Federal Employee Retirement Benefits Including FEGLI, FEHB, Long Term Care, Thrigt Savings, and COLAs.

CSRS and FERS federal employee retirement benefits are generous, however they will cost you retirement dollars, especially for health and life insurance coverage. Uncle Sam will continue federal employee's health benefits, as long as you were enrolled in the program for the last five years, however you must pay the same monthly amount that you paid while working. You can also continue life insurance coverage and if you participated in the Thrift Savings plan you have many withdrawal options to consider.

BENEFITS LIST

FEGLI
Federal Employee's Group Life Insurance

Federal Employees Group Life Insurance (FEGLI) provides group term life insurance. As such, it does not build up any cash value or paid-up value. It consists of Basic life insurance coverage and three options. In addition to the Basic, there are three forms of Optional insurance that you can elect. You must have Basic insurance in order to elect any of the options. Unlike Basic, enrollment in Optional insurance is not automatic -- you must take action to elect the options.

The cost of Basic insurance is shared between you and the Government. You pay 2/3 of the total cost and the Government pays 1/3. Your age does not affect the cost of Basic insurance. You pay the full cost of Optional insurance, and the cost depends on your age.

The Office of Federal Employees' Group Life Insurance (OFEGLI), which is a private entity under contract with the Federal Government, processes and pays claims under the FEGLI Program. Your beneficiaries must submit a claim to the OFEGLI to collect on the policy. They can call them at 1-800-633-4542 to follow-up on submitted claims. See the Survivor's page for additional reporting procedures.

Visit OPM's web site to use their excellent FEGLI insurance calculator, their link is listed below. It calculates what your payments will be before and after retirement. You can elect to keep full coverage, 50% reduction or 75% reduction. The reductions don't start until you reach age 65 and with the 75% reduction you pay nothing from age 65 on. The SF-2801 form also lists everything you will need to know before making your selection.

Before you make an election I suggest that you review your estate first. An excellent resource for this is "Plan Your Estate." This book will help you evaluate your personal situation and this evaluation will help you determine how much insurance you will need in retirement.

FEHB
Federal Employee's Health Benefit's Plan

When you retire your agency will automatically transfer your enrollment to OPM if you are eligible. To continue your health benefits enrollment into retirement, you must: (1) have retired on an immediate annuity (that is, an annuity which begins to accrue no later than one month after the date of your final separation); and (2) have been continuously enrolled (or covered as a family member) in any FEHB Program plan (not necessarily the same plan) for the five years of service immediately preceding retirement, or if less than five years, for all service since your first opportunity to enroll.

If you die while a compensationer, your family members can continue your enrollment if you were enrolled for Self and Family at the time of your death and at least one of your covered family members receives compensation as a surviving beneficiary under the Federal Employees' Compensation law.

For your surviving family members to continue your health benefits enrollment after your death, all of the following requirements must be met:

All of your survivors who meet the definition of "family member" can continue their health benefits coverage under your enrollment as long as any one of them is entitled to a survivor annuity. If the survivor annuitant is the only eligible family member, the retirement system will automatically change the enrollment to Self Only. Your surviving spouse should follow up with OPM to insure this action was taken. If it wasn't, your spouse will be paying considerably higher Family Option premiums.

Under FERS, your surviving spouse who is entitled to a basic employee death benefit, or your surviving children whose benefits are offset by Social Security, may continue your health benefits enrollment by paying premiums directly to OPM.

If the survivor annuity is not large enough to cover the enrollee share of the premiums for your plan, your survivors may either change to a lower-cost plan or option (one in which the enrollee share of the premium is low enough to be withheld from the annuity) or choose to pay the premiums directly to the retirement system. Even if your employing office thinks that the survivor annuity will not cover the enrollee share of the premiums, your retirement system will transfer in the enrollment. The retirement system will notify your survivors of their options and take whatever actions they request.

When your surviving spouse will not receive any survivor benefits because your former spouse has a court-ordered entitlement to a survivor annuity, your surviving spouse can continue FEHB coverage if you had a Self and Family enrollment. The retirement system will notify your surviving spouse of his/her options and take whatever actions are requested.

When the retiree's spouse is not a federal employee they will most likely need FEHB coverage in retirement. The rules are different for CSRS and FERS employees and this is a major consideration for federal employees who intend to retire and leave their spouse other than a full survivors annuity.

Under CSRS your spouse will be eligible for FEHB coverage as long as you provide them with a survivors annuity. It can be any amount. In my opinion it is best to provide a survivors annuity large enough to cover FEHB expenses however it isn't necessary. If you elect a survivors annuity of $3600, enough to cover many plan costs, your annuity will be reduced by 2.5%.

