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A Comparison of FECA & Disability Retirement

A Comparison of FECA & Disability Retirement

The Federal Employees Compensation Act, which is a compensation plan to help employees who are incapacitated due to illness or injury, is entirely different from the disability retirement plan. The federal employee must fulfill some certain conditions to be qualified for the compensation benefits. An example is that he or she must be considered too disabled to partake in daily work activities as a result of an injury sustained at work. The responsibility of the OPM is to determine if the injury is work-related or not.

It is important to understand that federal disability retirement and compensation benefits cannot be paid at the same time. The decision to choose the most suitable plan for yourself lies with you and your survivors. If you are receiving compensation payments, your disability retirement benefits will be deferred but can only be activated if the value of your compensation plan is below the value of the annuity benefit or stops. Another factor that can enable you to receive both benefits at the same time is the holding of a schedule award which stipulates that you have lost a body part as a result of the injury.

In some cases, you can have access to retirement benefits when you do not receive compensation benefits. For example, retirement benefits can be paid to a former spouse if there is a court order but he or she is not entitled to compensation benefits in this case. Moreover, if a man or woman who has lost his or her spouse to death remarries before he or she attains the age of 55 and that marriage ends, there might be a reinstatement of the retirement benefit if the survivor has not been paid a refund of the retirement contributions. In other cases, there may never be a reinstatement of compensation benefits. If you are rendered incapacitated as a result of a job-related injury or sickness but lose your life to causes unconnected to the injury, your survivors will not earn any compensation benefits but may be eligible for the CSRS survivor benefits.

If you are unmarried and do not have a partner or kids who are qualified for benefits, there would be no payment of monthly survivor annuity benefits. In this scenario, your survivors will receive a lump-sum of your retirement contributions according to the order of preference discussed above.

If you have inquiries regarding disability, be sure to reach out to a financial professional to have your questions answered.

2018 FEHB Open Season

2018 FEHB Open Season

The Federal Employees Health Benefits program Open Season allows you to choose a healthcare plan that best suits your needs. Open Season 2018 began on Monday, November 13 and runs for four weeks until Monday, December 11. Plans start on January 1, 2018. For those who aren’t enrolled, but are eligible, Open Season is the time to register. If you are already enrolled in a healthcare plan under FEHB, Open Season is the time when you can switch plans, if you choose to.

 

FEHB premiums are paid for by both the federal employee and the government. The government is legally obligated to pay the lion’s share, but the enrollee must cover the remaining costs. The price that enrollees pay tends to increase every year and this year will see a 6.1% increase. Because premium costs vary per individual FEHB plan, not every plan will average a 6.1% premium increase. Although some may have premium costs that increase less than this amount, others will have a much higher increase. You can see the premium cost for your specific plan here.  You can view premium rates for all plans at here.

 

Most plan changes tend to occur during Open Season, but changes can be made during the year for various reasons such as:

 

  • If a plan suspends their involvement with FEHB
  • If an employee is newly eligible, they have 60 days to enroll
  • If a member of  FEHB plan moves to a location that is not covered by their current plan, they have the option to switch to a new plan

 

Open Season 2018 is upon us, so prepare by researching all available plans to find the one that is best for you.

If you have questions about any of your federal employee benefits, make sure to reach out to your financial professional for help.

Picking Smarter Investments in Your TSP by Jeff Wiedrich

Picking Smarter Investments in Your TSP by Jeff Wiedrich

Jeff Wiedrich is the founder of Olive Creek Investment’s, LLC as well as an advisor working with government employees in the Phoenix metro area, as well as throughout Maricopa County and greater Tucson. He has extensive experience in the areas of wealth management and estate planning, specializing in the area of government employees.

If done carefully, it’s possible to use the government’s plan for retirement to your benefit. Almost five million people keep some or all of their savings for retirement in the United States government’s Thrift Savings Plan (TSP). However, many people may not be managing their TSP to its full potential.

The U.S. Government Thrift Saving Plan is the is similar to a 401 (k) plan. Every pay period, money is automatically contributed and invested into one or more of the three basic options for investment.

The TSP is easy, unlike many 401 (k) and similar plans, and has a very wide range of choices for investment. This avoids several chances errors. Nevertheless, it also eliminates some significant asset classes which can increase value in the long term for those who save for their retirement.

If you are part of the TSP and desire to get the most out of your return in the long run, feel free to continue reading.

Target-retirement date funds are offered for those who wish to have choices made easy for them and also evolve automatically towards a conservative stance as investors grow older.

For those who would rather make their own choices are provided with five options by the TSP. They include:

  • “S” Fund: This is an index of all stocks in the U.S. which are not found in the S&P 500 index. This implies a small-cap and midcap stock.
  • “C” Fund: This is a duplicate of the S&P 500 index SPX, -0.11%.
  • “F” Fund: This is a record of bonds worldwide, both corporate and government.
  • “I” Fund: This is a duplicate of an MSCI EAFE Index EFA, 0.07% of the stocks internationally in twenty-one different markets not including those in Canada and the U.S.
  • The “G” Fund: This is a short-term investment in the U.S Treasury securities which aren’t exposed to the risk of the stock market or bond.

The above five choices provide exposure to international stocks, small-cap and large-cap U.S stocks, a large bond market, and a cash-like option (which is risk-free).

The lack of any value option is one of the most visible weaknesses of these choices. Over the years, the value stocks provided superior returns in the long-run to the growth stocks which have proven to dominate the “S” and “C” funds under the TSP.

Jeff Wiedrich’s Recommendations 

These recommendations are divided into the 3 categories:

  • Aggressive – Calls for 100% equities
  • Moderate – Calls for 60% equities
  • Conservative – Calls for 40% equities

For every investor category, it is recommended to divide the portfolio’s equity the same way (i.e. 25% in “I” and 25% in “C” as well as a 50% in “S”).

The differences between these 3 groups have to do with how much (if any) of the portfolio should be in the “F” and “G” funds. In other words, not exposed to the stock market risks.

HIGHER RETURNS (WITHIN THE TSP)

Emphasizing the “S” fund may result in higher returns in the long-run, so keep this in mind when making a decision between the 5 options of the TSP. Doing this can tilt the portfolio in the direction of midcap and small-cap stocks, which have been known to outperform large-cap stocks (such as those of the “I” and “C” funds) in the long-term.

For instance, aggressive investors (which may include many people in their 20’s and 30’s) might place 70%/80% (or maybe up to 100%) of their “S” fund portfolios.

An easy way to increase the returns expected for both moderate and conservative investors is to own more equity funds. For instance, the combined equity stake could be increased by the moderate investor ranging from 60% to 70% or higher.

Your expected return in the long-term increases by 0.5% per year for every additional 10% held up in equities. That seems a little small but can make an enormous difference after a few years, increasing the money you will have when you are retired.

Consider keeping 10% to 40% of your usual contribution in the “S” fund if you are included in a TSP target-date fund.

 

HIGHER RETURNS (OUTSIDE OF THE TSP)

Having read this article, you have learned that a moderate value stock allocation, specifically the value stocks of the small-cap, can potentially boost your return in the long-run significantly.

Even though these value options are not offered by the TSP, it’s possible to increase your government retirement plan with a different account. A good option is the Roth IRA, through which you can give up to an amount of $5,500 annually ($6,500 for those over 50).

One of the best ways to use an account such as this to supplement your TSP account is by investing the whole of your IRA into emerging market small-cap value and large-cap value stocks.

If only a small amount is available for this, then the way to get the most out of it is to just add small-cap value in either an ETD or a low-cost index fund.

For any questions you may have regarding your TSP or other retirement options, please contact a financial advisor for a consultation.

