Monthly Archives

October 2017

“401k” Federal Savings Plan Modernization Act Passes the House in October

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House Passes the SP Modernization Act in October

The U.S. House of Representatives passed his “401k” Federal Savings Plan Modernization Act by voice vote on October 12.

First introduced in the Senate in April by Senators Rob Portman (R-OH) and Tom Carper (D-DE), this legislation provides much-needed retirement flexibility to federal employees by modernizing the “401k” Federal Savings Plan ‘s outdated withdrawal rules. Under “401k” Federal Savings Plan ‘s current rules, participants may only elect one partial withdrawal after they turn 59 ½ or one partial post-separation withdrawal after they retire from government service. The “401k” Federal Savings Plan Modernization Act would eliminate these outdated restraints and allow for unlimited age-based or post-separation withdrawals.

The Senate’s version of the bill was approved by the Senate Homeland Security and Governmental Affairs Committee on July 26th with unanimous support.

“I applaud the House of Representatives for acting swiftly to pass this common-sense, bipartisan bill to make the “401k” Federal Savings Plan more responsive to the needs of its participants, and allow retirees to access their money on an as-needed basis,” said Senator Portman. “I urge my Senate colleagues to quickly follow suit and pass this bill.”

According to a press statement from Portman, by modernizing these outdated withdrawal regulations, the “401k” Federal Savings Plan Modernization Act will provide federal employees with greater retirement flexibility and advance their ability to retire with dignity. Specifically, for federal employees separate from the federal workforce, the bill will change the current rules that allow only one partial post-separation withdrawal (in the form of a lump-sum payment, a stream of monthly payments, or annuity payments) to allow multiple, partial post-separation withdrawals that retirees can time to their individual needs. And for federal employees who are still working and are older than age 59½, the bill will allow multiple age-based withdrawals. The bill also adds flexibility to encourage retention in the “401k” Federal Savings Plan by allowing the election of quarterly or annual payments, and permitting periodic withdrawals to be changed at any point during the year.

The Congressional Budget Office has determined that the bill would have no significant impact on federal revenues.

A section-by-section of the “401k” Federal Savings Plan Modernization Act can be found here and the text is found here.

House Proposal for Federal Employee Health Program Could Decimate Workers’ Benefits

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A proposal to change how the government calculates its contributions to premiums in the federal government’s insurance program could make health care all but unaffordable for workers and retirees, employee groups said.

The report on the House budget resolution, approved Thursday by a 219-206 vote, includes a provision that advocates changing how the Office of Personnel Management formulates the government’s maximum contribution to insurance premiums through the Federal Employees Health Benefits Program.

OPM currently calculates how much the government contributes to insurance premiums based on the average weighted rate of change of all FEHBP plans. The House proposes getting rid of that formula in favor of a formula that would grow “at the rate of inflation for retirees.”

“The budget also proposes basing federal employee retirees’ health benefits on length of service,” the report said. “This option would reduce premium subsidies for retirees who had relatively short federal careers. Together, these two reforms would bring health benefits for federal retirees more in line with those offered in the private sector.”

Groups that represent feds and former feds blasted the plan, arguing it would eviscerate federal spending on employee and retiree health care and it could damage the overall stability of FEHBP.

“What you could see under this proposal is healthy people running to the cheapest plans,” said Jessica Klement, legislative director for the National Active and Retired Federal Employees Association. “The enrollee would go from paying 28 percent of premiums to over 50 percent in just eight years, because inflation in the medical field far outpaces regular inflation. It very easily eats it up.”

An OPM official said Friday that the agency is “is reviewing” the proposal, but could not provide estimates on how the it would affect FEHBP. But Jacqueline Simon, policy director for the American Federation of Government Employees, estimated that if the idea is implemented, federal retirees would pay 80 percent of insurance premiums within 20 years, provided that inflation and health care cost trends continue as they have over the last two decades.

“It’s extraordinary,” Simon said. “Premiums will go up much, much more than inflation, and that’s how the cost shift would occur. It would be rapid, and it would be large. Depending on whether or not they eviscerate federal pensions as well, it would obliterate most people’s pensions.”

Simon agreed with Klement’s assessment that such a drastic change in how the government contributes to FEHBP could fundamentally undermine the program’s integrity.

