader Kevin McCarthy (R-Calif.) and House Speaker Paul Ryan (R-Wis.).

 

What Republicans Wrote To House Leaders

 

In the letter, the nine Republicans wrote they were concerned about the proposal’s breaking of a promise to federal employees and retirees who have developed a career plan on the age-old guarantee of benefit calculations. They said the employees and retirees, as well as their family, shouldn’t be treated in such a manner.

 

Their opposition letter follows the 100 House Democrats opposition letter that was sent to Minority Leader Nancy Pelosi (D-Calif.) and Ryan.

 

Republicans are concerned that the budget proposal is aimed solely at the federal workforce and would make it harder to hire and keep the most qualified. Trump’s 2018 economic budget would impact federal retirement in four ways:

 

  • Force employee’s to contribute 1% more every year for six years, equating to a 6% increase.
  • Abolish the cost-of-living adjustment (COLA) for present and impending Federal Employee Retirement system and reduce Civil Service Retirement System participants COLA by 0.5%.
  • Remove supplemental payments to employees retiring before the age of 62.
  • Base future retirement benefits on an average of the highest five years of salary, rather than three-years.

 

The Trump administration said these changes would lead to a cost savings of over $4.1 billion for 2018 and $149 billion for the next ten years. It would also ensure the private sector and federal retirement package are similar.

 

According to the nine Republicans, the budget proposals are nothing new. The letter states that recycling these proposals is both disruptive and demoralizing to the middle-class working in the federal government.

 

However, Democrats feel the Republicans’ letter is not enough. House Democrats have been extremely transparent about any language that leads to changes with the federal retirement and have urged Pelosi and Ryan not to permit any proposal that would have a negative impact. Republicans said they were just voicing their concerns about the changes.

 

However, Republicans have agreed on a number of arguments Democrats and federal employees unions have brought forth that have led to savings of $182 billion since 2010. These arguments include:

 

  • Three years of pay freezes for federal employees
  • Increase in retirement contributions

 

Republicans said they know what kind of deficit the country faces and doesn’t need to be reminded of it. However, it’s the federal employees that are being targeted, and they have repeatedly been subjected to changes.

 

According to the National Treasury Employees Unions, they were happy to see Republicans make their dissent known about the retirement proposals.

 

Tony Reardon, NTEU National President, said the organization was pleased with those House members for publicly standing up for federal employees in the nation – ones that are tired of being affected by the deficit crisis. He said the letter makes the House leadership aware that efforts to cut or abolish federal salaries and retirement would have significant resistance.

 

 

 

Long Term Care Crisis Planning by Aaron Steele

Long Term Care Crisis Planning, by Aaron Steele

I wanted to write an article to touch on the basics that a family faces when having to transition a loved one to Long Term Care. This article is not meant to be a deep dive into the details facing families during this transition. Rather, it is meant to be a bird’s eye view, 30,000-foot level to understand the basics. Other articles with a deeper drill down will follow in the coming weeks.

What is Long Term Care (LTC)?

Long-term Care means assistance with Activities of Daily Living (ADL). Families tend to think of meal preparation, light housework, running errands and grocery shopping. However, most people that work in the senior services industry know the industry defines ADL’s as assistance with Hygiene, Ambulation, Dressing, Toileting, fork to mouth eating/feeding and Medication management in some cases. To determine if someone needs assistance with ADL’s often an assessment will need to be performed by a licensed medical professional. Just because someone says, “I can do it myself” does not mean that he or she can. To determine if a loved one is safe to live alone of should have a caregiver to assist, it is important to consult with a licensed medical professional on the subject.

What is private pay?

Unless you have Long Term Care Insurance, your medical insurance through Medicare, Advantage Plans, and any supplemental insurance are not going to pay for these Long-Term Care Costs. This means someone is going to need to pay out of pocket for this service, thus private pay. The costs can range greatly from a few hundred dollars per month for Home Care Assistance to hundreds of thousand per year for skilled nursing or 24 / seven in-home care. Often by living in an Assisted Living, Independent Living, Memory Car or Adult Family Home an economic efficiently can be obtained, and the costs can be controlled. The costs to live in a community or facility can range from $3,000 per month to $8,000 per month on average.

Are there any federal or state government benefits available?

The Federal Government has two benefits available to assist with the cost of Long Term Care. If you were a wartime veteran or the surviving spouse of a wartime veteran, there is a pension benefit available through the VA commonly referred to as Aid & Attendance. Medicaid is a federal benefit that is administered by each state. Most people think of this program as insurance for the impoverished, but there are LTC benefits available through Medicaid as well. The two programs are very different from one another. Each program offers distinct advantages and disadvantages. For individuals needing assistance, these benefits are either / or, not both. A person is typically not going to be receiving substantially both benefits at the same time. A decision must be made as to which benefit is going to work best for your situation and set of circumstances. It is possible to build a plan that would utilize one benefit now and leave another benefit available down the road if care costs rise.

How am I to know which benefit to apply for?

To fully understand your options and have the best chance of success you should seek advice from trained professionals. Some attorneys, CPA’s and financial planners specialize in this space. They understand the intricacies of these benefits. There are so many variables and so many misconceptions about these benefits it is important to work with someone that sees the big picture while at the same time can drill down into the details of either of these programs to help guide you.
Government agencies do not give advice. When is the last time you called the IRS for tax advice? The agencies, for the most part, will help you fill out the paperwork and submit the application for approval. Most of these agencies offer multiple benefits. Only a few can be used for Long Term Care. The person you work with at the agency may or may not have a depth knowledge of the specific benefit you desire, but they will certainly not be able to advise you on benefits offered through separate government agencies. Furthermore, they will not be able to advise what changes need to be made to approve your benefit.
Yes, changes… Sometimes it is necessary for us to change the LTC puzzle pieces so that now your situation lines up to how the government is going to award your benefits. There are typically several components that make up your approving situation including financial and medical need.

What makes this an LTC Crisis

The fact that families are now faced with these LTC costs that exceed their income makes it a financial crisis caused by the need for LTC. If you had a plan, there would be sufficient coverage of LTC insurance. If there is no LTC Insurance or an insufficient amount of coverage, you could be facing an LTC Crisis. Now it is time to create a plan.
As a financial advisor, I assist families with the difficult process of navigating these complex benefits to help you understand how these benefits work and which benefit is going to be the most appropriate for your unique circumstances. This approach reduces uncertainty, provides a cleaner path, reduces paperwork and speeds up the benefits process for those who are faced with a Long-Term Care financial crisis. Thus, allowing you more time to spend with your loved ones as they enter this new chapter of their life.

Aaron Steele
Steele Capital Management
SteeleCap.net
info@steelecap.net
360 464-2979 Office
877 658-7782 Toll-Free

About The Author: Aaron Steele

Aaron Steele has an extensive background as a Commercial Banker and Financial Advisor. Aaron is focused on continuously specializing in helping families navigate long-term care at crisis time. He believes many seniors are not financially prepared for their economic transition away from home. He wants to continue to help them create a financial plan to subsidize the cost of their care needs and protect their assets. For that to happen, the gap between the cost of their care needs and their income needs to be addressed. Moreover, that is where he believes he can help significantly.

 
Disclosure. All opinions represent the judgment of the author on the date of the post and are subject to change. Content should not be viewed as personalized investment advice or as an offer to buy or sell any of the investments discussed. Legal and tax information is general in nature. Always consult an attorney or tax professional regarding your specific legal or tax situation. Investment advisory services offered through BWM Advisory, LLC (BWM).  BWM reserves the right to edit blog entries and delete those that contain offensive or inappropriate language. Content will also be deleted that potentially violates securities laws and regulations. Different types of investments involve higher and lower levels of risk. There is no guarantee that a specific investment or strategy will be suitable or profitable for an investor’s portfolio. All investment strategies have the potential for profit or loss. Hyperlinks on this website are provided as a convenience. We cannot be held responsible for information, services or products found on websites linked to ours. BWM is registered as an investment adviser with the SEC and only conducts business in states where it is properly registered or is excluded from registration requirements. Registration is not an endorsement of the firm by securities regulators and does not mean the adviser has achieved a specific level of skill or ability.

