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How the Secure Act Could Benefit You

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Late last year, new legislation was signed into law that will usher in some of the most sweeping changes to retirement plans in decades. The Setting Every Community Up for Retirement (or SECURE) Act was originally passed by the House of Representatives last spring. It failed to pass the Senate then, but the legislation was included in the year-end spending bill that was passed on December 20, 2019.

The SECURE Act became effective on January 1, 2020, and it will inevitably affect many retirement savers, for better or worse. Here are a few of the most significant provisions that you should be aware of:

No more age restriction on traditional IRA contributions

Before the Secure Act, you could not make contributions to a traditional IRA for the year during which you reached age 70 1/2 or any later year. (There’s no age restriction on Roth IRA contributions, and the Secure Act does not change that.)

New law: For tax years beginning after 2019, the Secure Act repeals the age restriction on contributions to traditional IRAs. So, for tax years beginning in 2020 and beyond, you can make contributions after reaching age 70½. That’s the good news.

Key point: The deadline for making a contribution for your 2019 tax year is April 15, 2020, but you cannot make a contribution for 2019 if you were age 70 1/2 or older as of Dec. 31, 2019. Thanks to the new law, you can make contributions for tax year 2020 and beyond.

Side effect for IRA qualified charitable distributions

After reaching age 70 1/2, you can make qualified charitable contributions of up to $100,000 per year directly from your IRA(s). These contributions are called qualified charitable distributions, or QCDs. Effective for QCDs made in a tax year beginning after 2019, the $100,000 QCD limit for that year is reduced (but not below zero) by the aggregate amount of deductions allowed for prior tax years due to the aforementioned Secure Act change. In other words, deductible IRA contributions made for the year you reach age 70 1/2 and later years can reduce your annual QCD allowance.

You generally must begin taking annual required minimum distributions (RMDs) from tax-favored retirement accounts (traditional IRAs, SEP accounts, 401(k) accounts, and the like) and pay the resulting income tax hit. However, you need not take RMDs from any Roth IRA(s) set up in your name.

Before the Secure Act, the initial RMD was for the year you turned age 70 1/2. You could postpone taking that initial payout until as late as April 1 of the year after you reached the magic age. If you chose that option, however, you must take two RMDs in that year: one by the April 1 deadline (the RMD for the previous year) plus another by Dec. 31 (the RMD for the current year). For each subsequent year, you must take another RMD by Dec. 31. Under an exception, if you’re still working as an employee after reaching the magic age and you don’t own over 5% of the outfit that employs you, you can postpone taking RMDs from your employer’s plan(s) until after you’ve retired.

New law: The Secure Act increases the age after which you must begin taking RMDs from 70 1/2 to 72. But this favorable development only applies to folks who reach 70 1/2 after 2019. So, if you turned 70 1/2 in 2019 or earlier, you’re unaffected. But if you will turn 70 1/2 in 2020 or later, you won’t need to start taking RMDs until after attaining age 72. As under prior law, if you’re still working after reaching the magic age and you don’t own over 5% of the employer, you can postpone taking RMDs from your employer’s plan(s) until after you’ve retired.

Key point: If you turned 70 1/2 in 2019 and have not yet taken your initial RMD for that year, you must take that RMD, which is for the 2019 tax year, by no later than 4/1/20 or face a 50% penalty on the shortfall. You must then take your second RMD, which is for the 2020 tax year, by Dec. 31, 2020.

Now for the bad news

Stricter rules for post-death required minimum distributions curtail ‘Stretch IRAs’: The Secure Act requires most non-spouse IRA and retirement plan beneficiaries to drain inherited accounts within 10 years after the account owner’s death. This is a big anti-taxpayer change for financially comfortable folks who don’t need their IRA balances for their own retirement years but want to use those balances to set up a long-term tax-advantaged deal for their heirs.

Before the Secure Act, the required minimum distribution (RMD) rules allowed you as a non-spouse beneficiary to gradually drain the substantial IRA that you inherited from, say, your grandfather over your IRS-defined life expectancy.

For example, say you inherited Grandpa Dave’s $750,000 Roth IRA when you were 40 years old. The current IRS life expectancy table says you have 43.6 years to live. You must start taking annual RMDs from the inherited account by dividing the account balance as of the end of the previous year by your remaining life expectancy as of the end of the current year.

So, your first RMD would equal the account balance as of the previous year-end divided by 43.6, which would amount to only 2.3% of the balance. Your second RMD would equal the account balance as of the end of the following year divided by 42.6, which translates to only 2.35% of the balance. And so, on until you drain the inherited Roth account.

