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March 29, 2024

Federal Employee Retirement and Benefits News

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Articles

All the latest articles covering the information that you will be craving to devour will be available via this category. From getting to know how indebted our company is to reading about the presidential elections; from knowing about new retirement plans to finding out how security breaches can affect your life; you can browse it all!

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What is the Effect of Proposed FERS Benefits Cuts?

 

 

It is quite unusual for federal agencies to publicly air out their policy disagreements in an aggressive manner. The following is an example of a case that is very unusual.

 

The Office of Inspector General (OIG) was requested by the Office of Personnel Management (OPM) not to go ahead with the publication of a report it had prepared on how some federal employees are being affected by a particular retirement computation issue. According to OPM, the OIG report would ignore other groups in federal service and appear to only favor the affected group.

 

The OIG went ahead to publish the report claiming that any Federal law enforcement personnel depends on the Retirement Services Program. In fact, OIG argued that OPM would be adopting a highly significant change in its program administration.

 

Why the Public Disagreement

 

The fact that OPM asked the Office of Inspector General not to publish the report meant that there would be much controversy leading to a heated public disagreement between the two offices.  There has been a significant reduction in the monthly annuity payment for divorced federal law enforcement officers that are in their retirement.

 

Carol Schmidlin, a FedSmith author, was the first person to come up with a public explanation of why retired federal law enforcement officers were experiencing a significant reduction in their annuity payments. The OIG report explains what appended and why there was a reduction in annuity payments for LEOs.

 

Why the OIG is keen on investigating the Issue

 

The OPM decided to reverse how a retirement annuity would be split by the agency based on the part of the annuity meant for a former spouse as ordered by the court. It is this decision that that was probed by OIG in its report that was published on February 5, 2018.

 

The main issue was that former spouses of retired federal law enforcement officers were receiving more money than the former officers. The OPM made some changes in the computation of retirement annuity, and that is why the former officers end up with less pay.

 

Why are LEOs Different?

 

The fact that law enforcement officers retire early makes them different from other federal employees. The stringent physical demands of the job make 57 years to be their mandatory retirement age.

 

OIG Recommendations

 

The OIG concluded that the new policy by OPM was not implemented in the right way and was therefore wrong. It also called for the discontinuation of the new policy and restoration of the annuity supplement for LEOs.

Why some Former Feds have a Shrinking Annuity Payment

 

 

It is quite unusual for federal agencies to publicly air out their policy disagreements in an aggressive manner. The following is an example of a case that is very unusual.

 

The Office of Inspector General (OIG) was requested by the Office of Personnel Management (OPM) not to go ahead with the publication of a report it had prepared on how some federal employees are being affected by a particular retirement computation issue. According to OPM, the OIG report would ignore other groups in federal service and appear to only favor the affected group.

 

The OIG went ahead to publish the report claiming that any Federal law enforcement personnel depends on the Retirement Services Program. In fact, OIG argued that OPM would be adopting a highly significant change in its program administration.

 

Why the Public Disagreement

 

The fact that OPM asked the Office of Inspector General not to publish the report meant that there would be much controversy leading to a heated public disagreement between the two offices.  There has been a significant reduction in the monthly annuity payment for divorced federal law enforcement officers that are in their retirement.

 

Carol Schmidlin, a FedSmith author, was the first person to come up with a public explanation of why retired federal law enforcement officers were experiencing a significant reduction in their annuity payments. The OIG report explains what appended and why there was a reduction in annuity payments for LEOs.

 

Why the OIG is keen on investigating the Issue

 

The OPM decided to reverse how a retirement annuity would be split by the agency based on the part of the annuity meant for a former spouse as ordered by the court. It is this decision that that was probed by OIG in its report that was published on February 5, 2018.

 

The main issue was that former spouses of retired federal law enforcement officers were receiving more money than the former officers. The OPM made some changes in the computation of retirement annuity, and that is why the former officers end up with less pay.

 

Why are LEOs Different?

 

The fact that law enforcement officers retire early makes them different from other federal employees. The stringent physical demands of the job make 57 years to be their mandatory retirement age.

 

OIG Recommendations

 

The OIG concluded that the new policy by OPM was not implemented in the right way and was therefore wrong. It also called for the discontinuation of the new policy and restoration of the annuity supplement for LEOs.

Retirement Crisis in America: How policymakers are Failing

Some predictions by futurists might appear like pure science fiction, but it is interesting to know that some of them might turn into reality. For instance, the prediction that some people will live more than 130 years in the coming years seems a possibility with the recent advancements in nutrition, lifestyle, and medicine.

 

The math of retirement savings is bound to change with the current trends. In the recent years, most people have become aware of the looming retirement crisis as the writing is already on the wall. Examples of recent events that signify a looming crisis include; an ineffective self-funding retirement, social security becoming the primary source of retirement income, and the end of corporate pensions.

 

The current retirement savings statistics are alarming and there is a need for policymakers to do something. For instance, the average retirement savings for 50 % of Baby Boomers and Gen Xers stand at $100,000 and $10,000 respectively.

 

Such figures would guarantee one a comfortable retirement in previous years, but that is no longer the case. As a result, millennials are bound to face a retirement crisis due to the ever-increasing financial pressures, which means that millions of Americans will end up living a retirement life full of financial challenges and yet they worked very hard for many years.

 

The future federal deficit is more likely to increase with the constant calls for the “safety net” to be expanded. As a result, the country is more likely to face an economic catastrophe, and that is why there are calls for policy changes. There is a need for policymakers and the insurance industry to come together and design policies that will save this country from the impending financial tragedy.

 

Techniques such as risk pooling can be adopted by insurance companies to minimize the risks that millions of Americans are likely to face when they retire. It is essential to have a reliable and protected retirement income for both derail and public sector employees, and this takes a collective effort self-regulatory, federal, and state policymakers to come up with the right policies for retirement benefits.

 

The current disclosure requirements and standards of conduct are inconsistent, complex, and multiple. As a result, there is a lot of confusion and increased costs due to limited access to advice. Therefore, the current regulatory thicket needs to be addressed to improve financial education and provide financial empowerment for consumers.