FAQ Regarding New TSP Investment

FAQ Regarding New TSP Investment Options by Ron Raffino

For all federal workers, there have been many questions making their way to the surface in recent weeks with regards to TSP investment options, TSP Withdrawal options and what is being called the TSP Investment Window. However, there is one that seems to be dominating; ‘when will these investment choices be available for the TSP?’. Therefore, it is time to provide a full answer so keep reading if you need to know!

Ron Raffino
Financial Professional and Federal Retirement Expert – Ron Raffino

If you were unaware, TSP stands for Thrifts Savings Plan, and it is essentially a program for all federal employees styled much like a 401(k). In total, five different funds are reflecting the different bond and stock markets. In 2019, tracking international stocks (one of the five) will expand to include Canada and many other emerging markets, and this is perhaps the biggest change in the recent announcement.

Furthermore, another change will be seen with the ‘lifecycle’ funds and withdrawal dates have been released offering 2020, 2030, 2040, and 2050. Ultimately, these funds combine basic fund investments with different ratios and, as time passes, they become more conservative. When 2020 arrives, the TSP will start to offer five-year increments with funds (ending in 2065) as all funds with the date merge with current income funds.

Elsewhere, the TSP is also looking to add flexibility to investing through what they are calling an ‘investment window.’ Rather than being restricted by investments, they want to allow all account holders to invest in actively managed mutual funds as well as various other funds rather than just those they offer already.

Finally, Congress has recently received potential bills to add more options when it comes to withdrawing. In particular, they should help those aged 59 1/2 and above (as long as they are still employed).

There we have it, the expected changes in the coming years and when they will make an appearance. According to all involved, these changes will bring the TSP into the 21st century and level with other retirement savings programs currently available in the market.

 

About The Author:  Ron Raffino

Ron Raffino is a lifelong resident of Newark, New Jersey, Ron specializes in Federal Benefits and Education Retirement plans. Mr. Raffino helps individuals maximize the benefits earned during their working years. As retirees enter into the ‘golden years,’ the government systems in place are difficult to comprehend for the former employees. Constant changes can be overwhelming.

As a retirement specialist, Ron enjoys personal fulfillment planning for the security and growth of a client’s funds. Fishing, hunting, camping, and hiking are endeavors that Ron also enjoys participating in, along with his family which is another priority alongside his clients. With the utmost consideration, Ron revels in the opportunity to assist you with any and all financial inquiries or needs. Let’s plan your future together!

Complete Guide to FEGLI for Federal Employees

Complete Guide to FEGLI for Federal Employees

Federal Employees Group Life Insurance (FEGLI)Another acronym, another point of confusion for the ‘outside world’; however, there are also many federal employees who are unaware of its meaning. If you’re currently lost a little, FEGLI is short for Federal Employees’ Group Life Insurance and is exactly that for all federal employees. Unfortunately, there is no way to take a loan against the policy and it doesn’t build in cash value but the policy from MetLife still provides protection for all federal employees.

After speaking with many federal employees, we learned they don’t look too closely at their group program and many state their ability to find a much better deal elsewhere (despite the government contributing a percentage for this one thanks to the FEGLI program). If you are a federal employee, we highly recommend reviewing the FEGLI rates and how they work for you. After this, you can compare the market and make the right choice for your future and family.

If you’re a former federal employee, you might also want to pay attention because recent changes could affect your stance on the situation. Unless you waive the coverage, every single employee is entitled to the FEGLI program on a basic level; this will be calculated using your basic annual pay plus an additional $2,000 for BIA (Basic Insurance Amount). While you pay two-thirds of the premiums, the government will contribute one-third. For US Postal Service workers FEGLI is even a better deal as they pay 100% of premiums.

After the basic insurance plan, you can also extend this into optional insurance and you pay the full cost of this. Overall, there are three optional choices;

Standard – Around $10,000 of coverage

Additional – Multiple of your salary (either one, two, three, four, or five times)

Family – Multiple of your salary but your spouse and dependant children can be included

Making FEGLI Changes

If certain events in your life change, you can alter your insurance policy and this includes death of spouse, marriage, divorce, or having children. If one of these events occur, you have around two months to make changes to your policy but some circumstances will allow retrospective action later. For example, the employing office may say the employee was unable to alter their policy due to reasons out of their control.

FEGLI and Retirees

As mentioned previously, FEGLI can also affect those who have already retired because the policy will continue in some cases. If you meet the requirements below, FEGLI will remain in place;

  • You’re enrolled in the program as you retire
  • You didn’t convert to an individual policy at any time
  • You’ve been invited to return on an immediate annuity
  • You were insured for the five years leading up to the annuity or for your full service if under five years

According to the new regulations in place, you will only have one opportunity to choose how your policy continues from the age of 65 (with Individual and Family policies). Depending on your multiples, you should be able to choose from ‘Full Reduction’ and ‘No Reduction’. However, those with more than one can choose a ‘Mixed Election’ which means you could have two with full reduction and one with no reduction.

FEGLI Open Season

For many federal insurance programs, open season is coming very soon and many people are confused as to whether they can enrol into the insurance program during this time. According to OPM, there aren’t opportunities to increase coverage or elect under FEGLI. Instead, the seasons are only held by OPM when they choose to hold one. This being said, they do regularly allow all employees to change their coverage when it comes to health benefits, vision insurance, and dental insurance. During a typical open season, all federal employees can attempt to enrol as long as they’re eligible. As you may have noticed, we didn’t mention life insurance and this is because OPM rarely do in their press releases so it’s always best to keep an eye on these releases and the latest news to hear of open season and how you can enrol or make changes in the near future.

Changes Are Coming to the Thrift Savings Plan

thrift savings plan tspIn a recent statement from the Thrift Savings Plan governing board, they announced changes to both the international stock I Fund as well as L Funds. Essentially, the number of L Funds will be changing in around three years’ time, and there will be alterations to how the I Fund is made up although there isn’t a timescale on this change just yet.

I Fund – Ultimately, the recommendation to change the Thrift Savings Plan I Fund came from a consultant and the board then approved the change soon after. Currently, the fund itself is a reflection of an index monitoring the stocks of the largest companies across a whole host of countries. Although most companies come from the Western world and the Far East, a quarter of the value is now held by Japan. Within Europe, United Kingdom holds the largest share with one-fifth while one-tenth each comes from Switzerland, Australia, France, and Germany.

When the changes finally come into effect, the I Fund will be expanded dramatically regarding the number of countries reflected. For example, Canada will be added as will the stocks of developing countries and small-company international stocks.

Why? – Ultimately, the board wants to make the fund more diversified. Instead of just considering the largest countries in the world, they want the fund to reflect the international scene more accurately. As mentioned, there isn’t yet an introductory date for this, and this is likely to be because the finer details are yet to be revealed. For the change to work successfully, there would need to be a smooth introductory plan to prevent major issues and potential embarrassment.

L Fund – With L Funds, there is a timescale in place, and we are expecting the addition of TSP lifecycle funds in 2020. In this year, it is expected the Income fund will have the same type of standing as the L Fund which will see the two merge. With this, investments will be mixed with C, F, G, I, and S Funds. Once the projected withdrawal date comes nearer, the mixes become more conservative. In addition to this, we will also see the addition of funds for 2025, 2035, 2045, 2055, 2060, and 2065.