As you can see, the pre-Secure Act RMD regime allowed you to keep the inherited account open for many years and reap the tax advantages for those many years. With an IRA, this is called the “Stretch IRA” strategy. The Stretch IRA strategy is particularly advantageous for inherited Roth IRAs, because the income those accounts produce can grow and be withdrawn federal-income-tax-free. So, under the pre-Secure Act rules, a Stretch Roth IRA could give you some protection from future federal income tax rate increases for many years. That’s the upside.

Unfortunately, the Secure Act’s 10-year rule puts a damper on the Stretch IRA strategy. It can still work, but only in the limited circumstances when the 10-year rule does not apply (explained below). This development will have some well-off folks and their estate planning advisers scrambling for months (at least) to react. That’s especially true if you’ve set up a “conduit” or “pass-through” trust as the beneficiary of what you intended to be a Stretch IRA for your heirs.

Key point: According to the Congressional Research Service, the lid put on the Stretch IRA strategy by the new law has the potential to generate about $15.7 billion in tax revenue over the next decade.

Effective date: The Secure Act’s anti-taxpayer RMD change is generally effective for RMDs taken from accounts whose owners die after 2019. The RMD rules for accounts inherited from owners who died before 2020 are unchanged.

Who is affected?

The Secure Act’s anti-taxpayer RMD change will not affect account owners who drain their accounts during their retirement years. And account beneficiaries who want to quickly drain inherited accounts will be unaffected. The change will only affect certain non-spouse beneficiaries who want to keep inherited accounts open for as long as possible to reap the tax advantages. In other words, “rich” folks with lots of financial self-discipline.

The Secure Act’s anti-taxpayer RMD change also will not affect accounts inherited by a so-called eligible designated beneficiary. An eligible designated beneficiary is: (1) the surviving spouse of the deceased account owner, (2) a minor child of the deceased account owner, (3) a beneficiary who is no more than 10 years younger than the deceased account owner, or (4) a chronically-ill individual (as defined).

If your grandfather dies in 2020 or later, you can only keep the big Roth IRA that you inherit from him open for 10 years after his departure.

Under the exception for eligible designated beneficiaries, RMDs from the inherited account can generally be taken over the life or life expectancy of the eligible designated beneficiary, beginning with the year following the year of the account owner’s death. Same as before the Secure Act.

So, the Stretch IRA strategy can still work for an eligible designated beneficiary, such as an account owner’s much-younger spouse or recently born tot. Other non-spouse beneficiaries (such as an adult child, grandchild, niece or nephew) will get slammed by the new 10-year account liquidation requirement. So, if your grandfather dies in 2020 or later, you can only keep the big Roth IRA that you inherit from him open for 10 years after his departure. Bummer!

10-year rule specifics: When it applies, the new 10-year rule generally applies regardless of whether the account owner dies before or after his or her RMD required beginning date (RBD). Thanks to another Secure Act change explained earlier, the RMD rules do not kick in until age 72 for account owners who attain age 70 1/2 after 2019. So, the RBD for those folks will be April 1 of the year following the year they attain age 72.

Following the death of an eligible designated beneficiary, the account balance must be distributed within 10 years.

When an account owner’s child reaches the age of majority under applicable state law, the account balance must be distributed within 10 years after that date.

The bottom line: As you can see, the Secure Act includes both good and bad news for folks who don’t enjoy paying taxes. The new law includes more important tax changes that I’ve not covered here.

3 examples of new RMD rules for non-spousal retirement account beneficiaries

Example 1: David dies in 2020 and leaves his IRA to designated beneficiary Diane, his sister, who was born eight years after David. Diane is an eligible designated beneficiary. Therefore, the balance in the inherited IRA can be paid out over her life expectancy. If David dies before the account is exhausted, the remaining balance must be paid out within 10 years after her death.

Example 2: Diane dies in 2020 and leaves her IRA to designated beneficiary David, her brother, who was born 12 years after Diane. David is not an eligible designated beneficiary because he is more than 10 years younger than Diane. The balance in the inherited IRA must be paid out within 10 years after Diane’s death.

Example 3: Michael dies in 2020 at age 85. He lives his $2 million Roth IRA to his 24-year-old spouse Melissa. Since Melissa is an eligible designated beneficiary, the new 10-year rule does not apply to her. As a surviving spouse, she can retitle the inherited Roth account in her own name. Then she will not have to take any RMDs for as long as she lives. So, this is a situation where the Stretch IRA strategy still works well (although not quite as well as before the Secure Act for reasons that are too complicated to explain here).

Example 4: Michael dies on Dec. 15, 2019. He left his IRA to designated beneficiary Melissa, his beloved niece, who is 30 years younger than Michael. Because Michael died before 2020, the balance in the inherited IRA can be paid out over Melissa’s life expectancy under the pre-Secure Act RMD rules. If Melissa dies on or after 1/1/20, the balance in the IRA must be paid out to her designated beneficiary or beneficiaries or the heir(s) who inherit the account within 10 years after Melissa’s death.