“It would be an incentive for more people to go into the cheapest possible plans,” Simon said. “But once that happens, then those plans become expensive too, because all of the retirees would be in them, including older and sicker people. It’s a recipe for a costly program that basically wipes out people’s retirement and annuities.”

It remains to be seen whether this proposal is likely to be included in Congress’s fiscal 2018 budget. While the House budget resolution instructs the House Oversight and Government Reform Committee to find $32 billion in cuts over the next decade, the Senate Budget Committee’s current proposal restricts savings to the Senate Finance Committee and the Energy and Natural Resources Committee. And a number of other reductions to feds’ retirement programs, like a reduction in the rate of return for the “401k” Federal Savings Plan ’s government securities (G) fund, also are on the table.

Still, federal employee groups have vowed to fight all of the cuts proposed so far.

“Adjusting the “401k” Federal Savings Plan ’s G Fund rate and changing the formula for premiums in the Federal Employees Health Benefits Program are proposals we have seen in previous years’ budget reports, and NTEU has successfully defeated these before,” said Tony Reardon, national president of the National Treasury Employees Union. “We will continue to fight against these changes because they would be detrimental to federal employees’ ability to save for their retirement and afford their health insurance.”

Federal Managers Association National President Renee Johnson said programs like FEHBP are earned by federal employees and retirees over a lifetime of service to the country, and should not be taken away.

“Feds are the backbone of the American middle class, and to cut their compensation to make way for tax reform touted as a benefit for the middle class is downright hypocritical,” she said. “Too often, for too many years, federal employees have been in the crosshairs for budget cuts. It is unfair and shortsighted for Congress to view federal employees’ retirement benefits and compensation as a gift.”

federal retirement planning - fers benefits -retirement support services - tsp payment schedule 2018

EPA To Offer Employees Buyouts Early Retirement This Year

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The Environmental Protection Agency will begin offering employees financial incentives to leave the agency this year, according to an internal memorandum obtained by Government Executive.

As part of its efforts to meet the requirements of recently issued guidance from the Office of Management and Budget calling on all agencies to restructure themselves and reduce their workforces, EPA will continue a freeze on external hiring and begin offering early retirement and buyouts. Details of the plans were not made clear in the memo, which was sent by acting Deputy Administrator Mike Flynn. He noted only that EPA’s goal was to complete the separation incentive program by Sept. 30, the end of fiscal 2017.

Agencies can offer up to $25,000 to employees who have worked in the federal government at least three years through a Voluntary Separation Incentive Payment and allow employees not otherwise eligible for retirement benefits to receive them through Voluntary Early Retirement Authority. The Office of Personnel Management must approve all early out and buyout programs.

In its guidance, OMB said OPM would “provide expedited reviews for most [VERA and VSIP] requests within 30 days.” While OMB said it would not prescribe any specific strategy or set reduction targets for individual agencies, President Trump’s fiscal 2018 budget called on the EPA to cut 25 percent of its workforce, amounting to 3,200 employees. The proposal suggested slashing 31 percent of the agency’s budget.

EPA has endured significant spending cuts in recent years, with its spending level already reduced more than 20 percent since 2010 and its workforce at its smallest total since 1989. EPA last offered separation incentives to its employees in 2014, targeting mostly regional offices.

A recently released inspector general report found EPA paid $11.3 million to get 456 employees to leave the agency that year. Generally, the IG found the incentives “aided workforce restructuring goals,” though it was unclear if EPA had successfully reached its other goals of obtaining staff with new skillsets and increasing the number of staffers per supervisor. When accounting for the additional annual leave payments, EPA doled out a total of $16.2 million in 2014 to separate the employees. The IG noted the agency could not control how many or which employees would voluntarily leave, but that the various EPA offices adequately analyzed their workforce data to determine which positions to target.

Under OMB’s guidance, all agencies must come up with both short and long-term plans to reduce their staffing levels, with preliminary plans due June 30. Flynn said EPA has recently formed a workgroup to develop its agency reform plan. EPA is at least the third agency to continue its hiring freeze despite Trump ending it last week. Flynn said the agency will approve “very limited exceptions” to the moratorium and allow certain internal reassignments.

“I appreciate your patience as we work through the details of the guidance and will work with you as we move forward,” Flynn said.

Liz Bowman, an EPA spokeswoman, said the approach mirrored the one taken by the Obama administration and would ensure “payroll expenses do not overtake funds used for vital programs to protect the environment.”

