federal benefits consulting training for advisors january 30, 2012 conducted by: ann vanderslice

Federal Benefits Consulting Training For Advisors

January 30, 2012

Conducted By:Ann Vanderslice

Overview of Federal Employees Overview of CSRS System - Qualifying for an Unreduced Annuity - Calculating the Annuity - Thrift Savings Plan - Voluntary Contribution Plan - Social Security - Insurance - Taxes Overview of FERS System - Qualifying for an Unreduced Annuity - Calculating the Annuity - Sick Leave - Military Time - Social Security

What We Will Cover Today:

Working With Feds Mentality

Federal employees are looking for: Someone with knowledge of their benefits Someone to provide advice on their benefits Someone they can trust Someone to show them benefits they might be

missing

Working With Feds Mentality

Gaining trust: Becoming a part of the federal community Doing what you say you’ll do Providing timely information they can use Putting federal employees first

All workers hired after 1/1/2013 would become part of a “new” retirement system where they would contribute more and earn a lower pension at retirementNo supplement for those who retire before age 62High 5 vs High 3Larger contributions into the retirement systemFederal workforce reduced by 10% through attrition - for every 3 employees who retire/separate, only 1 would be replacedHealth benefits would utilize vouchers for government portionExtending pay freeze through 2013, 2014 or 2015 - depending on who you listen to

Pending and Proposed Legislation Affecting Federal Workers

They fear that their pension will be affected as they near retirement

Many lived through furloughs in 1996

They see their benefits as being under attack, reduced from the promises that were made and out of their control

If 3 employees leave and only 1 replaces them - those who stay see themselves with increased workloads

The pendulum is swinging away from supporting the federal worker

Why They’re Worried

Those workers who have met eligibility requirements (707,750 in 2012!) are looking to get out - they’re retiring sooner than they might have under better conditions

Morale is sinking fast

More employees are being offered (and are taking) voluntary “early outs”

If FERS Supplement is eliminated, FERS employees who are eligible may retire in 2012, before it takes effect

What They’re Doing About It

Overview of CSRS Retirement System Created in 1920 to allow federal employees to

receive a lifetime pension based on their years of service

Anyone hired after 12/31/1983 is required to pay into Social Security and is in the FERS system

Three components to CSRS: - Annuity - Voluntary Contribution Program - Thrift Savings Plan

Employees hired prior to 12/31/83

Contribute 7% of pay to Civil Service Retirement System

CSRS

All employees hired after 12/31/83 are required to be covered by Social Security

CSRS employees with break in service of >1 year with at least 5 years of CSRS employment who were rehired after 12/31/83

Contribute 7% of pay which is divided between: CSRS = .80% Social Security = 6.2% (currently 4.2%)

Benefits reduced at age 62 by portion of Social Security earned as federal employee

CSRS Offset

CSRS - Retiring On an Immediate, Unreduced AnnuityAge Years of Service

55 3060 2062 5

Involuntary Early Out With Reduction = 1/6 of 1% for each month employee retires prior to age 55 (2% per year)

Age Years of Service 50 20 Any age 25

Types of CSRS Retirement

Special Provisions – Air traffic controllers, law enforcement and firefighters must retire under specific age and years of service requirements

Early Optional – Agency must be undergoing a major reorganization, reduction-in-force or transfer of function as determined by OPM – must be offered by agency (VSIP, VERA, RIF)

Discontinued Service – Separation must be involuntary and not for misconduct or delinquency

Opportunityto work withfeds who areretiring early

CSRS - Retiring On an Immediate, Unreduced Annuity – Special Provisions

Air traffic controllers, law enforcement and firefighters –Age Years of Service 50 20Any age 25 57 Must retire by age 57 (ATC = 56)

The last day of the month or first 3 days of a new month

End of a pay period

- Accrue sick leave and annual leave for that pay period

Beginning of a new year

- Rollover maximum annual leave

- Receive COLA on payout of annual leave

- Pay taxes in new year

Best Dates to Retire

Calculateemployee’sretirement dateat first appointment

Important Documents Certified Copy of Birth Certificate DD214 – Certifies Military Service SF-50’s – Official Personnel File Social Security Statement Marriage Certificate (if married) Divorce Decree (if divorced) Beneficiary Forms

Last Paycheck – SF 1152Thrift Savings Plan – TSP 3FEGLI – SF 2823Annuity (if single) - SF 2808 (CSRS)