If you think this is something you should consider, reach out to us to get your Free Retirement review to see how we can help you maximize your TSP in regards to using the New Secure Act.  Contact us or give us a call at (877) 733-3877 x 1 to schedule your review today!

Make Sure Retirement Protection Is In Your Future

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WHEN YOU REACH RETIREMENT OR CLOSE TO RETIREMENT, you expect to reap the rewards for decades of hard work and diligent saving so you can live happily ever after.

Well, as many Americans are finding out, it’s not always a fairy-tale ending. Even a big pile of money does not guarantee a secure retirement. In fact, one of the biggest concerns people have about retirement is that they won’t have the income to sustain their current lifestyle or, even worse, that they could run out of money altogether.

These concerns can often lead to a less enjoyable retirement because people are afraid they might spend too much of their savings in the early years and not have enough later when their health is declining and inflation has driven up healthcare costs.

The good news is that there is a way to improve your chances of achieving a more secure and satisfying retirement through retirement income planning. Studies show that people who have a protected lifetime income stream are generally more secure financially than those who don’t. Additionally, people with protected lifetime income have a higher level of satisfaction in retirement, which is a key factor in enjoying your retirement years.

A 2018 GUARANTEED LIFETIME INCOME STUDY conducted by Greenwald & Associates and CANNEX gathered information from 1,003 individuals between the ages of 55 and 75 and whose household assets were at least $100,000. Respondents said the greatest benefits of having a protected lifetime income are protection against longevity risk, peace of mind, and being better able to budget – all of which can make for a less stressful and happier overall retirement.

The study also found that the perceived value of protected lifetime income continues to grow. More respondents now considered protected income “a highly-valuable addition to Social Security” compared to one year earlier. Of these individuals, nearly three-quarters said protected lifetime income is “extremely important” to their financial security.

While both Social Security and pensions can provide this kind of income stream, they don’t always cover your retirement income needs. You may also be one of the many Americans who doesn’t receive a pension. In that case, putting money into an annuity can supplement your protected lifetime income, helping you maintain your lifestyle for life

The study found that concerns about long-term health care, losing money in a market downturn, and fear of outliving retirement savings were among the factors that respondents said increased their interest in protected lifetime income.

Higher satisfaction scores for those with protected lifetime income
Between 1998 and 2010, the University of Michigan conducted the Health and Retirement Study, which gathered data from approximately 26,000 Americans over the age of 50 on an array of retirement issues, such as wealth, income, job security, health, and cognition.

The results revealed that satisfaction scores for all of these retirement issues were significantly higher for people who had more than 30% of their assets invested in protected lifetime income products. For example, when it comes to nursing home expenses, individuals with at least 30% of their retirement portfolio made up of protected lifetime income products were more confident that they’d be able to afford it.

While the study did not indicate a “magic number,” it did find that when people have more protected lifetime income, their overall satisfaction levels rose accordingly. And even though retirement satisfaction has been declining over time, satisfaction rates remain higher for people with a guaranteed monthly income stream, according to the study.

There’s no question that financial uncertainty can impact your happiness in retirement. That is why protected lifetime income products as a portion of your retirement portfolio can help ease a lot of that worry. So you should schedule a retirement review with a our Federal Retirement Consultants, and see how an annuity could help protect your retirement income and pave the road to a less stressful and happier lifestyle. Visit our contact us page today or call us at (877) 733-3877 to schedule your review.

Pay Raise for 2021

Lawmakers Introduce Bill to Grant Civilian Feds a 3.5% Pay Raise in 2021

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Democrats in both chambers of Congress on Tuesday reintroduced a bill that would provide federal civilian employees with a 3.5% across-the-board pay increase next year.

The Federal Adjustment of Income Rates Act (H.R. 5690) was introduced by Rep. Gerry Connolly, D-Va., in the House and Sen. Brian Schatz, D-Hawaii, in the Senate. The bill mirrors similar legislation the lawmakers introduced last year that would have provided federal workers with a 3.6% raise in 2020.

Congress did not act on either version of last year’s bill. But lawmakers and President Trump ultimately agreed to provide an average 3.1% raise—including a 2.6% basic pay increase to all federal workers, and an average 0.5% increase to locality pay—as part of the bipartisan spending deal for fiscal 2020 reached last month.

“We fought hard for several consequential victories last year, but our work on behalf of our dedicated federal workers is never finished,” Connolly said in a statement. “After years of pay freezes, furloughs and Trump shutdowns, federal employees understand better than most that we simply cannot let our guard down while this president is in the White House. The FAIR Act is much-needed and well-deserved recognition of our government’s greatest asset—its public servants.”

If approved, the raise called for in the bill would mark a nearly 1-percentage point increase over the raise enacted for this year. Lawmakers still would have to negotiate how much to increase locality pay.

