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March 28, 2024

Federal Employee Retirement and Benefits News

Category: Tiffany Jones

Tiffany Jones

TSP: Major Changes

Major Changes to the TSP

tsp

There are big changes on the horizon for the Thirst Savings Plan (TSP). Current employees will not see any modifications to the original terms set when they enrolled in TSP, but new employees and employees who are reinstating after a break in service will fall under the new guidance laid out for TSP.

Starting September 5, The Federal Retirement Thrift Investment Board will implement new regulations for new federal employees. All new or reinstated employees, with a zero balance in their TSP will no longer deposit 3 percent of their paycheck into the G Fund, but a riskier investment plan. All future deposits made on behalf of an enrollee who does not already have contribution allocations in place will be enrolled into an age-appropriate TSP Lifecycle Fund.

This will mark the first time since 2010 that federal agencies began automatically enrolling new employees into the TSP with the G Fund as the default. The dramatic investment change was ratified by Congress last July.

The request for a change in tactics came in 2013. The Employee Thrift Advisory Council, which advises the TSP board on investment policies and administration matters. The board is comprised of representatives from employee organizations, unions and uniformed services. The motion for change was passed in November of 2013.

Federal Retirement Thrift Investment Board worked to pass the motion because while enrollment in TSP dramatically increased with automatic enrollment; it was realized that new employees under the age of 29 had too much money invested into the G Fund. The high deposit rates are most likely due to few employees opted for alternate investment options.

The Board also found that by diversifying more deposits into the Lifecycle Funds a larger proportions of their total configuration would go to the G Fund.

The Lifecycle Fund, or L Fund’s strategy is to invest a more appropriate mix of the G,F,C,S and I Funds to be more conducive to an employees’ time horizon or target retirement date. As a target date approaches, the investment mix of the enrollee’s target date will become more conservative.

L Funds mix TSP’s government securities, common stock, small cap stock and fixed income bonds. In short, the L Fund is made up of investments from all other federal TSP funds; these funds are designed to contain more risk earlier on in an employee’s career and then gradually switch over to safer stocks as an employee’s career begins to wind down.

“The objective is to strike an optimal balance between the expected risk and return associated with each fund,” stated the TSP website.

The new retirement deposit approach will remain effective it is either superseded by a following contribution allocation or the account balance is reduced to zero.

Currently, federal enrollees are automatically enrolled in the G Fund at the time of their in-processing, unless the employee chose another option. Furthermore, the employee was also required to acknowledge that their financial investment decision was made at their own risk. When alternate deposit options are picked, the employee is also stating that they will not be protected by the United States Government of the Board against any loss on the investment; additionally, the United States Government, nor the Board guaranteed a return on investment.

So far this year, all of the Lifecycle Funds were negative for the month of August; only the G Fund was positive. While the Funds are considered much riskier, they stand to yield a higher return on investment.

Nearly 45 percent of the TSP’s $450 billion in holding is invested into the G Fund. However, as the default investment paths change the G Fund is set to dramatically drop. Fears have arisen that current employees with deposit options in the G Fund would no longer benefit from the stable account.

It has also been stated that the G Fund would no longer be an attractive option if returns are unable to keep pace with inflation. Should this occurs, serious damage would occur in the TSP and lead to costly administrative changes.

The Board will ensure that all employees are notified of the newest default plan and the employee’s option to request a refund of any default contributions.

While many are cautious about the change, the Board feels that change will provide a benefit to many future federal employees. While rates are uncertain today, there is confidence that they will be positive for the future.

However, many employees are not sold on the proposed new system. Around 73 percent stated that they opposed adding mutual funds to the TSP, and 78 percent stated that would elect to invest into the mutual funds if they were an available option. Furthermore, of those who said that they would not invest into a mutual fund, 80 percent said they would not be willing to do so even under the guidance of a financial advisor.

Open Season: A Rare Time for FEGLI

FEGLI – A Rare Open Season

open seasonThere is a huge window of opportunity approaching, for the first time in 11 years the Office of Personnel Management (OPM) is permitting an open season for the Federal Employee’s Group Life Insurance (FEGLI) from September 1 to 30, 2016. In conjunction, the new 2016 premiums rates for FEGLI plans were also announced.

During the month-long open season, eligible federal employee can elect or increase their FEGLI life insurance through an online submission to their human resources office via the Employee Benefits Information System (EBIS).

“FEGLI open seasons are extremely rare, and the most recent open season was in 2004. This is great news” said Steve Beem, Human Resource Specialist assigned to the Fort Leonard Wood Civilian Personnel Advisory Center. Prior to 2004, there was an FEGLI open season in 1999.

The FEGLI program provides optional term life insurance for federal employees, with the option for the coverage to follow them into retirement. The basic form coverage is equal to the employee’s salary rounded up to the next $1,000 with an additional $2,000. Employees share the cost of being enrolled into the program. Employees pay two-thirds of the cost, with the exception of Postal Service employees, who relish in the Postal Service paying the full amount for its employees. Retirees are obligated to pay the entire cost.

Outside of the open season federal employees are only eligible to enroll or increase their FEGLI coverage in the instance of a life event, and retirees are not eligible to increase the coverage they carried over to retirement.

