Monthly Archives

July 2020

Should I Have a Traditional or Roth “401k” Federal Savings Plan ?

By | Benefits, Federal Pay, Retirement, TSP | No Comments

Should I Have a Traditional or Roth “401k” Federal Savings Plan ?

If you are a federal employee and planning for retirement, you must carefully consider whether to contribute to a “401k” Federal Savings Plan ( “401k” Federal Savings Plan ) and what type of “401k” Federal Savings Plan you should get. This article will set forth the pros and cons and explain how an effective “401k” Federal Savings Plan strategy can best supplement your other retirement income sources.

What is a “401k” Federal Savings Plan ?

A “401k” Federal Savings Plan ( “401k” Federal Savings Plan ) is a retirement and savings plan available to both civilian federal employees and members of the military. It is similar to the 401(k) plans offered by employers in the private sector.

Federal Agency Contributions

One aspect of “401k” Federal Savings Plan s that cannot be overlooked is that a federal employee may be eligible for matching contributions from their agency. If you are a federal employee you must look into whether matching contributions are available and whether there is a limit.

Once you have that information, plan on contributing at least the amount that will be matched. If you don’t, you are leaving free money on the table.

For many federal employees, their agency will contribute 1% of income to a “401k” Federal Savings Plan even if the employee contributes nothing. If the employee contributes 5% of income, the agency will contribute another 4%.

Traditional “401k” Federal Savings Plan

In a traditional “401k” Federal Savings Plan , your contribution is deducted from your pre-tax wages, and taxes are deferred until you make withdrawals. This reduces your present taxable income, and your contributions are taxed at the rate that applies to your income in retirement, which should be lower.

Roth “401k” Federal Savings Plan

You make contributions to a Roth “401k” Federal Savings Plan with after-tax income. While this does not reduce your present taxable income, it does render your withdrawals in retirement tax-free.

What if I Worked in the Private Sector and have a 401(k) or Roth IRA?

You can roll an IRA from a private employer into your federal “401k” Federal Savings Plan . However, reach out to a Federal Retirement Consultant to ask about some other ways to manage these as well.  Keep in mind also that if you are 50 or older you can make additional catch-up contributions, however, they will not be eligible for matching contributions from your agency.

Can I Convert a Roth “401k” Federal Savings Plan to a Traditional “401k” Federal Savings Plan ?

No, and you can’t convert a Traditional “401k” Federal Savings Plan to a Roth or vice versa.

Which Type of “401k” Federal Savings Plan Should I Get?

Consider having one of each and varying the contributions according to how much money you are making. This allows you to strategically allocate retirement savings throughout your career to save the most in income tax.

For example, if you are just starting your career, you might open both a Roth “401k” Federal Savings Plan and a Traditional “401k” Federal Savings Plan , and contribute most to the Roth and just a bit to the Traditional. As the years pass and you presumably make more money, you can gradually increase contributions to the Traditional and decrease contributions to the Roth.

This way you are taking advantage of both the tax-free withdrawals of a Roth “401k” Federal Savings Plan , and the tax-deferred withdrawals of a Traditional “401k” Federal Savings Plan , and reducing your taxable income when you are making more, later in your career. Don’t forget to always contribute at least the amount that your agency will match.

What About Other Retirement Income?

You will have Social Security benefits when eligible, and if you are a civilian federal employee you will have an annuity from the Civil Service Retirement System (CSRS) or the Federal Employees Retirement System (FERS). If you are a member of the uniformed services, you will have Social Security benefits and your military retired pay.

The amount of income you have in retirement will vary according to the amount you contribute to your “401k” Federal Savings Plan , the amount that is taxable to you in retirement, and how you allocate your “401k” Federal Savings Plan contributions to the various funds and the return that your choices get. Even considering market variables, strategically contributing to your “401k” Federal Savings Plan is sure to maximize your income in retirement. 

About the Author

Veronica Baxter is a legal assistant and blogger living and working in the great city of Philadelphia. She frequently works with David Offen, Esq., a busy Philadelphia bankruptcy lawyer.

retirement planning

Three Great Reasons to Take Social Security Benefits at 62

By | Benefits, Federal Pay, Retirement | No Comments

There’s no such things as the perfect age to sign up for Social Security. You get an eight-year window to claim benefits that begins at 62 and ends at 70, financially speaking, and each age within that window has its pros and cons.

