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[TSPStrategy] The Best Age for Retirement

[TSPStrategy] The Best Age for Retirement

https://www.govexec.com/pay-benefits/2023/04/best-age-retirement/385644/

The Best Age for Retirement

It's not the same for everybody.

For many federal employees, retirement can be summed up in one word: freedom. Freedom from an alarm clock and from a supervisor telling you what to do and when to do it. But total freedom can be unsettling, and that can be compounded by financial considerations. All of which makes it next to impossible to say there's a "right" age to retire. 

This is especially true now that most federal workers are covered by the Federal Employees Retirement System. Under the old single-benefit Civil Service Retirement System, most employees planned to retire around their 55th birthday, assuming they had at least 30 years of service by then. CSRS made it possible to retire at a young age as long as your retirement dreams weren't too expensive. And working longer would make retirement life even easier. 

Under FERS, things are more complicated, because it includes three different benefits that come into play at different ages. For starters, you must have reached your minimum retirement age (between 55 and 57) to qualify for a FERS basic retirement benefit. Then there's the age (between 62 and 70) to qualify for Social Security retirement benefits. Finally, for the Thrift Savings Plan and other tax-advantaged retirement savings plans, there are ages when you could be penalized for withdrawing funds too early and an age when you're required to begin taking distributions. 

There is no mandatory retirement age for most employees under FERS (with some exceptions, such as law enforcement officers and firefighters). The length of an employee's service determines the size of their benefit. To receive an unreduced benefit at minimum retirement age, most employees need at least 30 years of service. Benefits are also payable at the minimum age with as little as 10 years of service (but with an age reduction of 5% for every year under 62), or unreduced at age 60 with at least 20 years of service, or at 62 with five or more years.

So, for example, a career FERS employee who has 35 years of service would receive a benefit of 35% of the average of their three highest years of salary if they retired at age 62 or later with 20 or more years of service. 

For Social Security, the full retirement age is 67 if you were born in 1960 or later. That's when you can get an unreduced benefit. If your full retirement age is 67 and you choose to claim your benefit when you first can at age 62, the benefit will be permanently reduced by 30%.

FERS employees who retire under age 62 receive a special retirement supplement included with their FERS basic retirement benefit to bridge the time until they qualify for Social Security. If an employee delays claiming benefits until beyond age 62, the supplement is not payable. That can create a dilemma for employees who want to wait until they reach full retirement age to claim Social Security benefits.

To round out the three parts of FERS, it is important to consider the age when you will begin taking distributions from your TSP account. Although the age to avoid a 10% early withdrawal penalty tax is 59½, the additional tax generally does not apply to payments made after you separate from service during or after the year you reach age 55.

As of this year, the age for required minimum distributions from retirement savings accounts like the TSP has increased from 72 to 73. Also, the tax penalty on the required amount not withdrawn has been reduced from 50% to 25%.

So what's the best age for you? That depends on the provisions outlined above, how rewarding your work is, and your dreams for retirement.

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[TSPStrategy] Pay and Prestige For Civil Servants: The Historical Advantages—and Disadvantages—of Government Work

[TSPStrategy] Pay and Prestige For Civil Servants: The Historical Advantages—and Disadvantages—of Government Work

https://www.govexec.com/pay-benefits/2023/04/pay-prestige-civil-servants-historical-advantages-disadvantages-government-work/385623/

Pay and Prestige For Civil Servants: The Historical Advantages—and Disadvantages—of Government Work

The advantages have "helped to recruit and keep some very good people in government work," according to one academic.

Most Americans take it for granted that we have federal government agencies staffed by capable people who can and will provide services to help solve problems. For all the disparagement of government employees in recent years, especially among some politicians, Pew Research poll results released last month show a majority of Americans continue to approve of the work of 14 of 16 leading federal agencies. 

Reinforcing that message, a recent report from the Gallup organization summarizes that, "the majority of Americans say the federal government should have the responsibility for a number of societal functions, including protection from foreign threats, protection from unsafe products, preventing discrimination, maintaining the nation's transportation systems, protecting the environment and making sure Americans have adequate healthcare." 

And a major factor behind why most Americans can reasonably maintain expectations that government should perform these crucial tasks must be because it is already doing so. That is, each day people see the fruits of the work of public servants—and in their estimation much of it is getting done, and well enough, thanks. Because paid professionals at most agencies, hired competitively over the years, are for the most part perceived to be doing a decent job.  

