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April 8, 2022
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USPS Converted 63,000 Non-Career Employees to Permanent Jobs Over the Last Year

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he U.S. Postal Service has converted 63,000 part-time or non-permanent workers into career positions, with leadership saying it has helped stabilize the workforce after years of escalating turnover.

USPS has struggled for years with high turnover rates—particularly within its non-career workforce—leading postal management to identify new strategies to keep them on as it aims to grow its rolls. The conversions have also helped the Postal Service address employee availability issues during the COVID-19 pandemic, the agency said in a report marking the one-year anniversary of the unveiling of Postmaster General Louis DeJoy’s 10-year business plan.

The Postal Service has since 2010 increasingly relied on non-career workers, such as postal support employees and mailhandler assistants, as a cheaper alternative to reduce labor costs as part of efforts to keep pace with shrinking mail revenue. Non-career employees generally receive a less generous benefits package and lower pay than their permanent, full-time counterparts. The agency’s non-career staff grew by more than 60% between 2010 and 2017. At least some of the conversions were promised as part of collective bargaining negotiations.

The USPS inspector general has for years highlighted the problems with the Postal Service’s growing reliance on non-career workers. It found in a 2016 report, for example, that turnover the agency’s unionized, career workforce turns over every year was 1.2%, while in 2014 the non-career workforce had a 29% quit rate. By 2016, the turnover rate for non-career employees had climbed to 43%.

DeJoy previously laid out plans to reduce turnover by focusing on better options for non-career employees, highlighting the issue in testimony to Congress and in his 10-year plan. The trend marks a departure from the first months of DeJoy’s tenure, when the postmaster general led an effort to slash tens of thousands of non-union jobs by offering early retirement incentives and layoffs. USPS has since gone on a hiring spree and DeJoy has speculated he may add up to 100,000 positions compared to when he took over to meet growing package demand.

The Postal Service ended 2021 with nearly 517,000 career employees, its highest total since 2012. The non-career workforce has remained fairly steady in recent years at 136,000.

USPS boasted that it has committed more than $6 billion in core infrastructure over the last year, part of DeJoy’s promise to invest at least $40 billion by 2031. About half of the obligated total has gone toward the Postal Service’s controversial contract for new delivery vehicles, only about 20% of which are so far electric. Other investments have included new processing equipment, improvements to post offices and technology upgrades.

Postal management also highlighted its improvements in delivering mail on time, though it is still falling well short of its goals. It has also slowed down delivery for about 40% of First-Class mail, making it easier to hit its targets. USPS promised more changes to “optimize” its network, saying those plans are still in the works.

“These efforts—impacting all aspects of our operations and infrastructure—are being refined now and will be deployed in stages this year and in the coming years,” the Postal Service said.

USPS also again noted its “judicious” use of its new authority to raise prices above inflation, though it just this week proposed hiking its rates for the second time by nearly the fully allowable amount. Through a complicated formula derived from factors including inflation, declining mail volume and retiree costs, USPS could have raised its First-Class mail rates in July by 6.507%. It chose to raise them by 6.506%. The Postal Service has generated nearly $2 billion in annualized revenue from previous increases, the agency said.

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September 14, 2021
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How to Deal With OPM’s Delay in Retirement Application Processing

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Many federal employees have realized that upon retiring from federal service,  the amount of time from the day of retirement to the newly retired employee receiving his or her first full  CSRS or FERS annuity check may be in the range of three to eight months.

While the newly retired employee will receive (for a period of two months to as much as 10 months )“interim” annuity checks (which are a percentage of what the full annuity check they are entitled to), for many new retirees this could turn into a cash flow problem during the interim annuity payment period.

This column discusses some of the problems causing the delays in OPM’s sending the first full annuity payment to annuitants and what employees who will be retiring in the next few years should do in anticipation of a possible cash flow problem during the early months of their retirement.

The Office of Personnel Management (OPM)’s retirement office processing center in Boyers, PA is responsible for processing retirement applications. OPM is well aware of the increasing processing delays in retirement applications. The problem is nothing new . It has gone on for many years but has gotten worse in recent years due to the increasing number of retiring employees.  The OPM retirement department keeps a monthly tab on retirement application processing and delays and publishes the monthly data.

How To Expedite Your Retirement Application

Some retirement applications are processed (that is to say, adjudicated) faster than others. This means that some annuitants receive their first full annuity checks sooner than other annuitants. Included with the first full annuity check will be retroactive payments owed on the previous partial annuity payments. According to OPM, the one thing that retiring federal employees can do to expedite the time for OPM’s retirement office to process retirement applications is for employees to make sure that the portion of the retirement application they are responsible for is fully complete. Complete applications include providing all necessary forms besides the application form itself.