Now it just so happens that 62 is the most popular age to sign up for Social Security, but it also comes with consequences. You’re entitled to your full monthly benefit based on your wage history once you reach full retirement age, or FRA. That age is either 66, 67, or somewhere in between those two ages, depending on your year of birth.

If you claim Social Security at 62 with an FRA of 66, you’ll shrink your monthly benefit by 25%. And with an FRA of 67, you’re looking at a 30% reduction by filing at 62. But despite that tremendous hit to your retirement income, here’s why it could pay to land on 62 as your Social Security filing age.

1. You’ll get to retire sooner

Many people dream of early retirement. If you’ve spent the bulk of your career at a grueling job, you may want nothing more than to leave the workforce on the early side. And while you’ll generally need a healthy level of retirement savings to make that possible, claiming Social Security could provide the financial push you need to feel comfortable ending your career a bit sooner than most.

2. You have to retire sooner

An estimated 48% of workers are forced to retire earlier than planned, according to the Employee Benefit Research Institute, and the COVID-19 outbreak — and unemployment crisis it’s produced — could drive that percentage up even higher. These days, a lot of older Americans are out of work, and those struggling to return to a job may have no choice but to retire ahead of schedule instead. Furthermore, some older workers may be voluntarily leaving their jobs due to health concerns, and it’s these same people who are apt to need an income source like Social Security once their paychecks go away.

But even outside of the pandemic, it’s clear that early retirement often isn’t a choice, but rather, a side effect of unwanted circumstances. Older workers get pushed out of jobs all the time to make room for younger, less expensive employees, and health issues can make continuing to work impossible. If that’s the scenario you’re in, whether it’s related to COVID-19 or not, you may have to claim Social Security at 62 so you can pay your bills. And to be clear, that’s a much better option than racking up debt just to exist.

3. You’re not willing to take chances

Technically, Social Security is designed to pay you the same total lifetime benefit regardless of when you file. The logic is that while filing early lowers your monthly benefit, you collect benefits for a greater number of months. When you file on time or even after FRA, you grow your benefit, but collect fewer individual monthly payments. You should therefore, in theory, break even if you live an average lifespan.

But what if you don’t? Even if your health is great at age 62, you never know when a medical issue might pop up out of nowhere that suddenly shortens your lifespan. And if you’re unlikely to live an average life expectancy, you’re better off claiming Social Security early, as that will result in a greater amount of money in your lifetime.

Though claiming Social Security at 62 isn’t the right choice for everyone, it may be the best bet for you. Weigh the pros and cons, and with any luck, you’ll land on a solid choice.

The $16,728 Social Security bonus most retirees completely overlook

If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $16,728 more… each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we’re all after. Simply click here to discover how to learn more about these strategies.

We also conduct Free Federal Retirement and Benefits review, if you would like to take advantage of one via phone call, please reach out and call (877) 733-3877 x 1 or on our Contact Us Page fill out the simple form.

Retirement plans

OPM Implements New Locality Pay Area and More

By | Benefits, Federal Pay | No Comments

The Office of Personnel Management last week proposed regulations that would implement one new locality pay area and expand the boundaries of an existing pay area as authorized by the president’s pay agent last year.

In a proposed rule filed to the Federal Register last week, OPM officials formally began the final implementation process for establishing Des Moines, Iowa, as a locality pay area and adding Imperial County, Calif., to the existing Los Angeles-Long Beach locality pay area, effective with the first full pay period of 2021.

The Federal Salary Council, an advisory group made up of federal employee groups and White House appointees, recommended adding Des Moines and Imperial County to the General Schedule locality pay area system in 2018, and the president’s pay agent advanced the measure last December.

According to data from the Bureau of Labor Statistics, private sector employees in Des Moines on average made 10 percentage points more per year than their federal worker counterparts.

And although Imperial County, Calif., does not meet the admittance standards for any one locality pay area, those in its federal worker population, primarily U.S. Customs and Border Protection employees, commute to both Los Angeles and San Diego. Taken together, the number of commuters to both cities exceeds the threshold needed to be pulled into an existing pay area.

Although the two regions will officially be part of the locality pay tables beginning next year, employees there currently are not slated to see the benefits of locality pay. President Trump’s proposed pay raise for federal civilian employees in 2021 is 1% across the board, with locality pay remaining at 2020 levels.