Years of Service Based on Retirement Service Computation Date

High 3 Average Salary

% Formula Based on Years of Service

Components to Calculate Federal Annuity

Retirement Service Computation Date

Based on time between appointment and separation where deductions are withheld. It includes:

Leave without pay (up to six months/calendar year) Part-time service prior to 4/7/1986

- Full credit for eligibility and annuity computation Part-time service on or after 4/7/1986

- Full credit for eligibility – prorated for annuity computation

Intermittent days worked (WAE 260-day year) Military service/Deposits/Re-deposits (SF 2803)

Opportunityto help employeeswho haveunique service history

CSRS - Buying Back Military Time To Add To Your Creditable Service

Form DD214 proves military service

Employee Under CSRS Before 10/1/1982

Make Deposit of 7% ofBasic Pay + Interest = Credit for eligibility and annuity Do Not Make Deposit AND Are Not Eligible for Social Security = Credit for eligibility and annuity Do Not Make Deposit and Are Eligible for Social Security at Age 62 = Credit for eligibility but no credit for annuity after age 62 – Known as “Catch 62”

Employee Under CSRS On/After 10/1/1982 Deposit Required = No deposit – No Credit for eligibility or annuity

Help vetsdeterminewhether theyshould makedeposit formilitary svc.

For Service Prior to 10-1-1982: Deposit Made = 100% for eligibility and annuity

computation Deposit Not Made = 100% for eligibility and

annuity reduced by 10% of deposit due

For Service After 10-1-1982: Deposit Made = 100% for eligibility and annuity

computation Deposit Not Made = 100% for eligibility and NO

credit for annuity computation

Deposits

Does it makesense to makea deposit?

Contributions Not Refunded: 100% for eligibility and annuity computation

Contributions Refunded: Re-deposit made = 100% for eligibility and annuity

computation Re-deposit NOT made and service ended before 10-1-

1990 = 100% for eligibility and annuity actuarially reduced

Re-deposit NOT made and service ended after 9-30-1990 = 100% for eligibility and NO credit for annuity computation

Re-deposits

Does it makesense to makea re-deposit?

Sick Leave

Accrue 4 hours per pay period for sick leave.

CSRS can include sick leave in their creditable service for annuity calculation purposes only.

CANNOT use it to qualify.

1,670 hours=9 months &18 days

Creditable Service Calculation

Year Month Day

Planned Retirement Date ____ _______ ____

Retirement SCD ____ _______ ____

Creditable Service ____ _______ ____

Unused Sick Leave ____ _______ ____

Total Creditable Service ____ _______ ____

2012 12 31

1977 8 15

35 4 16

9 18

2 36

This calculation helps employees determine how much sick leave they have available without reducing their annuity.

4 Days Left Over!

Part-time Service

Any part-time service prior to April 7, 1986 counts 100% toward eligibility and annuity calculation

Any part-time service after April 7, 1986 counts 100% toward eligibility but is prorated for annuity calculation

High 3 Average

Average of your base + locality pay over any 3 consecutive years of creditable service

Does NOT include:

BonusesOvertimeMilitary PayCash AwardsHoliday PayTravel Pay

High-3 Calculation

YearSalary

2008 _____________

2009 _____________

2010 _____________

2011 _____________

2012 _____________

2013 _____________

2014 _____________

2015 _____________

2016 _____________

2017 _____________

76,912

79,21979,219

Last 3 years added togetherDivided by 3

Years of Service X High 3 Average X % Formula = Annual Annuity

1st 5 years = 5 X 1.5% x High 3 = 7.5%

2nd 5 years = 5 X 1.75% x High 3 = 8.75%

Add’l years = # of years X 2% x High 3

At 30 years of service = 56.25% of High 3

Maximum benefit = 41 years / 11 months = 80%

***Sick leave counts toward your Years of Service for annuity computation but CANNOT be counted for eligibility***

Calculating Your CSRS Annuity

Quick Calc:

Number of years/months of service – 2 X 2 + .25 = Calculation %

Calculating Your CSRS Annuity

Annuity Calculation

High-3 Average ________________

Creditable Service % ____________

= Annual Annuity ______________

/ 12 = Monthly Annuity __________

78,450

.685833

$53,803

$4,483

QuickTime™ and a decompressor

are needed to see this picture.