In a statement Tuesday, National Treasury Employees Union National President Tony Reardon endorsed the bill.

“Sen. Schatz and Rep. Connolly have been advocates, year in and year out, of helping our nation’s civil servants be able to pay their bills, invest in their children’s education, and save for retirement,” he said. “Our members will be fully engaged in the effort to pass this bill into law and give federal employees the ability to keep doing what they love: serving the public.”

Meanwhile, at the monthly meeting of the board that administers the federal government’s 401(k)-style retirement savings program, officials with the Thrift Savings Plan highlighted recent successes.

According to Tee Ramos, the TSP’s director of participant services, the agency completed more than 3,100 roll-in transactions last month, which capped off a 2019 in which the TSP saw 35,000 totaling $1.34 billion.

“I think it’s a cumulative effect,” he said. “We didn’t have any special education campaigns, but our crew has just been constantly extolling the virtues [of the TSP] and the fact that we have the best plan in America. That message is getting out there and resonating with people.”

Additionally, Ramos said early numbers suggest that the recent change making two-factor authentication a requirement for participants to access their account online was implemented smoothly.

“Authenticated logins have climbed from 350,000 in early October to 1.8 million about a week ago,” Ramos said. “That represents around 550,000 unique participants.”

So far, Ramos said there have been around 7,000 instances where people failed to log in at least twice after activating two-factor authentication, and officials are helping people learn the new system when needed, and exploring ways to make logging in easier.

“We’re extending the time we allow people to use the unique code they receive, and to save the log-in in their browser,” he said. “We’re also exploring things like allowing participants to use the unique code to authenticate their login through the call center, which is not only safer but more expedient for our participants.”

A Paycheck Mistake, and Changes to TSP Catch-Up Contributions

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The agency responsible for processing payroll for around 650,000 federal workers last week announced that it had issued incorrect paychecks for some employees across the federal government earlier this month.

The problem stemmed from the final paycheck of the 2019 calendar, which ended Jan. 4 and was issued Jan. 10. A number of federal workers reported receiving both smaller and larger amounts than they were owed.

The National Finance Center, which is a subcomponent of the Agriculture Department but provides payroll services for a variety of federal agencies, first acknowledged the discrepancies on Jan. 10, and said the problem likely resulted from federal payroll tax withholding.

By Jan. 14, the National Finance Center announced that it had identified the root cause: employees who had not submitted a new W-4 form or were not exempt defaulted to a new, often incorrect number of exemptions. Single federal workers had taxes withheld as single, with two exemptions, while married feds had taxes withheld as married, with three exemptions.

NFC said it implemented changes to fix the problem “prior to the second pass” on the relevant pay period’s payroll processing. Although the agency said it expected to have compiled a list of all employees who received the wrong amount in their pay check by the end of last week, it did not announce a timeframe for when employees who are owed money would be made whole, or when employees who were overpaid will see a lighter paycheck.

“Updates will be forthcoming as additional information becomes available and the corrective action is finalized,” NFC wrote.

Meanwhile, the federal agency responsible for administering the federal government’s 401(k)-style retirement savings program proposed new regulations this week to make it easier for older federal employees to make catch-up contributions to their Thrift Savings Plan accounts.

Currently, TSP participants age 50 and older may exceed the normal 401(k) annual contribution limits in order to make up for time spent in the private sector or when they were otherwise unable to invest in the TSP. But in order to do so, those federal workers must submit a form authorizing catch-up contributions, in addition to the standard contribution election form that all participants provide to their agency.

In draft regulations set for publication to the Federal Register Thursday, the Federal Retirement Thrift Investment Board, which governs the TSP, proposed that beginning Jan. 1, 2021, federal workers will no longer be required to submit that second form to enroll in catch-up contributions.

“Instead, the TSP will simply continue to accept contributions based on the participant’s contribution election that is already on file, until his/her contributions reach the combined limits on catch-up contributions and other types of contributions,” the agency said.

TSP officials first announced that this change would be coming last year. It is part of an effort to make the process simpler and easier for federal workers to participate, as well as to streamline the process for both the TSP and federal agencies.

According to the proposed regulations, beginning next year, when federal workers hit the standard annual contribution limit, the TSP will automatically cross reference their ages to see if they are eligible to make catch-up contributions. If the employees are at least 50 years old, they will be able to continue to make contributions up to the higher catch-up contributions limit.

Want to learn more about how to help Maximize your TSP Contributions and other Federal Benefits, request your free retirement review today to learn all about your benefits.  Visit our Contact-Us Page to request and Schedule your review today.

NEW TSP Withdrawal Process and Forms Up and Working

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Implementing the TSP Modernization Act of 2017 (TSPMA) is easier said than done. The changes to Thrift Savings Plan withdrawals require a multitude of changes to forms, publications, fact sheets and website content. Throughout the lead-up to the change, the TSP has been working in the background to ensure that, on September 15th, all of the “old” information is no longer available and all of the “new” information is ready for TSP participants who are ready to make withdrawals.