“Streamlining and reorganizing is good government and important to maximizing taxpayer dollars,” she said.

John O’Grady, president of the American Federation of Government Employees council that represents many EPA workers, said reaching the administration’s desired cuts through incentive payments would prove prohibitively expensive. EPA, he added, is already “underfunded and understaffed.”

“Any further cuts will absolutely cripple the agency,” O’Grady said

House budget funding 2018 - federal retirement cuts and changes for 2018

House Passes Budget Plan that Would Cut Federal Retirement Benefits

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Federal Retirement Cuts for 2018

The House’s fiscal 2018 budget resolution passed Thursday includes $32 billion in cuts to  federal employees’ retirement and benefits programs over 10 years under the jurisdiction of the House Committee on Oversight and Government Reform (OGR) .

While the legislation does not specifically outline how the OGR would cut spending, earlier this year the Trump administration proposed changes in federal retirement benefits including:

  • An increase of 1 percent in retirement contributions for those in the Federal Employee Retirement System (FERS) — phased over a period of several years.
  • Replace the current high three average salary to calculate retirement annuities with a five year salary baseline.
  • Eliminate the cost-of-living adjustments (COLA) to current and future FERS employees
  • Reduce the COLA for CSRS employees by 0.5 percent.
  • Eliminate the FERS annuity supplement for eligible employees.

The House budget report does, however, specifically propose reducing the rate of return to the “401k” Federal Savings Plan ‘s G fund.  The  resolution  “assumes  savings  by  correctly  aligning  the rate  of  return  on  U.S.  Treasury  securities  within  the  Federal  Employee  Retirement  System’s  Thrift  Savings  Plan  with  its  investment  risk  profile.  Securities  within  the  G-Fund  are  not  subject  to risk  of  default.  Payment  of  principal  and  interest  is  guaranteed  by the  U.S.  Government.  Yet  the  interest  rate  paid  is  equivalent  to  a long-term  security.  As  a  result,  those  who  participate  in  the  G Fund  are  rewarded  with  a  long-term  rate  on  what  is  essentially  a short-term security.”

“Such a change would make the G Fund virtually worthless from an investment standpoint for “401k” Federal Savings Plan participants who are saving for retirement,” the Federal Retirement Thrift Investment Board reported in July.

The budget resolution also proposes gradually decreasing the government’s share of paying for employee and retiree health premiums. Currently, agencies pay an average of 72 percent of the total premium in the Federal Employees Health Benefit (FEHB) plan. Under the new budget proposal, government contributions would be linked to the cost of living, gradually lowering them while forcing workers and retirees to pay a larger portion of the total premium.

Groups representing federal employees and retirees have expressed concerns of the House’s budget resolution.

“The 2018 budget resolution passed by the House today threatens the economic security of thousands of federal employees around the country and is yet another unfair attempt to make the nation’s middle class civil servants suffer the brunt of deep spending and tax cuts, said National Treasury Employees Union (NTEU) National President Tony Reardon on Thursday.

In a letter sent to every House member before Thursday’s vote, Reardon said federal employees have already lost roughly $200 billion in the name of deficit reduction in recent years with multi-year pay freezes and reduced raises and two increases in the amount they pay toward their retirement.

“The House passed a budget resolution that targets the hard-earned retirement and health benefits of federal and postal workers and retirees for at least $32 billion in cuts,” said National Active and Retired Federal Employees Association (NARFE) President Richard G. Thissen. “The policies required to meet that target range from bad to worse – from imposing a ‘retirement tax’ on these workers by raising payroll contributions toward retirement without any benefit increase, to dramatically reducing the value of federal pensions for those nearing, or even in, retirement. These federal retirement cuts would break promises to employees and retirees who have based career and retirement planning on long-standing, promised benefit calculations. Federal retirement benefits were earned through years of hard work – they are not gifts to rescind.”

House Approves Budget Plan to Cut Federal Employee Benefits

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House lawmakers voted 219-206 Thursday to approve a resolution outlining the body’s fiscal 2018 budget priorities, which include a number of controversial cuts to federal employees’ retirement and benefits programs.

The House’s budget resolution (H. Con. Res. 71) asks 11 committees to come up with a total of $1.5 trillion in spending cuts through budget reconciliation, setting the stage for Republicans’ tax reform initiative. Within that, the legislation mandates that the House Oversight and Government Reform Committee, which oversees federal compensation and retirement programs, cut $32 billion over the next 10 years.