Underneath the newly adjusted 2016 premium rates, effective January 1, the following changes will be made to the FEGLI premium rates.

An employee with basic insurance coverage under the age of 65 is currently paying $2.27 per month, and will pay $2.46 next year; while a retiree over the age of 65 will pay an increased premium of $2.13 from its current $1.94. The premium increase for retirees is close to 10 percent.

Employees with the optional $10,000 add-on coverage will see a decrease in their premiums from 60 to 40 cents biweekly; with the exception of retirees, who will see no change to their current premium rate.

Also, employees who have elected for additional coverage in multiples of salary will experience a decrease in their premium rate, with the exception of enrollees 75 years of age and older.

Employees with family coverage up to the age of 35 will not experience a rate change. Employees ranging from ages 35 to 59 will enjoy a slight decrease in premium rates, while employees 60 to 69 maintain steady premium rates. Active employees 70 and older will pay a higher premium in 2016.

In the OPM notice, it was noted that “the legislative structure of the FEGLI Program assumes that we set premium rates for each age band independently of the other bands so that each age ban is financially self-supporting.”

However, federal employees need to be wary that the changes they make to their FEGLI benefits in September of 2016 will not become effective until the first full pay period of on or after October 1, 2017. OPM’s reason for the extensive delayed effective date is to minimize the risk that “less healthy individuals,” will use the rare occasion to increase their coverage.

The announcement of the uncommon open season and adjusted premium rates comes on the heels of the OPM announcing that premiums in the Federal Long Term Care Insurance Program had increased its premiums with no prior warning.

Historically, FEGLI open seasons are triggered by a change in the law or by trends in claims. “OPM has completed a study of funding and claims experience within the FEGLI Program. Based on this updated actuarial analysis of actual claims experience, OPM has determined that changes are required…These changes reflect updated mortality and claims rates from actual program experience with each FEGLI category,” stated a notice from the OPM Office.

According the OPM, a meager 7 percent of federal employees are enrolled in the long-term care program while an impressive 82 percent are enrolled in the FEGLI program.

FEGLI was established August 29, 1954 and quickly became the largest group life insurance program in the world; the program provides coverage to more than four million federal employees and retirees, to include many of the employee’s family members.

Normally, new employees are automatically enrolled into the basic term life insurance program with an automatic debit from the employees’ paycheck; unless the employee waives the coverage. For employees to receive the additional coverage options, they must take action to elect them; employees are not automatically enrolled as they are for the basic coverage.

The Office of Federal Employees’ Group Life Insurance is a private entity that has a contract with the federal government. The Office processes and pays claims beneath the FEGLI program.

OTHER FEGLI RELATED ARTICLES:

What is FEGLI Option A, Option B and Option C?

Evaluating your life insurance policy by Todd Carmack

Converting FEGLI to Individual Life Insurance After Separation From Federal Service

Who Gets Your FEGLI Life Insurance Benefits When You Die?

FEGLI – Federal Life Insurance Living Benefits Guide

Public Sector Pensions in Peril

New Phased Retirement ProgramMost employees look forward to the day they can hang up their hat and start retirement.  For decades, many employees have relied on the promise on a steady income following leaving the workforce through pension plans. However, times are changing and the pension system is in a state of dire distress. For young employees, there is still plenty of time to secure retirement through smart investments with Thrift Savings Plans (TSP), 401(k) accounts and other means of saving. However, for employees who can see retirement on the horizon, times are scary. Many employees who have given decades of dedicated work may never see their promised pensions come to fruition.

According to a new report from The Pew Charitable Trusts, there is an epidemic of public sector pensions, with a combined deficit for all states estimated to be close to $1 trillion. Leading the deficit are Connecticut, Kentucky and Illinois.

Among the three states, they all fall well below the standard 80 percent funded standard. Connecticut is ranked at 48 percent, Illinois at 39 percent and Kentucky ranked at an astonishing 23 percent. On the heels of the report, all three states have taken drastic steps to attempt to correct their saving habits and build up a healthy pension fund for their employees – some are succeeding, others are not.

Connecticut has taken steps in recent years to improve its pension savings habits. “It’s clear that Pew is trying to get the attention of governors who haven’t gotten it yet that they need to deal with their pension liabilities,” said GianCarl Casa, spokesman for Governor Malloy’s budget office. “Here in Connecticut, Governor Malloy gets it and has been acting consistently to take care of the problem over the last four-and-a-half years, under Governor Malloy, Connecticut has been funding 100 percent of its annual required contribution, something that was not always the case before he took office. Taken in combination with changes in benefits that he negotiated, Connecticut is on track to fully fund our pension system in about 15 years.  We have made our pension system more affordable and we are keeping our commitments – at a time when other states are not.”