In the lead-in to the change, the Thrift Board declared a “dead zone” from September 7 through September 14 where no new withdrawal requests would be accepted. Nevertheless, they left all of the “old” forms and publications up on the website. Beginning on Monday, September 9th, we checked the TSP website every day to see if the new forms and publications had been posted. Finally, when I checked on Monday morning, September 16th, everything had changed and the new forms and publications were available.

You will probably want to go to the TSP website and download or print the new Summary of the Thrift Savings Plan. This publication tells you everything you need to know about the TSP and should be your first source of reference whenever you have a question.

You will no longer find paper withdrawal forms of any type in the forms sub-section of the withdrawals section of the site. There are online forms available for those who want to make a withdrawal or change their current method of withdrawal.

You will have to access your Thrift Savings Plan account and access an online withdrawal tool for withdrawals.

The TSP-99, Withdrawal Request for Separated and Beneficiary Participants will be the place to go for those who are separated and want to start the withdrawal process. You will also find the TSP-75, Age-Based In-Service “59½” Withdrawal Request and the TSP-76, Financial Hardship In-Service Withdrawal Request for in-service withdrawals, along with the TSP-95, Changes to Installment Payments for those who are separated and already taking installment payments from the TSP.  We have already assisted a handful of clients to get the process started.

If you are a FERS participant, whether you are retired or still employed, spousal consent is necessary for almost all actions that deal with withdrawals. You will find yourself answering a lot of questions online and will come to a point where you are directed to print out the appropriate form, fill in any additional needed information and obtain your spouses signed, notarized consent. You will then have to mail or fax the completed form to the Thrift Savings Plan. I went through the steps needed to take a “partial single withdrawal” and the process was easy and intuitive, but will help guide you through this process.

Though the old forms and publications are no longer on the website, no doubt there are hard copies floating around. If you’ll be withdrawing from the TSP in the near future, remember that the withdrawal process must start online; do not use an old paper publication.  If you have any questions, or want to have a retirement review, and let us help advise your best action within your TSP, please schedule your review today.  Contact us today!

Lawmakers Question TSP Foreign Investment Decisions, and More

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Senators from both parties this week called on the agency that administers the federal government’s 401(k)-style retirement savings program to reconsider its decision to shift the Thrift Savings Plan’s international (I) Fund to an index that invests in Chinese companies.

Sens. Marco Rubio, R-Fla., and Jeanne Shaheen, D-N.H., sent a letter Monday to Michael Kennedy, chairman of the Federal Retirement Thrift Investment Board, asking the agency to reverse its 2017 decision to base the I Fund’s investments on a stock index that includes companies from a broader swath of countries, including China. Rubio and Shaheen objected to the change based on the Chinese government’s history of human rights abuses and other national security concerns.

“The FRTIB’s decision to track this [new] index constitutes a decision to invest in China-based companies, including many firms that are involved in the Chinese government’s military, espionage, human rights abuses and ‘Made in China 2025’ industrial policy, and therefore poses fundamental questions about the board’s statutory and fiduciary responsibilities to American public servants who invest in federal retirement plans,” the senators wrote. “This change, which is expected to be implemented next year, will expose nearly $50 billion in retirement assets of federal government employees, including members of the U.S. Armed Forces, to severe and undisclosed material risks associated with many of the Chinese companies listed on this index.”

The lawmakers noted that several companies included in the new index produce weapons systems for the Chinese military, surveillance cameras used to monitor Uighur Muslims in Xinjiang province, and that some companies have been barred from operating in the United States or have been targeted by U.S. sanctions.

“Were the members of the board aware at the time of the motion to adopt the new index for the I Fund that constituent firms of this index were previously subject to U.S. government sanctions?” the senators asked. “Since the board’s November 2017 vote, the U.S. government has censured constituent firms of the [index]—or the controlling shareholders of such firms—through such measures as designation to the Entity List and federal procurement prohibitions.”

TSP spokeswoman Kim Weaver said in an email that the agency has received the letter.

“We are reviewing it and we will respond in a timely manner,” Weaver said.

Elsewhere on Capitol Hill, senators representing Maryland and Virginia on Tuesday joined the growing outcry from lawmakers regarding the recent decision by the Agriculture Department to reduce the buyout and early retirement payments offered to Economic Research Service and National Institute of Food and Agriculture employees who declined orders to relocate to Kansas City by the end of September.

Democratic Senators Mark Warner and Tim Kaine of Virginia, and Ben Cardin and Chris Van Hollen of Maryland blasted the department for failing to inform employees who had applied for Voluntary Early Retirement Authority and Voluntary Separation Incentive Payments that maximum buyouts would be $10,000 rather than the originally offered $25,000 until one week before the acceptance deadline.

