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Federal Employees Will Pay 8.7% More Toward Health Care Premiums Next Year

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The Office of Personnel Management said increased use of health care services as the COVID-19 pandemic has waned has led to the sharpest uptick in health insurance premiums in more than a decade.

Federal employees and retirees will spend an average of 8.7% more on their health insurance premiums in 2023, a figure that marks the highest cost increase in more than a decade.

The government’s share of Federal Employees Health Benefits Program premiums will increase by an average of 6.6%, bringing the overall increase to 7.2%, according to an OPM document obtained by Government Executive. That overall premium increase is the highest the nation’s largest health insurance program has seen since costs increased 9% in 2011.

On average, federal employees enrolled in “self-only” plans will pay an additional $8.11 per bi-weekly pay period, while feds in “self plus one” insurance plans will pay $20.34 more per pay period. Federal workers enrolled in family coverage will pay an average of $20.87 more per pay period in 2023.

For the Federal Employees Dental and Vision Insurance Program, the average premium for dental plans will increase by 0.21%, while the overall average premium for vision coverage will decrease by 0.41%.

The FEHBP’s annual open season, in which federal employees can choose from a variety of national and regional insurance carriers and coverage plans, will run from Nov. 14 through Dec. 12.

OPM’s document attributed the jump in premiums to the “unprecedented volatility” in health care costs due to COVID-19, noting that the pandemic cost FEHBP about $2 billion in the testing and treatment of the disease in 2021, or roughly double what the disease cost the program in 2020, which has impacted premiums for next year. OPM also cited an increase in usage of health care services, following a period earlier in the pandemic when enrollees used fewer medical services.

The document described the overall 7.2% increase as “aligned” with increases in premiums by comparable large employers. But three of those plans’ reported increases are lower than FEHBP’s—CalPERS, which covers California government employees, projects an average 6.75% increase; a Business Group on Health survey of large employers projected a 6.5% average increase; and consulting group Aon estimated health costs will increase by around 6.5% next year. The Kaiser Family Foundation projects a 10% average increase for individual marketplace premiums, with “most rate increases falling between about 5% and 14%.”

OPM said it has worked with insurers this year to improve coverage of prenatal and postpartum health care services, as well as increase access to gender affirming care for members of the LGBTQ+ community. Insurers are also required to provide “adequate coverage” of anti-obesity medications. And four new plan options will provide assisted reproductive technology coverage, bringing the total number to 18 plans next year, and an additional plan will provide an optional benefit for discounted ART procedures.

National Treasury Employees Union National President Tony Reardon said in a statement Friday that although the premium increases are reportedly in line with other large employers, the spike in costs underscores the inadequacy of President Biden’s proposed 4.6% average pay raise for federal employees next year.

“These premium increases may be similar to those expected by other large employers in the private sector, but they will still cause sticker shock for federal employees,” he said. “These premium increases are yet one more data point in our argument that federal employees deserve a fair pay increase in 2023. NTEU supports legislation providing federal employees, on average, a pay increase of 5.1%, which would help them keep up with rising costs and save for retirement.”

If You Make $100,000 in Average Annual Income, Here’s What You’ll Get From Social Security at 67

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For anyone born after 1960, the Social Security Administration (SSA) determines that your normal retirement age, which is when you would be entitled to your full benefit, is 67.

But deciding whether or not you should retire at that age can be difficult. You can start receiving Social Security benefits as soon as you turn 62, but claiming early can significantly reduce your amount.

You can also wait until 70 to start taking Social Security (increasing your benefit to the highest amount possible), but perhaps you don’t want to wait that long. It depends on where you are in life from a financial perspective and how your health is doing.

Given all of these factors, it’s a good idea to figure out how much you might get when you start to claim benefits. Despite its complexity, you can break down the Social Security formula into basic parts to calculate your amount. Let’s see how much you would make if you earned about $100,000 annually (adjusted) over your career and retired at 67.

Breaking down the formula

To begin calculating your benefits, the SSA first calculates your average indexed monthly earnings (AIME), which looks at the 35 years of your work history in which you made the most money.

It looks at your nominal earnings over these 35 years and then indexes them (or adjusts them) to determine what the amounts would have been if you were making them in the present. So, essentially, the SSA would take your nominal earnings, from, say, 1982 and adjust them for wage inflation over the years to reflect what those earnings would be in 2022.

An example on the SSA website shows that nominal earnings of $13,587 in 1982 would have been equivalent to about $52,000 in 2022. But the SSA also has a wage base limit for what a retiree can get credit for. That number is $147,000 in 2022.

To finish getting the AIME, you add up your highest 35 years of annual earnings, which are now indexed to account for inflation. Then you divide by 35 to get the annual amount over that period and then divide by 12 to get the monthly amount.

Once you have your AIME, the next thing you need to do is calculate your primary insurance amount (PIA), which is your actual monthly benefit from Social Security for those receiving full benefits at the normal retirement age.