Federal Benefits Cuts: How they could affect you

Proposed Federal benefits cuts: Who will they affect?

Recently, the White House announced several proposals that would reduce or eliminate some benefits for Federal employees. Some concern is valid– but at the same time, it is not yet the time for Federal employees to take action. Since the proposals are still fledging, any actual changes enacted would look very different as the two parties of the House try to change the bill to reflect their priorities and budgetary principles. Also, these changes may never actually happen! These proposals often show up, get batted back and forth between the houses, and never actually gain traction. However, it is still important to educate oneself on the potential changes and, while it is not yet time to prepare for the changes, have an understanding of the potential changes that are coming.

    What changes are coming?

One part of the proposals suggests eliminating Cost of Living Adjustments for retirees covered under the Federal Employees Retirement System, which would make it much harder for retirees to save the proper amount of money as they approach retirement, swimming upstream against the force of inflation as they approach retirement.

The FERS Special Retirement Supplement would also be removed for employees who retire before the age that they would be eligible for Social Security. Annuities would also be calculated based on the highest five years of pay while employed, as opposed to the former three.

What can federal employees do?

While there is no reason to lose sleep over these changes as of yet, there are a few things that federal employees can do, just in general: firstly, joining an advocacy group for federal employees, and secondly, to find the parts of your retirement you can control and take action. Cutting expenses in retirement budgeting, effectively utilizing your TSP, and opening an IRA are all excellent strategies to make sure that you are covered for the future in ways less affected by these proposals.

Altogether, this can be a time of concern for federal employees. The uncertainty, confusion and lack of stability can be distressing, but there is not, as of yet, any reason to worry. If these proposals take effect, there will be ample warning to change your current retirement plans. If you need to consult with experts on financial retirement, you can get a free consultation with Bedrock Financial Advisors (http://bedrockia.com) and start planning a better retirement today.

 

Federal Benefits for Couples

It is advisable for married partners to plan together for their future as this helps them to easily deal with life events. The following are some of the benefits that federal employees should consider when planning to get married;

 

  1. Survivor Annuity

 

It is always a good idea to notify your personnel office when you get married in order to meet the legal obligations associated with the survivor annuity. Life is so uncertain and the only way to avoid complications at the time of your demise is to enroll for the survivor annuity.

 

Therefore your spouse will avoid all the survivor annuity complications when the personnel office has his or her details. The notification should be done within the first two years of marriage but this is not mandatory. The survivor annuity benefit is paid for by two major deductions that include the permanent actuarial reduction and the standard reduction for annual annuity.

 

  1. Health Insurance

 

The Federal Employees Health Benefits (FEHB) program is another important benefit for married people. Your health plan should be notified about your new status once you get married for your spouse to be eligible for benefits.

 

Your self-enrollment status is normally changed when you get married or get a new dependant.  The changes can be made 31 days before marriage or within 60 days after marriage. A federal employee is expected to complete the necessary forms. In addition, federal employees have an option of changing from one health insurance plan to another.

 

  1. Life Insurance

 

The Federal Employees’ Group Life Insurance program (FEGLI) is an automatic life insurance plan for all federal employees. Upon being hired, all federal employees are expected to enroll for the FEGLI program. Employees fill a beneficiary form that indicates the beneficiary of your FEGLI proceeds when you die.

 

You might want to put your designation to your spouse when you get married. Both employees and retirees are expected to fill the SF 2823 for their spouses to benefit from the FEGLI proceeds. The FEGLI coverage can be increased by different life events and one of them is marriage. New enrollment after marriage makes it possible for you to benefit from an increased coverage. The enrollment should be done within the first 60 days after marriage when the SF 2817 from should be completed and submitted to the human resources office.

 

Finally, it is advisable to make all the needed changes to your benefits plans by reviewing your 3102 (FERS) or Designation of Beneficiaries (SF 2808 (CSRS). This is the only way to enjoy full marriage benefits.

Who’s a TSP Millionaire?

The Thrift Savings Plan had a total of 9,599 millionaires by the end of December 2016, and this was beyond the expectations of many stakeholders. Since then, there has been rapid growth in the number of millionaires joining the plan and this is largely attributed to the rising stock market.

 

By the end of 2017, the number of TPS millionaires had grown by close to 150% when compared to the 2016 figure.  According to the Federal Retirement Thrift Investment Board (FRTIB) data, most of the millionaires have been TPS participants for an average of 28.87 years.

 

The TPS plan has over five million participants, and millionaires form close to 0.48 percent of the total participants. This is an impressive number considering the number of millionaire participants before 2012.  The stock market has been on the rise in recent months and entities such as the Dow Jones Industrial average registered their highest ever gain in over seven decades during Donald Trump’s one-year anniversary.

 

It is interesting to know that in January 2012, there were only 208 TPS millionaires in the country. Since then, there has been a rapid increase in the number of TPS millionaires in ac passing year. The following is a summary of the number of TPS millionaires since 2017;

Date                                                                                                                TPS millionaires

December 2017 23,962
December 2016 9,599
February 2016 3,272
February 2015 4,167
December 2013 1,695
March 2013 562
January 2012 208

Taking Managed Risks is Critical in Becoming a Millionaire

 

It takes some risk for one to become a millionaire.  The G fund is considered as a TPS investment option with less risk.  The only way you can lose money in the G fund is through inflation and one can end up losing a substantial their retirement savings.

 

However, it is not clear where the over 23,962 TSP millionaires in TPS plan put their funds as everyone has the liberty to make their personal investment choices. It is believed that most of the millionaires invest their money in TPS stock funds with only a small percentage of their investment going to the G fund.

 

The TPS stock fund guarantees quick returns as compared to other TPS investment options and that is why it is the choice of most TPS millionaires.  Millionaires that are willing to take more risk invest in the $1 million dollar TPS club. It is important to point out that investing in TPS as its own risks considering the 2008 loses that were recorded by the G fund and the C fund.

What is the Definition of a TSP Loan?

 

In simple terms, this is a TPS retirement account loan option available for employees of the federal government and uniformed service members. A TPS loan is of great help for eligible individuals who need to borrow cash for an emergency expense or financing a large personal project. However, this type of loan comes with potential costs and set of rules for eligible borrowers.