Once again, it was the recommendation of a consultant which led to this change. Within the recommendation, they stated that increments of five years were the standard choice within the industry for mutual funds. Interestingly, there was also research into potential funds that could track real estate investment trusts, hedge funds, high-yield bonds, and other industry sectors specifically. However, results were not quite as expected and the consultant eventually withdrew their interest and advised the Thrift Savings Plan board against it.

Summary – There we have it, two major changes coming to the Thrift Savings Plan and one each for the I Fund and L Fund. In the next couple of years, everything will remain as normal, but you should be ready for the changes as they come. For example, the L Fund changes are due in 2020 while the finer details of the I Fund changes still have to be calculated. If this will affect you in the coming years, please feel free to talk to a financial professional who can help take the right action both now and long into the future!

Trump’s Budget Targets a Reduction in Federal Retirement Benefits

The 2018 fiscal budget proposed by the Trump Administration, titled “The New Foundation for American Greatness,” is seeking a major reduction in federal retirement benefits. The proposed changes could decrease an employee’s take-home pay with higher annuity contributions. The plan also calls to eradicate cost-of-living adjustments (COLA) for current and future Federal Employee Retirement System (FERS) retirees.

While many federal employee union groups have vowed to fight to the proposed changes, Public Sector Retirement Specialists are still concerned by the possible elimination of COLA and increasing employee contributions. The combination of these two proposals has the potential to greatly impact when employees are financially ready to retire.

retirement benefits

Charging More and Providing Less in Return

If approved, over the next 10 years the reduction in federal retirement benefits would save the government approximately $3.6 trillion. Changes to federal benefit plans alone could save more than $4.1 billion in 2018 and an estimated $149 billion by the year 2028. The Trump plan would, however, result in federal employees being required to contribute far more of their income towards their federal retirement benefits while reducing the benefit that the employee receives during retirement.

The budget proposes an increase in employee contributions to FERS by 1 percentage each year until they match the government’s contribution. On average, this increase would take six years to accomplish and result in an overall out-of-paycheck increase of approximately 6 percent. Federal employees hired after 2013 would realize the smallest increase as they are already required to contribute more than those hired prior to 2013.  Additionally, this increase would only apply under FERS as Civil Service Retirement System (CSRS) employees are already seen as contributing a share equal to the government match.  It’s important to note, however, that most Financial Planners will recommend a retirement savings rate of at least 10 percent in order to prevent an income shortfall during retirement.

Another key change would completely dissolve the inflation-protection that both current and future FERS retirees receive. Starting at age 62 FERS retirees now receive a cost-of-living adjustment (COLA) if the Consumer Price Index (CPI) is 2 percent. If the CPI is between 2 and 3 percent, a 2 percent COLA is applied. Should the CPI climb above 3 percent, they receive the CPI increase minus 1 percent. A reduction of 0.5 percentage points off the COLA for CSRS retirees is also indicated. The proposed plan will alter how many federal and civil service employees envision spending their retirement years and result in difficult budgeting decisions as the purchasing power of their federal annuity decreases.

The Good News

For nearly 2 million civilian federal employees there is a reason to applaud the proposed budget. The plan includes a 1.9 percent pay raise in 2018 for civil servants. Although this figure is slightly less than the 2.1 percent raise that employees received this year, it’s still more than the 1.6 percent increase Obama had proposed. The proposed budget also includes the introduction of a six-week paid parental leave program that would be extended to both new mothers and fathers, as well as adoptive parents. As many are aware, the President’s daughter, Ivanka Trump, has been a vocal advocate for paid parental leave and likely heavily influenced the proposed child care plan.

An Uphill Battle

The proposed reductions to FERS benefits have been met with fierce opposition from Democrats and union leaders alike. Some have dismissed the cuts as nothing more than punishment for those who have contributed to their country through federal service. Even those that supported President Trump for office now believe that he has broken his campaign promise to protect the retirement benefits of government employees.

The Trump administration has defended the proposed reductions in FERS benefits as being in line with the president’s goal to rein in federal government spending and to bring federal retirement benefits more in line with the private sector.

It’s Just a Proposal

While the White House has requested the changes take effect as of the fiscal year 2018, which begins October 1st, it’s important to remember that the president’s budget proposal is just that, a proposal. The budget is still in congressional appropriations committee review, and ultimately Congress controls what bills it sends for the president’s signature. If nothing else, the proposed budget should be viewed as a statement of the Trump administration’s priorities. Furthermore, similar federal retirement benefit cuts have been proposed by past administrations, most have died or been drastically altered by Congress. The potential for a reduction in federal retirement benefits should, however, urge federal employees to begin saving more than the 5 percent Thrift Savings Plan (TSP) agency match and likely plan on working until age 62 or later.

 

 

The Three-Legged Stool of Government Retirement By Joe Kosek, J.D.

The Three-Legged Stool of Government Retirement

By Joe Kosek, J.D.

 

The term “three-legged stool” has been used with retirement planning for decades. Traditionally, this has been based on a pension, Social Security benefits and personal savings. In the private sector, the pension portion of the stool is becoming a thing of the past for many workers who now must rely more on themselves and their 401(k) contributions. But the situation is different for current and future federal retirees who still have all three legs of their stool, including:

 

Leg One:         Your basic Federal Employee Retirement System (FERS) Leg Two:            Social Security benefits

Leg Three:       Thrift Savings Plan (TSP)

 

  1. Leg One: FERS Pension

 

This is a defined benefit program which means the amount you receive is defined or fixed. To calculate your FERS pension you must know: 1) Your High-3 Salary Years; 2) Your years of Credible Service, and 3) Your Pension Multiplier. The FERS Pension Calculation is:

 

High-3 Salary Years x Years of Creditable Service x % Pension Multiplier = Annual FERS Pension

 

While the calculation may look simple, calculating your High-3 Salary Years and what counts as Years of Creditable Service can be quite complicated.

 

  1. Leg Two: Social Security Benefits

 

Employees covered under the Federal Employee Retirement System (FERS) are typically eligible to receive Social Security benefits when the retire.

 

  1. Leg Three: Thrift Savings Plan

 

The Thrift Savings Plan (TSP) is a special account for Federal Employees; it allows you to save pre-tax dollars in your personal account. With your FERS retirement pension and Social Security benefits, you will receive fixed amounts. But with your TSP, the amount you receive depends on how much you invest and how well the money has been managed.

 

The TSP offers the following six different funds in which federal employees can invest:

 

  1. G Fund – Government Securities Investment Fund
  2. F Fund – Fixed Income Index Investment Fund
  3. C Fund – Common Stock Index Investment Fund
  4. S Fund – Small Cap Stock Index Investment Fund
  5. I Fund – International Stock Index Fund
  6. L Funds – Lifecycle Funds

 

If you are covered by the Federal Employee Retirement System (FERS), the TSP is one part of a  three-legged retirement stool, which also includes your FERS basic annuity and Social Security benefits.

 

 

About Joe Kosek, J.D.:

Joe Kosek, J.D. is the principal of planning firm in Texas offering a variety of financially related services to federal employees and a business philosophy revolving around an informed, satisfied and happy clientele,

Mr. Kosek is also an Investment Advisor Representative with Bedrock Investment Advisors and has worked as General Corporate Counsel and Business Manager for a financial planning firm in the Dallas-Fort Worth area for over 15 years, where he developed an interest in estate planning, elder law, Medicaid planning, trust and probate administration, and business planning.