While all eyes have been on Illinois, Kentucky’s Employee Retirement System is at a dismal 23 percent and is $14 billion in the hole. The state has been paying around 50 percent of the actuarially required contributions (ARC) and 75 percent for teachers over the last 10 years – creating the present day situation. While Governor Beshear implemented a reform in March 2013, the deficit was only slowed down its growth. The reforms were recently ridiculed by a bankruptcy judge, stating, “the solvency of the fund to meet future requirement obligations is dependent upon consistent payment of the ARC…will almost certainly result in a fund that insufficient to pay future retiree benefits.” Areas of Kentucky have seen 6 percent property tax increases to help slow down the deficit. While there are very positive signs of financial gains in Kentucky, Governor Beshear says that the economy is gaining momentum, but the $14 billion liability will need to be handled by the next elected governor.

The state of Illinois has struggled to ease their monumental public pension deficit, and seem unable to gain their financial footing. Recently, the state has received a downgraded credit rating and have the worst-funded pension system in the country with $105 billion unfunded liability. Governor Rauner’s sweeping changes have included the option for the state to file for municipal bankruptcy to save billions of dollars for the local and state government – which is not a possibility, only insolvency of the pension payments can occur. However, if the state is able to obtain insolvency there will be massive layoffs in the public sector which is nothing short of catastrophic itself.

Most recently, Illinois, more specifically Chicago received another piece of bad news. Cook County Circuit Court Judge Rita Novak has deemed Mayor Emanuel’s pension reform act, void, unconstitutional and adding that “A public worker’s pension is a contract that cannot be diminished or impaired.” While many public sector employees rejoice over the ruling, one scary truth remains the same, without some type of reform to the current pension systems the funds will run out of money and Chicago cannot borrow any more money or continue to raise taxes. Currently, the city has a hefty $20 billion pension deficit that is only growing.

Compounding the Illinois’ dire financial situation is the recent downgrade of the state’s credit score.

Throughout the country 15 states have an overall funded ratio of 80 percent or higher, according to the Pew report. Many experts say a healthy pension program should have enough funds to cover at least 80 percent of its long-term obligations. South Dakota and Wisconsin ranked among the highest, each with 100 percent funding.

Lisa Grasso Egan, undersecretary for the Office of Policy and Management’s labor relations unit.

This debt “will remain higher as a percentage of U.S. gross domestic product than at any time before the Great Recession,” the Pew report states. “State and local policymakers cannot count on investment returns over the long term to close this gap and instead need to put in place funding policies that put them on track to pay down pension debt.”

Overall, if the state pension programs are unable to implement a stable legislation that has a solid path back to financial health then it could be disastrous. According to the Voya Retire Ready Index, nearly half of all public sector retirees (48 percent) say pension plans are a vital and major source for their retirement income.

 

Federal Retirement Related Articles

Survey Shows Lack of Retirement Savings Among Federal Employees

OPM Hikes Federal Long Term Care Insurance Program Premiums

FEGLI vs. Private Life Insurance

Survey Shows Lack of Retirement Savings Among Federal Employees

Federal Employee Benefits under Attack

TSP Board Approves Wider Investment, Withdrawal Options

Rollback Savings at the USPS?

Reducing USPS Stamp Prices

financialIn the midst of the United States Postal Service (usps.gov) making drastic changes to become profitable again, there will be a tiny step backwards come next spring. Stamp prices jumped three cents to 49¢ in January 2014 as an emergency step to cope with the Great Recession. However, the hike in stamp costs from 46¢ to 49¢ was only a temporary resolution. From the beginning the emergency price increase was to help stabilize USPS’ shaky finances and allow the Postal Service to raise $4 billion in additional revenue before USPS would need to lower stamp costs back down.

After a recent clarification from the U.S. Court of Appeals for the District of Columbia Circuit and postal regulators, it has been declared that USPS is still entitled to collect another $1.1 billion before they are forced to roll the price of a stamp back. Based on an analysis from Save the Post Office, it is estimated that the 49¢ stamp will remain on sale until sometime in April 2016.

The Postal Service requested the emergency rate in 2013, citing the effects of the recession on its business to justify a 4.3 percent increase. Due to a law passed in 2006, the United States Postal Service can only raise its prices by the rate of inflation except under extraordinary circumstances.

While the proposed price increase was highly controversial, USPS stood its ground and argued the recession constituted extraordinary circumstances, and its overseeing body, the Postal Regulatory Commission agreed, but with stipulations. Originally, the Postal Regulatory Commission set a cap on the amount of money USPS could bring in as a result of the higher prices and the mailing agency was set to hit that ceiling this August, but USPS argued the need for the stipulation in court.

The U.S. Court of Appeals for the District of Columbia Circuit mostly sided with the original ruling from the Postal Regulatory Commission and also struck down the notion that the emergency rates should become permanent. Instead, the court said, the aftereffects of the recession have become “the new normal,” and the Postal Service needs to make adjustments to become prosperous in that new reality.

However, the court also ruled, that the PRC had haphazardly decided USPS could only count one year of revenue from a customer lost due to the recession; this determined the cap for how much money the Postal Service would be able to collect from the emergency rates. The court ruled the Commission would need to implement a more evidence-based approach and sent the provision back to the Postal Regulatory Commission to determine the actual effects of a lost customer.  An example of the modification, would be if a postal customer lost his job and cancelled his cable television subscription, USPS would lose the business of the cable company mailing his bill for as long as he went without his subscription; prior the PRC’s ruling only allowed for the Postal Service to receive 12 months of lost revenue.

