Monthly Archives

August 2017

CBO Examines Potential Changes To Federal Benefits

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The Congressional Budget Office on Tuesday released a report outlining options for reducing the costs of retirement benefits for federal employees.

According to the 51-page report, in 2016, the federal government spent $91 billion on retirement benefits for most of its civilian employees; $70 billion for the Civil Service Retirement System; $13 billion for Federal Employees Retirement System; and $8 billion for contributions to “401k” Federal Savings Plan .

These costs are expected to grow by an average of about 2.8 percent annually between 2018 and 2027.

CBO looked at several potential changes that could save money: Change employees’ pension contributions to either reduce or increase them; replace FERS with larger government contributions to “401k” Federal Savings Plan for new employees; and change the pension formula.

The report also looked at how recruitment and retention would be affected by any potential changes.

“The effect FERS has on recruitment depends on the career plans of the workers whom agencies want to hire,” the report states, adding, “Because the value of the pension grows with the number of years of service, the pension attracts workers who anticipate a long career in the federal government but not workers who do not expect to remain in federal service for a long time.”

In contrast, “401k” Federal Savings Plan likely enhances recruitment because employees are eligible for federal contributions of up to 5 percent of their salary regardless of their age and tenure, the report notes.

Should FERS Employees Depend on the Special Retirement Supplement To Determine When to Retire?

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Under current rules, those employees covered by the Federal Employees Retirement System (FERS) and who retire before age 62 under an immediate retirement are eligible to receive the FERS Special Retirement Supplement (SRS) annuity. The SRS annuity is in addition to the FERS annuity, the “401k” Federal Savings Plan ( “401k” Federal Savings Plan ), and Social Security benefits that a retired FERS employee receives during retirement. Under the proposed budget currently being considered by Congress, the SRS annuity could be eliminated sometime in the near future. This column discusses the effect of eliminating the SRS annuity will have on FERS employees, and why in general FERS employees should not include the FERS supplement annuity as one of the determining factors for them to retire from federal service.


FEGLI Reminder: Verify Your FEGLI Open Season Elections this October

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The Office of Personnel Management (OPM) is reminding federal employees — who made changes to their elections for the Federal Employees Group Life Insurance Program (FEGLI) during last year’s open season — to verify that the elections are correct this October.

Coverage elected during the September 2016 FEGLI Open Season becomes effective on the first day of the first full pay period that begins on or after October 1, 2017, as long as you meet pay and duty status requirements. For most employees who made a FEGLI Open Season election, this means your newly elected coverage became effective October 1, 2017.

Senator Questions ACA Exemption for Congress

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The chairman of the Senate Homeland Security and Governmental Affairs Committee has sent a letter to the Office of Personnel Management acting director seeking more for information on the OPM rule that grants an Affordable Care Act exemption to Congress and its staff.
Sen. Ron Johnson (R-Wis.) is asking for more information on a 2013 rule that enables members of Congress and their staff to buy health insurance on the Small Business Health Options Plan (SHOP) exchange.
“The SHOP exchange is intended for employers with less than 50 employees, yet Congress employs more than 16,000 people,” Johnson wrote in his letter. “Without this classification, members of Congress and their staff would be required to purchase health insurance on the individual exchange, where no employer contributions are permitted,” he added.
Johnson filed a federal lawsuit against the Obama administration in 2014 challenging the rule, contending that it “exempt[s] members of Congress and their staff from the full effects of the Affordable Care Act.” The lawsuit was dismissed.
In 2016, Johnson submitted questions for the record requesting information about the development of the OPM rule. 
“I have yet to receive satisfactory responses from OPM,” he said in his letter.
In his latest attempt for information on the rule, Johnson is asking Acting Director Kathleen McGettigan to submit all material related to the congressional exemption and to preserve all documents related to the rule.

Senate Passes More Flexibility within “401k” Federal Savings Plan for Federal Employees

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The Senate committee voted unanimously to send the “401k” Federal Savings Plan Modernization Act (S.873) to the full Senate. The legislation gives enrollees in the federal government’s 401(k)-style retirement savings program greater flexibility in how and when they can withdraw money from their accounts.

The bill, sponsored by Sens. Rob Portman, R-Ohio, and Tom Carper, D-Del., would allow federal employees to make multiple age-based withdrawals from their “401k” Federal Savings Plan accounts and still remain eligible for partial withdrawals once they leave government. It also would allow those receiving monthly payments to change the amount and frequency of payments at any time, instead of only once per year.

The House Oversight and Government Affairs Committee voted last week to advance a companion bill (H.R.3031) to the floor. Tony Reardon, national president of the National Treasury Employees Union, thanked lawmakers in both chambers for their efforts on this issue.