Previous to this, Joe held various positions as General Counsel, Secretary and Director, and Staff Counsel with several corporate entities.  Joe Kosek holds an Executive Master of Business Administration degree from the University of Pittsburgh, a Doctor of Jurisprudence from the Duquesne University of Law, with a Bachelor of Arts degree in Philosophy from Athenaeum of Ohio. He also holds a Series 65 Securities License and a Life and Health Insurance License with the State of Texas.

Joe Kosek was born, raised and educated in western Pennsylvania. He married his wife, Susan, shortly after graduating from law school.

In the late 80’s, Joe and his family moved to Texas. Their son, Joe, is a Major in the U.S. Army and is currently stationed at the National Training Center at Fort Irwin, California.

 

More Joe Kosek, J.D. Articles

Thinking about Retirement?  By Joe Kosek, J.D.

Thrift Savings Plan (TSP) by Joe Kosek, J.D.
Disclosure:  All opinions represent the judgment of the author on the date of the post and are subject to change. Content should not be viewed as personalized investment advice or as an offer to buy or sell any of the investments discussed. Legal and tax information is general in nature. Always consult an attorney or tax professional regarding your specific legal or tax situation. BWM Advisory, LLC reserves the right to edit blog entries and delete those that contain offensive or inappropriate language. Content will also be deleted that potentially violates securities laws and regulations. Different types of investments involve higher and lower levels of risk. There is no guarantee that a specific investment or strategy will be suitable or profitable for an investor’s portfolio. All investment strategies have the potential for profit or loss. Hyperlinks on this website are provided as a convenience. We cannot be held responsible for information, services or products found on websites linked to ours. BWM Advisory, LLC is registered as an investment adviser with the SEC and only conducts business in states where it is properly registered or is excluded from registration requirements. Registration is not an endorsement of the firm by securities regulators and does not mean the adviser has achieved a specific level of skill or ability.

Thinking about Retirement? By Joe Kosek, J.D.

Thinking about Retirement?

By Joe Kosek, J.D.

 

Most people believe that retirement should allow them a reward for their hard earned work. However, a successful retirement does not just happen; it requires proactive and  detailed planning.  In planning for your retirement, considering the following five questions could ensure you a  comfortable retirement.

 

  1. Do you have a plan?

 

What do you dream of doing in retirement? Do you want to travel? Do you want a second career?  Do you want to pursue a hobby? Are you into golf, gardening, etc.? What is your goal or retirement dream? You can begin to work toward that goal.

 

  1. Do you have the money?

 

It’s great to dream, but you must have the financial means to get there.  Will you have enough money to live comfortably and enjoy your retirement years? Think about your retirement dream then figure out if you have enough money to live your dream. This exercise may cause you to change your goal or cut back on your expenses to make your dream come true.

 

  1. Is moving a good option?

 

 

  1. nearness to family members;
  2. housing cost;
  3. access to affordable healthcare;
  4. weather conditions; and
  5. Taxes

 

  1. Should you sell your home?

 

Even if you are not leaving your area in retirement,  should you consider selling your current home? This becomes particularly relevant if your mortgage has been satisfied and your home has increased significantly in value.

 

  1. Do you have an estate plan?

 

An estate plan is a map. The map reflects the way you want your personal and financial affairs to be handled in case of incapacity or death. Taking the time to prepare an estate plan now will save your family time, expense and anguish in the event of your capacity or death.  Failure to properly  plan will result in a larger portion of the assets of your estate being used to pay taxes, court costs, and attorney’s fees.

 

Retirement planning is a challenge, but pondering the previous five questions can greatly assist your success in retirement.

 

More Joe Kosek, J.D. Articles

The Three-Legged Stool of Government Retirement, By Joe Kosek, J.D.

Thrift Savings Plan (TSP) by Joe Kosek

About Joe Kosek J.D.:

Joe Kosek, J.D. is the principal of planning firm in Texas offering a variety of financially related services to federal employees and a business philosophy revolving around an informed, satisfied and happy clientele,

Mr. Kosek is also an Investment Advisor Representative with Bedrock Investment Advisors and has worked as General Corporate Counsel and Business Manager for a financial planning firm in the Dallas-Fort Worth area for over 15 years, where he developed an interest in estate planning, elder law, Medicaid planning, trust and probate administration, and business planning.

Previous to this, Joe held various positions as General Counsel, Secretary and Director, and Staff Counsel with several corporate entities.  Joe Kosek holds an Executive Master of Business Administration degree from the University of Pittsburgh, a Doctor of Jurisprudence from the Duquesne University of Law, with a Bachelor of Arts degree in Philosophy from Athenaeum of Ohio. He also holds a Series 65 Securities License and a Life and Health Insurance License with the State of Texas.

Joe Kosek was born, raised and educated in western Pennsylvania. He married his wife, Susan, shortly after graduating from law school.

In the late 80’s, Joe and his family moved to Texas. Their son, Joe, is a Major in the U.S. Army and is currently stationed at the National Training Center at Fort Irwin, California.

 

 

 

 

Disclosure:  All opinions represent the judgment of the author on the date of the post and are subject to change. Content should not be viewed as personalized investment advice or as an offer to buy or sell any of the investments discussed. Legal and tax information is general in nature. Always consult an attorney or tax professional regarding your specific legal or tax situation. BWM Advisory, LLC reserves the right to edit blog entries and delete those that contain offensive or inappropriate language. Content will also be deleted that potentially violates securities laws and regulations. Different types of investments involve higher and lower levels of risk. There is no guarantee that a specific investment or strategy will be suitable or profitable for an investor’s portfolio. All investment strategies have the potential for profit or loss. Hyperlinks on this website are provided as a convenience. We cannot be held responsible for information, services or products found on websites linked to ours. BWM Advisory, LLC is registered as an investment adviser with the SEC and only conducts business in states where it is properly registered or is excluded from registration requirements. Registration is not an endorsement of the firm by securities regulators and does not mean the adviser has achieved a specific level of skill or ability.

Thrift Savings Plan (TSP) by Joe Kosek, J.D.

Thrift Savings Plan (TSP)

By Joe Kosek, J.D.

 

 

The Thrift Savings Plan (TSP) is a tax-deferred retirement saving and investment plan similar to a 401(k) plan in the private sector. For many federal employees, the TSP very likely will be their largest retirement benefit.

 

There are three types of TSP contributions:

 

  1. regular employee contributions;
  2. agency automatic (1%) contributions; and
  3. agency matching

 

Saving for retirement through the TSP has the following advantages:

 

  1. automatic payroll deductions;
  2. diversified choice of investment options;
  3. choices of tax treatment for contributions;
  4. traditional (pre-tax) contributions and tax-deferred investment earnings; and
  5. Roth (after-tax) contributions with tax-free earnings at

 

The TSP has a variety of investment options. The following is a brief summary of the available investment options:

 

  1. G Fund – Government Securities Investment Fund
  2. F Fund – Fixed Income Index Investment Fund
  3. C Fund – Common Stock Index Investment Fund
  4. S Fund – Small Cap Stock Index Investment Fund
  5. I Fund – International Stock Index Fund
  6. L Funds – Lifecycle Funds

 

If you are covered by the Federal Employee Retirement System (FERS), the TSP is one part of a retirement three-legged stool, which also includes your FERS basic annuity and Social Security benefits.

 

 

 

More Joe Kosek, J.D. Articles

Thinking about Retirement?  By Joe Kosek, J.D.

The Three-Legged Stool of Government Retirement, By Joe Kosek, J.D.

About Joe Kosek J.D.:

Joe Kosek, J.D. is the principal of planning firm in Texas offering a variety of financially related services to federal employees and a business philosophy revolving around an informed, satisfied and happy clientele,

Mr. Kosek is also an Investment Advisor Representative with Bedrock Investment Advisors and has worked as General Corporate Counsel and Business Manager for a financial planning firm in the Dallas-Fort Worth area for over 15 years, where he developed an interest in estate planning, elder law, Medicaid planning, trust and probate administration, and business planning.