FERS retirees must elect either 50% or 25% survivors annuity for your spouse to be eligible for FEHB coverage in retirement. The 50% election will cost you 10% of your full annuity and the 25% survivor annuity election will cost you 5% of your full annuity in retirement.

FEDVIP
Federal Employees Dental and Vision Insurance Program
New -- 2009 Federal Employees Vision Rates / Dental Rates

There are a few improvements in this program that I would hope will eventually extend to our FEHB plans. Primarily, the FEDVIP Plans offer three rate options, Self, Self + 1, and Self & Family. This has been long overdue and it benefits those empty nesters who previously had to pay high Family option premiums to cover the employee and a spouse. The monthly costs seem reasonable, maybe because I live in rating area #1 which offers the lowest premiums. Look over your options closely and compare plans.

The U.S. Office of Personnel Management (OPM) awarded contracts to insurance carriers that will offer supplemental dental and vision benefits under the new Federal Employees Dental and Vision Insurance Program. OPM selected the following companies to provide these services:

Dental plans provide a comprehensive range of services, including but not limited to the following:

The new program becomes effective on December 31 and gives federal employees additional healthcare choices. Employees may enroll for dental benefits, vision benefits or both.

The program allows employees to use pre-tax dollars to pay for their vision and dental premiums. However, as specified by law, there is no federal government contribution.

The Federal Employees Dental and Vision Benefits Enhancement Act of 2004 was signed into law by President Bush on December 23, 2004. The Act requires OPM to establish arrangements under which supplemental dental and vision benefits will be made available to federal employees, retirees, and their dependents, and it gives OPM broad contracting authority to leverage the purchasing power of federal enrollees.

Dental rates for those living in the United States are determined based on where you live. This is called a rating area. To find your bi-weekly or monthly Dental premium, you must first find your rating area on the charts at the OPM web site. You can view 2009 dental rates for all areas online. The OPM site offers complete information on programs, prices and and carriers. Rates for the dental program range from as little as $15.80 per month (rating area 1) under a standard plan for self only to as high as $123.00 per month (rating area 5) under a high plan for self and family.

Vision Rates are not based on where you live and the chart that follows is excerpted from the OPM web site. Retirees would pay a monthly rate that various anywhere from as little as 9.36 in rating area 1 for the standard plan (self only) to as high as $123.00 for the High Option Plan (Self & Family in ) in rating area 5.

If you have questions, contact OPM at fedvip@opm.gov or call them at (202)606-0745.

For questions regarding the Federal Employees Dental and Vision Insurance Program, please contact the customer service representatives at 1(866) 639-3917.

Long Term Care Options

Another consideration is the federal employee's Long Term Care insurance program administered by the John Hancock and MetLife insurance companies. I highly recommend investigating and purchasing this coverage BEFORE you retire. The younger you are when you elect coverage the lower you monthly payments will be. The government plan is very reasonable compared to most private plans that I researched. My wife and I decided that we needed Long Term Care more than we needed additional life insurance coverage. We elected the future purchase option and $125 a day coverage for 5 years, total insurance coverage of $228,125. There was one inflation adjustment since I enrolled and my coverage is now $135 a day with total lifetime coverage of $246,375. My coverage costs $41.22 per month and my wife, who is a year younger than me, pays $38.63. You don’t have to accept inflation adjustments if you don’t want them with the future purchase option. Call 1-800-582-3337 to request their benefit booklet. One of the key advantages of this program is that you can op to pay family members to take care of you for up to one year of coverage and you have so many more care options available. You will be less likely to deplete your estate or become a burden to your family if you have this coverage.

THRIFT SAVINGS PLAN

TSP stands for the Thrift Savings Plan. The TSP is an important benefit designed to help you save for your future. The TSP is comparable to a private-sector tax-deferred 401(k) plan. You can participate in the TSP if you are covered by FERS, CSRS, or CSRS Offset.

The TSP offers all participants:

The TSP is especially important for FERS employees because it is one of three parts of your retirement coverage. Employees can now contribute as much as 14% of basic pay each pay period, up to the IRS annual limit.

CSRS employees do not receive Government contributions in their TSP accounts. However, CSRS employees can still take advantage of the TSP to provide a source of retirement income in addition to your CSRS retirement benefit. CSRS employees can contribute up to 9% of basic pay each pay period.