 

Jeff Wiedrich
Jeff Wiedrich of Olive Creek Investments, LLC

Contact Jeff Wiedrich

Olive Creek Investments, LLC
Phone: 480-887-4569

Jeff Wiedrich Articles

Why Federal Employees Should Verify Their FEGLI Coverage Now by Jeff Wiedrich

TSP – Should you play it safe? by Jeff Wiedrich

How to Submit Your ‘Healthy’ and Complete Federal Retirement Application by Jeff Wiedrich

Your Roth TSP and How it’s Taxed by Jeff Wiedrich

TSP Modernization Act Passes Congress

new update

TSP Modernization Act Passes Congress

After successfully passing the Senate and the House, the TSP Modernization Act (H.R. 3031) is now in the process making its way to Trump’s desk at the White House. What we don’t know for sure is if the President will be willing to sign the request into law, because as of now, nothing concerning the bill has been listed on the White House website.

The bill was passed through the Senate without amendment. This particular bill is important for federal employees. It may change the existing rules that allow only one partial post-separation withdrawal for federal employees that are separated from the federal workforce (meaning annuity payments, a stream of monthly payments, or a lump-sum payment). Insead the plan is to offer an option that will give room for multiple, partial post-separation withdrawals, allowing retirees the access to their account for their respective individual needs at any time.

For employees over 59-and-a-half years of age that are still in service, the TSP Modernization Act would give room for mulitple age-based withdrawals. The bill also would allow for the election of annual or quarterly payments, and could also permit occasional withdrawals that can be changed during the year at any point.

TSP participants under the current law have been limited only to one withdrawal from their accounts upon reaching 59-and-a-half years while in the federal service. Participants who are no longer working in the federal service can make only one withdrawal from a portion in their account balance (post-separation withdrawal).

The bill directs the body that oversees the TSP, the Federal Retirement Thrift Investment Board (FRTIB), to order necessary regulations to carry out these new changes no later than two years after it is passed and becomes law.

If you have questions on in-service TSP withdrawals or withdrawals after you have retired, you may want to consider contacting a financial professional who specializes in federal retirees for guidance.

Widest Ever Margin for Public/Private Pay Gap

Wildest Margin Ever for Public/Private Pay Gap

Depending on where you focus your attention, the various studies looking into federal employee compensation will normally bring different numbers. However, the Cato Institute has been working on a project entitled ‘Downsizing the Federal Government’ in which the pay and compensation gap for public and private workers has been shown to be at its largest point yet.

In 2016 alone, federal employees earned 80% more than private sector workers while they also earned over 40% more than state and local government workers. Of course, the pool of workers is much smaller – 2 million vs 114 million – but the federal average wage has been growing at a faster rate over the past 15 years.

In addition to this, benefits are also more advantageous with retirement and health care additions. In 2016, federal compensation hit $127,000 while this was just $70,000 for the private sector. Although many lawmakers have suggested changes to federal pay and benefits, federal employee groups are suggesting these comparisons are actually useless. Furthermore, they suggest the federal government should be seen as a model employee for top talent.

Of course, this news comes not long after the Congressional Budget Office’s report which showed the government spending 17% more on compensating all employees. In addition to this, it seems as though education is now playing a large role with federal employees earning a high school diploma (or less) earning around 50% more than the same group in the private sector. With bachelor’s degrees, this is 21% more. This being said, it isn’t a universal system since those with a doctorate earn 18% less compared to the private sector.

Other Studies

As mentioned at the beginning, there have been several reports and studies into this relationship with many choosing different data or measures. If we look towards The Heritage Foundation as an example, they found federal salaries to be 22% higher than the private sector while The American Enterprise said the same statistic was 14%.

Every year, we also get an assessment between federal and private pay from the Bureau of Labor Statistics and Office of Personnel Management. On average, they say federal employees earn 34% LESS than private sector workers. Why the difference? For BLS and OPM, they calculate their pay gap using data provided by the Occupational Employment Statistics Program and the National Compensation Survey. Regarding the numbers, they compare pay alone (without benefits and compensation). To calculate locality pay rates, the Federal Salary Council uses this measurement.

Back in the 1990s, a law was passed by Congress which started the journey towards eliminating the pay gap using these calculations, but the funding has never been provided by lawmakers. According to some sources, the solution can be found in partial wage freezes, and we actually saw this between 2011 and 2013 with the Obama Administration. Alongside this, experts suggest changes to the retirement system to reduce the disparity between private and public workers.

For example, the defined benefit pension plan could be coming to an end in the coming years, and there are also rumors of some public sector jobs being privatized, and this includes air traffic controllers, postal workers, and Amtrak employees.

Although we need competent workers in all areas of the federal government, many are struggling with the fact they’re the third-highest paid industry in the country. With a reduction in federal pay, a larger turnover would occur, and this might just open the government up to younger employees and fresh ideas!

New TSP Bill Adds More Withdrawal Options for Federal Workers and Retirees

New TSP Bill Adds More Withdrawal Options for Federal Workers and Retirees

 

The U.S. Senate passed a new TSP bill this week and it is now heading for President Donald Trump’s desk. If signed into law, federal workers who’ve signed up for the Thrift Savings Plan will have additional withdrawal options and more flexibility in their accounts.

 

This legislation, called the TSP Modernization Act, passed through the Senate with a unanimous vote. This comes just one month after the House of Representatives passed the bill. Now it is ready for the president to sign into law if he so chooses. But even if he does sign it into law, the effects won’t take place right away.

 

Starting in February of next year, the Federal Retirement Thrift Investment Board will reportedly be finished with establishing all the guidelines for withdrawals. They first began writing the guidelines back in September, out of the expectation that the legislation will get signed into law.  Their original focus for the guidelines was regarding the withdrawals for post-separation, source-specific, and in-service.

 

The FRTIB wants benefits delivered to participants as quickly as possible. However, they’re not 100% confident about what is going to happen because the guidelines and requirements are still being worked out. But the agency is going to be contacting participants of the TSP and let them know when the new changes to their plan will be in effect.

 

For all the ex-federal employees, they are currently only allowed a single partial post-separation withdrawal. They can choose to receive an annuity payment, one lump-sum payment, or monthly payments. Once the new TSP bill is signed into law, participants can make multiple partial post-separation withdrawals and set the timing of them based on their particular needs.

 

Federal workers over 59 ½ years of age who are still employed can have several age-based withdrawals.

 

Participants of TSP can receive their payments either quarterly or yearly. If they want to alter the amount of the withdrawal payment, they can do so whenever they want. They can put a stop to their periodic payments too while just letting their existing balance remain on their TSP. Also, participants who schedule ahead of time for periodic payments can either buy an annuity or have a partial withdrawal.

 

The election deadline for TSP withdrawals will be eliminated under the TSP Modernization Act. The way it is right now, retired TSP participants who are over 70 ½ years old have until April 1st to choose when to take the post-separation withdrawal. This month refers to the year in which they first meet both of the requirements just mentioned.

 

The FRTIB has acknowledged how anxious the participants of TSP are to have more freedom when it comes to their withdrawals.

 

TSP participants took part in a survey recently about how satisfied they were with their current withdrawal options. Many of them said they were not satisfied. Roughly 62% indicated they liked the flexibilities proposed and about 74% of current participants want to transfer funds within a decade after their retirement to another plan from their current accounts. These 74% claim they want to look someplace else for better flexibility. About 85% of participants who are separated want to transfer funds to accounts which offer a lot more choices.

In a partnership between the FRTIB and Gallup, there was a special survey conducted with roughly 39,000 of the participants of TSP. They only received answers from 6,725 of those people. Out of this number, 89% of them claimed to be extremely satisfied or at least satisfied with the current overall way in which TSP works.