“The rules for how federal employees can manage their accounts have not kept pace with the modern workforce, and these changes would make the “401k” Federal Savings Plan a more attractive and user-friendly choice for employees and retirees,” Reardon said in a statement. “Our members have been asking for these changes and we applaud these senators and House members for listening to their concerns.”

And on Monday, the House approved legislation requiring the Veterans Affairs Department to produce an annual report on bonuses paid to high-level executives at the agency.

The Department of Veterans Affairs Bonus Transparency Act (H.R.1690) requires the agency to include a list of every award or bonus issued to the directors of regional offices, VA medical centers and veterans integrated service networks, as well as any other employee in a senior executive position. The VA must also include the amount of each award, the recipient’s job title and their location.

The Senate passed a similar bill (S.114) in May, but the measure failed to receive the supermajority needed to pass by a voice vote in the House Monday. The House legislation has been sent to the other chamber, where it was referred to the Senate Veterans’ Affairs Committee.

Many Federal Employees Filed For Retirement In The Month of July Second Highest Number for 2017

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The Office of Personnel Management received the highest number of retirement claims since the beginning of the year, a time when most federal employees usually file claims.

The agency received 10,070 retirement claims for the month of July, which is the highest number since January when 15,317 claims were filed. By comparison, in June 6,141 new retirement claims were received.

OPM processed a total of 7,509 claims in July, slightly fewer than the 7,751 claims processed in June. It took an average of 45 days to process a single claim in 60 days or less. The average number of cases that took more than 60 days to process was 98.

The claims backlog went up last month to 17,091 from to 14,530 claims in June and 16,140 in May.

The new figures came from OPM’s monthly claims processing progress report available on the OPM website.

New Labor Contract Will Give 200K Postal Workers a Raise, but Trim Their Benefits

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More than 200,000 U.S. Postal Service employees will soon receive a pay raise but face a slight decrease in health benefits under a new labor contract formally agreed to this week.

The National Association of Letter Carriers, which represents 213,000 city mailmen and women across the country, ratified an agreement it had struck with USPS management to avoid binding arbitration. NALC members voted overwhelmingly — 94 percent to 6 percent — to accept the contract, following the union’s executive council unanimously recommending its members do so.

The agreement will take effect retroactively to May 21, 2016, and continue through Sept. 20, 2019. All city letter carriers will receive a 1.2 percent pay raise retroactive to Nov. 26, 2016, and a 1.3 percent increase effective Nov. 25 of this year. Employees on the second level of the two-grade pay scale will receive a 2.1 percent raise in 2018.

On top of those general wage increases, employees will also receive a series of seven cost-of-living adjustments throughout the life of the contract.

Non-career employees represented by NALC will see an additional boost under the tentative agreement, as the contract will establish new step increases for career carrier assistants. The substitute carriers will receive payments adding up to a dollar per hour over the course of their first year at the mailing agency. They will also earn more generous wage increases than their career counterparts. USPS will now convert non-career employees at the agency for at least 30 months to career positions en masse.

Employees working as letter carriers for at least six years are now exempt from any potential layoffs for the duration of the contract, which also extends prohibitions on outsourcing their work.

In a setback for employees, the Postal Service is lowering its contribution toward employees’ health care plans by 3 percent through 2019. Still, even by the end of the contract USPS will pay for a maximum of 76 percent of any given plan, while the top contribution for the rest of the government caps out at 75 percent.

Darlene Casey, a Postal Service spokeswoman, last month when the agreement was first announced called it a win for all parties.

The contract “addresses important financial and operational considerations of the Postal Service, serves the interests of the American public and is fair to our employees,” Casey said.

USPS’ Pay for Performance System Isn’t Rewarding Top Performing Employees

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The U.S. Postal Service is failing to reward its top performers under a pay system designed to recognize excellence, according to a new report, instead relying on group metrics that collectively punish employees for the work of their colleagues.

Using the Capital Metro Area as a sample, the USPS inspector general found 30 percent of employees who would have been eligible on their own were denied a pay raise under the agency’s pay-for-performance system due to their teams’ scores. Only the Postal Service’s 48,000 non-bargaining unit Executive and Administrative Schedule employees, who serve in supervisory, technical, administrative and managerial positions, receive performance-based pay.

The findings could send a warning to congressional Republicans and the Trump administration, both of which are looking to change the way federal employees across government are compensated. The Republican Study Committee—of which more than half of House Republicans are members—called for an end to across-the-board pay raises in its fiscal 2018 budget proposal, saying the increases should instead be merit based. The Office of Management and Budget is currently reviewing proposals from every agency in government to maximize employee performance.

Postal stations and branches spread throughout the country have their own goals, the IG said, but their performance scores are lumped together with those of other stations and branches in their units. Individual departments at postal plants also have their own objectives, but are evaluated collectively as one plant. This has led to EAS employees at post offices and headquarters receiving a disproportionate allocation of pay raises, the IG found.