If you don't need the cash in your account or an immediate TSP annuity to make ends meet when you retire you can leave your account active. However, you must withdraw your entire balance (or begin receiving monthly payments from the TSP or from the TSP annuity vendor) by April 1 of the year following the year you turn 70½ (or following the year you separate, if you are already over age 70½ when you leave Federal service). Many opt to maintain their account with the TSP because of the fund's attractive earnings and very low administrative fees. The administrative fees are often half or less of what most private sector funds charge to maintain your accounts. Another significant advantage is that the G Fund has no market risk. Therefore, unlike most private sector funds, you don't have to worry about fund price fluctuations with the Government Bond Fund. The G Fund's 10 year compounded historical yield is 6.04%. An excellent yield by any standard. You still have market risks with the remaining funds however their yields can be attractive in advancing markets. You have a number of withdrawal options and they are listed below.

The Thrift Savings Plan for CSRS employees provides an additional source of retirement income. Uncle Sam doesn't match your contributions like they do for FERS employees, however you are able to defer taxes on your account contributions and earnings.

The TSP for FERS employees is just one of the three parts of your total retirement package, along with Social Security and the Basic FERS Annuity. TSP Participation doesn't change Social Security benefits or your FERS Basic Annuity. The TSP is especially important to FERS employees because the formula used to compute your FERS Basic Annuity is less generous than the formula used to compute the CSRS annuity.

You can have the TSP transfer all or part of any single payment or, in some cases, a series of monthly payments, to a traditional IRA or eligible employer plan. Payments to you can be deposited directly into your checking or savings account by means of electronic funds transfer (EFT).

Federal employees and retirees may discover that shifting some or all of their THRIFT savings or traditional IRAs into a ROTH will save them taxes on investment earnings and growth long term. A good idea in many cases. Roth IRAs provide tax-free earnings on your contributions however you MUST pay taxes on your initial ROTH contributions. The amount that you transfer into a ROTH is fully taxed at current tax rates. Since you already paid taxes on your contributions you can withdraw them from a Roth IRA at any time tax-free. Generally, if your account has been open for at least 5 years, your earnings are tax-free when you withdraw them. Usually, you must be 59½ or older in order to avoid paying a 10% early withdrawal penalty tax on your earnings. Other exceptions to the withdrawal penalty tax may also apply. IRS publication 590 provides detailed guidance.

Roth IRAs do not require minimum distributions for participants starting at age 70½ like traditional IRAs require and beneficiaries pay NO INCOME TAXES for inherited accounts open at least five years. ROTH IRAs are one of the few investment vehicles that we have, other than municipal bonds, that earn tax free income.

The 2008 income limits are $116,000 for an individual and $169,000 for a married couple filing jointly. These income limits are eliminated in the year 2010. At that time anyone, regardless of income, can convert their THRIFT and IRAs to a ROTH. Thanks to the 2006 Pension Protection Act, if you convert to a ROTH in 2010 you are permitted to pay the taxes over a two year period, half in 2011 and the remaining half in 2012, a great deal for all. Uncle Sam receives a windfall in 401K taxes that they wouldn’t normally receive for decades and those who convert will earn tax free gains on their investments and get to defer the tax burden over a three year period, 2010 through 2012.

Retirees that are working and earning income under the limits, most federal retirees, can open and contribute to a ROTH. Contributions limits for 2008 are the lesser of $5,000 or your taxable compensation for the year. If you are over 50 the limit increases to $6,000.

Under what circumstances may I transfer money from my TSP account to a Roth IRA?

First, you must be eligible to withdraw your TSP account, and your payment must be an eligible rollover distribution. Consequently, you must be eligible for an age-based in-service withdrawal or a post-separation withdrawal.

Once you’re eligible to withdraw your TSP account and you determine that your payment is an eligible rollover distribution, you must determine whether you meet the eligibility requirements for a transfer directly to a Roth IRA. See the lead article for current income limits.

Otherwise, any amount rolled over is subject to the same rules for converting a traditional IRA into a Roth IRA.

Do I have to pay the income taxes on my TSP contributions?

Roth IRAs are based on after-tax contributions. So, if you transfer your tax-deferred TSP contributions and earnings to a Roth IRA, you must pay income tax on the entire amount of the transfer for the year of the transfer. Future earnings on the Roth IRA will be exempt from taxes if you meet the criteria for withdrawing from a Roth. Further, depending upon your tax liability, you may have to pay estimated taxes to avoid underwithholding penalties and interest. This is important – transferring your TSP account to a Roth IRA does not allow you to avoid paying the taxes on your TSP contributions and earnings. In fact, you have to pay them sooner than you would if you transferred the money to a traditional IRA. We have spoken to participants who did not understand this.

Will the TSP withhold money for taxes when I transfer funds from the TSP to a Roth IRA?