 

How do TPS loans work?

 

The two types of TPS loans include the residential loans and the general purpose loans.  The general purpose loans can be repaid between 1 to 5 years and eligible borrowers do not require any documentation. Borrowers can use this type of TPS loan for any purpose.

 

On the other hand, residential TPS loans are only meant for constructing or purchasing a borrower’s primary residence. The repayment period for a residential loan is between 1 to 15 years, and one must have the required documentation. There are many competitive offers for individuals in need of a mortgage.

 

There is a reduction in a borrower’s retirement funds everytime they take a TPS loan from their TPS retirement account. Your payroll office begins to deduct your loans permanents from your monthly salary after a TPS loans has been approved. The Government Securities Investment Fund’s security at the time of approving the loan determines the interest rate for a TPS loan.

 

What are the qualifications for a TPS Loan?

 

To begin with, you must be a federal employee or a uniformed service member in order to qualify for the two types of TPS loans. Second, the borrower should have finished more than 60 days after repaying a previous TPS loan and their TPS account must have a minimum of $1,000.

 

In addition, eligible borrowers are only allowed one outstanding residential and general purpose loans at any given time. A residential TPS loan cannot be used for financing an existing mortgage or renovations. The minimum loan limit is $1000 while the maximum loan limit is $50,000.

 

What are the potential TPS Loan Costs?

 

Each of the loans has its related cost despite the fact that they can help you meet your financial needs. Borrowers have to pay the normal interest that still goes back to their TPS account. Individuals that leave federal service with an outstanding loan have to pay regular income taxes on the amount when they go into default.

 

What is the Loan processing Period?

 

Upon approval, it only takes a maximum of ten days to get your loan for online applications. However, it can take several weeks for paper applications that are sent by mail.

Social Security Administration Underfunded by Congress

Social Security Administration Underfunded by Congress

The Social Security Administration is there for Americans when they are at their most vulnerable. When Americans are going through retirement, the death of a loved one, or are faced with a life-changing disability, they should not have to struggle to secure benefits.

Americans paid for these benefits while they were working via their Social Security payroll taxes. However, due to the severe budget cuts, the Social Security Administration’s (SSA) operating funds decreased by 11% since 2010 (adjusted for inflation). The SSA has also closed over 60 field offices and 500 mobile offices because of budget cuts. Around 16,000 claimants waited over an hour for in-person services in August of 2017. SSA has cut back on the number of Social Security Statements mailed out to both current and future beneficiaries. In 2010 the number was 153 million. By 2017, this number was down to just 10 million. Now only workers above the age of 60 who do not have an online My Social Security account will receive mailed statements.

Because of these cuts, far too many applicants have to go through long hold times or busy signals. In 2010 the wait time was just three minutes. Now, the average wait time is 18 minutes.

There are also long waits for disability hearings. The average wait time for a disability insurance hearing in August 2017 was 627 days. These waits are so long that thousands of disabled Americans die each year while they wait. It was reported that 10,000 disabled Americans died while they waited for their hearing in fiscal 2017. At the same time, each day around 10,000 Baby Boomers become eligible for Social Security retirement benefits.

Senator Bernie Sanders (I-Vt.) believes that Congress is “making a very bad situation even worse,” by considering budget cuts to the SSA. He does not consider these measures to be cost saving, but rather a step that could destroy Social Security.

All of these statistics and realities should send a message to Congress. It is undeniable that the budget cuts to the SSA put children, families, and disabled Americans that rely on Social Security at risk. To make matters worse, the 2018 budget proposal from President Trump decreases the SSA’s funding even more. The Senate Appropriations Committee proposed a severe reduction of around $460 million which is almost 4% of the SSA’s operating budget. Also, the House-approved 2018 fiscal appropriations legislation would keep underfunding the agency, therefore freezing the SSA’s operating budget for another year.

Interestingly, the Social Security Administration is one of the most efficient federal agencies. The agency’s total administrative expenses are less than 1% of the total benefits program. The agency is funded by workers’ payroll contributions rather than from general revenue. This makes it extremely unfair to cut SSA’s funding to help offset other federal expenditures.

With all of that in mind, why are they still cutting the agency’s budget? Some believe they are doing this in order to dismantle Social Security. They may be hoping to destroy the public’s confidence in the SSA. If enough people are frustrated by poor service, they may turn against Social Security itself. If that happens, it would be easy to cut the benefits entirely in the future.

It is time for Congress to step up and adequately fund SSA. It is necessary for them to perform vital tasks without delays for the public. Rather than decreasing their funding, the SSA’s operating budget should be increased so the agency can do its job for the American people.

Retirement Plan Dilemma for Military Personnel

Retirement Plan Dilemma for Military Personnel

 

The current and prospective military service members could definitely be affected by changes to the pension system. The new plan has a defined contribution plan that is combined with the traditional pension. However, the success of the new retirement plan for military personnel will depend on financial education.

The US military aims to secure the financial future of its members by introducing a new retirement plan. According to Pentagon officials, the new plan is an improvement of the current military benefits and pensions plan that has been in place for over 70 years.

The retirement system has undergone dramatic changes that can affect current and future members. There has been a valued pension plan for service members that serve in the Coast Guard, Marines, Air force, and the U.S Army. According to the previous plan, military personnel were entitled to a pension 50% of their basic salary as until they pass away.

However, one must serve for a minimum of 20 years in order to qualify for the legacy plan. The most unfortunate thing is that most military members never serve for 20 years. According to the military compensation director for the U.S Army, there is a need to have a retirement benefit plan that one can move with from one job to another.

Modernization of the System

According to the director of the military compensation policy, Jeri Busch, the long-term savings can be jump-started with the new program. Ensuring military readiness is the first step towards retaining talent with the force.  The new retirement plan can be compared to the private sector 401(k) plan that has a defined contribution plan and the traditional pension system.

The plan is commonly referred to as the Blended Retirement System and has been in operation since the 1st of January 2018. Therefore, new members that have been joining the military from that date would be under the new retirement program. However, members that had served at least 12 years by the end of 2017 will be entitled to the guaranteed pension under the old retirement plan.

