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Federal Pay

Congressional Democrats Propose an 8.7% Pay Raise for Feds in 2024

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The annually introduced bill would provide a 4.7% across-the-board increase in basic pay and an average 4% increase to locality pay.

Democrats in both chambers of Congress on Thursday introduced legislation that would provide federal employees with an average 8.7% pay raise in 2024.

The Federal Adjustment of Income Rates Act, introduced by Rep. Gerry Connolly, D-Va., in the House and Sen. Brian Schatz, D-Hawaii, in the Senate, would increase federal workers’ basic pay by 4.7% across the board next year, and provide an average 4% increase in locality pay.

The introduction of the FAIR Act has been an annual endeavor in recent years; last year, the bill proposed a 5.1% pay increase, split between a 4.1% across-the-board basic pay raise and a 1% average increase in locality pay. Although the bill is rarely acted upon, it could serve as an important marker as lawmakers and the Biden administration debate spending levels for fiscal 2024 as House Republicans demand cuts to government spending.

Connolly described the measure as a way to restore “years of lost wage increases” over the last decade due to government shutdowns, hiring and pay freezes and sequestration-related furloughs.

“For years now, federal employees have risked their health and safety working on the frontlines of this pandemic,” Connolly said. “They were subjected to the Trump administration’s cruel personal attacks, unsafe work environments, pay freezes, government shutdowns, sequestration cuts, furloughs and mindless across-the-board hiring freezes. Still, our federal workforce serves with dedication and distinction every day. Federal employees are our government’s single greatest asset, and they deserve better.”

The bill’s introduction drew swift support from unions and other federal employee groups.

“The 8.7% increase listed in the FAIR Act is not a pay raise,” said Randy Erwin, national president of the National Federation of Federal Employees. “It is a minimum increase needed to offset the dwindling checking accounts of public servants, and it is critical to recruiting and retaining the best possible workforce.”

American Federation of Government Employees National President Everett Kelley said that a sizeable pay increase is particularly important as the government tries to recruit new workers during a tight labor market.

“The latest report of the Federal Salary Council shows that federal worker pay lags behind the private sector by over 23%—making it difficult for agencies to recruit, hire and retain top talent and hurting the quality of services Americans receive,” he said. “The 8.7% pay increase included in the FAIR Act will not only reward federal employees’ hard work and help them keep pace with inflation, but it will also help government agencies remain competitive and deliver high-quality services to the American public.”

And William Shackelford, president of the National Active and Retired Federal Employees Association, echoed that sentiment.

“The FAIR Act proposes a strong pay raise to counteract a tightening labor market and increasing private-sector pay, rising costs of living and an impending federal retirement wave,” he said. “A strong pay increase in 2023 is critical to the recruitment and retention of an effective federal workforce, and we’re thankful to have Congressman Connolly’s support for this effort.”

So how would this raise affect your High 3 average going into retirement?  Let us run a Full Benefits Analysis Retirement Review for you so you can help plan and maximize your retirement.  Contact Us today to get YOUR Review!

Almost Every TSP Fund Ended Last Month (and Year) Down

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The vast majority of offerings in the 401(k)-style Thrift Savings Plan did not have a good month in December—or a good year in 2022 for that matter.

The S Fund, invested in small and mid-sized businesses, had the worst performance for December, losing 6.55%. It was down 26.26% for 2022.

The common stocks of the C Fund fared just slightly better. The fund lost 5.67% last month and 18.13% last year.

The international stocks in the I Fund were 1.85% in the red for December and were down 13.94% for the year 2022, while the fixed income bonds in the F Fund lost 0.65% for the month and 12.83% for the year.

Government securities in the G Fund were the one bright spot, inching up 0.32% for December and 2.98% for the year.

For the year of 2022, L Income lost 2.7%; L 2025, 6.72%; L 2030, 10.32%; L 2035, 11.65%; L 2040, 12.9%; L 2045, 14.03%; L 2050, 15.05%; L 2055, 17.6%; L 2060, 17.61%; and L 2065, 17.62%.

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OPM Will Suspend Long Term Care Insurance Applications as a Sizeable Premium Increase Looms

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The deadline to apply for the program before a two-year suspension is Dec. 19, but officials want applicants to go in with “eyes wide open” that rates will likely increase substantially.

The Office of Personnel Management plans to suspend applications for the Federal Long Term Care Insurance Program for two years beginning Dec. 19, in anticipation of a sizeable rate hike.

OPM announced the unusual measure last month in the Federal Register, and noted that federal workers who submit their applications by the deadline will still be considered for enrollment. FLTCIP was created in 2002 and assists with health care costs for participants who need help with daily personal functions, or who have a severe cognitive illness, and covers home care, nursing home or assisted living benefits.

“OPM is suspending applications for coverage in FLTCIP to allow OPM and the FLTCIP carrier to assess the benefit offerings and establish sustainable premium rates that reasonably and equitably reflect the cost of the benefits provided,” the agency wrote.

The program will continue to operate normally for current enrollees, although they will not be able to apply to increase their coverage. There are currently around 267,000 federal workers and retirees participating in the insurance plan, and OPM typically receives only a few thousand applications to enroll per year.

The decision to suspend applications for the program came after John Hancock Life and Health Insurance Co., the contractor that administers the program, informed OPM that it is likely that there will a premium increase sometime next year.

In recent years, the long term care insurance market has been plagued by large premium increases, in part because people have been living longer and in part because long term interest rates have been at historic lows since the aftermath of the 2008 financial crisis. The Federal Long Term Care Insurance Program last saw premiums increase by an average of 83% in 2016.

John Hatton, staff vice president of policy and programs for the National Active and Retired Federal Employees Association, said it is likely that OPM will examine whether there is anything they can do administratively to improve the stability of the program or propose legislation to alter the program.

“Reading the tea leaves, instituting a suspension of applications shows that there’s a lack of faith or trust that it’s designed in a way that can be sustainable,” he said. “The first premium increase was around 25%, the second was as high as 125% [in some cases], and 83% on average. These premiums were quoted with the intention of staying stable for the lifetime of the coverage, which is someone’s life. And it’s not just federal workers’. They were just not priced correctly to begin with.”

After the previous round of premium hikes, OPM instituted “FLTCIP 3.0,” which allows current enrollees to adjust their coverage downward in order to reduce the impact of rising premiums. Even with that change, Hatton said OPM likely made the right decision by suspending applications.

“If you can’t accurately quote someone what the cost will be for a product, it shouldn’t be open ended,” he said. “That said, the reason these premiums are going up is costs are very high, and people have to figure out how to plan for long term care costs, and there’s no public option aside from Medicaid, which only provides catastrophic coverage if you’re completely impoverished yourself.”

Ultimately, Hatton said he thinks that OPM will wind up having to request legislation from Congress to make the changes needed to stabilize the program.

“OPM, for their part, has done—within the structure of the program, I think—what they can do,” he said. “They hired an independent actuary to look at the assumptions and make sure that they’re right, they hired a consultant to look at various options, and we’ll see where that goes and what flexibility they have in the statute or whether they’ll need Congress to provide some flexibilities. But at the end of the day, the options that would emerge are going to be ones that are maybe tied more to affordability and certainty, but also less coverage.”

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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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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.”

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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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.

 

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.

Former Temporary Workers Could Make Catch-Up Pension Contributions Under New Bill

By | Benefits, Federal Pay, Retirement | No Comments

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.”

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