But historically this hasn't always been the case. For example, prior to the New Deal our federal government was smaller, paid less and played a less prominent role. Having said that, some countries and cultures have long offered a relatively good deal in life to civil servants—including periods of higher prestige (if not pay) that go back centuries. For some snapshots of the varied role of pay and prestige in public sector work, Government Executive interviewed Saint Louis University's Ken Warren, a veteran political scientist, and expert on American government and the history of the civil service in the U.S. and abroad. 

Q&A with Kenneth Warren

GovExec: Prof. Warren, you study and teach not just on the civil service in the U.S., but also on public servants at the state level, governments of other countries as well as historical changes in these over time. How important is pay to recruiting and retaining good people—and in making sure government is able to provide services and keep societies strong and functioning?  

Warren: It's very important. When you look at the United States—and paid work by people in the federal government in particular—starting pay is usually higher for government work than in private enterprise. And that is a competitive advantage that has helped to get some of the best people to ensure government services get done. But—and this was for a long time rule of thumb—on average after just three years a person who went to work for private enterprise was earning more money than a person with the same qualifications in a federal job. The point is there have long been—and still are—some advantages to government work, and that has helped to recruit and keep some very good people in government work. 

GovExec: How does the federal government stack up on pay, historically speaking, compared to state and local governments and the private sector? 

Warren: Pretty well. Especially at first. The biggest downside for the person who goes to work for the private sector is that their starting pay is usually low. At first, that is. Like I said, and as your readers have seen elsewhere, the federal government historically has done quite well in recruiting, because the starting pay for many jobs has been comparatively quite high. That's an advantage specifically for federal work—it's usually not the case at the state and local level. Of course, this all depends on which state government we're talking about. Looking at public sector pay by state, it varies greatly. Missouri—and West Virginia, Arkansas and others—for instance, are low-paying state governments. Connecticut, New York and others, on the other hand, are high-paying state governments. The important thing to your readers is that if you look at the federal government, new hires do quite well at first—and that has helped federal agencies to do pretty well at recruiting, historically speaking, because their initial pay rate is pretty high for salary paid for comparable positions—versus state governments or the private sector.

GovExec: But in recent decades, as federal government work increasingly demanded higher skills—for backgrounds in STEM and tech—that "rule of thumb" you just cited must be less applicable, right? Government is doing less well for new hires against private industry as those higher-paying lower-skill jobs go away or are contracted out, right?  

Warren: That's right. We can look to my own family for examples on these trends. During the Great Depression—yes, a long time ago—my father ran chicken farms and was going broke. He was saved by government work. The pay was much higher than the private sector! My daughter, on the other hand, has advanced degrees and was offered very high-paying jobs from Silicon Valley employers, and many of these companies are offering better pay for new hires, too. Anecdotes aside, the statistics show federal employees on average are paid about a quarter less on the dollar compared to the private sector (and the problem is even more glaring at for public sector employment at the level of the states.) But these figures don't take into account specific jobs—or the advantages of some federal benefits and basic job security. 

GovExec: And as you've previously noted that government work is often better for pay and benefits for those just out of the gate into the working world, right? 

Warren: That's right. Again, there are also other advantages new employees see in working for the government, one being job security. Government has always provided jobs that are more secure, period. For all employees, they provide a more secure package. Private enterprise sometimes offers great and high-paying jobs. But you really never have the kind of guarantee that you can pretty much count on if you start and stick with government service. Some marquee companies offer it sometimes, but you might end up finding out otherwise. A couple decades ago, Enron seemed like it offered very long-term, high-paying jobs, and we know how that ended. Much more recently, thousands of people who joined top tech firms have wound up in the same situation. They lost their great pay, benefits and even pensions with their jobs—all in one stroke, you see? Historically, that's just not going to happen with federal government jobs. It's very rare.  The private sector is very volatile. It's a major downside. On the upside, the pay after a few years especially can be very good.

GovExec: Briefly looking at other places and times you've researched, particularly Europe in the last century and China over time—any thoughts on incentives for the public vs. private sector? 

Warren: A few quick things. Looking at European countries, at least over the last century there's been a more socialistic attitude about government work and work across sectors generally. In the U.S., incentives reflect this attitude relatively little, mostly I would say in terms of job protections and job security. In Europe, by contrast, government and private sector employers both provide huge safety nets. So there is less difference between the sectors compared with here. Finally, as most people know, Europeans fortunate enough to have decent jobs get more vacation time, more leave, and better benefits in general than their U.S. counterparts.