The following is a list of the necessary forms and documents to be submitted in order to fully adjudicate a CSRS or FERS retirement application:

1.   Application for immediate federal retirement:  For CSRS/CSRS Offset employees – Form SF 2801; for FERS/ “Trans” FERS employees – Form SF 3107;

2.   The notarized consent of a spouse if the spouse has agreed to less than a maximum  survivor annuity benefit;

3.   In case a retiring employee has been divorced and a former spouse was awarded a portion of the employee’s CSRS or FERS annuity, a certified copy of the divorce decree or court order;

4.   Documentation of five years of coverage (in particular; the last five years) under the Federal Employees Health Benefits (FEHB) program in order to maintain health insurance coverage throughout retirement;

5.   Documentation of five years of coverage during at least the last five years of service, under the Federal Employees Group Life Insurance (FEGLI) program;

6.   FEGLI life insurance election form for maintaining FEGLI coverage during retirement –  SF 2818;

7.   Documentation of creditable civilian service that provides evidence of an employee’s Federal service;

8.   Documentation of military service, if any;

9.   Updated beneficiary designation forms including for CSRS, Form SF 2808; for FERS, Form SF 3102; and for FEGLI, Form SF2823.  The other major beneficiary form for the Thrift Savings Plan (TSP), form TSP-3 should already be on file with the TSP Service Office; and

10.   Voluntary contribution election for CSRS employees who have established a Voluntary Contributions Program (VCP) account.

3 Primary Reasons Federal Retirement Applications Are Delayed

OPM cites three main reasons for delay in processing retirement applications, namely:

  1.  A retirement package is incomplete – for example, important documentation is missing or documents are lacking a signature;
  2.  A retirement application contains elements that create additional processing requirements such as a court order or a FERS annuity supplement; and
  3.  The applicant has to make multiple decisions such as whether to pay a deposit for temporary (non-deposit) federal service or prior military service; to make a redeposit for withdrawn CSRS or FERS contributions; or to make voluntary contributions to the CSRS Retirement and Disability Fund under the Voluntary Contribution Program.

Also, it is important to keep in mind that OPM’s retirement processing  unit tries to process applications in the order in which the applications arrive. But retirement application processing can take longer in the case of retirement applications accompanied by a court order to pay benefits to a former spouse.

Given the reality of the situation and accepting the fact that OPM’s retirement office processing center will be facing a retirement application backlog for most probably a very long time as more and more employees retire, what should employees who intend to retire within the next five to 10 years do in order to solve their possible cash flow problem while waiting for their first full CSRS or FERS annuity check? The following are some suggestions of what retiring employees can do — and what they should not do.

5 Things Retiring Federal Employees Can Do

1. Build up unused annual leave.

When an employee retires from federal service, any unused annual leave will be paid to the retiring employee in a lump sum payment. This lump sum payment – fully subject to income and payroll taxes – is paid by the retiring employee’s payroll office within a few weeks after the employee retires. Some employees can get get paid for as much as six weeks of unused annual leave and can use this payment to help pay their bills while waiting for their first full annuity check.

2.  Seek employment, at least on a temporary basis.

After retiring from federal service, many employees seek employment in the private sector, at least for a few years. In so doing, they can earn as much as the want without affecting their CSRS or FERS annuities. The only pension income that could be affected by salary or self-employment income is the FERS annuity supplement which is subject to an earnings test. FERS annuitants who retire before age 62 and are eligible for the FERS annuity supplement should be aware that the annuity supplement is not paid during the “interim” annuity period. This means that a FERS annuitant’s working during the “interim” annuity period, and for that matter during the annuitant’s first year of retirement, will not affect  the FERS annuity supplement.

3.  Start Thrift Savings Plan (TSP) withdrawals.

A retiring employee can start withdrawing from his or her TSP account following at least 30 days following his or her retirement date. With the new and more flexible TSP withdrawal rules perhaps starting later this year, annuitants will have more flexibility in withdrawing from their TSP accounts. Annuitants should be aware that since the TSP has to last as much 30 to 40 years of retirement, annuitants should  be somewhat conservative in the amount of withdrawals from their TSP accounts during the early years of their retirement. Penalty-free traditional TSP withdrawals can be made if the employee retires from Federal service sometime during the year after the year the employee becomes age 55.

4.  Start receiving monthly Social Security retirement benefit as early as age 62.

Federal retirees should be careful about starting to receive their monthly Social Security retirement benefit at age 62 since starting one’s Social Security before full retirement age (ages 65 to 67, depending which year an individual was born) will result in a permanent reduction to one’s Social Security retirement benefit. Drawing Social Security before one’s FRA and working could also reduce or eliminate one’s monthly benefit due to the Social Security earnings test. A married or formerly married individual may be eligible to receive half of a spouse’s or ex-spouse’s Social Security benefits (“spousal” or “ex-spousal” benefit) or all of a deceased spouse’s or a deceased ex-spouse’s Social Security benefit (“widow /”widower” benefit).

5.  Increase one’s financial liquidity, perhaps to as much as one year’s worth of one’s average monthly expenses.

Financial advisors generally recommend that all individuals – whether working or retired – should always own a certain amount of liquid assets. Liquid assets include a passbook savings account or a money market account. These liquid assets should ideally be equal to at least three to six months of their average monthly expenses. Retiring employees therefore should have at least six months to a year’s worth of their average monthly  expenses invested in liquid assets. These liquid asset funds will be used to help pay their monthly expenses during the “interim” annuity period.