Previous to this, Joe held various positions as General Counsel, Secretary and Director, and Staff Counsel with several corporate entities.  Joe Kosek holds an Executive Master of Business Administration degree from the University of Pittsburgh, a Doctor of Jurisprudence from the Duquesne University of Law, with a Bachelor of Arts degree in Philosophy from Athenaeum of Ohio. He also holds a Series 65 Securities License and a Life and Health Insurance License with the State of Texas.

Joe Kosek was born, raised and educated in western Pennsylvania. He married his wife, Susan, shortly after graduating from law school.

In the late 80’s, Joe and his family moved to Texas. Their son, Joe, is a Major in the U.S. Army and is currently stationed at the National Training Center at Fort Irwin, California.

Disclosure:  All opinions represent the judgment of the author on the date of the post and are subject to change. Content should not be viewed as personalized investment advice or as an offer to buy or sell any of the investments discussed. Legal and tax information is general in nature. Always consult an attorney or tax professional regarding your specific legal or tax situation. BWM Advisory, LLC reserves the right to edit blog entries and delete those that contain offensive or inappropriate language. Content will also be deleted that potentially violates securities laws and regulations. Different types of investments involve higher and lower levels of risk. There is no guarantee that a specific investment or strategy will be suitable or profitable for an investor’s portfolio. All investment strategies have the potential for profit or loss. Hyperlinks on this website are provided as a convenience. We cannot be held responsible for information, services or products found on websites linked to ours. BWM Advisory, LLC is registered as an investment adviser with the SEC and only conducts business in states where it is properly registered or is excluded from registration requirements. Registration is not an endorsement of the firm by securities regulators and does not mean the adviser has achieved a specific level of skill or ability.

Less Strict Thrift Savings Plan Rules Encourage Transfers

Thrift Savings Plan or TSP has always been a great tool for increasing federal employee federal retirement benefits. But many people prefer to transfer their funds out of the plan and shift them to other qualified plans or IRAs. But a new legislation has been introduced recently that could encourage federal employees to keep their savings in TSP.

thrift savings plan tsp

Details of Legislation Suggest Lawmakers Believe Current Thrift Savings Plan Rules Encourage Transfers

U.S. Sen. Rob Portman (R-OH) believes the current TSP platform encourages Thrift Savings Plan participants to transfer their retirement savings.  The recent legislation he proposed is aimed at stopping feds from transferring the savings to other retirement benefits accounts.

How Much Money is Shifted from Thrift Savings Plan or TSP Every Year?

If one needs to know how much money is shifted from Thrift Savings Plan or TSP every year, you should know that about $9 billion is transferred from TSP retirement account each year.  The TSP is, what is called, a defined-contribution plan, similar to 401(k) plans offered in the private sector.  Federal employees can access similar retirement benefits by rolling over their TSP funds into a 401(k) of a future employer or an IRA when they retire or as they reach TSP minimum age requirements for an in-service distribution.

Why Easing of Thrift Savings Plan or TSP Rules is Necessary?

Senator Portman believes there is a need to ease the Thrift Savings Plan or TSP rules as a recent survey revealed that the strict withdrawal rules of Thrift Savings Plan or TSP are the main reason why federal employees are switching to outside retirement accounts.  This transfer happens despite the TSP having relatively low fees.

The TSP Modernization Act

Portman’s legislation, the TSP Modernization Act will change the current rules which restrict employees separating from the federal workforce to only two post-separation withdrawals. It would let multiple post-separation withdrawals so that the feds can meet individual needs over time.

While introducing the bill, Portman stated that TSP had played an instrumental role in assisting federal employees to maximize their retirement security and to mark the 30th anniversary of this vital savings vehicle, this bills takes several important steps to modernize the system so that it continues to benefit them in the future as well. He also urged his Senate colleagues to support the bipartisan legislation.

The Benefits

There are multiple benefits of the bill. Primarily, the bill would allow multiple Age-based withdrawals for the current federal employees who are older than 59.5. Secondly, it would encourage TSP plan participation by allowing quarterly or annual payments. It will also permit periodic withdrawals that can be changed anytime during a year.

Supporters’ Speak

U.S. Sen. Tom Carper (D-RI) was the one who introduced the TSP Modernization Act along with Portman. He also mentioned the benefits offered by the bill. He said that making smart choices to prepare for retirement can be a difficult task, but every person deserves to have the financial stability when their career is at an end.

Carper also stated that Thrift Savings Plan or TSP is a useful tool and the hardworking federal employees depend on it while they plan their futures. But there is a need to make it work better for the users. He was pleased to have worked with Senator Portman on a bipartisan effort with an aim to do just that.

Greg Long who serves as the Executive Director of the Federal Retirement Thrift Investment Board also shared his views on the matter by stating that the efforts of Senators Portman and Carper are appreciative. He added that the enactment of said legislation would improve the ability of TSP participants to access their retirement savings in a responsible manner.

Conclusion

It is quite evident that the legislation that plans to ease the Thrift Savings Plan or TSP rules would make things easier for the federal employees who find it hard to withdraw their federal retirement benefits swiftly and are forced to switch to other and more expensive retirement benefits accounts.

Federal Employee Benefits in Government Shutdown?

Lawmakers are on the brink of deciding whether they would approve a spending measure to avert a government shutdown or let it happen. If the shutdown does take place, federal employees’ benefits would take a hit. Apart from the retirement benefits, all other income sources may get restricted or even stopped for a particular timeframe. Here we try to explain what will happen to which federal employee benefits if the government shuts down so that the federal employees and retirees can do their financial planning for upcoming months in advance.

 

federal employee benefits during government shutdown
What will happen to federal employee benefits during a government shutdown?

How Federal Employee Benefits Are Impacted in a Government Shutdown?

Before we talk about the impact of government shutdown on federal employees’ benefits, let’s have a look at the current situation. The lawmakers must approve a spending measure because if they don’t, the government shutdown will begin on April 29, 2017. It is not clear whether the White House and Congress can come to an agreement on a continuing resolution to fund the government in a timely manner or if the lawmakers would allow appropriations to lapse.

Impact on Federal Employees’ Benefits

What is the impact on Federal Employee Benefits during a government shutdown?

Salaries of Federal Employees: Employees who are deemed essential or are exempt from the shutdown need to be paid by the agencies but the money won’t arrive until the government reopens. There is no guarantee that Furloughed employees will get compensated when the shutdown ends. But Congress has traditionally issued back pay. Sen. Ben Cardin, D-Md. has already introduced a legislation to make sure that all the federal employees are paid swiftly if the agencies close or Congress misses the deadline.

Bonus Situation: Though agencies can offer performance bonuses, they would not be paid until the government is reopened.

Unemployment: Furloughed employees that are eligible for unemployment compensation in some states may get it but they may need to return the money when Congress approves their back pay (it happened in 2013)

Healthcare: Federal workers will be covered by Federal Employee Health Benefits Program even if a shutdown takes place. Premiums will accrue during the shutdown period and will be deducted when the employees get a paycheck post the shutdown. When the government is closed, feds won’t be able to cancel the coverage. In cases of Federal Employees Dental and Vision Insurance Programs, if employees get furloughed for two successive pay periods, they will be billed through an email in order to maintain coverage.

Retirement Benefits: Retirees in the Federal Employees Retirement System and Civil Service Retirement System will get the deserved retirement benefits even if the government closes. People who are enrolled in the Thrift Savings Plan will not be able to contribute to the relevant accounts until the pay resumes post-shutdown.