Contribute 7.5% per pay period to retirement system(CSRS Offset – 1.3% to CSRS 6.2% to Social Security)

Years of Service X High 3 Average X % Formula = Annual Annuity

1st 20 years = 20 X 2.5% x High 3 = 50%

Add’l years = # of years X 2% x High 3

At 30 years of service = 70% of High 3

***Sick leave counts toward your Years of Service for annuity computation but CANNOT be counted for eligibility***

Calculating Your CSRS Special Provisions Annuity

Annuity Calculation

High-3 Average ________________




78,450

.801667

$62,890

$5,240

*Based on 35 years as maximum due to age/retirement restrictions

CSRS - Survivor Benefits

Provides 0% - 55% of annuity at a cost of $1- ~10%

Available to: Current spouse Former spouse w/court order Insurable interest Minor children

MUST keep at least minimal survivor benefit to allow spouse to continue health benefits if employee passes away

CSRS Survivor Benefits - Alternatives

Use portion of survivorship cost from annuity to purchase life insurance

Year Age Monthly Monthly Survivor’s Monthly Annual Accum. Annuity Annuity Monthly Difference Diff. Annual

No Surv W/Surv Annuity Diff.

1 63 6,374 5,759 3,506 615 7,380 7,380 5 67 6,992 6,317 3,846 675 8,095 38,668 10 72 7,849 7,092 4,317 757 9,088 82,076 15 77 8,811 7,961 4,847 850 10,202 130,807 20 82 9,892 8,937 5,441 954 11,453 185,513 25 87 11,105 10,033 6,108 1,071 12,857 246,925 28 90 11,903 10,754 6,547 1,148 13,781 287,330

6,333 351 41 492 492

12,368

CSRS Survivor Benefits - Alternatives

$584/month will purchase $387,362 in permanent life insurance with premiums and death benefit guaranteed

Death benefits are paid to beneficiary income-tax freeSurvivor benefit cost is pre-tax from annuity - paid with after-tax dollars for life insurance option

If spouse passes away first – death benefit can be assigned to someone else

Total cost in 20 years is $185,513 vs. $140,160

CSRS - Survivor BenefitsEmployee Death Prior to Retirement

Current spouse gets 55% of earned annuity Former spouse w/court order Minor children: Under age 18 (or 22 if attending school) Any age if disabled before age 18

$469/mo per child up to $1,409/mo (surviving parent) $563/mo per child up to $1,619/mo (no surviving parent)

Annual Leave

Employee Type Less than 3 years of service*

3 years but less than 15 years of service*

15 or more years of service*

Full-time employees ½ day (4 hours) for each pay period

3/4 day (6 hours) for each pay period, except 1¼ day (10 hours) in last pay period

1 day (8 hours) for each pay period

Part-time employees** 1 hour of annual leave for each 20 hours in a pay status

1 hour of annual leave for each 13 hours in a pay status

1 hour of annual leave for each 10 hours in a pay status

Can carryover up to 240 hours of unused leave per year Paid out as lump sum for any unused hours at retirement

May earn up to 80% of fed pay in private sector job Health and life insurance continue if previously insured

for 5 years Must have at least 5 years creditable service to apply Employee (or agency, guardian, or interested person if

incapacitated) must apply for benefits

Disability RetirementNo longer able to perform in your position and not qualified for any other position in same location at same grade/pay

Guaranteed the lesser of:

Annuity based on High-3 average salary and creditable service as of retirement date + years to age 60 OR

40% of High-3 average salary

OR

Actual earned annuity, if >22 years of service

Disability Retirement

Benefits are calculated as follows -

CSRS - Retiring On a Deferred Annuity With at Least 5 Years of Service:

Eligible at age 62 to receive an annuity based on regular calculation.

Cost of Living Adjustments

% Increase of Consumer Price Index for Urban Wage Earners and Clerical Workers

Effective December 1/appears on January 1 annuity payment

Prorated if you retire in middle of year

2009 COLA 5.8% - Highest since 1982

2010 & 2011 COLA = ZERO 2012 COLA = 3.6%

Prior to retirement based on amount approved in legislation by Congress each year. After retirement:

Thrift Savings Plan

2012 Contribution Limits –

$17,000 – under age 50

+$ 5,500 – catch-up contributions age 50 or better

$22,500 TOTAL 2012

No Government Match

A Short History of the TSP

Implemented in January 1988

S and I Funds added in May 2001

Everyone could participate up to IRS limits in 2005

Largest defined contribution plan in the US with $315 Billion in assets and ~4.7 million participants

1988 - 1999 C fund average annual return was 19.4%

2001 - 2010 C fund average annual return was 1.4%

Thrift Savings Plan

Average Plan Value: $68,000 – although many have more – a LOT

more

Number of TSP Accounts >$500,000: 10,000

Number of Millionaire TSP Accounts: 75

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What’s New With TSP

Four provisions in Tobacco Act of 2009 affected TSP:

• Creation of Roth TSP

Automatic enrollment for new federal employees

New survivorship options • Option to create mutual fund choices for investment

Re-designed website is UP!