The Big Decision 

The current military personnel, including National Guard Reserve, and active duty members have a tough choice to make concerning their retirement plan. The members have to choose between the legacy plan and the new BRS program. In fact, those that have served for less than 12 years are the ones in a dilemma. 

 Members that are not interested in the old plan will be expected to decide on the amount of money to contribute to the new plan. Civilian government employees have always been offered the Thrift Savings Plan by the federal government for many years.

Therefore, it is this plan that had been ignored for many years that will now be revived under the new retirement plan. According to the new plan, a member can start receiving up to 5% of their salary immediately after joining the new plan depending on their contributions. If one serves for 20 years, they will also be entitled to the pension under the new plan.

Shifting Responsibility 

The new plan will help members to learn how to save for their future, despite the fact that it comes with some responsibility. However, this might be a tough decision for some military personnel who feel that there is no need to abandon the legacy system if they intend to serve for 20 years. For others, the new plan is worth trying as one can move with their long-term savings when they change jobs.

The Importance of Financial Education

There is an increasing need for military personnel to receive financial education, both online and on bases, for them to understand the merits and demerits of each retirement plan. According to Pentagon officials, one has to undergo training before they can make the final decision.

The Social Security Administration May be Failing in their Role

The Social Security Administration May be Failing in their Role

There is a troubling report that revealed how most people could lose thousands of dollars in costs due to limited information about the benefits associated with Social Security. There are some negative consequences associated with cost-cutting, despite the fact that it might be a great idea.

The Social Security Administration (SSA) is a very important agency considering the services it offers to survivors, disabled people, and retirees, but its performance in the recent years has not been very impressive. The agency has undergone budget cuts in the recent years and this continues to affect its performance.

A recent study conducted by the Government Accountability Office (GAO) revealed that most retirees benefit less from the available Social Security Programs due to the fact that they have no access to critical information.

The State of Social Security

It is interesting to know that over $955 million was disbursed to approximately 62 million Americans in form of benefits in the year 2017 alone. A significant amount of that went to retirement benefits, and this is a clear indication that this is a massive program. A large number of Americans that earn an average income depend on social security programs. According to the Social Security Administration, the major of the elderly people including both the married and the unmarried ones depend on social security.

Therefore, it is important to ensure that they get the necessary information for them to fully benefit from the program. For example, elderly beneficiaries that are unmarried get more than 90% of their income from the Social Security indicating that it is their major source of income. The amount of money that one pays into the Social Security program determines what they will get in terms of benefits. The total Social Security Tax is currently at 12.4% of a worker’s wages with half the tax being paid by the employers.

However, individuals that are self-employed have to pay the entire amount as they do not have the employer portion. Therefore, one is entitled to an average of $16,500 per year in form of retirement benefits. However, individuals that retire at the set retirement age and have above average earnings can get double the amount.

 What is the Problem?

The reason why members of public fail to get critical information is that the recent budget cuts limit the capacity of the SSA to effectively serve the public. To begin with, over 60 field officers have in the recent past been retrenched limiting the agency’s capacity to help the public. For people seeking information, they have to wait longer online, on the phone, or in person as the representatives are only available for few hours.

In order cope with the issue of budget cuts, the agency has introduced more online services and has put in place measures to increase its online presence. In order to make the right decisions concerning Social Security, one has to get the right information about the available options. As mentioned earlier, most retirees depend on Social Security, hence the need for them to fully understand the available options.

It is quite unfortunate that critical information is not given to retirees and pre-retirees, as reported in the 2016 GAO report. For instance, some retirees are not aware that they can collect bigger checks when they delay their collections to age 70. Moreover, beneficiaries should be briefed on how the calculation of their benefits is done, but SSA sometimes fails to do this important briefing.

What’s Next?

It is important for you to take the initiative of getting critical information by consulting SSA in order to fully benefit from the Social Security programs. It is advisable to personally consult SSA representatives when you are not sure about something.

 

How your Retirement Income is affected by WEP

How your Retirement Income is affected by WEP

CSRS employees and retirees are usually eager to learn about the Government Pension Offset (GPO) and the Windfall Elimination Provision (WEP) provisions. The only way to understand the provision is by asking all the necessary questions. CSRS retirees are entitled to retirement benefits that are affected by the two provisions of the Social Security law.

Apart from applying to the FERS retirees, the WEP provisions may also be relevant to CSRS Offset retirees. On the other hand, being under FERS Transferees and CSRS Offset for 5 years denies workers coverage by the GPO. Most prospective and current CSRS retirees are normally left confused by most aspects of retirement regulations and rules like the Government Pension Offset and the Windfall Elimination Provision.

For instance, the WEP provision drastically reduces your Social Security benefit although it does not eliminate the benefit on your earnings. Also, the GPO Offset eliminates the Social Security benefit as the offset is so severe. There have been attempts by public employee and supporters in Congress to revise or repeal the two provisions with no success. The provisions were meant to strengthen the Social Security systems after its introduction the 1980’s, but they have failed to fulfill their purpose.

An employee’s earnings inform the Social Security benefits that are covered under the WEP provision. Therefore, one is entitled to some Social Security benefits when they earn 40 credits or quarters of coverage.

The need-related component of the Social Security System is not favorable for low-wage earners as it replaces a large portion of their income. On the other hand, CSRS employees may appear like low wage earners as the Social Security system does not cover their earned retirement benefit.

Lifetime earnings determine the Social Security benefits that one gets. The number of years of Social Security earnings determines the amount of money that will be reduced. A multiplication factor of below 90% is normally used to compute Social Security Benefits for individuals under WEP.

Individuals with less than 20 years of substantial earning, the 40% multiplication factor is normally used to calculate the benefits. For CSRS with over 20 years of substantial earnings, there is a constant increment of 5% every year. After 30 years, the multiplication factor can be at 90%.  The only way to avoid the WEP is by meeting the substantial earnings test of 30 years. This test applies to both FERS Transferees and the CSRS Offset.