What Retiring Federal Employees Should Not Do

Taking out short-term loans such as home equity loans is not a good idea and highly not recommended. Adding more debt to one’s retirement years  when there is generally less income is not a good move. Employees and annuitants should also be aware that under the Tax Cuts and Jobs Acts of 2017 taking effect  Jan. 1, 2018, all home equity loan interest is nondeductible if the loan proceeds are not used to improve one’s home. This means that the interest on home equity loans used to pay personal expenses is nondeductible on one’s income taxes.

Shortly before retiring, a retiring employee could take out a general purpose TSP loan. However, the loan must be paid back within 90 days following the employee’s retirement date. If the loan is not paid back in full within those 90 days, then the unpaid balance will be considered a taxable distribution – subject to federal and state income tax – for that year. If the annuitant  is under age 59.5, then the taxable distribution is subject to a 10 percent early withdrawal penalty.

July 17, 2021
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Retiring Under the FERS MRA+10 Provision

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What happens when a FERS employee wishes to retire prior to meeting all of the full eligibility requirements?

In this article, I’ll share how a FERS employee — who may be considering retiring under Minimum Retirement Age (MRA)+10 retirement rules — may be affected by swift penalties.

Full eligibility to retire

Let’s start with federal employees being fully eligible to retire under FERS by meeting all of the normal requirements. You’ll need to meet one of three age and service year combinations, and it doesn’t matter which one you meet. As long as you’ve met one of them, then you’re good to go. You’ll need to be at least age 62 with at least five years of service, at least age 60 with at least 20 years of service, or at least your minimum retirement age with at least 30 years of service.

That Minimum Retirement Age (MRA) is a sliding scale somewhere between the age of 55 and 57, and it depends on the year in which an employee was born. To make this easy for you, here’s a link to the MRA chart provided by OPM, if you’re not familiar with what your MRA is.

How does MRA+10 work?

The concept of “MRA+10” comes into play when someone has met their MRA, but has not met the 30-year requirement to be fully eligible to retire. In this case, the employee simply 10 years of service to be able to retire under the MRA+10 rules. Again, in this scenario, we’ve got the MRA and at least 10 years of service, but not the 30 required to be fully eligible.

It probably sounds great that you’ll be able to retire with fewer years of service, but like most government programs, there’s a catch. In fact, there are actually a couple of catches that have a profound financial impact on someone who chooses to retire under these MRA+10 rules. Most importantly, the pension will be penalized by 5% for every year an employee is under age 62, and this penalty is forever.

An example of the penalty

To illustrate these consequences, let’s take a look at a scenario. Let’s say we have a FERS employee who is 57 years old and has 10 years of service. Let’s also assume that this employee has a high-3 average salary of $50,000, just to give us some numbers to work with.

If we were to calculate the earned pension, at that moment in time, we would take the $50,000, times 1%, times 10 years of service. That is the normal formula for a FERS employee. That would yield $5,000 a year. But then we have to calculate the penalty, which again, is 5% for every year the employee is under age 62, which for this person is five years. The penalty is 25% of the pension. If we take the original $5,000 a year that we calculated, we subtract out 25% of it to get a pension of $3,750 per year.

How to avoid the penalty

Other than working long enough to be fully eligible, there is a way to avoid the penalty, but it might feel like a penalty, too. In the scenario that we just outlined, we have an employee who’s 57 with 10 years of service. We know the pension before the penalty was $5,000 a year. If we want to avoid being hit with that 25% penalty that we calculated, there is a way to do it. The employee could voluntarily postpone receipt of their pension until age 62.

This is different than a deferred pension, so if you’re looking up rules, don’t look up deferred pensions. This is a voluntary postponement of the receipt of that pension. In this scenario, this person by trying to avoid the penalty by voluntarily receiving no pension between age 57 and age 62, but once the employee draws the pension at 62, they would get the full $5,000/year, not the penalized amount of the $3,750 that we calculated earlier. This seems like it should be good news, but it’s also a long time to go without a pension. In fact, if they go without the pension for 5 years, they would have forgone $18,750 in pension money and it will take them 15 years to regain what they lost in this voluntary postponement.

Scenarios where we see this typically work well for a federal employee, is when someone is not truly retiring. The employee simply wants to leave federal service to go take another job. Maybe the employee got an offer with a contractor or a private company, and in that scenario where the employee is going to receive another paycheck, he/she might not actually need the income between 57 and 62, because he/she will have the paycheck from the new employer. So, retiring under MRA+10 might be a good fit for some employees in certain circumstances.

Still, there are catches.

The other consequences

During the time that an employee is not drawing the pension (so in this example from age 57 to 62), the employee will not be covered under the Federal Employees Health Benefits Program (FEHB), and will not be covered under the Federal Employees Group Life Insurance Program (FEGLI) either. These are huge considerations for employees who are reliant on FEHB and FEGLI programs to make certain they are covered if something should happen to them. The good news is once the employee begins drawing the pension, like in this example we used age 62, the FEHB and FEGLI coverage will be restored at that time.

There’s another benefit, however, that cannot be restored and that’s the FERS Special Retirement Supplement. This is the program that looks like Social Security, but it’s paid between the time an employee retires and the time they turn 62. Anyone retiring under the MRA+10 rules will forfeit any payment from the Special Retirement Supplement, and that may never be restored. It’s another piece that the employee will have to give up and take under consideration when deciding if MRA+10 is the way to go.