 

F Fund

 

A request was recently released by the FRTIB in which they wanted to propose having a manager for the Fixed Income Index Investment Fund (also known as the F Fund).

 

As of October 2017, there was $28.2 billion worth of assets in the F Fund. This fund tracks and analyzes the Barclays Capital U.S. Aggregate Bond Index.

 

The F Fund and the other funds of TSP are managed by BlackRock. According to the new contract, the term will be for 1-year and it will have four options that are yearlong.

 

For help with your own TSP, be sure to contact a financial professional.

A Social Security Increase is Expected for 2018, Along with a Cost-of-Living Increase

A Social Security Increase is Expected for 2018, Along with a Cost-of-Living Increase

The cost-of-living is now the highest that it’s been in the last 6 years. How will this affect retirees?

A cost-of-living adjustment for 2017 was just announced by the Social Security Administration. In December of 2017, Americans who receive Social Security payments should start to see a 2% increase in their check every month. This is great news for millions of retired Americans who depend on their Social Security checks.  Many have waited 6 years to see a cost-of-living adjustment increase as big as this one.

On the other hand, 2% is not that high when you compare it to the cost-of-living adjustments of the past. Plus, the cost of Medicare could make the increase virtually unnoticeable. At the same time, older Americans have a lot more expenses each year, which the cost-of-living adjustment increase will not cover.

Now let’s look at how the cost-of-living adjustment is determined and why a 2% increase may not be noticeable to retired Americans. Basically, inflation is what causes cost-of-living adjustments of Social Security. When the cost of services and goods go up, the Social Security payments are supposed to match this increase percentage wise. That way the recipients will have the same purchasing power as they did before.

The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is what specifically determines the cost-of-living adjustment of Social Security. The CPI-W tracks the costs of various items which working families commonly need. There is also a special Consumer Price Index called CPI-E which tracks the living expenses of retired Americans. However, the CPI-E is not factored into the cost-of-living adjustment to Social Security.

The CPI-E and CPI-W look at expense categories differently from each other. The CPI-E shows that older Americans have to pay double the amount of money for their medical needs as those under the CPI-W. For the last 35 years or so, there has been an average 0.2% increase in CPI-E per year. Experts say that older Americans are continuing to gradually lose their purchasing power and that these yearly adjustments are not going to help anything.

Social Security Cost-of-Living Adjustment History

The cost-of-living adjustment procedure used today has been used since the year 1975. Prior to 1975, legislation determined the increases that Social Security payment recipients would get. There were no formulas to determine it like there are now.

The yearly cost-of-living adjustment has varied throughout the years. Ever since the formulated method of determining the cost-of-living adjustment was put in place in 1975, the highest cost-of-living adjustment so far has been 14.3% which occurred in 1980. The lowest cost-of-living adjustment has been 0% which has occurred 3 times and all within the last 10 years.

Although 3.75% has been the average cost-of-living adjustment of Social Security, this year shows a 2% increase which is more than 50% of the past average.

So, what will retirees have to face?

The average American who receives Social Security payments receives about $1,371 in their monthly check. With a 2% increase, there is $27 more added to this amount which makes the total $1,398.

A lot of retired Americans receive a bigger Social Security payment than the national average. This means their increases will also be bigger as well. The biggest payment that an American of retirement age received in 2017 was approximately $2,687. With a 2% increase, they would have received an additional $54 in their monthly payment. Those who waited longer to claim their Social Security benefits will earn even more money. One person who waited until they were 70 years of age will be receiving $3,538 each month. This means they have a $71 per month cost-of-living adjustment increase waiting for them in December. That will come out to $850 in extra benefits per year.

But is the cost-of-living adjustment for 2017 really a big increase? It may appear that way to a lot of American retirees, especially if they get paid $1,400 each month because that will give them an additional $28 for each payment. Unfortunately, the premiums of Medicare Part B are also increasing which means that 2% increase won’t really be noticeable. That extra money will just go right toward paying the additional premium amounts for Medicare. Of course, this won’t be for certain until the premium amounts of 2018 are officially announced to the public.

Since inflation for retirees rises faster than the CPI-W increase, seniors may not see the cost-of-living adjustment of Social Security this year as anything more for them in their payments.

INSURANCE CAN STILL BE A GOOD DEAL FOR FEDERAL EMPLOYEES DESPITE COSTS

INSURANCE CAN STILL BE A GOOD DEAL FOR FEDERAL EMPLOYEES DESPITE COSTS

Cаn thе Federal Emрlоуееѕ Hеаlth Bеnеfіtѕ Prоgrаm (FEHBP) be соnѕіdеrеd a great орроrtunіtу? Dоеѕ the premium іnсrеаѕе ѕеrvе аs a аnоthеr hіt to rеtіrееѕ and ѕtаffеrѕ shallow pockets? Is іt роѕѕіblе fоr federal employees to ѕаvе mоnеу by ѕhорріng аrоund instead?

The answer to all of the above is: Yes.

There was no form of a dramatic change аnnоunсеd, but ассоrdіng tо Walt Frаnсіѕ (аn independent hеаlth economist who ѕtudіеѕ FEHBP), іt’s a good thing. Hе ѕtаtеd thаt FEHBP “rеmаіnѕ a solid program” that gіvеѕ еnrоllееѕ “ѕресtасulаr savings opportunities.”

In 2018, thе Hеаlth-іnѕurаnсе premiums раіd by federal employees and rеtіrееѕ may рrоgrеѕѕ bу 6.1 реrсеnt. Thе tоtаl аvеrаgе рrеmіum growth оf 4 percent, whісh includes thе ѕhаrе funded by thе gоvеrnmеnt аnd enrollees is “certainly not out of lіnе” with other hеаlth-іnѕurаnсе programs іn place, Francis ѕtаtеd. However, 4% іѕ аbоut two tіmеѕ thе gеnеrаl іnflаtіоn rаtе.

Bеtwееn ѕоmе оf the mоѕt famous plans, thе іnсrеаѕе wаѕ lеѕѕ thаn аvеrаgе, and іn ѕоmе fеw саѕеѕ, premiums drорреd.

“Everybody would rather have a bigger pay increase and a lower premium increase,” he ѕtаtеd, аddіng, “іt’ѕ hаrdеr for retirees.”

However, while thе hеаlth-іnѕurаnсе рrоgrаm mіght bе a gооd value, thе рrеmіum grоwth represents an extra hіt оn fеdеrаl еmрlоуееѕ аnd rеtіrееѕ. A 1.9% рау rаіѕе іn Jаnuаrу іѕ what is expected by the fеdѕ on thе рауrоll, but іt соuld bе undеrсut bу thе increase іn оut-оf-росkеt payments vіа rеtіrеmеnt, with no improvement in bеnеfіtѕ, supported bу соngrеѕѕіоnаl Republicans аnd President Trumр.

Thе premium hіkеѕ “fаr eclipse аnу increase in Social Sесurіtу payments or wаgеѕ thе соmіng уеаr,” ѕtаtеd bу  J. Dаvіd Cоx Sr; Prеѕіdеnt of the Amеrісаn Federation of Gоvеrnmеnt Employees. “Thеѕе rаtе hikes mean less take-home pay for current and retired federal wоrkеrѕ аnd another уеаr оf difficult dесіѕіоnѕ by mаnу fаmіlіеѕ on how to pay  thеіr bіllѕ.”