Leaves: If the government closes down, the workers won’t be able to use paid leaves in place of unpaid furloughs. Even sick days or scheduled leave could be canceled.

Conclusion:

It is hoped that the aforementioned information would help federal employees with their financial planning. We also hope that federal employees’ benefits like the retirement benefits continue despite a government shutdown as it will help retirees to not be badly impacted by the situation.

What To Do With Your Qualified Plan (TSP)

Some of the Qualified Plans that offered to retirement savers force you to do the distribution if it is below the certain limit when you leave service.  These same Qualified Plans may offer you the chance to cash out the balance, but distributions will be taxed in most cases and possibly subjected to the 10% IRS penalty for early withdrawal. This is not the best option to consider.  If you decide to go ahead with the next employer, then there can be multiple choices to make with your old 401(K).

qualified plan
The Thrift Savings Plan is considered a qualified plan and has similar rules to private-market 401(k)s

The key questions to consider for your old retirement qualified plan (Should You Rollover To an IRA?)

Want to stay or go?

Conducting the rollover to another Qualified Plan may be the best thing to do. On the other hand, some Qualified Plans are not entitled to deliver the withdrawals funds like nongovernmental 457 investment plans. Keeping the records of these funds for directing the balance to your best investments plans may be something that you become responsible for, vs. asking your employers to do all the work for you.

Expenses to consider in your Qualified Plan

According to recently released data over the last two to three decades, the overall costs for the qualified plans have decreased consistently.  With additional fee disclosure requirements along with more competition, participants in these qualified plans have been able to secure access to retirement vehicles with a smaller overall cost than what may have been charged to them.  Apart from that, qualified plans like the Thrift savings plan (TSP), are available with the help of federal government employment matching certain employee contributions.

Qualified Plan Investment Options

Given the wide variety of qualified plan investment options that could exist, many plan sponsors offer “Target Date” funds by default. Along with this, your employer is likely to give you access to US large company related stock fund, US small company related stock fund, all in one fund, international stock fund and short-term bond in the minimum choices of a client’s retirement plan. The thrift savings plan withdrawals options provide you the ability to take advantage of the various funds within the TSP while also offering you the ability to roll over your TSP to another qualified plan or an IRA.

Distribution options

Most of the qualified plans today permit the distributions options for you starting in the year you turn age 59.5 years old, matching distribution options of IRAs. IRA’s are also complicated in its details or required substantially equal periodic payments. For early retirees, the odd duck 457 retirement plans can be a great source of funds that may permit distributions before the age of 55.

Leaving your retirement plan

If you decide to leave your retirement plan of old scenario after considering the above factors, then one such easy choice that you can choose by being a rollover could be to consider the retirement plan of the new employer. Apart from that, another option is to consider the traditional IRA approach and other tsp considerations that can deliver the best retirement plan for your unique circumstances.

 

Relaxing TSP Withdrawal Rules

Legislation Relaxing TSP Withdrawal Rules, which could impact every federal employees has been proposed.  Bill S.873 under the TSP modernization Act (Senators Rob Portman and Tom Carper) on April 6th has been designed to simplify TSP withdrawals.

Relaxing TSP Withdrawal Rules
Image Credits

The Latest Changes and Relaxing TSP Withdrawal Rules

According to a press release regarding this, Senators Carper and Portman introduced this legislation Relaxing TSP Withdrawal Rules. An article discussing these changes in the Thrift Savings Plan had been published earlier in the TSP investment report of FEDweek. The Thrift Board announced two years ago that it was planning to give some relaxation to federal employees for withdrawing the money by making the restrictions more flexible. Attempting to encourage participants to leave their retirement assets in the TSP upon retirement appears to be the main reason behind this strategy.

New legislation allows multiple Age-based withdrawals

As per the new legislation Thrift Savings Plan participants would be allowed withdrawals on multiple age-based levels.  For employees who have reached age of 59.5 have been eligible to carry out only one age-based withdrawal up until now. The second important thing to know about this plan is that it would introduce the chance for separate participants to take multiple partial withdrawals. It will be a better idea in comparison to the current status when it allows only one partial withdrawal.

TSP introduces periodic payment rules

The third item covered under this legislation are changes in periodic payment rules. The legislation has announced monthly or quarterly types of periodic TSP withdrawals / payments. The amount can be changed anytime and participants who would be able to elect a partial withdrawal according to its comfort. Participants who are taking periodic payments would be allowed to stop payment and leave the balance in their account. These rules regarding withdrawal of payment will offer much relaxation to participants in comparison to the current ones under which they could only do periodic payment on the monthly basis; they had only one chance annually to change the amount of payment; they couldn’t stop paying until the withdrawal of the full amount of the plan.

Participants and IRA Rollovers

Participants may be happy to find out that they will be able to be more selective in their decisions regarding IRA rollovers.  All these changes in TSP seem beneficial to participants with additional questions arising from the introduction of new legislation. The first thing to be taken into consideration is whether the thrift savings plan is currently capable of handling and managing the expected additional transactions. Secondly, the increase in the expense of a plan has been estimated to be noteworthy. The larger number or withdrawal request will almost certainly add to the management expense of the TSP as a whole, which has been a major advantage of the plan.  Would TSP be able to tolerate the increase in the number of transactions? Thirdly, the financial services sector may choose to fight this legislation as it may reduce the number of IRA rollovers from the TSP.

Conclusion – The amended legislation relaxing TSP withdrawal rules appears to be good news for participants of the plan.  The reality about these changes is yet to come, however, and added costs could be the final outcome.

Five Key Steps Towards Federal Retirement and Financial Security

If you’re concerned with your Federal Retirement and financial security you may want to look into the social security administration’s “National social security month” to learn more about the benefits of social security and your thrift savings plan. These plans can be applied to the federal employees & retirees.

thrift savings plan
Federal Retirement and Financial Security and how Social Security and the Thrift Savings Plan will impact your retirement

Steps To Help You With Your Federal Retirement and Financial Security

Step 1:

The crucial step towards keeping maximizing your social security is to first understand how social security works.  Understand that Social Security is not just simple as it might looks and that there are thousands of potential claiming solutions that you could elect.  Once you understand the different ways you can claim your Social Security benefits and how that might be impacted by other income source (like your TSP and the therefore impacted by potential taxes on your TSP Withdrawals) you will be able to make a more informed decision.

Step 2

Performing verification is the next crucial step to do under the mySocialSecurity account. Assuming that the Social Security Administration has an accurate record of your earnings could cause you to lose out on some of your benefits; you should check the earning record inside the statement of your account.

Step 3

The Social Security Administration suggests that estimating your social security benefits with the help of using their calculators/tools under the My Social Security Account section can be beneficial for you. Using these estimates along with tsp considerations and thrift saving withdrawals options can be a major step toward finding the perfect solution to maximizing what you will receive from your FERS / CSRS Annuities, TSP and Social Security combined.

At the same time, you can calculate how much you are entitled to receive social security benefits at different ages. You should be careful with the words like “on average” & “approximately” as most of the federal employees earn more than the average wage earner. According to the data received from the Bureau of Labor, the average salary of US workers in the year 2016 was $44K. This is because the formula used by many retirees for the calculation of SS benefits replaces the major percentile of higher earners with the low wage earners.

Step 4

The next consideration is to apply for your security benefits online. Online applications are easy to complete & are readily available. The representatives will call you to help you out with your doubts related to social security. At the same time, you have to mention the amount withheld inside the remarks section of the application from as current online application doesn’t address the federal income tax withholding. This can be achieved if you want to have your money withheld for taxes. Apart from that, if you are applying for the social security schemes after the attainment of perfect age for retirement, then you should indicate whether or not you want to receive the six months of retroactive benefits in place of remarks section.