A slight change to the example

There are some scenarios where this might play out a little bit differently, or where the penalty is not quite so steep. Let’s take a look at another example. We’ll circle back to the original scenario and change just one thing. Remember, this person is 57 years old, so they’ve met their MRA. But let’s say, instead of this person having 10 years of service, that now they have 20. They’re still not fully eligible to retire, but let’s see how things look.

Of course, since there are more years of service, we know the pension will naturally be higher. We would take that $50,000 high-3 that we used before, times 1%, times 20 years, and that yields a $10,000 a year pension, before penalties are assessed. This person is still five years under age 62, so they will still get a 25% penalty, which now is $2,500. It’s a higher dollar amount that the employee is being penalized, because the pension is higher.

If this person wanted to voluntarily postpone receiving this pension to avoid the penalty, they would only need to wait until age 60 to begin to draw it. The reason is that at 60, this employee will have 20 years of service at that moment in time, which makes them fully eligible to retire with no penalties.

All of the other consequences I mentioned earlier still remain. This employee would still lose FEHB and FEGLI while they’re not drawing the pension, but again, would be restored once the pension starts at 60. And of course, the Special Retirement Supplement will still be forfeited, so no money will come out of that program in either scenario.

Don’t confuse MRA+10 with deferred pensions

I do want to make one minor point of clarification, just because there seems to be some confusion with MRA+10 rules and what’s called a “deferred retirement.” Let’s say you’re a federal employee who is age 45. You have 10, or 20, or more years of service, and you’re ready to leave before your MRA. That’s called a deferred retirement, and I’ll cover that in a later article, because those rules are very different for that group.

Final thoughts

For someone under FERS who has considered retiring under the MRA+10 rules, my parting guidance for you would be to consider all the implications and penalties before coming to any final decision. This might not be what you want to hear, but you may very well have to keep working to reach your full eligibility rules in order to have the best retirement for your situation. Again, that might not be a popular answer, but the numbers are a real reality check in this whole decision. Math doesn’t lie.

Oftentimes, I’m the bearer of bad news when it comes to big decisions like this. I am a big believer that I’d rather temper those dreams today, before you make a huge mistake, than to see you struggle to do some serious damage control after that decision has already been made.

While retiring with fewer years of service may sound like a good idea, there are some hefty consequences imposed. I hope this article will help you consider those important consequences and decide if retiring under the FERS MRA+10 provision is the right choice for you.  So, now with all this being said, if you would like us to run a Full retirement analysis please visit our Contact Us Page to schedule your review today.

 

July 16, 2021
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Ins and Outs of Leaving Government Now and Retiring Later

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In her swearing-in ceremony, newly confirmed OPM Director Kiran Ahuja, had this to say about the major issues federal employees are facing: “From shaping how and where we work in the future to ensuring everyone is safe while working during this pandemic, and discussions regarding how we rebuild our federal workforce, there’s no shortage of conversations to be had and issues to tackle.”

Based on the increased number of emails I’ve been receiving requesting information about deferred or postponed retirement benefits, it appears that some employees may not be returning to their offices to help with this reshaping. Some are contemplating early retirement or transitioning outside of federal service to finish their careers.

Here’s one typical scenario:

I would like to get some information concerning deferred retirement. I have 20 years of federal service under FERS but I am only 49 years old. I am thinking of retiring now and defer my retirement pay until 57. Will there be a reduction in pay because I am retiring at 49 instead of waiting until 57? What forms do I need to complete to retire now?

Here’s another:

I’m writing because I am starting to talk with private sector employers and there’s a good chance I may pursue early retirement when I reach my minimum retirement age (56 years and 2 months). I currently have around 25 years of federal service. I would pursue the deferred/postponed retirement benefit and reinstate health insurance when I apply at age 60. I plan to use the insurance from whatever firm I join until 60 years old. My question is what do I want to do to make sure this happens before I leave the federal government, including what forms do I want to make sure I get copies of and retain? 

If you are under the Federal Employees Retirement System and considering a move outside of federal service before being eligible to retire with immediate retirement benefits or postponing your retirement, here are some things to know:

  • In order to qualify for a deferred retirement, you will need to complete a minimum of five years of creditable civilian service. Your benefit will begin the first day of the month after you reach age 62.
  • If you complete at least 10 years of creditable service, including five years of civilian service, then you are eligible for a deferred annuity beginning the first day of the month after you reach your minimum retirement age.
  • Your deferred annuity is based on the length of service and high-three average salary in effect when you separate from federal service. You will be entitled to a benefit computed at 1% of your high-three average salary for each year of service.
  • You will begin to receive cost of living adjustments on your deferred retirement benefits once you are over 62.
  • Former employees who receive a deferred or postponed annuity are not eligible for a retiree annuity supplement.
  • If you have already reached your MRA and you have at least 10 years of service, you can separate but postpone receiving your retirement benefit to avoid an age reduction.
  • Most of your insurance benefits such as health, dental and vision, and life insurance will end when you separate without applying for immediate retirement benefits.
  • There will be no forms to file until you are ready to apply for your deferred annuity. Your separation will be treated as a resignation, but form SF 50, Notification of Personnel Action, will note that you are entitled to a deferred or postponed retirement in the remarks section of the form.