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Coming Attractions

Four provisions in 2009 Tobacco Act affected TSP:

Creation of Roth TSP (Expected April 2012) Automatic enrollment for new federal employees 3% New survivorship options (spouse can leave in TSP) Option to create mutual fund choices for investment

Accessing Their TSP Account

They will need:

13-digit Account Number Issued by TSP

PIN Number Issued by TSP

User ID may be customized by logging on to TSP website:

Can change both your sign-on and your password

Thrift Savings Plan

G Fund – Offers the opportunity to earn rates of interest similar to those of long-term Government securities but without any risk of

loss of principal and very little volatility of earnings. The G Fund is invested in short-term U.S. Treasury securities

specially issued to the TSP. Payment of principal and interest is guaranteed by the U.S. Government. Thus, there is no “credit risk.”

The interest rate resets monthly and is based on the weighted average yield of all outstanding Treasury notes and bonds with

4 or more years to maturity. Earnings consist entirely of interest income on the securities. Interest on G Fund securities has, over time, outpaced inflation and

90-day T-bills.

Thrift Savings PlanF Fund – Offers the opportunity to earn rates of return that exceed those of

money market funds over the long term with relatively low risk. The objective of the F Fund is to match the performance of the

Barclays Capital U.S. Aggregate Index, a broad index representing the U.S. bond market.

The risk of nonpayment of interest or principal (credit risk) is relatively low because the fund includes only investment-grade securities and is broadly diversified. However, the F Fund has market risk (the risk that the value of the underlying securities will decline) and prepayment risk (the risk that the security will be repaid before it matures).

Earnings consist of interest income on the securities and gains (or losses) in the value of securities.

TSP

Thrift Savings Plan

C Fund – Offers the opportunity to earn a potentially high investment return over the long term from a broadly diversified portfolio of

stocks of large and medium-sized U.S. companies. The objective of the C Fund is to match the performance of the

Standard and Poor’s 500 (S&P 500) Index, a broad market index made up of stocks of 500 large to medium-sized U.S. companies.

There is a risk of loss if the S&P 500 Index declines in response to changes in overall economic conditions (market risk).

Earnings consist of gains (or losses) in the prices of stocks, and dividend income.

Thrift Savings Plan

S Fund – Offers the opportunity to earn a potentially high investment return

over the long term by investing in the stocks of small and medium-sized U.S. companies.

The objective of the S Fund is to match the performance of the Dow Jones Wilshire 4500 Completion (DJW 4500) Index, a broad market index made up of stocks of U.S. companies not included in the S&P 500 Index.

There is a risk of loss if the DJW 4500 Index declines in response to changes in overall economic conditions (market risk).

Earnings consist of gains (or losses) in the prices of stocks, and dividend income.

TSP

Thrift Savings Plan

I Fund – Offers the opportunity to earn a potentially high investment return

over the long term by investing in the stocks of companies in developed countries outside the United States.

The objective of the I Fund is to match the performance of the Morgan Stanley Capital International EAFE (Europe, Australasia, Far East) Index.

There is a risk of loss if the EAFE Index declines in response to changes in overall economic conditions (market risk) or in response to increases in the value of the U.S. dollar (currency risk).

Earnings consist of gains (or losses) in the prices of stocks, currency changes relative to the U.S. dollar, and dividend income.

TSP

Thrift Savings Plan - FundsLifecycle Funds - The L Funds provide you with a convenient way to

diversify your account among the G, F, C, S, and I Funds, using professionally determined investment mixes that are tailored to different time horizons. Your “time horizon” is the date (after you leave Federal service) that you think you will need the money in your TSP account.