No. Because your Roth IRA transfer is an eligible rollover distribution, we do not withhold any taxes on the transfers. So be sure that you have the funds to cover the tax liability you will incur as a result of the transfer.
Q5. I received my single payment in cash. Can I roll this payment over into a Roth IRA? Return to Top of this Page

If you’ve received your eligible rollover distribution directly, you can roll it over into your Roth IRA. However, you should check with your Roth IRA provider to see if they’ll accept it. (Standard rollover rules apply.) Remember, if you receive your eligible rollover distribution in a payment to you, there is mandatory 20% Federal tax withholding. You may roll over to the Roth IRA all or any part of the eligible rollover distribution. You will still have to pay taxes on any amount rolled over and any part you keep.

Do I have to pay a 10% early withdrawal penalty tax on a transfer to a Roth IRA?

No, the 10% early withdrawal penalty does not apply to a transfer to a Roth IRA, a traditional IRA, or an eligible employer plan. However, you may be subject to the penalty if you do not meet the eligibility requirements at the time you withdraw your Roth IRA earnings.

Is there a dollar limit on the amount that can be transferred to a Roth IRA? Return to Top of this Page

There is no dollar limit to the amount that you can transfer. However, don’t forget that you’ll be taxed at ordinary rates on the amount you transfer. Further, the transfer may push you into a higher tax bracket. So be sure you take that into consideration as you make your decision.

Are there any other special rules or restrictions for moving money into a Roth IRA?

Yes. The tax rules on Roth IRA transfers are complex. We strongly recommend that you consult a tax advisor before you make your decision. Refer to IRS Publication 590.

The Roth IRA transfer option has been added to our withdrawal forms and the information included in the associated tax notices. These are available in the Forms and Publications section of the TSP site.

The four articles from the National Institute of Transition Planning (NITP) are very helpful.

SOCIAL SECURITY

CSRS RETIREES

Retirees with 40 quarters or more are eligible for benefits as early as age 62, but benefits are permanently reduced for each month of entitlement prior to the full-benefit retirement age, currently age 65. The age at which unreduced benefits are payable will be increased gradually from age 65 to 67 over a 21-year period beginning with individuals who reach age 62 in the year 2000. (The age of eligibility for Medicare is not affected by these changes.)

Unfortunately, federal CSRS retirees are subject to the Windfall Elimination Provision (WEP) that reduces Social Security benefits for those with less than 30 years of substantial coverage and who earned a retirement benefit from employment not covered by Social Security - your CSRS service for example. If you are subject to WEP, your earned Social Security benefits will be calculated using a modified formula. The modified formula IS NOT used in computing survivor benefits upon your death. Generally speaking, a CSRS retiree's social security will be reduced however the current maximum reduction is approximately $325.

If you have active military time, and are eligible to collect Social Security at age 62,
your annuity will decrease unless you buy back your military time.

FERS RETIREES

FERS employees who retire After their Minimum Retirement Age (MRA) with 30 years of service will receive a Special Retirement Supplement which is paid as an annuity until you reach age 62 and become eligible for Social Security.

To become eligible for benefits, you and your family must meet different sets of requirements for each type of benefit. An underlying condition of payment of most benefits is that you have paid Social Security taxes for the required period of time.

The amount of monthly benefits you receive is based on three fundamental factors:

If you have active military time, and are eligible to collect Social Security at age 62,
your annuity will decrease unless you buy back your military time.

If you accrued 40 quarters (10 years) of employment where social security payments were withheld you are eligible for benefits. Your Primary Insurance Amount (PIA) which is simply your Social Security payment will be impacted. The Windfall Elimination Provision (WEP) can significantly reduce your Social Security payout. Many federal employees have held other jobs before, during, and after retirement including feds who served active military and/or Reserve and National Guard duty where earnings were subject to Social Security. If you aren’t sure if you are eligible you need to contact Social Security at 1-800-772-1213 or visit their excellent web site at www.socialsecurity.gov to request a history of your Social Security payment and status.

This provision reduces your Social Security benefits if you have less than 30 years of what is called “substantial” coverage and earned a CSRS federal retirement benefit. Substantial earnings equaled $2,250 dollars in 1972 and $16,725 in 2005. A complete list of substantial years is included on the Social Security web site. A WEP calculator is available at http://www.socialsecurity.gov/retire2/anyPiaWepjs04.htm.

If you receive a relatively low pension, you are protected. “Your Social Security reduced benefit cannot be more than one-half of that part of your pension based on your earnings after 1956 from which Social Security taxes were not deducted.”

I used the WEP calculator listed above and my Social Security payout was reduced by $188. My reduction is low because I’ll have 25+ years of substantial Social Security earnings by the time I actually stop working and really retire.