There is no automatic entitlement even if you are paying for Social Security and the CSRS Offset.  You can easily find out your years of substantial earnings or compare your earnings record from the substantial earnings chart if you are a FERS Transferee or CSRS Offset.

At the end of every year, only few FERS Transferees and CSRS Offset get the Social Security Statements without having to personally request for them. The statements are normally issued by the Social Security Administration agency that serves retirees and other beneficiaries. Other beneficiaries can only get their statements by visiting the Social Security website. In this case, one has to open a Social Security account in order to obtain their current Social Security statements.

The Social Security website contains a lot of important information about the WEP and GPO provisions. The most unfortunate thing is that SSA computers do not recognize CSRS employees that are covered by the WEP provision. The WEP calculator on the Social Security website can be used to compute your benefits. However, you can also compute your benefits by cutting your monthly benefit by half when it is less than $885. Also, one can also compute their benefit by subtracting $443 from their monthly benefit when it is greater than $816.

Pay Right Away or Wait for Later

Pay Right Away or Wait for Later

In previous years there was a series of advertisements that involved an auto mechanic trying to market a particular brand of oil filters to viewers. At the end of the commercial, there was a warning reminding viewers that they could pay immediately or wait and pay later.

The warning meant that failure to immediately buy an oil filter would lead to extra costs as dirty oil would cause a lot of damage to the engine.

The same concept is applied when it comes to retirement savings programs where one has an option of paying lower taxes now, or risk paying higher taxes later. The federal Thrift Savings Plan is a perfect example of retirement savings programs that apply to this type of investment concept.

The two types of balances provided by the federal Thrift Savings Plan allows an investor’s earnings to compound over the years without tax reductions.

The fact that pre-tax dollars are normally put into investments for traditional balances means that individuals with higher income benefit from the substantial up-front tax break. However, there is full taxation for the earnings and the other amount upon withdrawal.

On the hand, after-tax money is used to make investments when it comes to “Roth” balances. Such investments do not attract any taxes on withdrawal but the participant should be deceased, disabled, or at least bet 59 ½ years old. In addition, one has to wait for at least five years in order to make a withdrawal.

As an indication that this choice is critical, there has been a debate in recent years over tax policy on Capitol Hill. Putting limits on the traditional balances investments is one way of offsetting lost revenue in instances where tax cuts are made introduced. Setting a lower threshold has been the latest suggestions where any extra amount above the threshold for those above 50 years should only be invested after tax.

For now, the new ideas have not been implemented as most sponsors feel that Roth investments may only have short-term revenue benefits. The discussion is healthy as it is important to remember that a person’s retirement finances are at stake as considering the long-term effects.

 

The Centre for Retirement Research Report

According to this report, the participant’s taxes were immediately cut by the traditional 401(k)s contributions but this remains an issue of perception. A typical participant may not be attracted by Roth 401(k)s due to lack of tax relief.

However, it is good to know that you can only spend the money in your account. In this case, participants are guaranteed full support in retirement as the Roth account does not attract other taxes. Upon withdrawal, there will be taxation on the traditional account funds as the account balance is typically higher than the support funds.

Consequently, TSP investors have to make a decision on where to invest every pay period and what proportion to invest. Investors can choose to invest in the two plans but can opt out if the annual limits are less than the combination. However, the investor may also decide to stick with the combination. 

Traditional investment attracts lower taxes on withdrawal as the retirees are classified in lower tax brackets. This is the major advantage associated with this type of investment. On the other hand, a tax-free withdrawal is the main benefit associated with Roth investments.

According to the report, there are some instances where an investor has no control over certain variables as the decision is very complex. There is a general perception by participants that they are more likely to have a lower tax rate in retirement considering the fact they will be living on less.

However, the ever-increasing federal budget deficits might make future Congress raise taxes due to the dynamic nature of the tax system. Therefore, the Roth choice is rarely applied in the TSP as a result of such complexities. For a TSP account with $500 billion, Roth balances should only be $8 billion.

Military personnel have a high rate of Roth balances, and this can skew the amount. Until 2012, the only type of investment allowed in TSP was the traditional system and this is the reason why there is a movement towards this type of investment.

For questions on your own TSP, please reach out to your local financial representative.

Recent Rise in Social Security Figures

Recent Rise in Social Security Figures

The new Social Security withholding tax of 6.2% takes effect on 2018 salary, or self-employment income, up to $128,400 (which was previously $127,200). The Social Security Administration (SSA) initially announced $128,700, which was later reduced by $300.

For FERS workers, the tax remains at that figure, but CSRS Offset workers/employees continue to pay it. The money also goes into the federal retirement and not the social security trust fund (SSTF) account anymore. Moreover, CSRS employees do not pay Social Security taxes, but their money goes into the federal retirement fund.

The 1.45% Medicare tax that all employees pay has no limit, but sometimes it is added to the regular FICA tax and tagged as Social Security tax. Even in that case, only the FICA part is apportioned to Social Security.

For beneficiaries of Social Security retirement benefits, the annual earnings limit applying to a beneficiary aged 62 through 66 (full retirement age) has increased from $16,920 to $17,040. $1 is deducted from a beneficiary’s Social Security benefits for each $2 he/she earned above the $17,040 limit. There is also a different earning test which applies to earnings for months in a particular year that a beneficiary attains full retirement age (66 years), but before the beneficiary reaches 66 years old. $1 is deducted from the beneficiary’s Social Security benefits for each $3 he/she earned above $45,360, up from $44,880. No limit is placed on what an individual earns starting from the month he/she reaches age 66 (full retirement age).

For the purpose of computing the benefit offset using the Windfall Elimination Provision (capable of reducing Social Security benefits of retires under CSRS), there could be an increase in the minimum annual substantial earnings from$23,625 to $23,850.

USPS Offers Early Retirement to 26,000 Employees

USPS Offers Early Retirement to 26,000 Employees

Owing to declining mail volume, there is a need for the U.S. Postal Service to reduce its workforce. The retrenchment process has started already, as 26,000 postal clerks and mail handlers have been offered early retirement.