“USDA has stated that its decision to reduce the amount per VSIP was made in order to accommodate all employees who were eligible to receive the buyout,” they wrote. “However, USDA has failed to explain why employees were not notified earlier that VSIP offers would be significantly less than $25,000, considering the agency already knew that more than half of ERS and NIFA employees had declined to relocate by the time VSIP applications were due. We are troubled that USDA did not relay this information to its employees sooner considering the impacts this decision can have on an individual career.”

The senators asked Agriculture Secretary Sonny Perdue how much the department budgeted for VSIP and VERA payments, how the department came to the decision to reduce the maximum buyout payment, and why officials waited until a week before the August 26 deadline to inform employees of the change.

The letter was published just one day after Government Executive reported that, in order to cope with the mass exodus of employees who refuse to move to Kansas City, the department is looking to hire retired former employees on a part-time basis to preserve continuity of service. Those hired under the Reemployed Annuitants program would work from the Washington, D.C., area and receive both a salary prorated to what they made before they retired and their full defined-benefit annuity payments.

So what do you think? So should you question TSP on it’s new Foreign Investment decisions, or should you look at some other alternatives?  We have some great ideas and would offer you to come and explore them with us.

Request your consultation today for more information.

TSP Modernization Act Goes Into Effect September 15 2019

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We have had a lot of Federal Employees asking about the TSP Modernization Act of 2017 and when it would be come available for the employees.  For the longest time, we only knew that the TSP would be allowed to have up to two years to be ready, or so wanting to know when the changes implemented by the TSP Modernization Act would take effect. Until today, we only knew a general time frame: September 2019; however, the Thrift Savings Plan has now provided a specific date as to when you can expect the changes to go into effect.

According to a recent bulletin posted by the TSP, the changes under the new law will go into effect on September 15, 2019.

Change to Eliminate Financial Hardship In-Service Withdrawal Six-Month Suspension Rule

The bulletin contains information for federal agency payroll and HR staff about changes to the rules governing hardship withdrawals from the TSP while in service.

The bulletin notes that as of September 15, any TSP participant who received a financial hardship in-service withdrawal and is suspended from contributing to the TSP will be able to re-start TSP contributions even though the participant may not have completed the six-month suspension period.

Key Points to Note:

  • Any participant who received a financial hardship in-service withdrawal and is suspended from contributing to the TSP will be able to re-start TSP contributions effective September 15, 2019, even though the participant may not have completed the six-month suspension period.
  • Participants whose TSP contributions were suspended as a result of a financial hardship in-service withdrawal will receive a TSP notice alerting them that they can resume contributions as of September 15, 2019. Restarting TSP contributions is the participant’s responsibility.
  • Participants and agencies will still need to follow current procedures to resume contributions by having the participant access their employer pay system, or by completing Form TSP-1, Election Form.
  • Report 5501 (Financial Hardship In-Service Withdrawal Report) will be generated through September 13, 2019.
  • As of September 15, 2019, Report 5501 (Financial Hardship In-service Withdrawal Report) will be obsolete as any financial hardship in-service withdrawals taken on or after that day will not require a six-month suspension of contributions.

The TSP will publish a separate bulletin in the third quarter of 2019 with more details providing guidance for agency HR and payroll offices to implement these changes in conjunction with changes from the TSP Modernization Act of 2017.

For more information or immediate assistance, please reach out to us so we can help you plan for your retirement. Visit our Contact Us Page or call us Toll Free (877) 733-3877 x 1

Pension Annuities, Withdrawals and More Questions Answered

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This week, we’re back with a few more questions and comments from readers, covering everything from Civil Service Retirement System and Federal Employees Retirement System coverage to TSP withdrawals.

I was CSRS back in 1977 thru 1982. I received a refund of the retirement funds. I went back into the service in 1983, did my remaining years and retired. In 2000, I returned to civil service and I am now FERS. I am paying back the five years for CSRS. How will they calculate the five years? 

First of all, if you had at least five years of prior CSRS coverage (whether or not you took a refund of retirement contributions), you should have been rehired under CSRS Offset retirement coverage and given a six-month opportunity to choose FERS coverage. If this is not what happened, you should contact your human resources office to find out if you were misclassified under FERS. If so, there’s a remedy under the Federal Erroneous Retirement Coverage Corrections Act, which allows you to go back to CSRS Offset coverage instead of FERS if you choose to.

If you remain under FERS and have more than five years of coverage under CSRS, then you will have a “CSRS component” to your retirement computation. That portion of your benefit will be computed under CSRS rules.