While 30 percent of employees in the Washington, D.C., area who were shut out of raises would have received them based on their own scores, an additional 8 percent who did earn an increase would not have qualified for it on their own. At a processing and distribution center in Sacramento, Calif., the IG found one in four employees would have received a raise if employees were evaluated just within their department rather than on a plant-wide basis.

“Because the [pay-for-performance] process is not consistent for field [Executive and Administrative Schedule] employees, there is an increased risk that employee performance and organizational effectiveness could decrease,” the IG said. “Additionally, employees could become disengaged if they feel management does not recognize the accomplishments of individual units or that the poor performances of others mask their contributions.”

The auditors recommended USPS management improve its communication of the criteria for pay raises to “reduce the risk of negative perception” and disengagement. They also said the Postal Service should reward individual stations, branches and plant departments. Management disagreed with the IG’s findings, saying they failed to consider the drop off in performance if it were not measured collectively. The current system, said Jeffrey Williamson, the Postal Service’s chief human resources officer, helps to “drive collective success.” Taking the IG’s advice would “discourage collaboration” and lead to “less efficient operations,” he added.

The IG found Williamson’s comments “nonresponsive” and “disingenuous.”

Agencies Reveal More Info on the New Military Blended Retirement Plan

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Federal agencies released new information this week to help current military service members decide whether to opt into the new blended retirement program, which is slated to come online next year.

Service members with fewer than 12 years in the military by the end of this year must choose by the end of 2018 whether to stay with the current military retirement system, or move into the blended system. Officials with the “401k” Federal Savings Plan , the government’s 401(k)-style retirement plan for federal employees, posted a fact sheet and video explaining the new system.

Under the new system, new troops would automatically be enrolled in the “401k” Federal Savings Plan and receive a matching contribution from the government—between 1 and 5 percent of their salaries, depending on what they choose to contribute themselves. The default is 3 percent of their paychecks, and the “401k” Federal Savings Plan account will begin 60 days into their service.

Those who stay in the military for 20 years, entitling them to a retirement pension, would receive a less generous calculation for their annuity.

“401k” Federal Savings Plan ’s fact sheet spells out how the current military retirement system works, as well as how changing to the blended system would affect one’s defined benefit payments after 20 years of service. The two biggest factors in deciding between the systems, officials said, are whether a service member plans to stay a full 20 years to qualify for the defined benefit portion of the blended option, and how long one would be able to contribute through the “401k” Federal Savings Plan .

“How many years of making contributions and receiving service contributions will I have before retirement?” “401k” Federal Savings Plan officials wrote. “Is it likely that these contributions and their earnings—along with any benefit I might get from continuation pay or the lump sum option—will ultimately outweigh the amount I’d be giving up as a result of the reduced monthly annuity?”

To help answer to those questions, the Defense Department has launched an online calculator where service members can learn whether the current retirement system or the blended system is the better option financially.

Troops can plug in their age; when they began their military service and at what pay-grade; and when they plan to retire, as well as how much they would hypothetically contribute to the “401k” Federal Savings Plan , and the website will lay out how much they would earn under each retirement program option for easy comparison.

“We have designed an all-in-one calculator that is intuitive to use and takes into account the unique financial situations of our active duty, National Guard and Reserve service members,” said Tony Kurta, acting undersecretary of Defense for personnel and readiness. “The calculator presents to service members the information needed to make an effective comparison. The calculator will provide service members the ability to compare estimated benefits between their current retirement plan and BRS prior to making this important decision.”

“401k” Federal Savings Plan officials reported last week that more than 163,000 people have already signed up online for a training course on the blended retirement system. Service members cannot opt in to the program until January 1, 2018.


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How Does a Court Order Affect “401k” Federal Savings Plan Accounts

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A court decree of divorce, annulment or legal separation can make an award from a “401k” Federal Savings Plan account to someone other than the participant, such as a spouse or a former spouse.
The “401k” Federal Savings Plan will honor such orders if they are issued in connection with such an action and they comply with the board’s regulations. It also will honor preliminary court orders for the purposes of freezing a participant’s account as well as amendatory court orders issued after such a decree.
When the “401k” Federal Savings Plan receives a court order, the account of the participant is frozen, meaning that the participant is not allowed to withdraw the account, except to meet certain IRS mandatory distributions, or receive a loan from the account. All other account activity is permitted, however. If the “401k” Federal Savings Plan determines that the court order is qualifying, it issues a statement regarding the effect that compliance will have on the account and a description of the method by which any entitlement was calculated, the results of the calculation and the circumstances under which payment will be made.
The “401k” Federal Savings Plan will make only one disbursement under a court order even if the order on its face requires a series of payments.
After a payment is made, the account will be unfrozen.
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