All eligible workers who accept this offer have been given the end of March as the deadline to leave USPS. However, under the early-out agreement, eligible employees have the choice of picking either January 31 or February 28 as their retirement dates. Individual notices will be served to all eligible postal workers who meet the conditions for early retirement.

For any affected USPS worker to qualify for the Voluntary Early Retirement Authority (VERA), they must meet certain criteria. They must have been public workers for a minimum of 20 years and at least 50 years of age, or they must have been public workers for 25 years at any age. OPM has given USPS the permission to go ahead with the early retirement offers, but workers who accept the offer must not be offered any buyouts.

Alan Moore, USPS’s Manager of Labor Relations Policies and Programs, wrote a notice to the President of the National Post Mail Handlers Union (NPMHU) that “There will be no separation incentives associated with the [voluntary early retirement] officers.”

The NPMHU which represents all USPS mail handlers and clerks has given all its members a list of ultimatums regarding when their retirement documentation must be submitted.

USPS recorded a net loss of $2.7 billion in fiscal 2017, making it its 11th year of uninterrupted financial losses. It also recorded a higher drop in mail volume in the fiscal year 2017 than what was predicted.

Between Dec. 2016 and Dec. 2017, USPS downsized its workforce by 6,500 non-seasonal employees (Bureau of Labor Statistics, 2018). There are over 600,000 employees including more than 500,000 career workers currently in USPS.

According to Carl Walton, a spokesman for USPS, “This VERA action is part of ongoing efforts to right-size our workforce through attrition to match current and projected workload, and in response to the recent acceleration of the declines in mail volume.”

Following the ongoing government reorganization strategy of Donald Trump administration, other federal agencies have also downsized their workforces in the past year.

Last summer, over 1,200 employees of the Environmental Protection Agency (EPA) were offered $25,000 buyouts. Additionally, over 3,600 employees were offered early retirement by the agency, but less than 200 employees out of the 3,600 accepted the offer before the September deadline.

The Special Retirement Supplement

The Special Retirement Supplement

There is a financial difference between the calculation of annuity under the threatened high-5 formula and the current high-3 formula. Also, there is a new legislative proposal that calls for the elimination of the special retirement supplement (SRS) and it is not clear what would happen after the proposal has been introduced.

According to the current policy, a FERS employee is entitled to a Social security benefit and an immediate, unreduced annuity when they retire before 62 years. The system is meant to replace your retirement income value before one can officially begin to receive their benefits when they reach age 62. In order to qualify for the immediate, unreduced annuity, one must;

  • Serve for 20 years and retire at age 60
  • Serve for 30 years and retire at the Minimum Retirement Age of 57
  • Retire voluntarily at the Minimum Retirement Age
  • Voluntarily retire early at the Minimum Retirement Age

You cannot be eligible for the SRS if you retire under the minimum retirement. Also, disability retirees and deferred retirees do not qualify for the special retirement supplement (SRS).  However, a complicated formula is normally used to determine the amount of the SRS. The data that is used in this type of computation isn’t available for beneficiaries. Therefore, one can get a rough estimate of the amount by using another simple formula provided by OPM.

In this case, you only need to multiply your years of FERS service by the SSA Social Security benefit estimate and divide the result by 40 after rounding off the product to the nearest whole number. It is during the day of one’s retirement that the SRS is established. It is also important to point out that SRS is a fixed amount and the cost of the living adjustments does not in any way affect the fixed SRS amount. Also, the amount only becomes a social security when you reach the age of 62.

The Civil Service Retirement and Disability Fund provides the money used to fund the SRS program. This type of arrangement only applies to the FERS service. The SRS has a limit when it comes to annual earnings just like a normal Social Security Benefit. For every $2 above the annual earnings limit, your SRS is always reduced by $1. The rule is applied on earnings from self-employment as well as earnings from wages.

However, the limit rule does not apply to individuals that retire before the Minimum Retirement Age, but they must be traffic controllers, firefighters, or law enforcement officers. For such cases, the SRS is not in any way reduced even if they exceed the earning limit.

The special provision only ceases to apply when the mentioned individuals reach their Minimum Retirement Age. In other words, traffic controllers, firefighters, and law enforcement offices are not exempted from all earnings limit when they reach the Minimum Retirement Age.

The abolition of SRS will come with its implications for workers and some of them may not be attractive. To begin with, individuals that retire before age 62 will only be entitled to the FERS civil service annuity before they can be eligible for social security benefit at age 62. Second, one will be left to decide on how they will survive as the government will not be able to fill the income gap.

Failure to retire as early as expected means that one might fail the eligibility test for social security benefit.  Some of the coping tactics that one might adopt include living frugally or taking another job. Also, one might end up using up their investment or TSP faster than expected. However, it is too early to tell whether the SRS will be abolished or not.

Earning Social Security Credits by Jeff Spencer

Earning Social Security Credits
By Jeff Spencer

Jeff Spencer developed his passion in helping others with financial planning at a very young age while enlisted in the Air Force, stationed in England working on aircraft as a crew chief. Over the years, Jeff has continued with his passion and recognizes how money can become a powerful tool that should be used to deliver safety and protection in our lives.

For each of your working years which you pay into Social Security, these wage amounts get recorded to your Social Security file. Based on the amounts you’ve earned from these wages, you earn Social Security credits for them. When you apply for Social Security benefits later on for things like retirement or disability, your eligibility to get these benefits is determined by the number of credits that you’ve earned.

Getting more credits from Social Security matters for both your current employment and future employment, once you’ve departed from your current federal position. Workers who are covered by CSRS are concerned about this because they will likely want to continue working until they’ve earned enough credits to be eligible for benefits. Prior to their CSRS career, people usually have credits already that they’ve earned from previous employment and military service. They could have also earned the credits on the side, although not the required 40 credits.

Federal employees who are covered by FERS or CSRS don’t need to be concerned because they earn credits for Social Security throughout their careers with the government. It is more of a concern for people with shorter careers, like people who didn’t start working until they were older or those who went a long time without working at some point. These people would likely not have enough credits necessary to claim the benefits.

Only those who are paying into Social Security can earn credits. This is the deduction entitled “FICA” or “Social Security” which you see on your pay stubs or statements.