The five L Funds were designed for the TSP by Mercer Investment Consulting, Inc. The asset allocations are based on Mercer’s assumptions regarding future investment returns, inflation, economic growth, and interest rates. The L Funds are rebalanced to their target allocations each business day. When a fund reaches its horizon, it will roll into the L Income Fund, and a new fund will be added with a more distant time horizon Putting your entire TSP account into one of the L Funds allows you to achieve the best expected return for the amount of expected risk that is appropriate for your time horizon.

L2040 L2020L2030L2050 L Income

G Fund – 74%F Fund - 6%C Fund - 12%S Fund - 3%I Fund - 5%

G Fund – 3.5%F Fund - 7.0%C Fund - 43.8%S Fund - 18.9%I Fund - 26.8%




Allocations as of January 2012

http://www.tsp.gov/lifecycle/flash/index2040.html




http://www.tsp.gov/lifecycle/flash/indexincome.html

The Problem The majority of funds are sitting in the G Fund

earning low returns

TSP Allocations as of 10/31/11

G fund: 47% F fund: 7% C fund: 23% S fund: 8% I fund: 6% L funds: 9%

How do federal employees respond?

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Source: Federal Retirement Thrift Investment Board Memorandum, February 9, 2010, “Update on Participant Investment Behavior during the 2008 Financial Crisis”

L T C

FERS younger participants lean toward Lifecycle allocations

• Income fund: 14%

• 2020 fund: 38%

• 2030 fund: 28%

• 2040 fund: 20%

Only 5% of FERS participants have their entire account balance invested in one lifecycle fund!

Thrift Savings Plan - Where Are The Funds

The Problem The majority of funds are sitting in the G Fund

earning low returns Typically conservative feds have a major fear of investing in

stocks Feds often make allocation changes based on advice from

co-workers, friends or other “non-experts” May feds simply ignore their statements out of fear Some younger feds see this market as a great

opportunity and are investing a majority of their accounts in the most aggressive funds

Feds don’t know where to turn and are misguided, misdirected and in need of professional advice!

Year G Fund F Fund C Fund S Fund I Fund

2001 5.39 8.61 -11.94 -9.04 -21.94

2002 5.00 10.27 -22.05 -18.14 -15.98

2003 4.11 4.11 28.54 42.92 37.94

2004 4.30 4.30 10.82 18.03 20.00

2005 4.49 2.40 4.96 10.45 13.63

2006 4.93 4.40 15.79 15.30 26.32

2007 4.87 7.09 5.54 5.49 11.43

2008 3.75 5.45 -36.99 -38.32 -42.43

2009 2.97 5.99 26.68 34.85 30.04

2010 2.81 6.71 15.06 29.06 7.94

10-Year Avg Return

4.26 5.91 1.42 7.14 4.43

10-Year Summary of TSP Individual Funds Annual Returns

Source: www.tsp.gov

The returns shown reflect the actual performance of the S and I Funds for May 2001 and subsequent months. The 10-year returns for the S and I Funds are inception to date.

Allocation Restrictions

Allowed 2 Interfund Transfers per Month

Can Move Funds into the G Fund in Addition to the Interfund Transfers

Resources

Periodic Updates from TSP Go to www.tsp.gov and Click on “Get e-mail updates” Click on the icon to subscribe and you’ll receive automatic updates by e-mail from TSP

MyTSPVision.com Website developedby LSA to offer federal employees an opportunity for active money management oversight

http://www.tsp.gov/

New on 2010 Statement -Projection of monthly incomeas if you wereage 62

Thrift Savings Plan - Fees

Fees = .022% (through October 2011)

Use low-cost index funds

Keep it simple – only five funds available

Huge economies of scale – competitive procurement

Use commingled trust funds instead of individual accounts

- Only invest one amount per fund each day

- Individual accounts are maintained in TSP

TSP

TSP Loans Two Types of TSP Loans – May have one of each

General – 1-5 years to repay – No documentationResidential – 1-15 years to repay – Documentation

Apply Online or Paper Application (TSP-20) Current Interest Rate – 1.5% Amounts You Can Borrow

Must borrow at least $1,00050% of current vested balance up to $50,000

After Repaying Loan Must Wait 60 Days to Borrow Again

TSP LoansRisks – Loan payments may cause you to contribute less to

your TSP If your TSP earns a higher return than the loan interest

rate, there will be less in TSP Residential loans are not considered mortgages and

interest is not deductible on tax return Your loan is paid back with after-tax dollars

Creating Income From Your TSP in Retirement

Can access TSP without 10% excise penalty as long as age 55 or better at retirement using Form TSP-75