The resolution does not specify how the oversight committee should achieve savings, but the Trump administration last spring proposed a number of changes to federal retirement: a 6 percentage point increase in employee contributions to the Federal Employees Retirement System, phased in over six years; the elimination of cost of living adjustments for FERS employees and a 0.5 percent reduction in COLAs for Civil Service Retirement System enrollees; elimination of the FERS supplement for employees who retire before Social Security kicks in at age 62; and basing the value of retirement benefits on the highest five years of employees’ earnings instead of the current highest three years.

The House budget report also offers two new avenues for cutting federal workers’ compensation. It proposes reducing the rate of return for the “401k” Federal Savings Plan ’s G Fund, which is made up of government securities, to make it more indicative of its low “investment risk profile.”

And lawmakers proposed changing how the government calculates its contribution to Federal Employees Health Benefits Program premiums. Instead of basing the maximum calculation on the weighted average of the cost of all plans within FEHBP, the federal contribution would increase at the rate of inflation.

“This sets the stage for the federal community to pay for tax reform,” she said. “You’re paying for middle class tax cuts on the backs of middle class federal employees and retirees. It goes against the fundamental premise of this tax reform package.”

Rep. Gerry Connolly, D-Va., the vice ranking member of the House Oversight and Government Reform Committee, called the budget resolution “ruinous,” and said that while his committee would be responsible for $32 billion in cuts, the cost of the overall budget to federal workers and retirees could reach as high as $163 billion over the next decade.

“Federal employee pay and benefits are not the cause of this country’s deficit and debt,” Connolly said. “The federal workforce has already contributed nearly $200 billion toward reducing the country’s deficits in the form of pay freezes, pay raises insufficient to keep pace with inflation, furloughs and increased retirement contributions. We should honor and revere the service of our federal workforce, not denigrate it with the attacks included in this ugly budget.”

National Treasury Employees Union National President Tony Reardon decried the proposal, which he said would unfairly punish government employees.

“On paper, it may look like a way to save money but in the real world, cutting the paychecks and retirements of federal employees, just to help pay for tax cuts for the wealthy, is a mean-spirited way to build a national budget,” Reardon said. “Since when is it acceptable to attack the very people who are providing hurricane relief, protecting clean air and water, conducting cutting-edge scientific research, enforcing the tax laws, securing the border, maintaining the national parks and guarding our financial system?”

On Thursday, the Senate Budget Committee marked up its own fiscal 2018 budget proposal. Ahead of the meeting, it only provided reconciliation instructions to its Finance and Energy and Natural Resources committees. Once passed by the full Senate, lawmakers will need to iron out the differences between their budgets before committees can begin work to find savings.

federal early retirement - voluntary early retirement for federal employees

Senate Panel Approves 60% Increase in Buyout Payments for Feds

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The Senate Homeland Security and Governmental Affairs Committee passed a bill on Wednesday that would raise the maximum buyout payment for federal employees from $25,000 to $40,000.

The legislation comes as agencies look for ways to downsize their workforces in response to directives from the Trump administration. Congress set the original Voluntary Separation Incentive Payment at $25,000 in 1993, and it’s remained unchanged since.

The committee approved the legislation by voice vote on Wednesday. If passed by Congress, the bill would also tie payments to the Consumer Price Index, and adjust them annually for inflation.

The Defense Department piloted a similar one-year buyout increase for its civilian employees in fiscal 2017, but the new bill would extend the increase to civilian and military employees across government.

The $15,000 bump in VSIPs could make leaving government more appealing to employees as agencies look for ways to decrease the size of their workforces. Agencies were required to submit reorganization plans to the Office of Management and Budget by Sept. 30, and although leaders have said the plans would focus more on increasing efficiency than reducing the workforce, tight budgets may make some cuts inevitable.

The Environmental Protection Agency has already contacted 1,200 employees with early retirement and buyout offers. The Interior Department and other agencies have also indicated plans to move forward with similar measures.

The White House asked Congress for an identical $15,000 raise in agencies’ buyout limits earlier this year ahead of the National Defense Authorization Act. The proposal wasn’t included in either the Senate or the House version of the NDAA, but the new bill would provide the requested incentives for workforce reductions.