Please contact a financial professional if you have additional questions about Social Security, or any other retirement options.

Contact Jeff Spencer

Heartland Retirement Group
HRG4Life.com

Phone: 513-903-7551

Email: [email protected]

Jeff Spencer Articles

Article: What Becomes of Your Benefits Upon Leaving and Returning to Federal Service? By Jeff Spencer

Article:  Breaking Down the TSP By Jeff Spencer

Article: Getting the Best Deal on Life Insurance by Jeff Spencer

TSP Investors Failed to Benefit from 2017 Emerging Market Gain

TSP Investors Failed to Benefit from 2017 Emerging Market Gain

 

Many Thrift Savings Plan investors benefited in 2017, but many also failed to take advantage of the 37.2% emerging markets gain. The reason is that they couldn’t access these markets through the plan’s collection of funds.

In 2017, there was a 2.3% increase in the G Fund and a more than 3.8% increase in the F Fund. The C Fund had a 21.8% increase and the S Fund had an 18.2% increase. The biggest increase was the 25.4% that the I Fund had. Despite all this good news for 2017, the I Fund stayed behind in numerous other international index funds. One of these funds was the Vanguard Total International Stock Fund. The I Fund lagged due to being too concentrated in Europe and Japan.

You can benefit from I Fund exposure, but if there are shortcomings in it, you need to use other investments to balance the I Fund out.

 

Exposure to the Emerging Markets and its Importance

The emerging markets have roughly 24 countries that are developing more with thriving capital markets, like India, China, South Korea, South Africa, Brazil, Taiwan, and so on. These countries make up most of the global population and they have fast-growing economies that are actually surpassing the economies of developing countries.

Between the 5 years of 2002 and 2007, investors received a 500% return from the emerging markets. In 2008, during the global recession, these gains were lost for a brief time but were quickly gotten back. However, there were flat returns in the emerging markets for almost 10 years.

All of this fluctuation in the markets was because of valuation changes. The performance of stocks depends on the financial success of companies and the affordability of stock prices in relation to the fundamentals of buying and selling them.

The economies of these countries gradually increased over the last 10 years, which meant companies in these countries continued to see bigger profits. But since the average valuations had a reduction, the gains were offset and their performance became flat as a result.

Now, in 2018, the emerging markets are probably not going to have as successful a year as they did in 2017. The markets could even decline under specific conditions. On the upside, the valuations show that the performance of the emerging markets will probably be much better within the next 10 years than they were within the previous 10 years.

Retirement Processing Efforts Doubled Before Surge in January

Retirement Processing Efforts Doubled Before Surge in January

The Office of Personal Management was very busy last month, especially compared to November. The agency was preparing for an annual rush of new requests for retirement claims. In December, OPM processed more than twice the number of claims they processed in November.

In the past few months, fewer retirement claims were being processed for two reasons. First, staff members were prepping for the rush of claims that comes each January. Also, the OPM did not have adequate funding to pay for the overtime that would have been necessary to process more claims.

However, in December, the agency drastically increased its efforts in processing claims. In that November, they processed 5,138 claims. In December, they more than doubled this number to 10,347. This is the highest number of claims they have processed in a single month since March 2017.

This crackdown on processing retirement claims, as well as a fairly low number of claims received in December, led to a large dent in the retirement backlog. That number is now at only 14,515. OPM’s target backlog number is 13,000.

OPM’s monthly report also stated that the agency is changing how it measures the success of its processing efforts. The agency has always provided information on the percentage of claims processed within 60 days and the average time it takes to process a case both within and beyond 60 days. Starting in April, OPM will provide the raw numbers as well as the average processing time on both a monthly and fiscal-year-to-date basis.

With this new reporting system, the average processing time on a monthly basis decreased from 68 days in November to just 60 days last month. Fiscal 2018 began on October 1. So far in this fiscal year, the average processing time for a claim was 63 days. This is down 3 days from what was reported in November.

January is usually a very busy time for OPM in regards to retirement claims. The agency often receives over 15,000 claims each January.

Getting the Best Deal on Life Insurance by Jeff Spencer

Getting the Best Deal on Life Insurance
By Jeff Spencer

Jeff Spencer developed his passion in helping others with financial planning at a very young age while enlisted in the Air Force, stationed in England working on aircraft as a crew chief. Over the years, Jeff has continued with his passion and recognizes how money can become a powerful tool that should be used to deliver safety and protection in our lives.

For Basic FEGLI coverage, federal employees must pay two-thirds of the premium rate while employers in the private sector typically cover the cost of their employee’s basic coverage. Once covered by FEGLI, everyone pays the same premium no matter their health status, which differs from the individual coverage where premiums usually depend on the health of the person seeking coverage. Because of this, FEGLI could appear relatively more expensive, especially if healthier federal employees compared it with plans that they could potentially receive from private individual coverage.

Basic FEGLI and Option B (the option that covers your life for one to five multiples of your annual basic salary) automatically increases in value as your salary increases. This is the case regardless of pre-existing health conditions and age. The option B and C (which covers the lives of your eligible children and spouse) can also be increased in the event of a birth, marriage, divorce, adoption of a child or the death of a family member, without proof of insurability. One way that Option C can be used is to cover an individual who may not be eligible for life insurance on the private market because of poor health or age. Option C has a major drawback though since no more than $25, 000 in life insurance is provided on your spouse.

Due to Optional FEGLI’s increasing premiums, it’s wise to revisit your life insurance needs after every five years (when the premium adjusts). Insurance policies that were necessary at the time you got married or began a family may not be relevant once you are close to retirement, or your children become adults, or your mortgage is finally paid off. Also, don’t forget to update your beneficiary designation!

Bear in mind that you are covered by FEGLI regardless of your hobbies or occupation, and beneficiaries typically get paid no matter what the cause or place of death was. Unlike many other private sectors, FEGLI also provides coverage for retirees.