Thе Offісе оf OPM-Pеrѕоnnеl Management ѕtаtеd that thе рrеmіum rise would sum up to $9.04 оn аvеrаgе per bіwееklу еаrnіng ѕеаѕоn, while thе аvеrаgе рау rіѕе wоuld аmоunt to $60.50. Rеtіrееѕ wіth guaranteed іnсоmеѕ аnd grеаtеr hеаlth problems аrе particularly соnсеrnеd. Their annuities and Social Sесurіtу рауmеntѕ рrоbаblу wіll іnсrеаѕе bу about thе same percentage аѕ thе employee рау rаіѕе. “Anоthеr уеаr оf whісh the fеdеrаl community іѕ reminded оf thе fаmіlіаr cycle of either lоw оr no рау raises, lіttlе or nonexistent соѕt-оf-lіvіng аdjuѕtmеntѕ (COLAѕ), аnd rising medical bills. Fеdеrаl еmрlоуееѕ аnd retirees аrе mіddlе-сlаѕѕ tаxрауеrѕ, lіkе mоѕt Amеrісаnѕ, continuing tо feel the pinch оn thеіr wаllеtѕ continuously оn a dаіlу basis.

Shорріng аrоund is allowed and individuals are аlѕо аllоwеd tо сhооѕе hеаlth-іnѕurаnсе plans durіng thе Oреn Season thаt covers frоm Nov. 13 thrоugh to Dec. 11. The nаtіоn’ѕ most рrоmіnеnt еmрlоуеr-ѕроnѕоrеd hеаlth-іnѕurаnсе рrоgrаm іѕ FEHBP, including 8.3 mіllіоn реорlе. Itѕ раrt of thе premiums, whісh іѕ determined by a statutory formula, wіll grow by аbоut 3.2% оn аvеrаgе bесаuѕе the government рауѕ аbоut 70% of Health-Insurance Prеmіumѕ.

According to OPM

  • $7.17 wіll be раіd more реr biweekly pay реrіоd nеxt уеаr thаn last year for ѕеlf-оnlу соvеrаgе, whісh nеаrlу соvеrѕ аbоut twо-thіrdѕ of enrollees by Bluе Cross/Blue Shield рlаn.
  • $17.04 mоrе fоr ѕеlf рluѕ оnе аddіtіоnаl person.
  • $17.72 for self аnd fаmіlу соvеrаgе.

For enrollees with other health insurance companies, there will be an increment by an average of $5.57, $12.55, and $12.17 in their premium categories.

Thе 6.1 реrсеnt grоwth fоr 2018 is slightly lоwеr thаn thе average 6.67% rіѕе оf thе former tеn уеаrѕ. In 2012, whіlе thе lоw wаѕ 3.5%, thе hіgh wаѕ 11.6%.

OPM ѕtаtеd that іt “urged all insurance саrrіеrѕ to whоllу еvаluаtе thеіr health рlаn орtіоnѕ for thе gоаl оf discovering wауѕ оf improving rеduсе соѕt, аffоrdаbіlіtу, аnd bеttеr the quаlіtу of саrе and the health оf the рорulаtіоn еnrоllеd. In оthеr tо keep premium іnсrеаѕеѕ аѕ lоw аѕ possible whіlе rеduсіng changes in оut-оf-росkеt соѕtѕ, such as fоr deductibles, со-рауѕ, and соіnѕurаnсе, nеgоtіаtіоnѕ wеrе mаdе. Whіlе thе аmоunt оf dental plans wіll іnсrеаѕе bу 1.26%, average premiums for vision рlаn coverage wіll drор bу 0.48%.

One importance оf Open Sеаѕоn is that thеѕе hеаlth benefits саn help federal wоrkеrѕ саrе fоr bоth thеіr families and thеmѕеlvеѕ. Acting Director оf OPM, Kаthlееn MсGеttіgаn ѕtаtеd іn a ѕtаtеmеnt, “I urge fеdеrаl wоrkеrѕ аnd rеtіrееѕ tо rеvіеw thеіr health-care nееdѕ carefully аnd tо сhооѕе wіѕеlу among thе рlаnѕ and enrollment орtіоnѕ available tо them durіng thіѕ еnrоllmеnt period.”

If you’re unsure about your insurance options or need help making some decisions, please consult a financial professional for a consultation.

Major Changes to the Military’s Retirement Policy

Major Changes to the Military’s Retirement Policy

Starting in January, there are going to be some major changes to the United States military’s retirement policy. These changes, inspired by the Military Compensation and Retirement Modernization Commission, will affect the lives of the almost 2 million people currently serving in the armed forces, as well as former military personnel.

 

The military’s retirement policy currently follows a traditional pension system, which has proven to be quite problematic. Traditional pension systems allow for the disbursement of one check to a service member every month for the rest of his or her life. The amount of this check is dependent upon the length of service, as well as the salary the military personnel received while he or she was in the military. While this pension system may sound effective, in reality it means that military personnel are unable to save for retirement while actively working. The traditional pension system is actually nicknamed “20 or nothing” because military personnel have to serve for two decades before they even qualify for a pension. Unfortunately, less than 20% of military personnel meet this qualification.

 

For these reasons, the military plans to switch to a “blended” pension system in 2018, which includes features previously only available to civilian workers, such as investment accounts. The new pension system is not radically different from its predecessor- members are still entitled to a monthly pension- but the amount members receive per month will be reduced by a shocking 20%. Although this reduction is supposedly not budget driven, it will undoubtedly decrease government spending. This news was confirmed by retired Army brigadier, general Michael Meese. Meese serves as chief operating officer at a nonprofit organization called American Armed Forces Mutual Aid Association that assists military personnel with accessing financial services.

 

However, this blended pension system will also allow for other changes. The government will place 1% of service members’ pay into the Thrift Savings Plan and will match service members’ own contributions of up to 4%, which means the government could potentially contribute up to 5%. While service members could contribute to the Thrift Savings Plan, which is an investment-based 401(k) retirement plan, with the traditional pension system, the military did not contribute under this system. Members of financial services companies that deal with service members, such as USAA, have confirmed that with the changes to the military’s pension system, it is no longer “all or nothing.” The military will now offer bonuses before the 20 year service mark to encourage members to retire later and there is even an option, albeit a controversial one, that allows military personnel to receive half of their pension as a lump sum when they retire. However, if they choose this option, they won’t receive as many benefits. Depending on an individual’s situation, this option can either be a blessing or a curse. In general, it would provide more money immediately, but less in the long-run.

 

Beginning on December 31st, those who enlist in the military will be immediately registered for the blended pension system. Within 60 days, they will begin receiving the 1% government contribution to the Thrift Savings Plan, although they will need to wait two full years to see any matching contributions from the government. Military personnel who have been serving for 12 years or more by December 31st will be “grandfathered” into the traditional system. The option to choose either the blended or traditional system is only available to those who are currently enrolled in the military, but have less than 12 years of service. It is quite a heavy decision to make, as there is no changing your mind once the decision has been made. Experts say that the blended system would really only benefit military personnel who are confident that they will spend less than 20 years in the military. There are risks associated with the traditional system, such as the effects of military downsizing, but in the end, it would leave you with more money if you serve for the full 20 years. The longer you have been serving, the less risk there is with sticking with the traditional pension system.

 

For those with the option to either switch to the blended system or remain in the traditional system, there are quite a few factors to consider. They must take into account whether they would get the full benefits of the blended system, such as the 5% matched government contributions to the Thrift Savings plan. For example, if a service member cannot raise the initial 5% themselves, they will not benefit from this aspect of the blended system. If you only receive the 1% government contribution, you will be taking a hefty loss from the 20% reduction in your pension that is a main facet of the blended system.

 

However, the Defense Department is offering a two hour training course mandatory for all military personnel prior to making their decision about their pension system. This is to guarantee that whichever decision is made, it is well informed. If you serve in the reserves or The National Guard, the new system affects you as well. However, you must use your retirement points to learn whether you are eligible for the blended pension system. You can learn more about this process on The Defense Department’s official website.