GovExec: You have done a lot of research on contemporary and ancient China—where deep in history some dynastic governments provided resources for well-functioning civil services, right? 

Warren: On China, briefly I would say public sector jobs there have always offered an edge beyond just the pay issue. I mean, since long before the U.S. even existed. That's still the case and it owes to a cultural difference, where government work, framed to be for the communal good, is held in very high esteem.

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Re: [TSPStrategy] Getting Credit for Your Work

Re: [TSPStrategy] Getting Credit for Your Work

Those are high example salaries.

Jack is sick and will go on leave without pay?
Fedderal service is crap.
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[TSPStrategy] Getting Credit for Your Work

[TSPStrategy] Getting Credit for Your Work

https://www.govexec.com/pay-benefits/2023/04/getting-credit-your-work/385424/

Getting Credit for Your Work

Carefully documenting previous military or civilian service can lead to an earlier retirement and a bigger benefit. 

One of the worst feelings at a job is doing hard work and not getting credit for it. What's even worse in the federal sector is not getting credit for previous military or civilian service when it comes time for retirement. But ultimately, it's up to you to make sure  you get the credit you deserve for the work you've done. 

This week, I was conducting a mid-career retirement planning webinar and realized that many employees assume that because they listed prior service on their resume or job application, that the service has been "taken care of" in the calculation of their retirement benefit. There also was a lack of understanding of the difference this previous service could have on their reemployment.

Let's look at a couple of examples that show the importance of following up on crediting prior service.

Military Service

"John" served on active duty for two years before embarking on a civilian federal career. He is now 20 years into what he is planning to be a 30-year federal career, and he wants to know why it is important that he pay a military service credit deposit. (Such deposits are payments into the federal retirement system by employees to get retirement credit for prior service.) 

In John's case, he'll turn 57 in 10 years, and he'll have 30 years of civilian service by then. So what would he gain by paying a deposit for service that he really doesn't need to become eligible for retirement? Thankfully, John asked this question during a recent retirement training class. I explained to him that a military service deposit would not only make his period of active duty creditable toward eligibility for Federal Employees Retirement System retirement, but it also would become creditable towards the computation of his retirement benefit. 

John's current salary is around $130,000. Two years of military service would add $2,600 per year to his future retirement benefit. After learning this, John was eager to know what he had to do to pay the deposit. I referred him to this Defense Finance and Accounting Service explanation.

Civilian Service

"Jack" is an employee who was recently diagnosed with a serious illness and is using his sick leave and annual leave to take time off while he receives treatment. He only has about seven years of federal service, so he's going to run out of leave and face being placed in leave without pay status.

However, in speaking with Jack, he casually mentioned another five years of federal service that he had in the late 1970s. After reviewing his personnel records, I noted he had never received credit for this service towards his service computation date for leave purposes. He showed me his SF-50 Notification of Personnel Action form from his appointment in 2016. It stated, "Service computation date may be amended upon verification of prior service." Unfortunately, that never happened.

After a little research, I was able to locate the documentation of his prior service of a little over five years in a Senate office. In that position, he was covered under the old Civil Service Retirement System. As a result, I realized he should have been earning six hours of leave since he was hired in 2016. Correcting his leave service computation date will provide him with 156 additional hours of annual leave (26 pay periods x 3 years x 2 hours) that he can use while battling his illness. At Jack's current salary rate of $130,700 a year, this lost leave is now worth almost $10,000 in additional salary.

Jack was treated as a new hire in 2016, with 4.4% deduction of his basic pay for retirement contributions. But because he had five years of prior creditable service, he should have been rehired under CSRS Offset coverage, with the opportunity to transfer to FERS with only 0.8% retirement contribution withholdings. He will choose FERS rather than CSRS Offset so he doesn't have to forfeit the agency contributions to his Thrift Savings Plan account. 

This will bring the Federal Erroneous Retirement Coverage Corrections Act into play. Under that law, Jack will be entitled to the difference between the 4.4% withholding and the 0.8%, dating back to 2016. In his first year of reemployment this would be a difference of $3,318 in excess retirement withholding. Now that more than seven years have passed, this amount will exceed $23,000. That will come in handy when Jack has to use leave without pay once his accrued leave runs out.