This is also not a simple calculation, but it can be done easily enough using these three steps and adding the amounts from each step. Here are the numbers for someone who turned 62 in 2022:

  • 90% of the first $1,024 of your AIME.
  • 32% of any amount between $1,024 and $6,172.
  • 15% of the leftover amount above $6,172.

What is your PIA on an annual income of $100,000?

If your highest 35 years of indexed earnings averaged out to $100,000, your AIME would be roughly $8,333.

  • 90% of $1,024 = $921.6
  • 32% of $5,148 = $1,647.36
  • 15% of $2,161 ($8,333-$6,172) = $324.15

If you add all three of these numbers together, you would arrive at a PIA of $2,893.11, which equates to about $34,717.32 of Social Security benefits per year at full retirement age. That’s not too shabby considering the maximum benefit is $4,194 per month, and that assumes you delay claiming until you are 70.

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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 $18,984 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.

What You Need to Know About Social Security and Federal Retirement

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What is the average monthly Social Security retirement check in 2022?

$1,657, according to this Social Security fact sheet.

Sandy and her husband, Tom, were both born in 1956. Sandy began receiving a reduced Social Security benefit of $586 a month at 62. (This is 73.3 percent of the full benefit amount of $800 she would have received at her full retirement age of 66 years and 4 months). Tom is retiring this year and will receive $2,800 a month at his full retirement age—also 66 and 4 months. How much will Sandy receive after Tom retires?

She will get $1,115. This is a bit complicated, so don’t feel bad if you couldn’t figure out the answer. At full retirement age, a spouse is eligible for 50% of the full Social Security retirement benefit of their spouse or their own benefit—whichever is higher. But the fact that Sandy began collecting her own benefit at 62 affects the calculation of her spousal benefit when her husband retires.

Social Security will use Sandy’s full benefit amount that would have been payable at her full retirement age, based on her own work record (not the amount she has been receiving since she was 62). That amount will be subtracted from 50%of her husband’s amount. Sandy’s full benefit would be $871 (it has grown from the initial amount of $800 by cost-of-living adjustments since 2018), so Social Security would subtract $871 from 50% of her husband’s full benefit amount of $2,800, or $1,400. The resulting sum of $529 would be added to her current benefit of $586, and her new benefit amount would be $1,115 per month. If Sandy had waited until her full retirement age to apply for Social Security, then she would have received the higher of her own full benefit amount or 50% of Tom’s, which would have been $1,400 a month.

How much can you earn in 2022 if you are under your full retirement age without reducing your Social Security benefit?

$19,560. If you’re under your full retirement age for the entire year, Social Security will deduct $1 from your benefit for every $2 you earn above the annual limit. Here’s more information about how work affects your Social Security benefit.

What are the conditions under which you can receive a Social Security benefit based on your former spouse’s work record?

If you were married for 10 years or more, are not currently remarried, and are not receiving a pension from work not covered by Social Security. A former spouse who meets the requirements to receive a Social Security benefit is treated basically the same as a current spouse. This entitlement does not affect the former spouse’s own Social Security benefit or his or her new family’s. If the spouse is receiving a Civil Service Retirement System retirement benefit, then he or she will be affected by the dreaded Government Pension Offset, which will reduce the spousal benefit by two-thirds of the CSRS retirement. This will eliminate the benefit entirely in many cases. Read more in this Social Security publication: What Every Woman Should Know.

Among beneficiaries 65 and older, what percentage rely on Social Security for more than 90 percent of their income?

For men the answer is 12%, and for women it’s 15%. It’s also interesting to note that 37% of men and 42% of  women rely on Social Security for 50% or more of their income.

What is the full Social Security retirement age?

The earliest you can start receiving Social Security retirement benefits is 62, but the benefit is permanently reduced for applying early. Your full retirement age is between 65 and 67, depending on your year of birth.

What can you do to increase the amount of your Social Security check?

Here are some of your options:

  • Delay receiving payment until you turn 70
  • Claim a benefit on your spouse’s work record
  • Continue working past 62

Social Security was never meant to be your only source of retirement income. Knowing this, how should you plan your retirement?

Here are some steps you could take:

  • Learn to live on less now
  • Make saving mandatory and automatic
  • Plan for being single, even if you’re not
  • Be realistic about when you can afford to retire

Always remember that the modern federal retirement has three key elements: a government retirement benefit, Social Security and personal savings, especially through the Thrift Savings Plan. Learning how to balance and maximize these elements is the key to a comfortable retirement.

Postal Employees Voice Major Concerns as USPS Begins Implementing Its Delivery Consolidation Plan

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The U.S. Postal Service is standing up the first of the new plants across the country that will process mail for larger geographic areas, causing employees to fear the mailing agency will relocate or consolidate jobs throughout the workforce.

As promised in his 10-year plan to allow USPS to break even, Postmaster General Louis DeJoy has identified an initial 10 previously closed plants to reopen for consolidated mail and package sorting before the pieces go out for final delivery. Postal management began this week notifying employee groups of the sites, located primarily on the East Coast and in the Midwest. Those organizations reacted with significant consternation, saying USPS has failed to keep them in the loop or answer questions regarding the fallout for the workforce.