 

If you are an active service member who has served for less than 12 years, you have an important decision to make. While you can make this decision any time before the end of 2018, the sooner you decide, particularly if you are switching to the blended system, the sooner the government begins contributing to your Thrift Savings Plan.

There are several online tools available to help you decide which plan to choose, such as blended plan retirement calculators offered by The Defense Department and the USAA. However, contacting a financial professional may benefit you as well since they can help to guide you toward retirement planning options that are right for you.

 

TSP and 401(k)s May See An Increase In Investment Limits For 2018

Indexed Universal Life

TSP and 401(k)s May See An Increase In Investment Limits For 2018

With the increase in investment limits imposed on Thrift Savings Plan, people have wondered if it is also applied to the 401(k).  The answer to that is yes.

The TSP for military personnel and federal employees work under the same tax code guidelines the 401(k) is listed under, including the “elective deferral limit.” This limit is predicted to be increased in 2018 to $18,500 – it is currently $18,000. For people making pretax and after-tax “Roth” investments, the limit is applied to both.

Of course, the limit is only applicable to the personal investments – not agency contributions of enrolled employees of the Federal Employees Retirement System (FERS). Employees should see an automatic 1 percent increase in their employer contributions as well as an additional four percent in matching contributions.

The Thrift Savings Plan mimics the general tax policy that lets people 50 and older make catch-up contribution investments should they be investing at the regular rate. This maximum rate is currently $6,000 and will stay that way.

Unless changes are made, regular investments will continue every year. Therefore, to benefit from the higher limit, you must fill out a new

payroll withholding form for 2018. Catch-up contributions must be made every year and typically do not roll over.

For more information regarding the Thrift Savings Plan or other retirement options, reach out to a financial advisor.

thrift savings plan tsp

Will We See Changes to Retirement in 2017/18?

Will We See Changes to Retirement in 2017/18?

For the past two decades now, we’ve been predicting some form of retirement disaster with the aging population suddenly creating a tidal wave of retirements. For the government, the biggest fear was losing thousands of hard-working, dedicated employees. Of course, the obvious benefit would be the influx of new talent who would bring fresh ideas and changes with increased technology.

Despite this, it didn’t happen.

Suddenly, there was a new concern; a new tidal wave would come if Donald Trump managed to get into office. For people who had decades of experience with the government, they ‘wouldn’t want to stay and risk having their reputations marred’. As soon as the election became official and the New Year celebrations came to an end, the mass exodus was said to begin.

Despite this, it didn’t happen.

Although there are always some exceptions to the rule, retirement numbers for federal employees (including postal workers) are actually averaging roughly the same or below the same period last year. If we look to November 2015 (one year before the election), over 6,000 retirement applications were received by the Office of Personnel Management. In November 2016, the figure stood at 5,000.

With retirees, this was also higher in 2015 compared to one year later. As we know, January is the most popular month to retire for federal employees and 15,400 did so last time around; just 100 more than the year before. To this point, the predictions haven’t come to fruition…but are we still waiting? Let’s not forget, some of the finest minds in the US are behind these predictions and long-dormant predictions can still come true.

In recent times, there’s been much conversation at the White House and Congress regarding the civil service annuity contributions all federal employees make. In one suggestion, contributions would increase by 6% over six years for all employees. Although this seems small, it’s actually a significant amount and could negate any potential pay increases in the same period.

Elsewhere, there’s been suggestions the Social Security gap payment would be removed for all those who retire before the age of 62; this can be worth thousands of dollars. In another, the annual cost of living adjustment would fall by 0.5% for all CSRS retirees while another suggested a removal of COLA for all FERS retirees (if their annuities would see a reduction in purchasing power due to inflation).

In fact, one suggestion even goes as far as saying the employer-sponsored pension will receive an overhaul just as we saw in the private sector. For new hires, there’s a potential for ditching FERS and instead replacing it with an enhanced Social Security or Thrift Savings Plan. As you can see, there are several ideas floating around right now and we can’t be sure whether any will come into effect but it certainly shows the big changes the government is considering.

Today, there are still concerns and a lack of understanding within the government. For example, some workers worry future annuities will be based on the highest five-year average salary as opposed to three years. As we recently learned ourselves, the financial difference won’t actually be too large and we don’t expect a sudden influx of retirement applications. However, it shows the confusion that surrounds the whole situation currently.

With so many unknowns and a lack of certainty, a significant number of people are considering whether it’s time to leave before dramatic changes take place. Therefore, could we still see the previous predictions come true? What are the odds of the retirement program changing within 12 months? Ultimately, we can’t be sure but it’s certainly going to be interesting!

TSP Returns Are Lower

Indexed Universal Life

TSP Returns Are Lower

The TSP returns are lower for the most part, but they still showed some positivity in October.

Even though none of the funds charged by the Thrift Savings Plan showed negative returns in October, only three funds since September been recorded to have experienced any exponential growth.

The highest increase was almost 0.55 percent, bringing it into the black at 0.07 percent and has since then remained (as disclosed by fixed-income index investment F fund). The C fund from the S&P index, based on stocks, posted the highest returns from September at 2.33 percent, up 0.27 percent.

A low-risk-low-reward investment on Treasury securities, also known as the G fund, continued crawling upward and it was able to gain about 0.02 percent in September, summing to a total of 0.19 percent in October on returns.

The small-cap stocks S fund experienced a decline (the biggest of all) as it fell from 4.26 percent to 1.41 percent. However, it still commands the highest returns at 25.68 percent over the last year.

Also, there has been a sharp rise in international stocks, coming in at almost a full percentage point. This has caused its returns move up to 22.15 percent. Almost all the TSP lifecycle funds experienced a slight drop in October. L 2050 experienced the biggest drop with 0.51 percent decrease, although it still managed to come up with the highest return at 1.63 percent while L Income experienced the smallest hit, falling by 0.06 percent.

More and More TSP Accounts Hit $1M With Smart Investing and Positive Stock Market Streak

Indexed Universal Life

More and More TSP Accounts Hit $1M With Smart Investing and Positive Stock Market Streak

Is there any financial advice a person can give a career civil servant who invested money into his Thrift Savings Plan and made millions?

 

Probably not!

 

At first, the people who had millions in their TSP accounts were already millionaires before they started working with the government. Some people were fairly expensive lawyers who became a federal judge. They took their outside retirement nest egg and put it into their TSP because of the lower fees and federal oversight.  Then, there were other millionaires who were elected to Congress. Some people made their money before they got into national politics. Some people married into money. Some people made money after being in Congress.

However, with steady investment and an eight-year hot stock market streak, the number of millionaires thanks to the TSP is around 20,000. About 50,000 people have a balance of $750,000 to $999,999. Millionaires tend to invest their money for at least 28 years with the average millionaires club hitting 29 years.

A common thread is being seen with these self-made millionaires, which is this: they invest in good and bad times. They kept their money in the stock market even when the market took a nosedive in the Great Recession. They didn’t trade their stock shares – C, I, and S funds and move them into the G fund (Treasury securities).

The majority of these people had most, if not all, their money in the C and S stock market funds. Some daring investors stayed in the highly-erratic international stock fund, which is on a hot streak right now. It didn’t matter if the market was doing well or bad, they kept investing the same amount of money.

  • When the share prices dropped, they would buy more.
  • If they were up, they would still buy but in less amount.

This is known as dollar-cost averaging.

Several federal people don’t like the discussion of TSP millionaires because they worry their political foes will use the information for their own personal gain.  The reality is that most millionaires made their own money, taking some of their salary (and the matching funds) and investing it. Federal workers should take notice that making smart decisions about their investment can lead to a more than comfortable retirement nest egg.