In the new ruling, the Postal Service’s proposed methodology for counting mail volume losses was accepted. Utilizing the new methodology, the USPS is allowed to collect about 40 percent more pieces of mail with the elevated prices. Thus, granting the Postal Service the ability to collect another $1.1 billion and keep the higher stamp prices for about another eight months.

The emergency price boost to the stamp was the largest price increase in 11 years; 4.3 percent was in addition to the normal 1.7 percent increase to help combat inflation. But even with the ruling, the new lower price of the stamp has not been announced, but is estimated to go down about 4 percent, or 2¢. The Postal Service will have to give 45 days’ notice to alert customers when it plans to restore it prices back to their lower rate.

 

“The recent decision does not fully restore the Postal Service for the significant mail volume and revenue losses associated with the great recession,” said Darlene Casey, a postal spokeswoman. Postal officials have continuously stated that if the inflated prices were not made permanent the agency would most likely end up back in the red. This sentiment was reiterated following the ruling. The PRC decision “clearly demonstrates there are significant pricing constraints in the postal law that impact the long-term financial health of the Postal Service, and reinforces the need for legislative reform of the Postal Service business model,” Casey said.

With USPS already making huge changes trying to adjust and stay operational in the “new normal,” there is no telling what the setback will do to the USPS’ bottom line. Dealing with the millions of dollars of lost from lowering stamp prices back down could have the potential to shatter USPS’ already shaky finances.

However, many are optimistic that the ruling will send the Postal Services down a productive path.  “We believe that ending the exigent chapter will be good not only for customers of the USPS, but it also will enable the Postal Service to retain more of those customers and to focus on more long term strategic issues,” said Stephen Kearney, executive director of the Alliance of Nonprofit Mailers. “We urge the Postal Service to use the PRC order as a positive turning point for its future.”

 

USPS Related Articles

 

USPS Life Insurance For Postal Employees Through FEGLI

LiteBlue Trims Again

LITEBLUE, Shared Services and You

LiteBlue Heroes

Postal Workers Protest – “The U.S. Mail is Not for Sale”

FEGLI – Making Plans Today If Tomorrow Never Comes

Federal Life InsuranceMaking preparations to care for your loved ones after you take your final breath is never an easy topic – but FEGLI or other Federal Life Insurance may be able to help make it a bit less frightening. But ensuring your family is able to sustain their standard of living after you’re gone is an essential conversation. However, choosing the correct life insurance can be an overwhelming task. Knowing the ins and outs of the Federal Employee Group Life Insurance (FEGLI) will help you chose the path best for you and your family.

Let’s start with the most obvious question, how much insurance do I need to protect my family for years to come? You many begin to think to of the life milestones that come with a hefty bill: paying for the funeral, college for your children, paying off the mortgage, miscellaneous debt and supplement income for your spouse to determine how much insurance you will need to protect your family.  If you have a young family, generally 10-12 times your salary will protect your family’s standard for living for many years to come.

While there are a number of different life insurance policies, the FEGLI utilizes the group term policy. A group term policy covers enrollees for a set amount, or a multiple of their salary, for as long as the employee is employed and pays the premium. FEGLI also does not require enrollees to take a medical examination or limit participation; making this an accessible option for individuals with existing health conditions, poor driving records or dangerous job positions.

Federal employees are automatically enrolled in the basic FEGLI plan, which will cover the federal employee’s salary with an additional $2,000; this is partially supplemented by the federal government. As for Postal workers, the United States Postal Service will supplement the coverage and also doubles the death benefit for employees under the age of 35 free of charge. On top of this, employee have the choice to pick “Option A,” which adds a lump sum of $10,000 to the policy, or “Option B,” which allows employees to a multiple of their salary to the policy, up to five times their annual income, and lastly “Option C,” which provides some protection for the employees spouse and dependents in multiple of $2,500 and $5,000. The FEGLI is also an attractive option for many employees due to its fixed rate; unless an employee has picked “Option B,” then the rate will gradually increase as each new age bracket is entered into.

While you and your family’s needs will change as time passes, there are only certain times that employees are allowed to increase or change their coverage. When an employee first in-processes into the system they can set up FEGLI, when an employee marries or has a child and during the employee open season. However, decreasing or eliminating your coverage can be done at any time.

FEGLI also offers options such as taking reduced amounts in retirement.  Employees that carry FEGLI coverage until retirement are eligible for the 75 percent reduction option. Meaning, employees will have a policy that has a face value of 25 percent of their ending Basic benefit plan. This will allow the employee to maintain coverage for the rest of their life, but not have to worry about the paying the premium after the age of 65. This can be useful in providing a benefit to cover final expenses at no cost to the federal employee retiree.  If you designated an assignee, the assignee has the right to change an employee’s election to the maximum 75 percent.

While FEGLI seems like a straight forward and accessible answer for many, there have been a few recent policy changes that enrollees need to be aware of. Federal employees who may be in unfortunate position to qualify for living benefits need to be aware that the new policies are not the same for active employees and retirees.