While he welcomes any opportunity for federal employees to retire “with a few extra dollars in their pockets,” Steve Lenkart, executive director of the National Federation of Federal Employees, said he worries that the legislation risks helping to create a vacuum in agency leadership as top employees leave their posts ahead of schedule.

“At a time when most agencies are trying to fill critical vacancies, the increase in buyout payments may exacerbate the worker deficit especially in the upper ranks, which can lead to brain drain and a loss of institutional knowledge,” Lenkart told Government Executive. “This is exactly what some in Congress are trying to do. A better way is to plan strategically and execute a plan over a period of time defined in years, not months. As we’ve seen time and time again, Congress is no expert on running government.”

Health benefits

Feds Will Pay 6.1 Percent More Toward Health Insurance Premiums in 2018

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Federal employees and retirees can expect to contribute an average of 6.1 percent more toward their health care premiums next year, the Office of Personnel Management announced Wednesday.

Enrollees in the Federal Employees Health Benefits Program with coverage only for themselves will on average pay $5.57 more per bi-weekly pay period next year. Those with full family plans will pay $12.17 more per pay period, while people in self-plus-one coverage, which is entering its third year of existence, will pay $12.55 more every two weeks.

The average increase in the government share of premiums in 2018 will be 3.2 percent, officials said. OPM’s contribution to insurance premiums is roughly 72 percent, and is based on a weighted average of the plans enrollees choose.

Overall, counting both employee and government contributions, health insurance premiums across government will increase 4 percent next year, which marks a slowdown from this year’s 4.4 percent increase. Alan Spielman, OPM’s director of health care and insurance, said the slower growth on the agency’s side of premiums is related to enrollees in low-cost plans driving down the formula that determines the maximum amount the government will contribute to premiums.

“A majority of people are now enrolled in plans that are impacted by that cap [on government contributions],” Spielman said. “So 70 percent of enrollees are in plans where they’re paying more than 25 percent of their premiums, but they have opportunities to move between plans. . . The formula is weighted by enrollment, and enrollment in less expensive plans can have that effect.”

OPM said there were no major changes in the coverage that will be provided by FEHBP plans in 2018, although the number of plans that include coverage of telemedicine has continued to increase, particularly in the areas of mental health and behavioral health.

Spielman acknowledged that the larger premium increase for enrollees in self-plus-one plans than for those seeking to insure whole families seems counterintuitive. But he said it likely stems in part from an older risk pool, as well as the fact that it is still a relatively new and underutilized option. Although more than 600,000 people are already enrolled, around 400,000 people currently in family plans are eligible for self-plus-one.

“In most cases, the cost isn’t higher, it’s lower [in self-plus-one],” he said. “There are a small number—39 in 2018—that have this inversion where the reverse is true, but that’s only 39 out of 262 plans we offer.”

The exact increase in premiums for 2018 will vary depending on the plan employees choose. In the Blue Cross and Blue Shield Standard Option, which is the most popular plan, self-only enrollees will pay $7.17 more per pay period; enrollees in family coverage will pay $17.72 more per pay period, and those in self-plus-one will pay $17.04 more every two weeks.

In the Federal Employees Dental and Vision Insurance Program, where there is no government contribution, dental plans will increase by an average of 1.26 percent next year. But the average premium for vision plans will decrease 0.48 percent.

National Active and Retired Federal Employees Association President Richard Thissen said in a statement that while premium increases next year are “modest,” they still hurt feds’ take-home pay.

“Over the last several years, federal workers have endured a three-year pay freeze and insufficient pay raises that have widened the gap between public- and private-sector pay,” Thissen said. “During this time, FEHB premiums have steadily increased, as we are witnessing with the 6.1 percent average increase for enrollees in 2018. Decreasing the purchasing power of America’s 5 million-strong federal family not only impacts their quality of life, but also has an economic impact on their communities across the country.”

J. David Cox, national president of the American Federation of Government Employees, said the announcement marks another year of eroding federal employees’ standard of living.

“The premium hikes announced today by the federal government far eclipse any increase in wages or Social Security payments next year,” Cox said in a statement. “These rate hikes mean less take-home pay for current and retired federal workers and another year of difficult decisions by many families on how to pay their bills.”

Open season for 2018 will run from Nov. 13 through Dec. 11. For more information on premium increases by individual plan, visit OPM’s website.