On Wednesday, the House Appropriations Committee declined to override Trump’s pay plan when it advanced the fiscal 2021 Financial Services and General Government appropriations bill. Although the bill blocks a series of benefits cuts and includes other federal worker protections, the lack of a provision on federal compensation in 2021 effectively endorses the president’s proposal.

In addition to provisions blocking the controversial proposal to merge most of OPM’s functions with the General Services Administration and blocking nearly all collective bargaining agreements in the federal government that have been implemented since April 2019, appropriators have included a number of policy directives toward OPM.

The bill “encourages” OPM to reexamine rules governing how federal agencies hire and fire people to account for the fact that in some states, marijuana is no longer illegal.

“The committee encourages OPM to review its policies and guidelines regarding hiring and firing of individuals who use marijuana in states where that individual’s private use of marijuana is not prohibited under the law of the state,” the committee wrote in a report summarizing the bill. “These policies should reflect changes to the law on marijuana usage and clearly state the impact of marijuana usage on federal employment.”

The legislation also instructs OPM to include a section in its next annual report to Congress on telework devoted to federal agencies’ readiness to adopt wide-scale telework during the coronavirus pandemic and make recommendations to better prepare agencies for similar emergencies in the future.

Appropriators also encouraged federal agencies to examine “the fairness and equity” of their closure policies, and consider offering back pay to contractors who were laid off or went without pay due to federal building closures during the pandemic.

Although the committee did not act to override the president’s 1% across-the-board pay increase plan, some lawmakers have indicated they will continue to press for action on the House floor. A bipartisan group of 10 lawmakers last week urged leadership to endorse pay parity between the civilian and military federal workforce, which would amount to a 3% raise, based on language in the House version of the 2021 National Defense Authorization Act.

DHS Staffing Shakeups Continue Amid Early Retirement and Reassignment Offers

By | Benefits, Federal Pay | No Comments

The Trump administration is continuing to shake up the Homeland Security Department, requiring furloughs and deployments of some employees, while offering others incentives to retire early or exclusive opportunities to apply for positions elsewhere in the department.

The early retirement offers were sent out this week to employees at the Transportation Security Administration, according to an internal email obtained by Government Executive. Patricia Bradshaw, TSA’s assistant administrator for human capital, told employees management is taking the steps to “fine-tune the organization.” Transportation security officers at 35 airports currently offered retention incentives, and certain other positions, will not be eligible for the Voluntary Early Retirement Authority offers.

Elsewhere in TSA, the agency is offering Federal Air Marshals Service workers an opportunity to apply for jobs at Immigration and Customs Enforcement. The openings are exclusively available to the Air Marshals and are for both ICE’s Enforcement and Removal Operations and Homeland Security Investigations offices. Employees would serve as deportation officers or criminal investigators.

The agency told employees the opportunity was for Air Marshals Service employees “wishing to provide their skills within other areas of DHS,” but would not lead to attrition within the component.

“Let me be perfectly clear, the Federal Air Marshals Service will remain as the key law enforcement component within TSA,” the agency told employees. “This effort is not a plan to reduce or eliminate the FAMS,” adding it is “fully committed to hiring for all positions vacated by this effort.”

Days after receiving that email, however, TSA employees, including some at the Air Marshals Service, received the early retirement offers.

Customs and Border Protection, meanwhile, has told 800 officers from ports around the country they will face two consecutive 60-day deployments to the southwest border. DHS has asked for reprogramming authority to temporarily move the employees, according to the National Treasury Employees Union, which represents the CBP officers. CBP last year deployed 750 officers from their normal ports of entry posts to the southwest border.

The officers would serve in Texas at Rio Grande Valley and Laredo posts. Cases of the novel coronavirus are currently spiking in the state, which NTEU said makes the deployments unsafe.

“We have grave concerns about sending additional federal law enforcement personnel into a region where COVID-19 cases are spiking and hospitals are nearly full,” said NTEU National President Tony Reardon. The agency is struggling to keep safe CBP personnel already in the area, Reardon said, and has not demonstrated it will have the requisite personal protective equipment, lodging and transportation and access to health care for additional staff.

Reardon added CBP has not committed to testing employees at the end of their deployments or requiring them to quarantine for 14 days, as public health officials have recommended for those who may have had exposure to the virus. Reardon said the agency does not have adequate testing or contact tracing for CBP employees already at the border. More than 1,000 agency employees have tested positive for COVID-19.