Both active and retired employee are deemed eligible to receive a lump-sum living benefit from FEGLI if they present a documented prognosis stating the employee is terminally ill and is not expected to live longer than nine months.

Active employees have the options to either receive a partial benefit in multiples of $1,000 or the total amount of their Basic policy in a lump-sum. If an employee retires, the amount of Basic Life insurance payable after the employee’s death is dependent on the Living Benefits an active employee received initially. Annuitants only have the option to receive a lump-sum benefit.

In contrast, retirees who elect to receive the Living Benefit will no longer be eligible for the Basic life insurance following their demise. Upon receiving the Living Benefit, the premium for the life insurance will no longer be charged to the retiree.

In all cases, active employees and retirees who receive living benefits will still have any optional life insurance available to them and their family.

Especially when a federal employee is just starting out FEGLI offers an affordable and accessible coverage for federal employees to obtain financial protection for themselves and their loved ones.  But it always a good idea, that as an employee ages, they begin to consider other Life Insurance options – outside the FEGLI system.   Compare your FEGLI coverage with outside companies – you might find a much less expensive plan.

 

 

FEGLI Related Articles

Aiding an Aging Community – TSP Decisions

Protecting Federal Retirees and Their TSP

Retirees

Many baby boomers are heading into their golden years of retirement. But often times the reality of retiring is not all it is cracked up to be. Many soon-to-be or newly retirees are dealing with the financial woes of not having a sufficient nest egg to support themselves. Due to this, Congress and the White House have turned the conversation towards the contributing factors of financial hardship for an aging generation.

Recently, Labor Secretary Tom Perez testified before the House committee on a new bill that would protect federal employees as they transition out of the workforce into retirement. Presently, many federal employees fall victim to poor advice given by their financial advisors especially as it pertains to their Thrift Savings Plan (TSP). The current standard allows financial advisors to recommend financial decisions to their clients that are more beneficial to the advisor versus the client. Federal employees are especially vulnerable to poor financial advice; often taking a financial misstep when deciding what to do with their Thrift Savings Plan accounts upon leaving the government. A recent study found that more than 75 percent of TSP account holders removed their investments from their Thrift Savings Account.

Often times, financial advisers may legally recommend that a federal employee’s roll over their TSP holdings into an Individual Retirement Account (IRA). The promise of investing the money into a mutual fund that will produce the same of similar return on investment. However, some of these accounts can cost the account holder up to 50 times more than leaving their investments in a Thrift Savings Plan.  Financial planners giving this advice may profit from the higher fees and commissions.

The help protect retiring federal employees make the most of their retirement savings,  the Federal Retirement Thrift Investment Board, which administers the TSP, has made it a priority to keep retirees’ money in the TSP.

As you can imagine, a number of large number of groups support successfully passing this new rule, including the NARFE and the American Federation of Government Employees. During the week of August 10th, the department will open a public comment period and hold a public hearing. In the meantime, the department will continue to operationalize the proposed rule.

In addition TSP is modifying their policy for firefighters, certain border protection agents and law enforcement officers to withdraw funds from their TSP account for any amount without penalty. The catch to this updated policy is that the employee must be separated from federal service during the year in which they turned 50 years of age. The law only specifically mentions these four categories of employees. Other FERS participants and other special-category employees do not qualify under the Act.

The TSP, Defense Bill and Federal Employee Retirement Accounts:

A light is also being shone on a huge defect in the military compensation program. 83 percent of men and women who don the uniform exit the military without any type of retirement fund or pension in place. Only, the commonly referred to “lifers” who commit themselves to serving our country for 20 plus years receive a pension for life. More than directly hurting the separating military members who aren’t receiving any type of financial aid for their service, it hurts recruitment of new military members and does not reflect the modern workforce anywhere else. It is absurd to think that our uniformed men and women don’t have any options for retirement when even entry-level retail workers are offered a 401(k) with company matches for employee contributions.

These are the findings reported in January from the Congress-ordered group, Military Compensation and Retirement Modernization Commission. The Commission has recommended that the military transitions from the current inflexible benefit plan to a blended retirement plan that includes options such as 401(k) investment opportunities for all service members. Following the Commission’s recommendation, both the House and Senate versions of the Defense authorization bill use language that readily support the suggested changes. The proposed changes would be available to over 75 percent of service members who serve two or more years.

Armed Services Committee Chairman John McCain has been quoted as saying this one of the biggest leaps forward in military compensation and is one of the most significant parts of the Defense bill. The new system would vest service members in a thrift savings plan after two years of continuous service. At two years, all service members would start with a 1 percent monthly contribution from the government, with the potential for the military to match service member’s own monthly contributions up to 5 percent of their salaries.

The Defense bill has received little public debate in Congress, mostly because members of both the House and Senate Armed Services Committees waited two years to receive the recommendations from the Military Compensation and Retirement Modernization Commission before acting. Once the Commission’s report was published, the House and Senate Armed Service Committees adopted the recommendations in their entirety. While the report did not deliver any huge surprises, it did pave the way for lawmakers to have the ironclad justification they needed to put the thrift savings plan into the Defense bill.