Two Chances to Take Distributions at Retirement -

Partial withdrawal using Form TSP-77 Full withdrawal using Form TSP-70

ORCreate an immediate annuity through TSP (Met Life) Current Rate = 2.15%

TSP Immediate Annuity

The Situation: $300,000 TSP Balance TSP participant and spouse age 65 Choose Joint Life with Spouse Level Payments 100% survivor annuity

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TSP Annuity

Monthly payment of $1,319

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Sequential Income Planning

Creating Income From Your TSP in Retirement

Comparing monthly income from $300,0000 TSP:

Met Life Annuity Split Income Strategy

Joint life: $1,319 – no COLAs $1,457 with COLAs/5 years and access to

funds

Voluntary Contribution Program

CSRS and CSRS Offset

Contribute up to 10% of base pay on ALL earnings

Cannot owe a deposit or re-deposit

Cannot have been in the program in the past and withdrawn

2012 interest rate = 2.25%

Interest accrues tax deferred

Contributions must be in $25 increments

All contributions (and interest, if desired) can be rolled to aROTH IRA AT RETIREMENT!

Use Form SF2804 to apply for a VCP account number

Become eligible by earning 40 “credits”

Receive full benefits based on year you were born

Social Security Benefits

Birth Year Full Benefits Birth Year Full Benefits

1937 65 1943-1954 66

1938 65 + 2 mos 1955 66 + 2 mos

1939 65 + 4 mos 1956 66 + 4 mos

1940 65 + 6 mos 1957 66 + 6 mos

1941 65 + 8 mos 1958 66 + 8 mos

1942 65 + 10 mos 1959 66 + 10 mos

1960 + 67

Social Security/Medicare Updates

• Social Security and Medicare represent 8.4% of annual nation’s economy - expected to increase to 11.8% by 2035

• 2036 - Year Social Security is set to run out of trust funds - now one year sooner than last year’s projection

• 77% - amount of benefits Social Security will be able to pay without changes - down 1% from last year

• 2018 - Year Social Security disability is set to run out

• 14.62% - Amount payroll tax would need to increase to (from 12.4% currently) to fully fund future needs

Social Security/Medicare Updates

• Medicare Part A has funds to pay full benefits through 2024 - 5 years less than last year’s projections

• Social Security needs an additional $6.5 trillion over the next 75 years to pay all promised benefits

Benefits are based on Average Indexed Monthly Earnings “AIME”

Formula for calculating your benefits:

90% of first $767 AIME Plus

32% of AIME from $767-$4,624 Plus

15% of AIME over $4,624

Earnings limit before full retirement age = $14,640*(For every $2 over you give back $1)

Year of full retirement age = $38,880*(For every $3 over you give back $1)


* 2012Limits

The Windfall Elimination Provision was enacted in 1986 to cause people eligible for both a pension based on non-covered employment (e.g., CSRS, CSRS Offset and FERS Transferees employees) and Social Security to have their Social Security calculated using a different formula.

The main exclusion is for workers with more than 30 years of substantial earnings under Social Security.

Social Security Benefits and Your CSRS Annuity

Substantial Earnings Years Replacement Factor30 years 90%29 years 85%28 years 80%27 years 75%26 years 70%25 years 65%24 years 60%23 years 55%22 years 50%21 years 45%20 years 40%

Windfall Elimination Provision

If you can’t have your own Social Security benefit – can you get your spouse’s?

To determine eligibility, subtract 2/3 of government pension from spouse’s Social Security benefit. If the answer is greater than zero, you are eligible for that benefit.

Government Pension Offset

Spouse’s Social Security Benefit $1,340

Your Federal Annuity Benefit ($3,000)x .66% ($1,980)

($ 640)

You are eligible for…………. 0

Government Pension Offset

Health Insurance - FEHB

While employed, premiums are paid using premium conversion provision – paid with pre-tax dollars. Retirees cannot participate in premium conversion.

FEHB continues into retirement if you :

- Were insured on your retirement date

- Retired on an immediate annuity

- Were enrolled or covered as a family member for the 5 years immediately preceding retirement or since first opportunity to enroll

Health Insurance - FEHBOpen Season each year is in November

Pre-existing conditions are covered

Enroll in, change or cancel an existing enrollment in a health plan under the FEHB Program.

Enroll in, change, or cancel an existing enrollment in a dental plan.

Enroll in, change, or cancel an existing enrollment in a vision plan.