Keep in mind that since you received your refund of contributions prior to March 1, 1991, you can receive credit for this service without paying the redeposit. Your annuity will be subject to a permanent actuarial reduction based on the amount of the redeposit, interest due and your age at retirement. The actuarial reduction will not be applied to an annuity due your surviving spouse. You can avoid the reduction by repaying the refund.

I will have 24 years total at retirement at age 63. I have Federal Employees Group Life Insurance Coverage [at a level of] my salary times one. Lately, everyone is saying to keep it and eventually the government will pay for it. That’s a new one on me.

You can continue basic FEGLI into retirement as long as you were covered for the five years immediately preceding your retirement. The premium is $.325 per $1,000 of coverage per month until you’re 65 and retired. Then, if you elect the 75 percent reduction option at retirement, the premium ends and the coverage begins to reduce by 2 percent per month until you’re left with 25 percent of your original coverage at no further premium. You can also choose no reduction or a 50 percent reduction if you’re willing to pay an additional premium. And you can continue optional FEGLI into retirement if you have been covered for five years and retire on an immediate retirement.

Annuities begin on the first [of the month]. But if you retire on the fourth of any month, you will not start the annuity until the next month, and actually receive it the following month, so you will be out about seven weeks with no pay. 

The start date of your retirement is the first day of the month after your last day on the job. (You’re paid your salary through close of business of the date you indicate for your separation on your retirement application.) There’s an exception for employees who retire under CSRS or CSRS Offset that allows retirement to start on the day after the retirement date if the date of final separation is the first, second or third day of the month. Regardless of whether you are retiring under CSRS or FERS, if you select June 15 as your retirement date, for example, this is the day your salary will stop accruing. Your first retirement benefit will be for the month of July, payable on Aug. 1. So you’ll get no compensation for June 16-30. This is why most employees try to retire on the last day of the month—or the first three days of the month in some cases under CSRS or CSRS Offset.

On the TSP issue of required minimum distributions, folks should notify the TSP to send your RMD distribution in mid-December so you can maximize those funds. If your RMD is 4 percent, and those funds gained 4 percent during the year, your TSP would not run out, because it would replenish itself. The RMD is based on the balance of TSP on Dec. 31 of the prior year, so you get another year of earnings on that RMD.

Here is an example of one of the loyal readers of this column who consistently provide supplemental information and insight that’s very helpful. I’d add this note: According to the TSP, if you’re already receiving a series of monthly payments from your account when you turn 70½, your monthly payments will be used to satisfy the IRS minimum distributions requirement. If the total amount of your monthly payments does not satisfy the requirement, the TSP will issue a supplemental payment for the remaining amount in December. This is automatic if your monthly payments are not high enough to satisfy your annual RMD. Your monthly payments can be as low as $25.

I don’t understand why the federal government can’t come up with an annual statement, like the Thrift Savings Plan gives you an estimate. Why can’t you just go to the Office of Personnel Management website and get the info? I would think that would keep your information up-to-date and it wouldn’t take so long to finally get your first retirement check.

The problem is that OPM doesn’t have access to your current information, since your personnel and payroll data is not transferred from your agency to OPM until you have separated for retirement. In many cases, agency payroll offices do provide an annual benefits statement so you can get a snapshot of your retirement and insurance benefits. For example, some USDA federal employees who have their payroll processed through the USDA National Finance Center will receive an annual benefits statement. It describes the estimated value of your retirement benefit, your TSP account value, and when you’ll be eligible for Social Security and Medicare benefits.

Now for others or anyone who wants to receive their annuity estimate in a free Federal Retirement Review and go over all of your benefits can request one from one of our Chartered Federal Employee Benefits Consultants. So Request and Schedule your review today!

TSP Proposes New Shutdown Loan Rules, OPM Considers Health Care Portal, and More

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

Officials with the agency that administers the federal government’s 401(k)-style retirement savings program published an interim rule Tuesday that would ensure federal employees impacted by a government shutdown can take out loans on their Thrift Savings Plan accounts regardless of how long the lapse in appropriations is expected to last.

Posted in the Federal Register by the Federal Retirement Thrift Investment Board, which governs the TSP, the rule narrowly applies to federal workers who are either furloughed or forced to work without pay during a lapse in appropriations. Before this week, any employee in a “non-pay status” was eligible to take out a loan, so long as that status was expected to last less than 30 days.

As a result, there was uncertainty regarding whether employees at unfunded agencies could apply for TSP loans during the 35-day partial government shutdown, especially as it stretched into the third and fourth week. Earlier this month, TSP officials reported that they saw a 5 percent increase in the issuance of TSP loans during the lapse in appropriations, compared to a 26 percent increase in withdrawals, a more onerous process that forces participants to incur a 10 percent tax penalty and stop contributing to their accounts for six months.

In the rule filing, officials said they took great pains in order to come up with a way to implement the rule immediately.