The new system does have one drawback, service members who have served 20 years or more will see a reduction in their pension by about 20 percent. However, future retirees, who contribute to the TSP will receive pensions up to 20% higher than they are now – according to the Commission. Current or soon-to-be retirees do not need to fear for a reduction in their pensions, all pension promises will remain intact for service members. And current service member can also opt-in to the new 401(k) system at their discretion.

The proposed changes have received a stamp of approval from many military associations, such as, Veterans of Foreign Wars, the Reserve Officers Association, the National Guard Association, the Enlisted Association of the National Guard and the Air Force Association. Now, the Defense bill will just need to overcome a few more hurdles before being fully enacted.

Other TSP Related Articles

Federal Employee Retirement Checklist by Gary Fouts

What Are Your TSP Options With the New Phased Retirement Program? by June Kirby

Understanding The Thrift Savings Plan (TSP), By Todd Carmack

FERS – An Overview

FERS (Federal Employees Retirement System) – An Overview

 Annuity

Working for the federal government has its perks, and one of them is a comprehensive retirement package, commonly referred to as FERS (The Federal Employees Retirement System). The multi-faceted program empowers its employees to easily take their financial future into their hands and have adequate financial coverage throughout their golden years.

The FERS Basics:

FERS has three main components that make up the retirement package, Social Security, a Basic FERS Annuity and the Thrift Savings Plan. All federal employees are enrolled in FERS if they were hired after January 1, 1984, have elected to transfer into the FERS program, have rejoined the federal government after a break in service with more than one year, but less than five years of creditable CSRS service or upon rehire into a FERS position after a separation from a FERS position.

FERS and Social Security:

Federal employees are will enjoy the security that comes with being covered through Social Security. Employees pay 6.2% of their earnings up to the maximum taxable wage base and the government matches your contributions throughout your career. The benefits cover employees and their family members’ financial coverage who fall under Old-Age Survivors and Disability Insurance (OASDI), Social Security’s Medicare Hospital Insurance for beneficiaries over the age of 65.

Most of the cost of Social Security is paid for through payroll taxes. Each year you pay a percentage of your salary up to a specified earnings amount called the maximum taxable wage base. The Federal Government, as your employer, pays an equal amount. The percentage you each pay for old age, survivor, and disability insurance coverage is of your earnings.

FERS Basic Benefit Plan:

Federal employees who are lifers will reap the benefits from the Basic Benefit plan after they have earned five years of creditable civilian service. Employees who transfer from the Civil Service Retirement System are also eligible to participate in the program (these employees are commonly called Trans-FERS).

As part of the FERS Basic Benefit Plan, employees will also gain survivor and disability benefits after 18 months of credible civilian service. Now what does credible service mean? Credible service means the employee has made contributions while serving as a federal employee. The contributions you are making to FERS for your future is about a 7% difference from your standard pay. This 7% will encompass the 6.2% paid to Social Security and 0.8% to your FERS Basic Benefits plan.

Employees are eligible to withdraw all of their contributions if they decide to leave the Federal Government, however, if they return to work for the Federal Government, the employee will not be eligible to receive benefits based on service covered by that refund. Good news, there are no regulations if you refund your Basic Benefits plan contributions back into FERS.

FERS Retirement:

The FERS Basic Benefit Plan takes your financial future by offering three different retirement options to accommodate your life and financial needs. The plan allows for Immediate, Early and Deferred Eligibility.

Immediate Retirement allows employees who are 62 years of age and have five years of credible service or are 60 years of age with 20 years of service to start receiving retirement benefits within 30 days of stopping work.

Early FERS Retirement allows is available to employees who have been involuntary separated or voluntary separations during major reorganization or reductions in the federal workforce. Eligible employees must be 50 years of age with 20 years of service, or any age and 25 years of service.

Deferred FERS Retirement is determined by the employee’s age and number of years of creditable service. Each case will vary, and will be dependent upon the employee’s Minimum Retirement Age.

FERS and Employee Disabilities:

Life sometimes throws you a curve ball, and sometime they strike you out. If a federal employee becomes disabled during their tenure with the government, they may be eligible for FERS disability benefits to supplement part of their income.

Employees are considered disabled under FERS if they are unable to perform useful and efficient service in their position due to disease or injury. In some instances, the agency may offer the employee an alternate position that accommodates their disability – but if the employee declines the alternate position then they will no longer be considered disabled under the FERS benefit program.

You may also qualify for Social Security disability benefits if you are unable to work in any substantial gainful activity.

FERS Benefits to Surviving Family Members:

Dealing with a loss of a family member is never easy, but also dealing with the loss of income can add salt to the wound. Under the FERS program, actively working employees who have at least 18 months of credible service will have a peace of mind knowing that their spouses will receive financial aid after they are gone.

After a FERS-covered federal employee passes away, the surviving spouse can either receive a lump sum payment plus the higher half of your annual pay rate at death, or the spouse may elect to receive half of the employee’s high three—year average pay. In addition, an employee that has 10 years of service, your spouse will also receive an annuity equaling 50% of their spouse’s accrued basic retirement benefit. These FERS benefits are paid in addition to any Social Security, group life insurance, or savings plan survivor benefits. For your spouse to be eligible to receive all of the benefits under FERS, you must have been hitched for at least nine months.