Enroll in a flexible spending account (health care or dependent care). You must re-enroll each year.

Health Insurance - FEHB

Various regional plans6 Fee-for-service national plans:

APWU Health Plan Blue Cross/Blue Shield Service Benefit Plan GEHA Benefit Plan Mail Handlers Benefit Plan NALC SAMBAhttp://www.opm.gov/insure/health/index.asp

Average FEHB premium increased 3.2% this year

http://www.opm.gov/insure/health/index.asp

MedicarePart A – Hospitalization

Deductible - $1,156 Pay 1.45% of pay while workingFree at age 65

Part B – Medical ExpensesDeductible $140.00 +20% after deductiblePay $99.90/month to $319.70 based on your income

Part C – Medicare Advantage

Part D – Prescription Drug PlanPart B – Medical Expenses

Every fed has questions abouthow Medicare will affect theirFEHB inretirement.

Medicare

Enrollment:

Age 65 – Part A - within 7-month window of birthdatePart B – within 7-month window of birthdate if retired otherwise within 8 months after retirement

General enrollment is from January 1 to March 31 each year. Penalty for not enrolling “on time” is 10% for each 12 months late.

Medicare

Do I need Part B?Pros: Broader access out of network, lower copays. Use

Medicare if you ever decide to go outside of your HMO network.

Cons: Costly—~$1,200 a year/person. Blue Cross Standard and Medicare premiums for couple = $7,560 before you spend a dime on medical care.

Medicare becomes the primary payor, and your physician may not accept Medicare.

Also, ―”Means Testing” with Medicare Part B and $85,000 adjusted gross income (single) or $170,000 (couple) a problem for higher income retirees.

Flexible Savings Account - FSA

You can set aside up to $5,000/year in pre-tax dollars to pay for medical costs, deductibles, co-pays, etc.

You can set aside up to $5,000/year in pre-tax dollars to pay for dependent care including elder care

Must use it or lose it by March 15 of the following year

Enroll during FEHB open season – employees only

www.fsafeds.com

This is reducedto $2,500/yearbeginning in2013.

http://www.fsafeds.com/

FEDVIP – Dental and Vision ProgramAvailable to current and retired federal and postal

workers and eligible family members

Purchased on a group basis but employee pays entire premium

Pre-existing conditions are included in coverage

Premiums are paid on a pre-tax basis

You can enroll in either or both during FEHB Open Season

Do not have to be in FEHB to enroll (but must be eligible) www.fedvip.com

http://www.fedvip.com/

FEGLIBasic coverage – Current salary rounded to the

nearest thousand + $2,000Costs .15/thousand = employee shareFederal government picks up 1/3 of premium

Option A - $10,000Must have Basic coverage to participateCosts increase from $.30 - $6.00 from age 35 to age 60

Option B – Current salary rounded to the nearest thousand in multiples from 1-5Must have Basic coverage to participate Costs increase dramatically at age 55 and beyond

FEGLI

Age BandPremium/

$1000/Month

For persons ages 35 and under $0.043

For persons ages 35 through 39 $0.065









For persons ages 80 & Over $5.20

FEGLI

Option C– For spouse and minor childrenSpouse = $5,000 in multiples of 1-5Children - = $2,500 in multiples of 1-5Children covered until age 22 unless disabled

Costs increase from $.22 to $2.70 from age 35 to age 60

In retirement – you choose how much of the benefits to keep.

FEGLIAt retirement, most federal employees choose to

keep their Basic coverage with a 75% reduction and eliminate their other coverages. This reduces or eliminates the cost at age 65.

To compare coverage and premiums:

www.opm.gov/calculator/worksheet.asp

Recommended strategy:Replace FEGLI Option B with term, return-of-

premium, or permanent insurance

http://www.opm.gov/calculator/worksheet.asp

Original coverage was established in 2002 as a partnership between John Hancock and MetLife – managed by LTC Partners

John Hancock awarded next 7-year contract beginning October 1, 2009 – still managed by LTC Partners

FLTCIP 2.0

Long-term Care Insurance

Four choices in creating your coverage: How much? $100 - $500/day How long? 2 years, 3 years, 5 years or lifetime Inflation? 4% compound, 5% compound or future

purchase Deductible? 90 days

Benefit AmountBenefit PeriodElimination PeriodInflation Protection

Creating a Plan That Fits Your Needs

Benefit Amount – Federal Plan

Amount you want insurance to cover once youbegin needing care.