“CBP should be focusing its resources on the health and safety of CBP personnel already assigned to the border, including policies that allow for appropriate social distancing at the port and giving employees more time to remain safe at home,” Reardon said.

The DHS workforce shakeups follow U.S. Citizenship and Immigration Services using reduction in force procedures to send furlough notices to more than 13,000 employees last month. The agency has cited a downturn in application receipts stemming from the coronavirus pandemic as the root of the budget crisis necessitating the forced, unpaid time off. USCIS has notified Congress it is seeking $1.2 billion to avoid the furloughing of more than 70% of its staff, but Republican and Democratic aides have said they are still awaiting a formal request for the funding.

Labor Board Makes It Easier for Federal Employees to Cancel Union Dues

By | Benefits, Retirement | No Comments

The board tasked with overseeing labor-management relations in the federal government on Wednesday issued final regulations making it easier for workers to cancel their union dues, despite opposition from labor groups and accusations of shifting rationale from its own member.

Last February, the Federal Labor Relations Authority announced that it would shift its interpretation of federal law governing how agencies may collect dues on behalf of employee unions. Although traditionally, federal employees could only opt out of union membership at one-year intervals, under the new rule, they will be able to cancel their dues at any time after one year has passed.

In its original decision, the FLRA cited a need to reexamine the rule following the Janus v. AFSCME Supreme Court decision, which ruled that non-union member employees of public sector agencies could not be compelled to pay so-called “agency fees” to support unions’ representational work. But unions, observers, and some federal judges have since noted that the Janus decision doesn’t apply to federal sector unions, since they already are barred from collecting fees from nonmembers.

In a final rule set to be published in the Federal Register on Thursday, the FLRA said it has only relied on interpreting the “plain language of the statute” in its reevaluation of existing precedent.

“While the request for a general statement of policy or guidance asked the authority to find that the First Amendment to the U.S. Constitution compelled a certain interpretation of [the statute], the majority decision rested exclusively on statutory exegesis, rather than principles of constitutional law,” the FLRA wrote.

The agency justified the change by arguing that previous precedent relied too heavily on the legislative history of the 1978 Civil Service Reform Act when the text of the law is unambiguous.

“In support of the criticism of the [current rule], the authority relied on [the statute’s] plain wording,” the FLRA wrote. “In particular, the section says that an assignment may not be revoked for a period of one year, and such wording governs only one year because it only refers to ‘one year.’”

FLRA Member Ernest DuBester, the lone Democrat on the three-member board, issued a dissent on the rule change, hammering his colleagues for no longer mentioning Janus after multiple courts have ruled against federal workers seeking to cancel their dues allotments outside of the standard opt-out window. He wrote that the rule will “generate more questions than answers” and that it creates contradictions within the FLRA’s regulations.

“As noted by the majority, a number of parties expressed concern that the rule would require agencies to unlawfully disregard the terms of previously authorized assignments, and would ignore the revocation terms that appear on the current OPM forms governing dues assignments and assignment revocations,” DuBester wrote. “In response to these concerns, the majority explains that the rule would ‘apply only to dues assignments that are authorized on or after the rule’s effective date,’ and that agencies would therefore not be required to disregard the terms of previously authorized assignments that the agencies received before the rule’s effective date. But this explanation appears to contradict the rule’s plain language, which applies its provisions to ‘previously authorized assignments.’”

American Federation of Government Employees National President Everett Kelley decried Wednesday’s rule as a “meritless” effort to make it easier for federal agencies to engage in “union busting.”

“The final regulation issued by the FLRA reverses nearly a half-century of settled and well-reasoned legal precedent by ending window periods for federal employees who join their union, paving the way for them to drop at any time after 12 months,” Kelley said. “The administration pushed for this anti-labor rule change and refused to relent, even in the midst of a global pandemic that has forced frontline federal workers to beg and plead with agencies for basic safety protocols and personal protective equipment.”

And the National Treasury Employees Union said it has already filed a legal challenge in the U.S. Court of Appeals for the D.C. Circuit seeking to block the new rule. NTEU National President Tony Reardon said the measure was “clearly written in an effort to harm unions.”

“Federal employees join our union because they believe in empowering frontline workers and the FLRA cannot take that away from us,” Reardon said. “However, the administration should not be allowed to bypass Congress and simply rewrite labor laws it doesn’t like, which is why we are fighting this in court.