If Jack retires from federal service, his additional five years of congressional service is worth 5 x 2.5% (the formula for CSRS congressional service) x $120,000 (his approximate high-three average salary), or $15,000 in additional annual retirement income.

To count towards Jack's retirement service computation date, this service only needs to be documented. To avoid a reduction to his future retirement benefit, it will be important to find out if he received a refund of his CSRS contributions when he separated from congressional service in 1984. Jack could make a redeposit of this refund to avoid the reduction. He'll make that decision once his service has been documented and the immediate corrections have been made.

Ultimately, correcting Jack's record will result in restoring almost $33,000 of lost income, and getting a more generous retirement benefit.

In both John and Jack's cases, the agencies where they work bear some blame for not following up with these employees to be sure that they were aware of the value of their prior service. But employees also bear the responsibility to make sure their records are up to date and that they make the appropriate decisions about paying service credit deposits.

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[TSPStrategy] Last Minute Tax Tips

[TSPStrategy] Last Minute Tax Tips

https://www.govexec.com/pay-benefits/2023/04/last-minute-tax-tips/385152/


Last Minute Tax Tips

Things to keep in mind if you still haven't filed—or even if you have.

Are you one of those people who waits until the last minute to file your tax return? Even if so, you've still got a little time. And if you're a recent federal retiree, or plan to be one soon, there are some important things you should know. And even if you didn't procrastinate, you can file a form 1040-X and amend your return without re-doing the whole thing.

I don't claim to be a certified public accountant. But I do know a few things about paying taxes if you are a federal retiree. Here are some of them:

Be sure to have a copy of IRS Publication 721 handy when preparing your returns. This is the Tax Guide to U.S. Civil Service Retirement Benefits. It will help you learn how to compute the tax-free portion of your Civil Service Retirement System or Federal Employees Retirement System benefit. Don't get too excited. It's not a lot of money, but it's something.

If you left federal service and took a refund of your retirement contributions under FERS last year (instead of retiring), remember that those contributions were already subject to tax when they were withheld from your biweekly salary. The only part of the refund that is taxable is the interest that you may have been paid.

Remember that your retirement benefit is subject to federal income tax. Annuitants can file form W-4P or use the Office of Personnel Management's Services Online to set up and adjust their tax withholding. You can also choose to make estimated tax payments. In many areas, your benefit is taxable on the state level as well. OPM doesn't automatically withhold state income tax for new retirees. You need to make sure this withholding is set up if your state requires it.

OPM sends retirees form 1099-R, showing how much they received in federal retirement benefits along with the taxable amount. The form also indicates the contributions that you made to the retirement fund during your career and the federal tax that was withheld during the year.

Be sure to read the Thrift Savings Plan's Publication 26Tax Rules about TSP Payments

For survivor annuitants whose monthly annuity check includes a survivor annuity for one or more children, each child's annuity counts as their own income (not yours) for federal income tax purposes. If your child can be claimed as a dependent, treat the taxable part of their annuity as unearned income when applying the filing requirements for dependents. 

If you retired on disability, the disability annuity you receive is taxable as wages until you reach your minimum retirement age. However, beginning on the day after you reach minimum retirement age, your payments are treated as a retirement annuity and you can begin to recover the cost of the annuity. 

Retired public safety officers should also know about this special tax rule:  You can exclude from your income any distributions made from an eligible retirement plan that are used to pay the premiums for accident insurance, health insurance and long term care insurance. The premiums can be for coverage for you, your spouse, or dependents.You can exclude from income the smaller of the amount of the insurance premiums or $3,000. The taxable annuity shown on Form CSA 1099-R doesn't reflect this exclusion. Report your total distributions on line 5a of your return. Report the taxable amount on line 5b. Enter "PSO" next to the appropriate line on which you report the taxable amount.

Before filing your tax return, be sure to check it for a few common issues, such as choosing the proper tax status, correctly listing the name, date of birth and Social Security number of you and your dependents, and including the right bank account number if you want your tax refund directly deposited.

One last thing: Many federal workers continue to work from home, and may wonder if they can claim the cost of a home office as a tax deduction. Unfortunately, according to the IRS, the answer is no if you're a current employee.