Most post offices around the country operate as delivery units, meaning mail carriers go to them to pick up mail and packages for their routes before bringing them to homes and businesses. DeJoy has repeatedly decried this model, saying it is inefficient and can lead to as many as dozens of such units in one metropolitan area. Instead, he is looking to open “sorting and delivery centers” around the country, as well as larger mega-centers, that can take on more work in less space. Letter carriers will have to travel farther to take mail to its final destination, but DeJoy said it will save costs on the contracted trucks that USPS hires to bring mail between various facilities.

“It just goes right out,” DeJoy said last week of mail at the new centers. “It’s going to save 100% of the trucking costs.”

TSP Preps for Its Transition to a New Service Provider

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Officials at the federal government’s 401(k)-style retirement savings program on Tuesday outlined the disruptions—and new features—participants will see as the Thrift Savings Plan transitions to a new recordkeeping service provider this weekend.

At the monthly meeting of the Federal Retirement Thrift Investment Board, which administers the TSP, project manager Tanner Nohe said the agency is on track to bring the public facing portions of the project, which was internally called Converge, online by June 1. Currently, most transactions are unavailable to participants, and there will be a full blackout period from the close of business on Thursday until the new system comes online.

Nohe said that while some aspects of TSP services will remain unchanged, like the tsp.gov web address and the phone number for the Thriftline customer service center, that’s where the similarities end. Beginning in June, TSP participants will have access to long awaited and requested features like a mobile app, a virtual agent to help users and answer questions.

Additionally, changes to the TSP website will enable participants to make loan repayments after they leave federal service, sign documents electronically, while participants who invested in the TSP both as members of the military and as civilian federal workers will be able to see their all of their account information from the same login, where before now they had to log into two separate tsp.gov accounts.

The TSP’s mobile app, which will be available on both Apple and Android operating systems, will feature most of the same functions as the desktop website, including the new virtual assistant, the ability to make distributions and withdrawals and change how funds are invested and make interfund transfers. And participants will be able to sign and submit forms electronically, as well as upload an image of a check to roll over funds from a traditional 401(k) into the TSP.

Additionally, the TSP is adjusting a number of its terms to track with the terminology used more commonly throughout the 401(k) industry.

Once the new services are live, participants will be required to create a new account on tsp.gov, which then will work on both the website and the mobile app. The new login process will be streamlined and feature greater security, Nohe said.

But Tee Ramos, the TSP’s director of participant services, warned there could be hiccups during the transition. The agency is expecting higher than normal call volume on the Thriftline, and has staffed up at its call center to accommodate those who need assistance.

“There will be some delays in the first week, and we’re doing everything we can to support participants,” he said. “But expect much higher call volume in the days before we go live, and know that we appreciate your patience.”

If anyone is needing assistance with making some changes within there TSP Accounts, or have considered other investment ideas with their Thrift Savings Plan, we do assist all Federal Employees in this area.  You can contact us for assistance or read some testimonials from other Federal employees we have helped as well.

What is the Federal Employee Retirement System, and How Does It Work?

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A federal employee retirement plan or FERS is a retirement plan for federal government employees working in the executive, judiciary, and legislative branches of the federal government. However, this retirement plan doesn’t cover military personnel or employees of state or local government.

The employees under the FERS retirement system can avail of benefits from three sources: the basic benefit plan, social security, and the thrift saving plan, or TSP. Want to discover what benefits you will get from federal civil service retirement plans or FERS? Read on.

 

  • Basic benefit plan

Under the basic benefit plan, employees receive a set amount, regardless of the amount they have contributed. The amount you will receive will depend on the length of service and high-3 average. High-3 is the highest three consecutive years of service, often the last three years of your service. However, if you held a higher paying position in your service, your higher three years could be considered from that time.

 

  • Social Security

Your social security benefits depend on the time you have been working and the amount of money you have earned over that period. Every federal employee has to contribute 6.2% of their basic pay to the social security fund.

 

  • Thrift saving plan

A Thrift saving plan is similar to a 401(K). In1986, Congress established TSP for federal employees; however, it covers employees hired before 1986. According to this plan, 1% of your salary will go into a TSP contribution each pay period. Unlike social security plans and basic benefit plans, the amount you receive will depend on market conditions, the fund you choose, and other conditions.

Want to gain all information about thrift saving plans? My Federal Retirement is there for help. Our financial advisors will tell you about various retirement plans for federal employees, for instance, FERS firefighter retirement, federal civil service retirement plan, etc. We will also help you choose the best retirement plan aligned with your life goals.

My Federal Retirement specializes in analyzing all aspects of your pre and post-retirement planning and designing a comprehensive financial plan tailored to your specific goals, your family, and your individual needs. You can meet our licensed professional to discuss your retirement financial plans anytime.

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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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.

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.

 

Ins and Outs of Leaving Government Now and Retiring Later

By | Benefits, Retirement | No Comments

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.