When a retired federal employee passes away, the employee’s FERS annuity is automatically reduced by 10% for the surviving spouse. Unless those benefits are jointly waived in writing by the retiree and the spouse before retirement.

Children may be eligible to receive an annuity up to the age of 18, or 22 if they are full-time students and children who became disabled before the age of 18. Depending on how many children an employee has will determine the amount of aid received following the employee’s death. The FERS surviving child benefit is $344 per month, per child and $413 if orphaned. The total children’s benefit is reduced dollar for dollar by any Social Security children’s benefits that may be payable.

Recommended Articles

Federal Employee Retirement Checklist by Gary Fouts

What Are Your TSP Options With the New Phased Retirement Program? by June Kirby

Understanding The Thrift Savings Plan, By Todd Carmack

USPS Has Fallen On Hard Times – Can LiteBlue Save It

USPS Has Fallen On Hard Times – Can LiteBlue Save It

 

The United States Postal Service is one of the largest semi-independent federal agencies in the United States, only being partially supported by tax dollars. However, just like every other staple agency in the country USPS has fallen onto difficult times, and are implementing plenty of changes and contemplating more dramatic changes for the near future.

USPSLiteBlue and the Retire website:

Let’s start with the positive, USPS employees are now able to use LiteBlue and “eRetire.” The new streamlined service allows employees to navigate their way through different retirement plans available through LiteBlue from the comfort of their home.  Using LiteBlue, the electronic process is applicable for employees who are within five years of retirement eligibility, and employees who are eligible for retirement immediately.

The simple LiteBlue / eRetire process allows full-time USPS employees login to the LiteBlue site and decide their retirement path step by step on the easy-to-use LiteBlue webpage. Full-time employees who meet the required eligibility specification can receive Federal Annuity estimates. Part-time employees and postal inspectors must still do manual inputs and contact the Human Resources Services Center to receive their annuity estimates in the mail.

USPS employees that are presently eligible for retirement, or at least within six months of retirement can perform the following tasks. Request, view and print their own annuity estimation based on employee retirement effect times and dates within 180 days. Additionally, employees within 180 days of retiring can order, print and download the Retirement Application Package.  Prospective retirees can either perform this task on the LiteBlue webpage, or request the application package to be delivered to their home within seven to ten business days.

Furthermore, LiteBlue offers the opportunities transitioning employees to attend counseling sessions. Group sessions are also available for employees to exchange information; group sessions are available to employees who will enter into retirement within 90 days. The LiteBlue webpage displays all appointments dates, times and locations available for employees to choose from.

 

LiteBlue – Change is on the Horizon:

After a decade of consecutive years of operating underneath a mounting deficit in excess of $47 billion, the United States Postal Service is proposing some monumental changes that will greatly impact its 536,000 employees. The Postal Service is seeking congressional approval for dramatic cutback and changes to its current system. The USPS is proposing to implement its own and much cheaper health benefits program, administer its own retirement system and significantly reduce its workforce by 120,000 employees. In addition, USPS is also seeking the flexibility to adjust the mail delivery schedule; meaning that Saturday deliveries would be a thing of the past. Curbside and central pick up locations are also on the docket to become standard versus current door-to-door delivery.

But how did the Postal Service get to this point? There are a couple of key elements that have led USPS to the point it is at now. First, is USPS is legally tied to Congress. Since 2006, USPS has been required to prefund $5.5 billion for future retirees. Initially, the payment was not an issue because the Postal Service was strong and the recession had not hit. Secondly, the volume of mail which USPS services has dropped more than 20% with modern-day technology, and companies like FedEx and UPS gaining momentum.

Keeping the Postal Service’s economic hurdles in mind, there are plenty of potential sources for revenue are being tossed around the discussion board. Re-implementing the Postal Savings Program, allowing lower-class families who don’t utilize a private bank to cash their checks at much less inflated rate. The Postal Service is also considering offering email and/or internet service at a comparable rate to competitors. Other ideas include ending restrictions on shipment of wine and beer, sales of fishing and hunting licenses and notary services.

In addition, the White House has mandated that the $5.5 billion healthcare payments for 2015 and 2016 are deferred until 2017 and USPS being reimbursed $1.5 billion in over over-costs to the Office of Personal Management.

The proposed changes are a second-round of “fat trimming,” to the entity. Previously, the Postal Service has reduced its employee base by 212,000 and was able to bring operational costs down by $12 billion. In addition to the cutbacks, the Postal Service also raised the price of the stamp .03¢ in January of 2014 to offset the devastating blow of the recession. The new plan, proposed by President Obama for the 2016 fiscal budget is projected to save $36 billion over the next 11 years.