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[TSPStrategy] Debt Ceiling Concerns, the New Postal Health Plan Rule, and More Reaction to the COVID Hazard Pay Setback

[TSPStrategy] Debt Ceiling Concerns, the New Postal Health Plan Rule, and More Reaction to the COVID Hazard Pay Setback

https://www.govexec.com/pay-benefits/2023/04/debt-ceiling-concerns-new-postal-health-plan-rule-covid-hazard-pay-setback/385086/


Debt Ceiling Concerns, the New Postal Health Plan Rule, and More Reaction to the COVID Hazard Pay Setback

News updates and stories you may have missed.

The White House is advocating a 5.2% pay bump for feds in FY 2024. Unions and Democratic leaders in Congress are pushing for 8.7%. But ideas on how to move on reining in federal government spending—some possibly affecting employees on the pay front—are increasingly on radar. And not necessarily for the right reasons. 

This summer every family and every business in our country could suffer from one of the less savory effects of "divided government" on a linchpin of planet Earth's largest economy, the U.S. government's debt ceiling, with the White House and Senate in Democratic hands and the House sporting a Republican majority. There is sharp disagreement between these power centers over long-term budgetary matters—most pointedly, on how to shore up Social Security. And although the pension program's trust funds is predicted to remain solvent into the next decade, some Republican lawmakers are insisting that Dems join them in effecting controversial longer-term fixes now, in the current session of Congress. If they don't get the desired concessions enough Republicans might vote against raising the debt ceiling

Indeed, that would be a potential showstopper. Without a timely majority up vote on raising the debt limit, the U.S. government would for the first time ever default on scheduled debt instrument payments, bills for regular operations. Near-term that would possibly slow or reduce regular payments to contractors and employees. And, despite the hopes of feds and some of their leading unions and advocacy organizations, debt ceiling inaction could hit pay increases for next year and down the road. 

So, if the current congressional standoff advances to millimeters from the ceiling—or, like Willy Wonka's elevator, blows through it—it won't just inconvenience feds, it could crash whole markets and take the U.S. economy and much of the world's with it into recession. 

There may be some hope for feds, though. Last month, Sen. Brian Schatz, D-Hawaii, and Rep. Derek Kilmer, D-Wash., reintroduced the Federal Employees Civil Relief Act (S. 640). The bill, first introduced in 2019 amid the 35-day partial government shutdown, protects federal workers and contractors from a variety of civil financial penalties during a lapse in appropriations or a breach of the debt ceiling.

More Feds Affected by the COVID-19 Hazard Pay Setback?

In February, a federal appeals court ruled in favor of the federal government's rejection of hazard pay for feds in a major case, potentially affecting hundreds of thousands of feds. More recently, lawyers handling a related case confirmed that the court's action in Adams et al vs. U.S. applied also to their feds. 

"On February 14, 2023, the U.S. Court of Appeals for the Federal Circuit affirmed the dismissal of Adams v. U.S., which was one of the later filed cases also seeking hazard pay on behalf of a group of federal employees," the law firm of Kalijarvi, Chuzi, Newman & Fitch, P.C. said in a recent statement. "Even though Adams is a different case, the Court's analysis applies similarly to our case, Braswell et al. v. United States. The Court determined that in all but a very limited number of potential scenarios, federal employees are not entitled to Hazardous Duty Pay or Environmental Differential Pay for exposure to COVID-19 during the pandemic."

But, the attorneys in the case still hold out hope for succeeding in securing hazard pay in such conditions. 

"We disagree strongly with the court's [decision]," they said. "We are evaluating our options moving forward and will update this status as appropriate."

Interim Rule for the New Postal Health Benefit System 

The Office of Personnel Management has issued an interim final rule for the new Postal Service Health Benefits Program. The nascent scheme will be a new offering under the Federal Employees Health Benefits Program, as mandated under the Postal Service Reform Act of 2022 . Beginning in 2025, the new Postal Service Health Benefits Program will replace existing health benefit offerings for USPS employees, annuitants and eligible family. 

The rule governs implementation of the new program, permitting OPM to contract health insurance carriers for it. The aim is to continue cost-effective coverage for current employees while also integrating a Medicare element for Medicare-eligible annuitants. The public comment period, which will last for 60 days total, can be accessed at www.regulations.gov.    

Help us understand the situation better. Are you a federal employee, contractor or military member with information, concerns, etc. about how your agency is handling pay or benefits? Email us at nabse@govexec.com.

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