Form RI 92-19 is used to apply for a deferred or postponed FERS retirement benefit. There are instructions for this form available in companion pamphlet RI 92-19a. You should file the application directly with the Office of Personnel Management 60 days before you want your monthly annuity benefit to begin.

It’s a good idea to request a retirement estimate for a deferred or postponed retirement from your agency’s human resources office before leaving federal service. This will give you an idea of the value of this benefit at the time you are entitled to receive it.

If you are married when your annuity begins, it will be computed with a reduction to provide a maximum survivor annuity (50 percent of your unreduced annuity) for your spouse upon your death. You can choose to provide a partial survivor annuity (25 percent of your unreduced annuity) or no survivor annuity; however, you must get your spouse’s consent.

If you separate from federal service, but die before receiving your deferred or postponed retirement, there would be a survivor annuity payable to your spouse if they were married to you at the time of your separation and you had 10 or more years of creditable service (and did not apply for a refund of your retirement contributions). Your surviving spouse may elect to receive a lump-sum payment of your retirement contributions in lieu of a survivor annuity.

You should keep personal copies of certain documents filed in your electronic Official Personnel Folder, because you will lose immediate access to this folder after your separation. These include:

  • FERS Designation of Beneficiary Form (SF 3102)
  • SF-50 forms showing appointments into federal service, prior separations from federal service, changes in your work schedule, changes in your retirement coverage, and pay changes over the last (or highest) three years of service, because they will be used to compute your high-three average salary for your future retirement benefit.
  • FEGLI forms if you are retiring with an immediate retirement, including SF 2817 (Life Insurance Election) and SF 2823 (Designation of Beneficiary).
  • SF 2809 FEHBP election forms.

If you are considering employment related to your government work or possibly returning to federal service later on, you may want to maintain information regarding training, duty stations, security clearances, pay, and positions that were held during your career.

The pandemic has upended our lives and made us think about our priorities. There is a big difference between retiring with an immediate, unreduced, retirement based on a full career of federal service versus a reduced or postponed deferred retirement. So be sure to think it through before you make the leap out of government.

July 16, 2021
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Inflation and the Great COLA Countdown of 2021

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For the first time in recent memory, the annual cost-of-living adjustment for federal retirement benefits could increase significantly.

The Bureau of Labor Statistics announced this week that the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 6.1 percent over the last 12 months. This figure is significant to federal retirees and those soon to retire, because it’s the basis for the annual retiree cost of living adjustment.

Annual COLAs are determined by comparing the average monthly CPI-W during the third quarter (July to September) of the current calendar year and the third quarter of the base year, which is the last previous year in which a COLA was applied. The effective date for COLAs is December, but the adjustment first appears in the benefits issued during the following January. This means that the 2021 COLA for federal retirees won’t be determined until the CPI-W announcement for the end of September, which will occur by mid-October.

The CPI-W will be influenced by the additional increase (or decrease) in prices for July, August and September. Based on the second quarter announcement, it’s shaping up to be a significant increase. The recent history of COLA increases includes 1.3 percent (2020), 1.6 percent (2019), 2.8 percent (2018), 2.0 percent (2017), 0.3 percent (2016), 0.0 percent (2015), 1.7 percent (2014), 1.5 percent (2013), 1.7 percent (2012), 3.6 percent (2011), 0.0 percent (2009 and 2010) and 5.8 percent (2008).

It’s important for those who are planning to retire from the federal government to understand how the annual COLA is applied to your retirement benefits. Let’s start with Civil Service Retirement System and Federal Employees Retirement System benefits. Eligible annuitants must be retired for at least one year to receive the full annual COLA, but the maximum increase is computed a little differently for FERS annuitants. One year starts with the December 2020 retirement benefit and ends November 2021. For example, if you retire on July 31, 2021 and your retirement starts on Aug. 1, you will be retired for four months during the 2021 rating period. You would receive 4/12 of the 2021 increase in your January retirement payment (which covers the month of December).

The difference for FERS retirees occurs when the increase is higher than 2%. When the increase is 3% or higher, the maximum boost for FERS retirees is 1% less than the full COLA increase. So, for example, if the 2021 COLA turns out to be 6%, FERS annuitants will receive 5%. In years when the rate of the COLA is between 2% and 3%, FERS retirees are granted a 2% COLA. The only time such a reduced (or “diet”) COLA doesn’t apply to FERS is when the COLA increase is 2% or less.

FERS COLAs apply only to the retiree’s basic annuity (not the FERS retirement supplement). For survivor annuitants, the COLA applies to both the basic survivor annuity and supplementary annuity. CSRS COLAs apply to all annuities, regardless of the age of the annuitant. FERS COLAs generally do not apply to annuitants who are under age 62 as of Dec. 1, 2021, with some exceptions.

For FERS employees who are planning to retire at the minimum retirement age of between 55 and 57 years old, this can be a significant issue if a trend of higher inflation continues. A 5% increase to a benefit of $1,000 per month would add $50 to the retirement benefit. Over time the lack of such a COLA would result in a significantly reduced buying power of the benefit.