Does Remaining Sick Leave Have Value When It Comes to Your Retirement Eligibility?

Indexed Universal Life

Does Remaining Sick Leave Have Value When It Comes to Your Retirement Eligibility?

Not everybody knows how sick leave and yearly leave are handled when they are no longer with federal service.

Many federal employees assume that remaining sick leave counts toward their retirement eligibility. However, once you are eligible for either a FERS or CSRS annuity,  your remaining sick leave is combined with your years of service for the computation of that specific annuity.

Since 1969, the employees of CSRS have been receiving credit for their leave in calculating their pensions. Since 2014, FERS employees have been getting full credit for their sick leave in annuity computation.

Your sick leave has no value if you remove yourself from the federal service without the title to an annuity; although it can be credited back if after you return to the federal workforce in the future.

There are many misconceptions concerning the way sick leave is credited for the purposes of retirement. A common one is that a person must have their sick allowance in regular month increases for it to increase one’s period of service. This is false.

Though it is correct that just years, as well as months (not days) of service, are used for service length purposes, the additional days are not removed from the calculation until the sick leave is included with actual time worked. Examples below will help illustrate this.

The length of an employee’s service is defined by subtracting the service computation date (SCD) of their retirement from the very day of their retirement. Note that for a few persons the SCD retirement might differ from the accrual leave SCD which can appear on a person’s SF-50. In case you have doubts as to your SCD retirement, reach out to a benefits expert, review your yearly benefits statement, or make use of your company’s HR system (e.g., EBIS, etc.).

  Year Month Day
Retirement Date 2017 12 31
SCD 1985 05 15
Length of Service 32 07 16

Hours of sick leave are converted to months and days and then added to the calculation. You can access a sick leave conversion chart, developed by OPM at http://www.usgs.gov/humancapital/pb/sicklvconchart.html.

The following example will use 1,518 hours of sick leave (converted to 8 months and 21 days).

  Year Month Day
Length without S/L 32 07 16
S/L credit 08 21
Total length of service 33 04 07

 

Now, the remaining seven service days are dropped. In the example above, the moment we have finished the math and removed the extra days, the 21 days and eight months of sick leave results in a 9-month length-of-service increase.

You may be wondering about yearly unused sick leave. Any employee who removed himself from federal service (whether it’s through retiring or through any other method) will be compensated for the benefit of their unused yearly leave. As a result of this, a lot of employees wait until almost the end of the year to retire to make their paid annual leave bigger.

If you’re still unsure about how to calculate your retirement options then seek the advice of a financial professional.

 

 

Taking Action Against the Proposed $32bn Federal Pension Hit

Taking Action Against the Proposed $32bn Federal Pension Hit

In a move we are sure you have heard all about, all federal and postal workers could soon face changes that would reduce take-home pay, eliminate the FERS retirement system, and make it more costly to retire early whether mandatory or voluntary. Therefore, we are calling all employees to flex that political muscle because there could be something you could do.

Within the budget resolution, contributions to the FERS plan would increase by 1% per year over the next six years alongside decreasing the government-owned employee-retiree health premiums. As you may know, 72% of this premium is currently paid by agencies, but the new plan suggests a link to the cost of living; ultimately, this means workers/retirees will pay a higher percentage of the total themselves.

At this point, the Senate still has to agree, and a few other pieces of the jigsaw are missing, but the budget plan could also remove the supplemental benefit for all those who retire before the age of 62. For many, this is thousands of dollars and therefore a very big decision. Considering many fire-fighters, law enforcement officers, and other federal workers are forced into retirement at 57, this is a huge financial blow.

If you have been in the industry for some time, you will know both the Republicans and the Democrats have attempted to reduce federal benefits multiple times. Up until now, professional associations, including unions, have done well to fight them off, but could this be a battle too large?

According to the President of the National Active and Retired Federal Employees Association, Richard Thissen, the budget creates a platform of broken promises and reduced benefits for all. Meanwhile, Tony Reardon, the President of the National Treasury Employees Union, believes the effort is ‘mean-spirited.’ With both active and retired feds paying for tax cuts for the rich, Reardon believes it is a step too far after already losing $200 million in the deficit reduction; in addition to the three-year federal pay freeze.

Currently, the Senate is on a different budget path but this will soon come to an end, and they will start to listen to various House packages. With this in mind, we are very much in the nail-biting stage of the process. If we are to take the positives, however, the budget package needed approval via a house vote and the final results stood at 219-206 with nine members not voting at all.

If you want a role to play during this critical time for all federal employees, now’s the time to act. For most federal workers, they are not inside the Beltway but instead all around the country in every city, county, and town. If we look towards North and South Carolina, Alaska, and Oklahoma, feds are a presence. If we move to New York, Indiana, Texas, Pennsylvania, Ohio, California, and Florida, feds are a presence. In fact, the government is seen as the main employer in areas like Alabama, Ogden, Huntsville, and Utah.

In all these areas, there are local merchants who rely on the federal salary dollar. Therefore, why not remind them as well as your Congress member? Whether they voted with or against you, thank them for showing an interest and that you are watching the next election closely. Thanks to NARFE, we have a full list of members and how they voted so use your contacts, use any potential pen pals you have, and show the fighting spirit the federal employees of years gone by showed not so long ago!

Report on proposed TSP Withdrawals

Report on proposed TSP Withdrawals

This documents the details of a recently passed bill expanding Thrift Savings Plan (TSP) investors’ withdrawal options.

The withdrawal options of the TSP, which is the 401(k) equivalent for federal employees, have been expanded in H.R. 3031 (the 2017 TSP Modernization Act).

The control and flexibility that federal employees have over their TSP accounts is increased by H.R. 3031 to bring the TSP in accordance with the rules of the private sector. It enables several partial withdrawals from TSP accounts to be made by participants when they separate from federal service and also enables several age-based partial withdrawals to be made by participants who are currently employed.

Also, separated participants who initially elected to withdraw their money through periodic payments are enabled by the H.R 3031 to change their election as long as payments already made are not returned.

The bill removes the withdrawal election deadline and annuity purchase default election if a withdrawal election is not made by the participant at the deadline.

 

 BACKGROUND AND LEGISLATION NEEDS

The TSP was established by the Federal Employees’ Retirement System Act of 1986. The administration of TSP is by the Federal Employees Retirement Thrift Investment Board.

The tripartite retirement system defined contribution portion which consists of social security and pension is the TSP for employees under the Federal Employees Retirement System (FERS).

Participants in TSP have guaranteed benefits over defined contribution systems in the private sector. The design enables a passive investment management. Shares can be purchased by investors in the following investment funds:

  • Fixed Income Index Investment Fund (F Fund)
  • Government Securities Investment Fund (G Fund)
  • Common Stock Index Investment Fund (C Fund)
  • S Small Capitalization Stock Index Investment Fund (S Fund)
  • International Stock Index Investment Fund (I Fund)

 

Lifecycle funds comprising of various core investment funds can be purchased by investors, enabling the FRTIB to choose the perfect mix of shares; this is, however, dependent on when the investor starts withdrawing funds.

 

The TSP has a low administrative cost which is one of its many advantages. TSP expense ratio in 2016 was 3.8 basis points, which is the lowest in the industry. It has a very simple structural plan and a passive investment management as a result of low-cost index funds use. Examples of these low-cost index funds are the C and S Funds specially formulated to track market indices. The TSP is enabled by the economies of scale to minimize cost. About 90 percent of FERS employees in June 2017 participated in TSP with an investment of $500 billion.