Step 5

The fifth & final step regarding your social security is to manage your benefits with the help of online tools or with the help of your personal mySocialSecurity Account.

Conclusion

Your social security retirement benefits will be based on your earnings history and inflation-indexed calculations.  Your thrift savings plans and your social security benefits will impact one another as income from either source could cause the other to be taxed at a higher rate.  You should carefully weigh the various social security claiming options along with thrift savings plan withdrawals options. At the same time, you should not forget your taxes on your TSP funds & all other TSP considerations while having the social security benefits.

Social Security Funds To Invest In Equities?

The recent article in the Wall Street Journal suggesting that allowing Social Security funds to invest in equities could increase the investment returns. The article suggested that this move could improve the long-term financial outlook of the Social Security Trust Fund while reducing the need for tax increases.  The risks here are estimated to be negligible if it is done carefully and even if the future returns of the equity are turned out to be lower than the historical ones.

Social Security funds to invest in equities - tsp example
Should the Federal Government allow Social Security funds to invest in equities? Does the TSP’s success demonstrate that this could work?

Also, allowing Social Security funds to invest in equities is unlikely to disrupt the stock market as the simulations suggest that the trust funds will unlikely to hold more than 2 percent of the outstanding market cap at the last stage of the projection period. If the stock accounted for more than 40 percent of the total security assets, then we can say that the % of the trust fund would likely to increase in the stock market by 2 to 3 %. The social security with the thrift savings plan withdrawals options would not take over the stock market.

Does The Thrift Savings Plan’s Success Justify Allowing Social Security Funds To Invest In Equities?

Today the critics of the equity investment suggest that Social Security ownership of publically traded shares would could create a conflict of interest for Congress as the Federal Government would become an owner of these companies and therefore have Voting rights on how the Companies were run. But at the same time, any risk of this kind can be easily avoided. The equity investments in consideration are designed primarily to address the broad market indexes’ such as Wilshire 5000 and S&P 500. Apart from that the voting rights of trust fund shares can be handled in 3 ways: by casting votes reflecting the votes of common shareholders, by no voting at all or at last by delegating the individual portfolio managers. These are the standard practices of the federal government’s Thrift Savings Plan.

Conclusion

The equity investment today is not a silver bullet which can resolve all Social Security issues, but at the same time allowing Social Security funds to invest in equities could t the tsp considerations of yours in your packaged plan for the restoration of balance. The moral of the story is that the policy makers should include some investment assets in their equities as options so that when they implement the thrift savings plan, they will construct the comprehensive packages for the long term run balance restoration. There are many thrift savings withdrawals options are available for you to choose in terms of better investment & beneficial growth for your retirement.

Need for Better Federal Retirement Benefits Boosts Retirement Assets

It seems that Americans finally understand the value of having better federal retirement benefits savings as it would help them to pick the best date to retire and face the realities of retirement. Why? Because the U.S. based retirement assets have increased considerably in the last year. IRA and target date funds were also among the funds that saw an increase recently. Have a look at which assets grew by what number by reading all the data given below.

federal retirement benefits

Need for Having Better Federal Retirement Benefits.

Though the need to have better retirement benefits was a key factor in increasing the U.S. based retirement assets, it’s not the only reason for the increase. A bull market also played a key role in pushing the assets.

The Increase

As per the revelations made by the Investment Company Institute, U.S.-based retirement assets were USD 25.3 trillion in 2016. It saw an increase of 6 percent for the year. At the end of the year 2016, retirement assets accounted for 34 percent of all household financial assets in the country.

Talking about the 401(k) and similar plans, it can be seen that Americans held USD 7 trillion in all the employer-based DC retirement plans. Out of this, about USD 4.8 trillion were held in 401(k) plans. Assets available in individual retirement accounts came to a total of USD 7.9 trillion. It saw an increase of 1.1 percent as compared to the end of the third quarter.

In contrast, their defined benefit counterparts in government including local, state and federal government plans, held about USD 5.5 trillion in assets at the end of December. It saw a 2.4 percent increase from the end of September.

Defined benefit plans of the private sector held approximately USD 2.9 trillion in assets at the end of the fourth quarter of 2016. Annuity reserves that are outside the retirement accounts accounted for another USD 2 trillion.

Assets of Defined Contribution Plans

At the end of the fourth quarter, $550 billion was held in other DC plans of the private sector, $282 billion in 457 and $905 billion in 403b plans. About $467 billion was in the retirement system of federal employees, the thrift savings plan which raised the hope that at least federal employees would now have access to better retirement benefits.

Mutual funds amounted to $3 trillion or consisted of 63 percent of assets that are held in 401(k) plans at the end of December 2016. Equity funds were the most common type of funds held in 401(k) plans as they amounted to USD 1.8 trillion. They were followed by $835 billion in hybrid funds that include the target date funds.

Increase in Target Date Funds

The mutual fund assets of the target date funds were $887 billion. It had increased 1.5 percent in the fourth quarter and 16.3 percent for the year. Not surprisingly, retirement accounts held most of the target date mutual funds assets as 88 percent of the target-date mutual fund’s assets were held through DC plans (67 percent of the total) and IRAs (20 percent of the total) at the end of 2016.

Slight Increase in Individual Retirement Accounts

The growth in IRA assets is just 1.1 percent when compared on a quarterly basis. It held $7.9 trillion in assets at the end of 2016.  47 percent of the IRA assets or $3.7 trillion was invested in mutual funds. $2 trillion was invested in the equity funds.

Conclusion:

People who have decided to choose the best date to retire only after ensuring that they have better federal retirement benefits savings have something to cheer about. The retirement assets of the Americans have improved considerably, and this is great news for all the people planning to retire and face the realities of retirement.

Keep Your Federal Health Insurance In Retirement

Many people worry about losing their Federal Health Insurance In Retirement because they don’t have the resources to pay for all the medical bills on their own. If you are also worried about one of the most crucial federal employee resources, federal employee health benefits or FEHB health insurance, this article will attempt to guide you through your eligibility and options you have if you are ineligible for FEHB.

Federal Health Insurance In Retirement
How to keep your Federal Health Insurance In Retirement

Federal Health Insurance In Retirement and the FEHB Five-Year Rule

If you are currently enrolled in FEHB and have been enrolled in it for at least five years or from the earliest opportunity to enroll, you typically can maintain your federal health insurance in retirement. Your health insurance benefits in retirement will also remain even if you have bounced from one plan to the other. Being enrolled in some FEHB plan for a full five years before the retirement is what matters most, according to the rules.

What happens to health insurance benefits in retirement if you are not enrolled in FEHB for five years?

If you are unable to meet the requirement of being enrolled for five years, you should see if you qualify for a waiver. OPM can grant a pre-approved waiver if you are offered an early retirement offer and you have accepted it. There are still certain conditions that need to be met to be eligible for the waiver. These conditions are different for DoD and non-DoD employees. In case an early retirement offer comes your way, your agency would usually let you know whether you qualify for a pre-approved waiver or not. If the agency has not made it clear, you should ask the agency about it.

Seeking Individual Waiver

People who wish to keep health insurance benefits in retirement but haven’t got a pre-approved waiver can try their luck at getting an individual waiver from OPM. Waivers can be difficult to obtain through OPM as they will only grant you an exemption under limited circumstances.

Free Extension

A person who is not eligible to carry the FEHB coverage into retirement is given a 31-day extension of the coverage without any costs. After that period is over, you need to decide whether you wish to convert to an individual contract or you need to ask for Temporary Continuation of Coverage. In the latter option, you can keep your FEHB enrollment for a maximum of 18 months, but you will need to pay the full premium and an additional two percent to cover all the administrative costs.