While all of the proposed changes make economic sense, the union adamantly opposes all suggested changes to policy and workforce, stating that it will violate contractual obligations and harm collective bargaining. But with the U.S. Postal Service seeing a $569 million revenue increase for the 2014 fiscal year, it shows that innovative ideas will make a difference in an acute situation. In the meantime, the Postal Service will await an answer from Congress to see if the proposed changes will come to fruition

 

Other LiteBlue Related Links

Changing Your LiteBlue / PostalEase Password through ssp.USPS.Gov

LiteBlue; Online Access to More Than Just Your USPS Earnings Statement

Everything About LiteBlue (liteblue.usps.gov)

The TSP – a Not-So-Hidden Gem

Thrift Savings Plan

TSP Overview:

Among the many savings plans federal employees have at their disposal lies one of the most valuable pieces of the Federal Retirement system – the Thrift Savings Plan (TSP). TSP offers a tax-deferred retirement savings and investment plan. Participants who in enroll in TSP benefit from having the opportunity to save part of their income for retirement, receive matching agency contributions and shrink their current taxes.

The Thrift Saving Plan is an investment expense, which reduces returns. Participants in TSP invest in diversified markets. The financial contributions produce a return without any special effort from the investor. Employees only have to participate and to receive the market’s return.

TSP – Hidden Advantages:

In a turbulent economy, it is nice to find a financial opportunity that is economically sound and advantageous for your bank account. Employees who invest in the Thrift Savings Plan will experience very low costs associated to their account; on average, ranging from 0.029 – 0.049 percent of account assets. Comparatively, there is not another investment program that allows for employees to invest in their future for roughly 49 cents on every $100 invested.

For the investment novice, the minimal fee may not seem like a huge selling point, but it is. TSP’s low costs translate into rather high anticipated investment returns. Greater investment returns equals more money in your pocket later on. Gaining a peace of mind for your finances during your golden years.

The variance between the Thrift Savings Plan’s cost and the cost to the standard retail mutual fund is around 1 percent. Hypothetically, if an employee invested in a diversified portfolio, consisting of TSP funds they have the potential to capture over 99% of the market portfolio’s return. Putting all of these seemingly miniscule percentages in perspective, over the length of 40 years could cost a benefactor up one-third of their portfolio…..wait, seriously?

The cost of owning another investment option, such as an IRA, charges a higher fee – that goes into the pocket of the middle man. Federal employees who have invested into TSP and have accumulated a substantial balance may be swayed to move their funds into an IRA. Employees should be wary of transferring their hard-earned funds into an alternate portfolio that can boast a substantially higher percentage in expenses. To the surprise of many, in addition to fund expenses, an IRA account can charge sales commissions, service fees, advisory fees, costs and account-level administrative expenses; potentially costing an employee 2-3 percent more than the TSP’s expense; the higher-cost investment plan can greatly damper your retirement expectations. Staying cognizant and well-educated of your finances can help retirees reap the benefits of decades of hard work.

Overall, the TSP combined with the availability of the G Fund, the TSP’s negligible costs make it a premier investment and retirement plan for federal employees.  Employees will reap the benefits of their Thrift Savings Plan account by investing and leaving their contributions for as long as they can.

TSP – Current News:

This month, Congress is weighing in on some dramatic changes to military retirement. Under the current plan, the military invests retirement money exclusively in U.S. Treasury bills, and guarantees that retirees will receive a specified level of benefits.

With the new changes in policy, the guaranteed benefits will be reduced and 3 percent of service members’ pay will be transferred into the federal Thrift Savings Plan (TSP) – the government will match an additional 1 percent to all contributions.

The TSP is comparative to a 401(k) investment retirement program offered by private sector employers. The Thrift Savings Plan invests money with private financial firms and does not guarantee a set amount of retirement income. According to the system’s financial statements, TSP currently invests more than 55 percent of its assets with BlackRock.

The Thrift Savings Plan will still offer enrollees to waive investing in actively managed funds and enroll into the lower-risk U.S. Treasury bill option – but will still guide all participants within the system to diversify their portfolio for greater return. Theoretically, if the new plan is enacted, approximately $91 billion in service members’ compensation would be transferred into the TSP over the next 25 years. Supposing military participants invest in a similar manner as other enrollees, such as federal employee, the financial shift could end up channeling up to $50 billion to BlackRock during that time period.

In addition to the shift of funds, service members may say goodbye to no additional fees to Wall Street money managers and hello to annual fees for their pension plans. If the Obama administration’s changes are approved, new service members in the TSP will pay investment management fees to either the Thrift Savings Plan or BlackRock.

Recently, on June 4, the Senate unanimously passed the legislation allowing federal law enforcement officers and firefighters will be able to access retirement funds earlier without penalty. The amendment will allow federal law enforcement officers, firefighters and specific border protection and customs officers to withdraw funds from their Thrift Savings Plan after the age of 50 without a tax penalty.

Currently, federal law enforcement officers are eligible to retire after 20 years of credible service and at the age 50 – many are required to retire by age 57. Usually the earliest possible withdrawal date without penalty is 59.5 years old. Meaning that there is a long lag between an employee retiring and being able to have access to their hard-earned retirement fund.

Other TSP Related Articles

What Are Your TSP Options With the New Phased Retirement Program? by June Kirby

Understanding The Thrift Savings Plan, By Todd Carmack

Are You Thinking About a “Deferred” Retirement? by Gary Fouts

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