 

There are many benefits that come with participating in TSP; however, the TSP account withdrawal rules are restrictive. One age-based full or partial withdrawal can be made only when in-service TSP participants reach the age of 591/2. There is also a limitation for separated participants, and they can make only one partial withdrawal. Separated employees, after some time only get a full-withdrawal option.  Once a TSP participant is separated from federal service, he or she is not allowed to take a partial withdrawal if they took an in-service age-based withdrawal. When a separated employee decides to withdraw his or her full balance through periodic payments, it cannot be stopped unless there is an entire withdrawal of the remaining balance by the participant.

 

Election to switch to an annuity purchase or partial withdrawal by a separated employee is impossible. Participants of TSP are also required by the law to carry out post-separation withdrawal election by the 1st of April in the year which follows the year a participant turns 701/2, the exact year they get separated from federal service. This deadline of withdrawal elections has nothing to do with the requirements of the Internal Revenue Service to start annual minimum distributions by the 1st of April of the year which follows the year in which the participant turns 701/2 years old and when he or she is separated from the federal service. FRTIB is required by the law to purchase an annuity for a participant of TSP whenever they fail to make an election on the election withdrawal deadline of TSP in 2014 and 2015. TSP data was examined by the FRTIB, it was discovered that plan balances were transferred by so many participants to other financial institutions from TSP at age 591/2 and when they got separated from federal employment.

In the year 2013, $9 billion was transferred by separated participants out of the thrift savings plan to other financial institutions which have higher expenses, thereby causing a reduction in the net returns of a participant which negatively impacts the readiness of his or her retirement. Twenty-seven percent of these participants cited a need for additional withdrawal flexibility which motivates these transactions while thirty-six percent cited the desire for life events to be addressed by funds.

Thirty percent of those who carried out age-based withdrawals desired additional withdrawal flexibility while fifty-two percent required life events to be addressed by the funds. Thrift Savings Plan customer service agents reported that a lot of participants are dissatisfied because they feel the restrictive withdrawal options are too much. As a result of these complaints, the FRTIB studied the present restrictive withdrawal options. The board reported that the contribution systems were still new during the period TSP was created. This resulted in a decision for withdrawal options to be modeled based on the benefit pension administered by the Office of Personnel Management in the US. Initially, the TSP had a withdrawal scheme that was formulated to mimic the eligibility of a participant for the defined benefit annuity of the OPM.

Only participants who have fulfilled the service requirement and reached the right age which would qualify them for benefit payout could carry out a Thrift Savings Plan Withdrawal that would enable them to get a direct payment. Every other separated participant was asked to transfer their accounts to another qualified plan or an individual retirement account. Many participants got confused by this structure; it was modified severly by legislative changes. Every modification caused the withdrawal options of TSP to be in accordance with the structures found in the Employment Retirement Income Security Act. However, the study carried out by the FRTIB in recent time reveals that the present TSP’s withdrawal options still differ from the private sector’s plan. As a result of this, the board recommended the enablement of participants in several partial distributions and also allowing participants who carry out age-based withdrawals to collect partial distributions once separated. This structure is found in most private sector plans. The vanguard 2013 study of the contribution plans of the private sector was also reviewed by the FRTIB; this study viewed the effects of enabling several partial withdrawals as a participant draws closer to retirement and after they withdraw from service. This study revealed that withdrawal flexibilities increment for participants resulted in a fifty percent addition in plan retention of assets and participants.

These problems are addressed by H.R. 3031 by providing extra withdrawal flexibility to participants of the TSP. Participants of TSP are enabled to make several partial withdrawals after withdrawing from government service. It also removes the prohibition on partial withdrawals after separation if the participant has collected age-based withdrawal while in service.

The bill enables in-service employees to carry out several age-based withdrawals.

SECTION-BY-SECTION

Section 1: Short title. TSP Modernization Act of 2017 is the short title.

Section 2

  • Withdrawal flexibility of the TSP account
    In this section, there is an amendment of section 8433 of the United States Code, Title 5, which consists of stand-alone provisions and changes.

This amendment involves the removal of a prohibition on TSP participants who are no longer part of government service thereby causing a partial post-separation withdrawal from their TSP account if within their in-service period they make a partial withdrawal. In this section, a TSP participant who has decided to withdraw money from his or account by purchasing an annuity is prohibited from changing his or her election on the date which this annuity contract is purchased or after the date of purchase. The revised section enables employees that are separated from government service to change withdrawal elections even when they have received periodic payments from their thrift savings account as long as money dispensed from their accounts have not been returned. Separated employees (from government service) will be allowed to change to annuity contracts or partial withdrawals from periodic payments.

In this section, a withdrawal election deadline is also removed. FRTIB requirements to purchase an annuity for a thrift savings plan participant if he or she has not carried out a withdrawal election by the 1st of April in the year after the participant turns 701/2. It enables the TSP participants to have enough time to think about their withdrawal options, without changing the required distribution rules of the internal revenue service.

Lastly, a limitation is removed by the section enabling participants of TSP who are currently employed by the federal government to carry out a withdrawal when they turn 591/2 only once during their employment.

If you have questions regarding your Thrift Savings Plan, it’s wise to seek out the help of a financial advisor or professional.

 

 

TSP – Should you play it safe? by Jeff Wiedrich

TSP – Should you play it safe? By Jeff Wiedrich

Jeff Wiedrich is the founder of Olive Creek Investment’s, LLC as well as an advisor working with government employees in the Phoenix metro area, as well as throughout Maricopa County and greater Tucson. He has extensive experience in the areas of wealth management and estate planning, specializing in the area of government employees.

The majority of federal workers have a guaranteed inflation-protected annuity for life. So they’re not too worried about being flat broke come retirement. However, pensions have changed over the years. The current FERS retirement program is quite different to the old CSRS system.

 

Most workers who retire after a full career under the CSRS system receive a starting monthly benefit. This is usually between 50% and 80% of their final salary. This benefit is adjusted each year if inflation increases. For people working and retiring under the CSRS system, the Thrift Savings Plan is a nice option. But it’s exactly that. An option, not a must-do.

 

Those still in government are now under the FERS retirement program. This means they qualify and pay into Social Security. The government then matches up to 5% of that into their TSP accounts. These retirees will not receive as generous a retirement benefit as those under the old system. There are no cost of living adjustments either. This means that over the years (during retirement), inflation will start to eat away at that government benefit. There’s no compensating for the increasing costs of everyday life.

 

Therefore, for employees retiring under the FERS program, investing in the TSP is an absolute must. You could play it safe with the TSP’s Treasury-securities G fund or the F-fund. But you may want to take a higher risk in order to reap a higher reward. These higher risk options include the C, S, and I stock funds. Another choice would be the Lifestyle (L) funds.

 

Many financial planners suggest not being too conservative. They tell their clients to invest in some of those riskier options. This is because G and F fund investments may not be as safe as they appear. A Bethesda financial planner uses three people investing the same amount each year in U.S. postage stamps as an example. Stamps are used because they maintain the same value year after year. One stamp will always mail one letter.

 

In this hypothetical situation, Bill, Jack, and Mary each have $10,000 in the TSP. Bill allocates all his money to the G fund, Jack chooses the F fund, and Mary the C fund. Every year they all withdraw enough to buy 2000 First Class stamps. Which of the three funds will last longer?

 

Bill’s G funds investment is exhausted by 2009. Jack’s F fund investment is exhausted just one year later. However, Mary’s C fund investment, the supposedly risky choice, is worth more at the end of 2015 than when she started back in 1993.

 

While past performance is not a perfect indicator of future performance, it may be worth taking the riskier road. However, be sure to consult a financial professional for a consultation if you have any questions about your TSP.