For Social Security recipients, the COLA is also based on the full CPI-W third quarter adjustment. The increase in Social Security benefits is a little more complicated to calculate since it is based on the benefit payable at your full retirement age.

If you would like to have a free retirement review to know where your pension numbers look like, please feel free to Contact Us today and schedule your one-on-one call today.

July 8, 2021
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Former Temporary Workers Could Make Catch-Up Pension Contributions Under New Bill

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A bipartisan group of lawmakers has introduced legislation to allow most federal employees who were initially hired as temporary workers to make catch-up contributions to defined benefit pensions so they can retire on time.

Reps. Derek Kilmer, D-Wash., and Tom Cole, R-Okla., on Wednesday introduced the Federal Retirement Fairness Act (H.R. 4268), which would allow employees enrolled in the Federal Employees Retirement System who initially entered government as a temporary worker the ability to make catch-up retirement contributions to cover for the years when they were temps and unable to contribute to their retirement accounts.

Former temporary workers once had access to a similar provision to make “buy back” contributions to account for their time as temps under the Civil Service Retirement System, but the practice was phased out in 1989, after the implementation of FERS. As a result, federal workers who began as temporary employees must choose between accepting a lower defined benefit pension annuity or working additional years to receive their full retirement allowance.

“Many federal employees begin their careers in temporary positions before transitioning to permanent status—so we need to have their backs,” Kilmer said in a statement. “This bill will ensure that all federal workers . . . have the opportunity to retire on time, regardless of how they started their careers.”

“Whether first hired under temporary status or not, civil service should be recognized, and these workers should have the option to pay toward retirement credit for the entirety of their employment,” Cole said. “I am proud to join in re-introducing the Federal Retirement Fairness Act that allows this buy-in benefit to give these civil employees earned time credit toward retirement.”

The bill already has the support of an array of federal employee groups, including the American Federation of Government Employees, the Federal Managers Association, and the National Active and Retired Federal Employees Association.

“When a temporary employee converts to a permanent employee, the temporary service time is not considered when calculating the FERS retirement benefit,” NARFE National President Ken Thomas said. “This bill would allow the once temporary, now permanent employee to make a deposit of employee contributions to make their temporary service creditable towards retirement.”

“Seasonal and temporary employees who answer the call of duty deserve the same level of deference as the permanent employees they work with,” said Randy Erwin, national president of the National Federation of Federal Employees. “It is unconscionable to ignore temporary or seasonal labor upon becoming permanent employees given many of these employees risk their lives and health for these jobs, as thousands of wildland firefighters do each year . . . If they put the time in, they deserve to have it counted toward retirement.”

If you need assistance or want to get a Free Retirement review, please Contact Us today to schedule your retirement review.

July 2, 2021
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Leaving Government Now and Retiring Later

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The ins and outs of deferred or postponed retirement.

In her swearing-in ceremony, newly confirmed OPM Director Kiran Ahuja, had this to say about the major issues federal employees are facing: “From shaping how and where we work in the future to ensuring everyone is safe while working during this pandemic, and discussions regarding how we rebuild our federal workforce, there’s no shortage of conversations to be had and issues to tackle.”

Based on the increased number of emails I’ve been receiving requesting information about deferred or postponed retirement benefits, it appears that some employees may not be returning to their offices to help with this reshaping. Some are contemplating early retirement or transitioning outside of federal service to finish their careers.

Here’s one typical scenario:

I would like to get some information concerning deferred retirement. I have 20 years of federal service under FERS but I am only 49 years old. I am thinking of retiring now and defer my retirement pay until 57. Will there be a reduction in pay because I am retiring at 49 instead of waiting until 57? What forms do I need to complete to retire now?

Here’s another:

I’m writing because I am starting to talk with private sector employers and there’s a good chance I may pursue early retirement when I reach my minimum retirement age (56 years and 2 months). I currently have around 25 years of federal service. I would pursue the deferred/postponed retirement benefit and reinstate health insurance when I apply at age 60. I plan to use the insurance from whatever firm I join until 60 years old. My question is what do I want to do to make sure this happens before I leave the federal government, including what forms do I want to make sure I get copies of and retain? 

If you are under the Federal Employees Retirement System and considering a move outside of federal service before being eligible to retire with immediate retirement benefits or postponing your retirement, here are some things to know:

  • In order to qualify for a deferred retirement, you will need to complete a minimum of five years of creditable civilian service. Your benefit will begin the first day of the month after you reach age 62.
  • If you complete at least 10 years of creditable service, including five years of civilian service, then you are eligible for a deferred annuity beginning the first day of the month after you reach your minimum retirement age.
  • Your deferred annuity is based on the length of service and high-three average salary in effect when you separate from federal service. You will be entitled to a benefit computed at 1% of your high-three average salary for each year of service.
  • You will begin to receive cost of living adjustments on your deferred retirement benefits once you are over 62.
  • Former employees who receive a deferred or postponed annuity are not eligible for a retiree annuity supplement.
  • If you have already reached your MRA and you have at least 10 years of service, you can separate but postpone receiving your retirement benefit to avoid an age reduction.
  • Most of your insurance benefits such as health, dental and vision, and life insurance will end when you separate without applying for immediate retirement benefits.