The Government Pension Offset, or GPO, is a second provision of the Social Security law that affects many Federal employees. It affects workers who are entitled to a pension based on work in a Federal, State, or local government that was not covered by Social Security, such as CSRS. It also affects employees who transfer to FERS, but do not work for 5 years under FERS. The GPO does not affect employees who were required by law to have Social Security coverage -- such as employees who were automatically covered by FERS without electing it, and people with CSRS Offset coverage.

The GPO affects the Social Security benefits you may be entitled to as a spouse, former spouse, or surviving spouse of someone who is eligible for a full Social Security benefit. Under the GPO, your Social Security spousal benefit will be reduced by $2 for every $3 you receive from your CSRS annuity. Your own Personal Earnings and Benefit Estimate Statement (PEBES) will not give you information about the impact of the GPO. You need to review your spouse's (PEBES), which will give you information about your spousal benefit and adjust that amount.

If you leave Federal service and return to a CSRS-covered appointment after more than 365 days, you would be required by law to have Social Security coverage, so you would have CSRS Offset coverage. In this case, you would be exempt from the GPO. In addition, employees who transfer to FERS and work for 5 or more years under FERS are exempt from the GPO.

COLAs
Cost-of-Living Annuity Adjustments

Cost-of-Living Adjustments (COLAs) are effective each December first. The adjustment appears in your January payment on the first business day of the month, which is when your benefit for December is paid. Federal Employees' Retirement System (FERS) and FERS Special Cost-of-Living Adjustments are not provided until age 62, except for disability, survivor benefits, and other special provision retirements. Also, under FERS, if you have a CSRS component, the component is subject to the CSRS COLA.

The U.S. Department of Labor calculates the change in the Consumer Price Index (CPI) for urban wage earners and clerical workers from the third quarter average of the previous year to the third quarter average for the current year.

For Civil Service Retirement System (CSRS) or Organization and Disability Retirement System (ODRS) benefits, the increase percentage is applied to your monthly benefit amount before any deductions, and is rounded down to the next whole dollar.

For Federal Employees' Retirement System (FERS) or FERS Special benefits, if the increase in the CPI is 2 percent or less, the Cost-of-Living Adjustment is equal to the CPI increase. If the CPI increase is more than 2 percent but no more than 3 percent, the Cost-of-Living Adjustment is 2 percent. If the CPI increase is more than 3 percent, the adjustment is 1 percent less than the CPI increase. The new amount is rounded down to the next whole dollar.

Retirement Date Issue

Don’t confuse your “Retirement Date” with your “Date of Final Separation” that you list in block 2, Section B on your SF-2801 CSRS or the SF-3107 FERS Retirement Application Forms. I attended two retirement seminars the last three years I was employed by the Federal Aviation Administration. I recall being advised that if you retired December 31 in stead of January 1 you would get the entire COLA the following year. Unfortunately, I assumed that my retirement date was the date that I entered on my retirement application. Also, as a CSRS employee voluntarily retiring I would have had to retire the last day of November to get a full COLA in January a year later.

The date you put on your forms is your last day of work with the agency ─ not your retirement date. To get a full COLA next year you would have to put December 30 in block 2 of Section B for FERS employees and involuntarily separated CSRS employees. OPM’s COLA memo for 2006 states, “To get the full COLA, a FERS retiree survivor annuity must have begun no later than December 31, 2004. If not, the increase is prorated under both plans. Prorated accounts receive one-twelfth of the increase for each month they received benefits. For example, if the benefit commenced November 30, 2005, the prorated COLA would be one-twelfth of the full COLA." To get a COLA for the following month you have to officially be retired on the last day of the proceeding month. This basically means that you have to place the second to last day of the month you retire in block 2 of Section B to officially be retired on the last day of the preceding month.

The following table shows the annual COLA payout for the past five years for both CSRS and FERS retirees.

You can visit http://www.opm.gov/retire/html/faqs/2005cola.asp to review the calculations for the January 2005 COLA payment for CSRS and FERS employees.

RETIREE COLAs (Past Five Years)
Year	CSRS Rate	FERS Rate
2009	5.8	4.8
2008	2.3	2.0
2007	3.3	2.3
2006	4.1	3.1
2005	2.7	2.0
2004	2.1	2.0
2003	1.4	1.4
2002	2.6	2.0
2001	3.5	2.5
2000	2.4	2.0
1999	1.3	1.3

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BENEFITS LIST

FEGLI Federal Employee's Group Life Insurance

FEHB Federal Employee's Health Benefit's Plan

FEDVIP Federal Employees Dental and Vision Insurance Program New -- 2009 Federal Employees Vision Rates / Dental Rates