Monthly Archives

January 2021

Billions Flow Out of “401k” Federal Savings Plan Due to COVID and More

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Officials at the federal government’s 401(k)-style retirement savings program said this week that nearly $3 billion exited the “401k” Federal Savings Plan this year as a result of the COVID-19 pandemic.

The CARES Act authorized “401k” Federal Savings Plan participants to take loans from their accounts of up to double the normal amount, and it waived requirements that participants be 59 1/2 years old, cite a specific financial hardship or take a 10% tax penalty.

At the January meeting of the Federal Retirement Thrift Investment Board, which administers the “401k” Federal Savings Plan , Participant Services Director Tee Ramos outlined how federal employees and retirees made use of these flexibilities.

Over the course of the programs, which both expired last year, “401k” Federal Savings Plan participants took out 3,043 CARES Act loans over the normal $50,000 cap, for a total of $229 million. And 119,720 participants withdrew money using the CARES Act flexibilities, totaling $2.9 billion. Despite these figures, assets in the “401k” Federal Savings Plan grew in 2021.

“Plan assets were up to $710 billion in December, and the total number of participants reached 6.2 million,” Ramos said. “Hardship withdrawals and loan volumes were 18% lower than the prior year, likely driven by the availability of CARES Act withdrawals and loans.”

In other retirement news, a bipartisan group of lawmakers last week reintroduced legislation that would eliminate two provisions of the Social Security program reviled by many federal retirees. The Social Security Fairness Act (H.R. 82), introduced by Reps. Rodney Davis, R-Ill., and Abigail Spanberger, D-Va., would eliminate the windfall elimination provision and the government pension offset from the Social Security Act.

The windfall elimination provision reduces the Social Security benefits of retired federal, state and local government employees who worked in private sector jobs in addition to a government job where Social Security is not intended as an element of their retirement income, like employees in the Civil Service Retirement System. And the government pension offset prevents government retirees from collecting both their own pension like the CSRS annuity and Social Security benefits derived from their spouse’s work in the private sector.

“Virginians shouldn’t be penalized for careers in public service—and that’s why eliminating the government pension offset and windfall elimination provision is so important,” Spanberger said in a statement. “Many central Virginians—including teachers, first responders and public employees—are negatively impacted by these outdated provisions that unfairly reduce the Social Security benefits they’ve earned.”

In a statement, National Active and Retired Federal Employees Association National President Ken Thomas endorsed the legislation.

“For decades, NARFE has supported full repeal of the windfall elimination provision and the government pension offset, and applauds introduction of a bill . . . to do just that,” Thomas said. “These policies have unfairly punished retired public servants through reduced Social Security benefits for far too long. This bill would provide much-needed relief for the millions of retirees and survivors currently affected by this inequitable practice and will improve fairness for future retirees.”



2021 Changes for Retirement Savings Plans

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As we start the new year, My Federal Retirement Help wants to make sure consumers are updated about how 2021’s changes will affect their planning or retirement years. In 2020, COVID-19 relief through the Coronavirus Aid, Relief and Economic Security Act (CARES Act) assisted many retirees (and retirement planners).

The CARES Act in 2020 eliminated annual required minimum distributions (RMD) for retirees for last year, and also allowed people younger than 59½ to withdraw up to $100,000 from retirement accounts without the usual 10% penalty. If the withdrawals were COVID-19 related, the person making the withdrawal also could spread the retirement plan’s taxes over three years (instead of one) and he/she also had the ability to replace that money taken from the account.

Concerning both of these exceptions created by the CARES Act in 2020, RMDs will restart in 2021 as owners of certain retirement accounts will have to make those withdrawals and pay income tax on the amount withdrawn from the specific retirement account. The early withdrawal penalty is back in 2021, and income on withdrawals will count as income for the 2021 tax year.

For 2021, the amount you contribute to an IRA stays at $6,000 per year for age 50 and under with consumers aged 50+ able to add another $1,000 to their annual contribution ($7,000). If a person chooses to invest money into a 401(k) plan, 403(b) plan, or other employer retirement accounts, he/she can invest $19,500 in 2021 and consumers aged 50 and older can add up to $6,500 to these accounts.

More employers also are opening up to adding annuity into their retirement plan options. An annuity has multiple options with a minimum required amount and maximum contribution amount based on the selected carrier and annuity product. Based on the carrier, a person can take out monthly payments or lump sums depending on how they want to set up the annuity for their retirement strategy. Money also placed into an annuity is tax-free until a withdrawal is made from the account.

If you would like to discuss your annuity options, My Federal Retirement Help to discuss these different products. If you have any questions regarding taxes, please consult with your tax advisor.

If you plan on retiring in the next few months or next few years, you should get a Free retirement review from our team as well.  Please visit our Contact Us page to get your review schedule today.

New Bill Would Standardize Federal Retiree Annual Increases and More

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A Washington, D.C., area lawmaker last week filed legislation that would standardize the annual increase in annuity payments that retired federal employees receive across retirement systems.

The Equal COLA Act (H.R. 304), introduced by Rep. Gerry Connolly, D-Va., would ensure that federal retirees in the Federal Employee Retirement System and the Civil Service Retirement System both receive the same annual percentage cost of living increase each year.

Under the current rules, which date back to 1986, the CSRS methodology for calculating cost of living adjustments is tied to the annual change in the third quarter consumer price index for workers. But FERS COLAs are based on an extrapolation from the CSRS adjustment: if the CSRS sees an increase of under 2%, FERS retirees will receive the full COLA. If the adjustment is between 2% and 3%, FERS enrollees would only receive a 2% increase. And if the CSRS COLA is 3% or more, FERS retirees would receive that adjustment, minus 1 percentage point.

Connolly’s bill, which he last introduced in 2018, would tie both systems’ annual increase directly to the CPI-W. The prospects for success seem brighter in this session of Congress, with Democrats controlling both chambers. President-elect Biden also vowed to the National Active and Retired Federal Employees Association last year that he would push for retiree cost of living adjustments to be based on the more generous consumer price index for the elderly.

Elsewhere on Capitol Hill, a bipartisan pair of House lawmakers have introduced a bill that would double the cash bonus available to federal employees who identify wasteful spending at their agencies.

The Bonuses for Cost-Cutters Act of 2021 (H.R. 103), introduced by Reps. Chuck Fleischmann, R-Tenn., and Jim Cooper, D-Tenn., would increase the maximum reward for feds who successfully identify wasteful spending to 1% of the amount saved, up to $20,000.

Under the bill, agency heads would be able to grant the cash bonus to federal workers if the agency chief financial officer or other designated official determines the spending is unnecessary. Employees of offices of the inspector general and Senate-confirmed political appointees are ineligible for the benefit.

“In the private sector, employees work hard to identify ways to save their organization money and they are often rewarded for their diligence,” Fleischmann said in a statement. “It doesn’t make sense that federal agencies are encouraged to spend, spend, spend instead of being rewarded for working to save taxpayer dollars and reduce our national debt.”

If you or any coworker has any questions about his or her retirement and would like to have a Free Retirement review, please Contact Us today to schedule your personalized one on one call to get the information you are looking for.