There will be no forms to file until you are ready to apply for your deferred annuity. Your separation will be treated as a resignation, but form SF 50, Notification of Personnel Action, will note that you are entitled to a deferred or postponed retirement in the remarks section of the form.

Form RI 92-19 is used to apply for a deferred or postponed FERS retirement benefit. There are instructions for this form available in companion pamphlet RI 92-19a. You should file the application directly with the Office of Personnel Management 60 days before you want your monthly annuity benefit to begin.

It’s a good idea to request a retirement estimate for a deferred or postponed retirement from your agency’s human resources office before leaving federal service. This will give you an idea of the value of this benefit at the time you are entitled to receive it.

If you are married when your annuity begins, it will be computed with a reduction to provide a maximum survivor annuity (50 percent of your unreduced annuity) for your spouse upon your death. You can choose to provide a partial survivor annuity (25 percent of your unreduced annuity) or no survivor annuity; however, you must get your spouse’s consent.

If you separate from federal service, but die before receiving your deferred or postponed retirement, there would be a survivor annuity payable to your spouse if they were married to you at the time of your separation and you had 10 or more years of creditable service (and did not apply for a refund of your retirement contributions). Your surviving spouse may elect to receive a lump-sum payment of your retirement contributions in lieu of a survivor annuity.

You should keep personal copies of certain documents filed in your electronic Official Personnel Folder, because you will lose immediate access to this folder after your separation. These include:

  • FERS Designation of Beneficiary Form (SF 3102)
  • SF-50 forms showing appointments into federal service, prior separations from federal service, changes in your work schedule, changes in your retirement coverage, and pay changes over the last (or highest) three years of service, because they will be used to compute your high-three average salary for your future retirement benefit.
  • FEGLI forms if you are retiring with an immediate retirement, including SF 2817 (Life Insurance Election) and SF 2823 (Designation of Beneficiary).
  • SF 2809 FEHBP election forms.

If you are considering employment related to your government work or possibly returning to federal service later on, you may want to maintain information regarding training, duty stations, security clearances, pay, and positions that were held during your career.

The pandemic has upended our lives and made us think about our priorities. There is a big difference between retiring with an immediate, unreduced, retirement based on a full career of federal service versus a reduced or postponed deferred retirement. So be sure to think it through before you make the leap out of government.

We can also run a free benefits analysis for you as well, just visit out simple contact us page to request yours today.

June 10, 2021
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FERS Retiree Annuity Supplement

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If you are a FERS employee and you retire on an immediate, unreduced annuity before reaching age 62, you will not only receive your basic annuity but an additional payment that represents the amount of Social Security benefit you earned while a FERS employee. It’s called the special retirement supplement (SRS).

An immediate, unreduced annuity is payable to any FERS employee who retires:
• at age 60 with 20 years of service,
• at his minimum retirement age (MRA—currently 56) with 30 years of service,
• at his MRA, if involuntarily retiring, for example during a RIF, or
• at his MRA, if retiring under the Voluntary Early Retirement Authority (VERA)

Note: Employees who retire under the MRA+10 provision aren’t eligible for the SRS. Nor are deferred retirees or disability retirees.

The amount of the SRS is determined using a complicated formula that relies on data that isn’t available to you. A ballpark formula: multiply your Social Security benefit by your total years of FERS service then divide by 40.

There are three key things you need to know about the SRS: 1) It’s a fixed amount that’s established on the day you retire; 2) it isn’t increased by any cost-of-living adjustments (COLAs); and, 3) it ends when you reach age 62 and become eligible for a Social Security benefit.

The money used to pay the SRS doesn’t come from the Social Security Administration. Instead it comes from the Civil Service Retirement and Disability Fund. That’s why it’s based solely on your actual FERS service. However, like a Social Security benefit, the SRS is subject to an annual earnings limit, above which the benefit is reduced.

There is an exception to that earnings limit rule: If you were employed under the special provision for law enforcement officers, firefighters and air traffic controllers and you retired before your minimum retirement age, you can earn as much as you want without your SRS being reduced. However, once you reach your MRA, you’ll be subject to the earnings limit just like any other FERS retiree.

The SRS is subject to the annual earnings limit, just like your Social Security benefit. If you have earnings from wages or self employment that exceed the limit, your SRS will be reduced by $1 for every $2 that exceed that limit.  In 2020 that limit is $18,240.

March 23, 2021
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Social Security Early Retirement -

What is Full Retirement Age for Social Security Benefits

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Full retirement age—also called normal retirement age—is the age when Americans receive full Social Security benefits. Your full retirement age varies depending on the year you were born. Contrast this with the so-called early retirement age of 62, when people may start receiving partial Social Security benefits.

Social Security Full Retirement Age

The Social Security Administration sets a full retirement age to standardize benefit calculations and ensure fairness. Originally, Social Security’s full retirement age was set at 65 for all beneficiaries, but the Social Security Amendment of 1983 gradually raised the full retirement age to 67.

Increasing the full retirement age preserved revenue in the system and addressed a looming shortfall” as American life spans lengthened and more people were claiming Social Security benefits for longer.