Survivor Annuity vs. FEGLI

Upon death, FEGLI provides a tax-free, lump sum benefit to your beneficiary. However, this should not be considered a substitute for the survivor annuity election (under either the Federal Employees Retirement System or the Civil Service Retirement System). For example, let’s say a federal employee would receive a $20,000 benefit (payable from FERS basic retirement). If that employee were to stick to the FERS spousal survivor benefit, then the retirement could be reduced by $2, 000 per year, or 10 percent, thus, leaving a benefit worth $18, 000 (as a reduced taxable retirement income). When the maximum survivor benefit is chosen, then the surviving spouse will be provided with a lifetime annuity of 50 percent of the unreduced retirement benefit, which also includes future adjustments for inflation.

If that same federal employee decides to keep FEGLI Option B coverage up until retirement and beyond, and has held this coverage for five years before retirement, then if that employee dies before their spouse, the proceeds of the insurance could be used by the surviving spouse. Also, it can serve as a replacement for the income from Wanda’s FERS retirement benefit. Let’s say Wanda’s five multiples of Option B coverage worth is $320, 000 ($64, 000 x 5). The coverage costs $138.67 per month before Wanda turns 60, at age 60, the premium would have doubled to about $304.86 a month. When she clocks 65, the cost would also have reached $374.40 monthly, and until she is 80, this will steadily rise every five years.

Always bear in mind that the money used for the settlement of these premiums are derived after deducting tax and the surviving spouse is entitled to a minimum of survivor annuity to continue coverage under the Federal Employees Health Benefits Program. Despite the fact that a surviving spouse may require more income than the spousal FERS or CSRS, if you die first, the survivor annuity has a provision of replacing your retirement benefit, in later years, FEGLI can become prohibitory to cost and is not a perfect substitute.

FEGLI Facts

In conclusion, these are some of the things you should remember about FEGLI:

  • FEGLI provides accidental death and dismemberment insurance for employees as part of its basic coverage at no additional cost.
  • If you cancel FEGLI, there is no refund of premiums.
  • If you are diagnosed with a terminal illness, FEGLI includes a “living benefit,” which is payable from your basic life insurance before your death.
  • It is group term life insurance. It does not build up cash value.
  • Although your beneficiary will be paid irrespective of the cause or location of your death, if your beneficiary causes your death intentionally there is however an exception.
  • You can’t take a loan out against your FEGLI insurance.
 If you need additional information when it comes to your own FEGLI, contact your local financial professional.

Contact Jeff Spencer

Heartland Retirement Group
HRG4Life.com

Phone: 513-903-7551

Email: [email protected]

Jeff Spencer Articles

Article: What Becomes of Your Benefits Upon Leaving and Returning to Federal Service? By Jeff Spencer

Article:  Breaking Down the TSP By Jeff Spencer

What Becomes of Your Benefits Upon Leaving and Returning to Federal Service? By Jeff Spencer

What Becomes of Your Benefits Upon Leaving and Returning to Federal Service?
By Jeff Spencer

Jeff Spencer developed his passion in helping others with financial planning at a very young age while enlisted in the Air Force, stationed in England working on aircraft as a crew chief. Over the years, Jeff has continued with his passion and recognizes how money can become a powerful tool that should be used to deliver safety and protection in our lives.

 

Are you considering leaving the Federal Service, or have you wondered what would happen if you did? Many are unaware of what will become of their benefits upon departure from federal service before retirement. Another common question is what would happen to them if they were to return to service.

It’s not as unusual to return to federal service after a break in service as one might think. Some people get caught up in the “grass is greener” belief, only to find that they may be wrong wrong after all.

After coming back to federal service (assuming that you are returning to a permanent position), you can continue in or enroll in all of the benefits for which you are eligible, such as life insurance, health insurance, etc. If before you left you had FEHB and decide to pick it up immediately after your return, then your coverage, for the purpose of meeting the five-year requirement, would be considered “continous.”

If your break in service within less than 180 days and you had a FEGLI, you will be eligible for enrollment in the FEGLI coverage you had at the time of your separation, and would not be permitted to select any other coverage. However, If your break in service was 180 days or more then you would not only be enrolled with your previous FEGLI coverage, you would have the option to elect other coverage as well.

At the time of your resignation, any sick leave you had at that time would be re-credited. Based on your length of service, you would begin earning annual leave (including the service that took place before your resignation).

Although you will not be able to re-contribute the funds that you withdrew from the Thrift Savings Plan after resignation, you will be able to make contributions again. If you had rolled the funds from your TSP into another qualified account, you would be able to roll that account into the TSP.

Your retirement coverage is directly dependent on what your retirement system was when you resigned, as well as the duration of absence from federal service. For example, if you were FERS at the time of resignation, you would return to FERS. If the credible civilian service at the time of your resignation is less than five-years, you would contribute 4.4% (or 4.9% if you returned to a position covered by the special provisions for firefighters, officers of law enforcement, etc.) of your salary to the FERS system. This happens regardless of how much you were contributing at the time of your departure. If you had five or more years of creditable civilian at departure, you would contribute to FERS when resigning, at the same rate you did before you left.

The rules would differ if you were CSRS before your resignation. Chances are that as CSRS, you may already be eligible for retirement, although this doesn’t apply to all CSRS employees.

The following is for the CSRS employees who have not reached retirement age when they opted in for a resignation:

  • You would be required to be covered by Social Security if your break in service was for more than a year. You would need to choose between CSRS Offset and FERS as you would no longer be able to remain as just CSRS.
  • You will have the option to elect FERS coverage when you return as long as your break in service was more than 3, but less than 365 days.
  • If at the time of departure you were CSRS Offset but chose to elect FERS when you return, the entire amount of your CSRS Offset time that you had before resignation would be treated as FERS service.

You will have the opportunity to re-deposit any CSRS or FERS retirement contributions that you withdrew when you resigned, regardless of which retirement system you were a part of.

If you need assistance, please make sure that you contact a local financial professional:

Contact Jeff Spencer

Heartland Retirement Group
HRG4Life.com

Phone: 513-903-7551

Email: [email protected]

More Jeff Spencer Articles:

Article:  Breaking Down the TSP By Jeff Spencer
Article: Getting the Best Deal on Life Insurance by Jeff Spencer
Article: Earning Social Security Credits by Jeff Spencer

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