Jeff Wiedrich
Jeff Wiedrich of Olive Creek Investments, LLC

Contact Jeff Wiedrich

Olive Creek Investments, LLC
Phone: 480-887-4569

 

Jeff Wiedrich Articles

Why Federal Employees Should Verify Their FEGLI Coverage Now by Jeff Wiedrich

How to Submit Your ‘Healthy’ and Complete Federal Retirement Application by Jeff Wiedrich

Picking Smarter Investments in Your TSP by Jeff Wiedrich

Your Roth TSP and How it’s Taxed by Jeff Wiedrich

Will the 2018 Budget Resolution Impact Your Retirement?

Will the 2018 Budget Resolution Impact Your Retirement?

In the past few weeks, there’s been much talk regarding the House budget resolution and whether it will impact the federal retirement system. In truth, this is just a small step that seems to knock over several dominoes and ends with huge changes to retirement…but is this true?

 

With tax reform as a priority for Republicans, a budget resolution will be required for this, and this means new spending levels under the different legislative categories. If you were not aware, the process includes ‘reconciliation instructions, ’ and these lay out the procedures for enacting sections of the resolution to law.

 

According to the 2018 budget, there are reconciliation instructions with a focus on reducing mandatory spending over the next ten years; the target is $32 billion and, more literally, civil service pensions. In truth, this is not a straightforward process, and there are many things that have to happen before Congress can use cuts to federal retirement to offset new tax policies.

 

Regardless, we have still seen the many worries for federal employees and retirees; rightfully so, they want to know whether (or when!) they will be affected so this what we are going to break down.

 

Who Would It Affect?

Unfortunately, it is still unclear whether the proposals would impact all current employees and retirees or only future employees and there’s one main reason why; the proposals are yet to be written. For the moment, we can only use the recommendations for what they would look like for the House Oversight and Government Reform Committee. Within the House Budget Committee’s recent report, there were three main recommendations;

 

  • Removal of supplemental payments (to those retiring before 62)
  • Increased employee contributions (to the benefit pension plan)
  • Brand-new contribution pension plan for all new federal employees

 

As you can see, there’s no clearly-defined audience apart from the final recommendation since this would impact all new employees. If we look towards the budget proposal from the President and compare, we suddenly find more recommendations, including;

 

  • Changing retirement benefits to average of employee’s highest five years of service rather than three
  • 1% increase in employee contributions over the next six years (every year)
  • Removal of cost-of-living adjustment (COLA) for all FERS participants while cutting it by 0.5% for CSRS participants

 

With the President’s suggestions, both new and existing employees would be impacted. Once again, it is hard to pinpoint exactly what will and won’t happen. However, what we do know is the agreed hunger, between the Trump administration and Congress, for federal employees to contribute more toward their own pensions. Additionally, they want new employees on a defined contribution plan rather than a defined benefit pension.

 

When Will Changes Occur? – Although we hate to disappoint, this is another question with a ‘we are not sure’ answer. As we stand, there are no dates on the table from the proposal of the President or the House Budget Committee. As we know, the Senate will hold a vote on the resolution, and a reconciliation legislation would have to be submitted by the House Oversight and Government Reform Committee after developing the legislation.

 

Could the Cuts Occur Elsewhere? – Will the cuts definitely impact federal employees or could they happen somewhere else instead? In the past, Congress has a history of suggesting cuts to federal benefits to offset discretionary spending. Therefore, we could still see changes to the proposals, and there could be no changes to federal retirement at all.

 

In the past, the G Fund in the Thrift Savings Plan was once a target as was employee pension contributions. Without a magic ball, we cannot tell exactly what’ll happen, and it seems only time will show us the way!

Coming in January: 2% Federal Retirement COLA

Coming in January: 2% Federal Retirement COLA

Many federal retirees may see their annuity benefits go up by 2 percent in January, which would be considered the biggest inflation-based increase since 2012 and also an amount that is pretty close to what current employees can expect to receive as a pay increase.

The adjustment to the cost of living, or COLA, shows the increment in a consumer price index measure, which measures from the third calendar quarter from year to year. The calculation has been concluded once inflation in September was taken into consideration.

The effects on benefits will not be the same between CSRS and FERS. While more than nine-tenths of current federal employees are covered by the Federal Employee’s Retirement System (FERS), which normally encompasses those initially hired after 1983, two-thirds of the 2.1 million federal retirees still receive benefits from the Civil Service Retirement System (CSRS).

The CSRS program gives a complete COLA adjustment to every federal retiree irrespective of their age. The typical monthly annuity concerning that program is around $3,600, which means that the increment is approximately $72 per month on average.

The federal employees that retired under CSRS don’t qualify for social security advantages because of their federal service, but from other employment, they may be eligible. In a lot of instances, an offset is going to decrease the social security payments.

Concerning FERS, an inflation adjustment is not usually paid till 62 years of age, excluding the ones who retired due to incapacity or from certain jobs that demand an earlier retirement. The common civil service benefit per month under FERS is approximately $1,400, bringing an average increment for the ones who are eligible, of $28.

The ones who retired under FERS are acceptable for social security under established rules and the ones who get that gain – which normally won’t be able to begin before 62 years of age –

Will also find out that payments increased by 2 percent too.

Both CSRS and FERS increase benefits to survivors no matter their age; there are up to 530,000 of them, and benefits average about $1,600 per month under the CSRS and up to $600 per month with FERS.

Both the federal employee and retiree organizations calculate the COLA figure against the average increase regarding premiums for the next year in the Federal Employees Health Benefits program (which will averagely increase with 6.1% in 2018).

In the Blue Cross-Blue shield standard option, which is currently most popular with retirees, the monthly increases will be, for example, $15.54 for self-coverage, $36.92 for self-coverage and one additional person, and $38.39 for family coverage. However, premium rates and yearly changes differ extensively between certain plans, and in open season (beginning 13th of Nov.), retirees, as well as other enrollees, may adjust their 2018 plans.

The COLA is analyzed against the pay increase for the current federal employees, but they are determined differently. While the COLA adjustment for retirees is made automatically by the inflation count, pay increases for the present employees are concluded during the yearly federal budget process.

Congress has still said nothing concerning an increase this year, following its practice of the previous years of letting a raise be paid each January automatically, as federal pay law gives when no number is given. The default increase has been set at 1.9% per President Trump.

Some of the raise will be made aside and portioned out in different amounts that will vary by locality, leading to increments that will differ from a little below 1.9% to a little above.

More accurate numbers will be made later in the year, but if another figure is provided to the law before the year runs out, that figure will remain.

 

4 Things The Federal Government Fails To Consider About The TSP

4 Things The Federal Government Fails To Consider About The TSP

There are four important points of the Thrift Savings Plan that the federal government fails to understand and something they should keep in mind when discussing the TSP.

 

  • It’s an individual account, meaning a person can roll money they have from a qualified individual account into it. A spouse’s 401(k) cannot be rolled into the TSP. If they do have money in their account they’d like to roll over, they need to create an IRA using another custodian.

 

  • The TSP is only fundable through a payroll deduction or a qualified plan rollover. Any money in a non-qualified account cannot be placed into the TSP.

 

  • When a person reaches a certain age and can make up catch-up contributions, they will need to set up another allocation for that money. If you boost your regular TSP contributions, they stop when the elective deferral amount is reached. Thus, you lose out on the matching contributions for the rest of the year.

 

Interfund transfers and contribution allocations are not the same actions and have differing effects on the TSP account. The contribution allocation change affects money going into the TSP, not re-allocating money that’s currently in it. The interfund transfer affects money in the TSP, not any future contributions.

If you have any questions regarding your own TSP, please be sure to seek advice from a financial professional.