“This interim rule applies only to participants who are furloughed or excepted from furlough (i.e., continuing to work and earn pay, but their pay is delayed until appropriations are authorized) due to a government shutdown,” the rule stated. “The FRTIB’s staff and contractors have designed manual workarounds to highly automated business processes in order to make this interim rule effective immediately so these participants will have access [to] TSP loans in the event of another government shutdown.”

Additionally, the rule allows TSP participants to request a suspension of their loan payments in the event of a shutdown to avoid the potential that they could default. And the agency is reexamining how it handles TSP loan applications from federal employees in other forms of non-pay status.

“Participants who are not receiving pay for other reasons (e.g., administrative furlough, voluntary leave of absence, seasonal work, sabbatical, disciplinary suspension) remain ineligible to request a loan,” the rule stated. “The FRTIB is considering whether to allow these participants to request loans in non-pay status and will address this subject in the final rule.”

Meanwhile, the Office of Personnel Management is thinking about a new way to help federal workers decide which insurance plan to enroll in as part of the Federal Employees Health Benefits Program. Meritalk reported Monday that the agency has issued a Request for Information seeking vendors to develop a “one-stop shop” portal for employees to compare and then enroll in health care plans.

Although OPM currently offers the ability to compare different FEHB plans on its website, the enrollment process and other customer service functions are largely decentralized across a multitude of agencies’ HR departments.

Among the functions OPM hopes to include in the portal are enrollment and decision-making support, enrollment processing, as well as enrollment and premium reconciliation and data collection and reporting. Responses to the request are due March 11.

On Tuesday, OPM announced that it is extending the deadline for the Combined Federal Campaign, the federal government’s annual charity giving effort, until Feb. 22.

The campaign was disrupted by the partial government shutdown, as donations are primarily made by way of payroll deductions. As a result, many payroll offices at unfunded agencies were not open to receive or process CFC pledges. Additionally, federal workers impacted by the shutdown would have been unlikely to make charity donations without knowing when they would next receive a pay check.

Although the deadline for making donations through the campaign was delayed, OPM said in a press release that money still will begin being disbursed to charities on April 1 as originally scheduled.

We also have other alternatives to where you don’t need to take a loan from your TSP to consider. Going six months without contributions is a tough penalty. Learn more by contacting us soon.

Plan to Pay Excepted Feds Immediately Gains Momentum

By | Federal Pay, Retirement, TSP | No Comments

With just days remaining until federal employees at unfunded agencies miss their second straight pay check, an idea to compensate at least some of them promptly appears to be gaining traction on Capitol Hill.

Two weeks ago, Sens. Ron Johnson, R-Wis., and Susan Collins, R-Maine, introduced the Shutdown Fairness Act (S. 113), which would make sure federal workers at unfunded agencies who are currently working without pay will get their pay checks on time, instead of after the government reopens. The measure would not compensate furloughed employees, although last week President Trump signed legislation to provide them with back pay after agencies reopen.

“All employees required to work during the shutdown to perform national security and other critical functions should receive paychecks on a current basis,” Collins said in a statement. “It is not fair to force employees to work and not pay them. Hundreds of thousands of federal employees and their families are being harmed by the partial government shutdown, and I am continuing to work with my colleagues and the White House to bring it to an end as quickly as possible.”

Jan. 18 marked the end of the second full pay period of the government shutdown. If Congress cannot reach an agreement on how to fund the government this week, roughly 800,000 employees, of which at least 420,000 are working without pay, will miss their second straight pay check.

Although the bill was introduced with four other Republican cosponsors, that tally had grown to 20 by Tuesday. And although he is not yet an official sponsor, Sen. Mark Warner, D-Va., threw his support behind the idea in multiple news interviews.

“The fact is, since we have already agreed to pay them when we reopen, why shouldn’t we at least go ahead and, even if we are shut down, pay these federal workers come Thursday, so they don’t have to incur additional pain and suffering?” Warner said Friday.

Warner repeated that sentiment on “Meet the Press” on Sunday. And on Tuesday, Warner introduced the Stop Shutdowns Transferring Unnecessary Pain and Inflicting Damage in the Coming Years Act, an effort to prevent future government shutdowns, similar to legislation introduced by Sen. James Lankford, R-Okla., and others last week.

Lankford’s bill would institute an automatic continuing resolution at existing spending levels in the event that Congress fails to approve an appropriations package, although the approved spending would decrease by 1 percent after 90 days, and an extra 1 percent for each 30 days thereafter. But Warner’s bill would maintain existing spending levels for all unfunded agencies, and end appropriations for Congress, its associated agencies and offices, and for the Executive Office of the President.

“The Stop STUPIDITY Act takes the aggressive but necessary step of forcing the president and Congress to do the jobs they were elected to do,” Warner said in a statement. “It is disturbing that the daily lives of hundreds of thousands of workers are at the mercy of dysfunction in Washington.”