Today, your Social Security full retirement age depends on what year you were born. For everyone born in 1960 or later, it will be standardized at age 67:

 

Year You Were Born Full Retirement Age
1943-1954 66
1955 66 and 2 months
1956 66 and 4 months
1957 66 and 6 months
1958 66 and 8 months
1959 66 and 10 months
1960 or later 67

Full Retirement Age vs Early Retirement Age

While understanding your full retirement age is a key part of the puzzle, it’s different from when you may start claiming Social Security benefits. That’s your early retirement age, which is 62 regardless of what year you were born. And while all Americans may start receiving benefits when they turn 62, doing so will decrease the amount of each monthly payment.

Here’s a bit of the Social Security Administration’s official jargon, which is essential for getting a complete picture of your benefits. Full retirement age is how old you must be to receive your full primary insurance amount (PIA), or the base-rate Social Security benefit you’re eligible for given your lifetime earnings history.

How Full Retirement Age Impacts Your Social Security Benefits

When you claim Social Security benefits early—before your full retirement age—your total monthly benefit is decreased by a small percentage of your PIA for each month until your full retirement age. Conversely when you delay claiming benefits until after your full retirement age, it boosts your monthly benefit payment by a small percentage of your PIA—up to the year you turn 70.

Your Social Security benefit is reduced by around half a percent for each month between the date when you claim benefits early and your full retirement age. At the very most, you could see a reduction of up to 30% of your PIA by claiming benefits before reaching full retirement age. A PIA of $2,000, for example, could be cut to $1,400 if you take your benefit as soon as you are eligible, rather than waiting for full retirement age.

On the other hand, delaying Social Security benefits until after your full retirement age could garner you a larger monthly benefit.

“For every month after full retirement age, you add two-thirds of 1% per month up until you attain age 70,” says Carroll. This means an increase of up to 8% per year that you delay taking benefits between full retirement age and age 70. For a beneficiary with a full retirement age of 66 and 6 months, a PIA of $2,000 could be increased to $2,600 by waiting to take benefits until age 70.

Just keep in mind that other types of Social Security retirement benefits, like survivor and disability benefits, have different cutoff ages. Social Security survivor benefits, which provide a monthly payment to the surviving spouse based on their deceased partner’s work history, can start at 60, or 50 if the survivor themselves is disabled.

Social Security’s full retirement age also matters in these cases, because if you live to claim Social Security, any benefit reductions or gains you lock in will impact the amount survivors receive on your passing.

Social Security disability benefits do not have any specific retirement age, since disability can strike at any age.

Should You Take Social Security at Full Retirement Age?

There are tons of factors to consider in deciding when to start your Social Security benefits.

For people with serious health problems, it might make sense to start benefits early. Someone who was disabled before full retirement age and can no longer work might consider forgoing a higher monthly benefit to start collecting monthly Social Security benefits immediately. Meanwhile, maximizing Social Security benefits is a strategy that’s most relevant for people who expect to live longer than average.

Consider a hypothetical beneficiary who lives to 79, which is the average American life expectancy:

  • If they started collecting Social Security at age 62, with a $1,400 monthly payment, they would receive a lifetime total of $285,600 in benefits.
  • If they waited until their full retirement age, they’d receive a $2,000 monthly benefit, for a lifetime total of $300,000.
  • If they waited as long as possible to claim benefits—to age 70—they would get a monthly benefit of $2,600, or a lifetime total of $280,000.

For this hypothetical American, no matter when they choose to start receiving Social Security benefits, the differences in lifetime total benefits isn’t very large. Deciding when to start Social Security isn’t always as simple as aiming to maximize your monthly payment.

To help you figure out the right solution for your personal financial and health situation, consider meeting with a financial advisor to run the numbers and determine if starting Social Security benefits at full retirement age is right for you. And remember to factor in your loved ones in this decision as your choice may ultimately affect them.

If your spouse is the lower earner and will eventually receive your Social Security benefit [as a survivor benefit], keep in mind that your filing decision (early vs. later) will impact the amount of monthly benefits they will receive after you are gone.

February 1, 2021
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Most TSP Funds Stumble to Start 2021

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All but two of the portfolios in the federal government’s 401(k)-style retirement savings program lost ground for January.

The federal government’s 401(k)-style retirement savings program got off to a rocky start in 2021, as most of its portfolios ended January slightly in the red.

The small- and mid-size businesses of the Thrift Savings Plan’s S Fund were the top performers, gaining 2.85% last month. The G Fund, made up of government securities, also increased 0.07%.

But the common stocks of the C Fund fell 1.01% in January, while the international (I) fund lost 1.09%. The fixed income (F) fund fell 0.71%.

All of the TSP’s lifecycle (L) funds, which shift to more stable investments as participants get closer to retirement, also lost ground last month. The L Income Fund, for people who already have begun making withdrawals, fell 0.10%; L 2025, 0.24%; L 2030, 0.32%; L 2035, 0.35%; L 2040, 0.37%; L 2045, 0.39%; L 2050, 0.41%; L 2055, 0.44%; L 2060, 0.44%; and L 2065, 0.44%.