Making Decisions

In case you get to enjoy health insurance benefits in retirement when you reach 65 years of age, you will become for Medicare Part A and will need to make some decisions. Firstly, you need to decide whether you need the FEHB coverage at the same level. The decision would usually depend on factors like cost and benefits of the said plan at that time and the extent to which the plan overlaps with Medicare Part A. You need to do some research before reaching any decision.

The second decision would be whether you should enroll in the Medicare part B or medical insurance. In case you are enrolled in a fee-for-service plan at that time, you need to seriously consider enrolling in the Medicare Part B because it will cover almost all of your medical expenses.

If you are enrolled in an HMO at that time, you may choose to opt for enrolling in Medicare part B, because it will cover the costs if you decide to use non-plan providers. Medicare Part B can also lower the premiums for each 12 months if you later move to a fee-for-service plan.

The last problem you need to solve is how much you need to pay for FEHB coverage post-retirement. If you are not a postal worker, you will need to pay the same premiums like you did as an employee.

Conclusion

If you are eligible, maintaining your Federal Employee Health Benefits or FEHB in retirement is an excellent idea.  There are ways to request a waiver if it is determined you are ineligible, and whatever effort you need to put forth to obtain this waiver is advisable, as maintaining your federal Health insurance in retirement (FEHB) is undoubtedly one of the more important components of your retirement well-being.

Is Auto-Enrolment Good for Financial Planning and Wellness of Civilian Employees of the US Army?

It is a general belief that auto-enrolment is a smart idea as it allows people to save more towards the retirement benefits and boosts their financial planning and wellness. But does the boost to financial planning and wellness actually occur? A study sought answers to these questions by analyzing the data of civilian employees of the US Army who have contributed to DC TSP or thrifts savings plan.  The results of the study are not as definitive as one would have expected.

financial planning

Auto Enrolment Expected To Boost Financial Planning and Wellness

Auto-enrolment to defined contributions plans began due to the Pension Protection Act which nudged the employees into DC plans. This step was taken to ensure that there was a boost in financial planning and wellness of the participants of the DC plans.

The Debt Danger

Though it is evident that auto-enrolment was initiated to ensure people benefit from better financial planning and wellness but an unpublished research paper has recently surfaced which states that it may be responsible for driving people deeper into debt. The study showed that an increase in debt payments is offsetting about 73 percent of the gains of low-income participants.

Analysis of Data

The researchers have analyzed savings data of the civilian employees of the US Army who had contributed to federal defined contribution thrift savings plan. Auto-enrolment on the set plan was associated with an increase in the wealth, but new consumer debt counterbalanced more than a third of the average gain.

The authors of the report compared more than 32,000 civilian U.S. Army employees who were hired in the year before the implementation of auto-enrollment change with nearly 27,000 employees employed in the year after. The authors also conducted a study on 2,345 employees who were hired in the month before the implementation and compared it to the 3,414 employees who were hired in the month after the change. It got similar results in both comparisons.

The Results

During a four-year period after the employees were hired, those who were auto-enrolled had an increase in the overall wealth, which increased by 5.2 percent on an average.  Wealth also rose by 13.9 percent at the 25 percentile of the income and 21.5 at the 10th percentile of income, says the study. Main reasons for the increase were employer and employee contributions. The report also mentions that auto-enrollment had no effect on 75th and 90th percentiles.

Lowering the Wealth Increase

A big blow to the financial planning and wellness benefits of auto-enrolment was that automatic enrollment increased net wealth during the same period by an average of just 3.3 percent. It demonstrated a 37 percent crowding effect. It was just 8.6 at 25th percentile which indicates 38 percent crowd out. It was also 5.8 percent at 10th percentile which shows 73 percent crowd out. There was no effect on the net wealth at 90th or 75th percentiles.

The Authors

The authors of the study were John Beshears, David Laibson and Brigitte Madrian of Harvard, William Skimmyhorn of the U.S. Military Academy and James Choi of Yale. Many authors have been studying the behavioral efforts to lift the U.S. savings rates for more than a decade.

Conclusion:

After having a look at the report regarding auto-enrolment and its effects on financial planning and wellness, it can be stated that the increase in wealth is not as high as it was assumed to be initially as debt is playing a key role here. Though auto-enrolment has boosted the retirement benefits savings of people because they are saving up more in DC plans of TSP or thrift savings plan, the boost is not as much as many people expect it to be.

Federal Agencies Are Responsible For Retirement Education?

Whether or not Federal Agencies are responsible for retirement education and planning information is no longer a matter for debate.  It is mandatory for every federal agency to ensure that people have a financial & retirement strategy and a plan to execute this strategy. Feds should also have access to resources like seminars, videos, etc. to boost their literacy on the said matters.

financial planning

Federal Agencies Are Responsible For Retirement Education  and Retirement Benefits Planning?

OPM has made it mandatory that all agencies help in financial planning education and retirement benefits planning. It needs to be done by ensuring that every agency has a retirement and financial education literacy strategy as well as a plan to implement the said strategy. For those who don’t know, this requirement is explicitly mentioned in the Benefits Administration Letter (BAL) 11-104. One can find BAL 11-104 on the website of OPM.

Need for Education

As per OPM, financial planning education and retirement benefits planning education must focus on educating federal employees on the need for retirement benefits savings such as the importance of federal employees maximizing their TSP or taking advantage of FEGLI in retirement. It should also aim at teaching them about the need for making investments. Federal workers should also get information about how they can plan for retirement and how they could calculate the retirement investments that would meet their retirement goals.

OPM’s Stance

OPM further explains that the goal of the plans to ensure the systemic design of programs developed that communicate information to employees so that they could plan for retirement and formulate informed decisions. Agency plans should be there on an agency-wide level, and they should discuss how an agency would manage the elements of the program in its components to support financial education model. The plans should clearly address the goals and objectives of agencies for the retirement financial education program.

More Requirements

As per rules, every agency should appoint a Benefits Officer to ensure compliance with OPM’s guidelines. Several of the agencies are also required to offer employees who are nearing retirement (often five years before retirement) to get the opportunity to participate in a pre-retirement seminar. This provision was applied only after negotiated labor agreements (union contracts).

The Rights of Federal Employees

If a federal employee is not getting any support regarding financial planning education and retirement benefits planning as no seminars have been planned for some time, the federal employee can inquire the human resource staff regarding how they are implementing the requirements laid out by OPM that they need to create a financial literacy strategy.

Other Options

Agencies that cannot organize seminars for financial planning education and retirement benefits planning have other options available to them. They can:

  • Provide videos of retirement classes on the intranet of the agency.
  • Provide reimbursement and travel in some cases for employees so that they can participate in open enrollment retirement seminars.
  • Have some pamphlets, books, and other training material in human resources libraries, training libraries or a self-learning center.

Seek Self Help

If you need information on financial planning education and retirement benefits planning remember that Federal Agencies are responsible for retirement education, and if your agency are not cooperating; you have the liberty to engage in self-help. The website of OPM has some brochures that begin with the letters RI on their website which cover most vital areas of retirement.

The Thrifts Savings Plan also has a bunch of informational publications and videos that will help you to understand the role of TSP in retirement. You can also make use of the search feature on these websites so that you can locate information of interest in a swift and easy manner. You can also buy books on retirement from various online and offline resources.

Conclusion

It is quite clear that though OPM is trying hard to ensure that all federal employees get financial planning education and retirement benefits planning training by making Federal Agencies responsible for retirement education. If your agency is not offering the information you need, however, you can either question the HR regarding it or seek self-help so that you are not dependent on anyone for getting you the information you need to plan retirement in a better manner.