Choose: Daily benefit

New plan allows: $100 - $500 per day ($50 increments)

Covers care at home, in assisted living, adult day care, or in a nursing facility

Benefit Amount – Private Insurance

Amount you want insurance to cover once youbegin needing care.

Choose: Monthly benefit

Private plan allows: $100 - $500 per day ($10 increments) $3,000 - $15,000 per month ($300 incr)

Covers care at home, in assisted living, adult day care, or in a nursing facility

Benefit Period – Federal Plan

How long you want insurance to cover once you qualify for and begin receiving care

Choose: 2 year, 3 year, 5 year or lifetime

Benefit Period – Private Insurance

How long you want insurance to cover once you qualify for and begin receiving care

Choose: 1, 2, 3, 4, 5, 6, 8, 10 years or lifetime

Can also share benefits with a spouse or live-in partner through a shared or family rider

Benefit Period

Also determines maximum lifetime coverage

Daily benefit X # of days in benefit period = maximum lifetime coverage

$100/day X 1095 = $109,500

Elimination Period – Federal Plan

Acts like a deductible

Choose: 90 calendar days (only option)

Elimination Period – Private Insurance

Acts like a deductible

Choose: 30, 90, 180 days or 1 year (may be calendar or service days)

Can also choose 0-day elimination period for home health care as rider

Protects daily benefit from escalating costs

Choose: 4% compound, 5% compound and Future Purchase Option

Inflation Protection – Federal Plan

Protects daily benefit from escalating costs

Choose: 4% or 5% compound, CPI, 5% simple and future purchase option

Inflation Protection – Private Insurance

Private LTC Coverage

For married couples or partners living in the same residence, shared coverage is available.

Discounts are available for: - Good health - Being married (or part of a couple) - Belonging to associations (like AAA) - Paying annually

For a couple in reasonably good health, private coverage can provide richer benefits and cost less.

Long-term Care Insurance All tax-qualified plans: Pay non-taxable benefits directly to claimant Start payments when you cannot perform 2 out of 6

activities of daily living (certified by your physician) or cognitive impairment

Provide for the deductibility of premium payments under certain conditions

To calculate premiums or apply for coverage:www.ltcfeds.com

http://www.ltcfeds.com/

Taxes

At retirement, employee will complete a new W-4 for withholding from federal annuity

They will need to get the state form for withholding – not included in OPM package

In certain states, federal annuities are exempt from state tax up to certain limits

Unused annual leave is paid in a lump sum and taxed at the higher lump sum rates

Taxes

Retirement income subject to income taxes:

Federal annuity (~90%)

Taxes

Retirement income subject to income taxes:

Federal annuity (~90%) Social Security (up to 85% depending on income) Thrift Savings Plan (taxed as ordinary income)

Things To Do Within 3 Years of CSRS Retirement

At the pre-retirement stage, it's time for a reality check. Now is the time to check savings goals, retirement income and the benefits of working a few more years.Here are some things to do at this stage:

• Use the online calculator to check the amount of your pension.

• Request a retirement estimate from your human resources office. If possible, get two estimates for different potential dates, so you can see the effect of working longer. The estimate also will include a review of your official personnel records to make sure all of your service is properly documented and that it is all creditable for retirement eligibility and computation of your benefit

• Consider when to apply for Social Security, if applicable.

• Using the TSP’s calculator, estimate how much income your savings will provide. You may determine not to go with the TSP annuity option, but you’ll have an estimate of what your TSP funds can provide in terms of income.

• Reevaluate your life insurance needs. You will be able to maintain some or all of your FEGLI in retirement if you have carried that coverage for the last five years of your career and will be retiring on an immediate CSRS or FERS annuity. But you probably don't need the same coverage as you did 10 or 20 years ago. Consider dropping some life insurance and using the extra money to purchase long-term care insurance.

FERSRetirement System

Overview of FERS Retirement System Implemented beginning 1/1/87 to allow federal

employees to receive a lifetime pension based on their years of service

Anyone hired after 12/31/1983 is required to pay into Social Security and is in the FERS system

Three components to FERS: - Annuity - Thrift Savings Plan - Social Security

Employees hired after to 1/1/84 who did not have at least 5 years of service at 1/1/87

Contribute 7% of pay to: 6.2% to Social Security (currently 4.2%) .8% to FERS

FERS and FERS Transferee

FERS Transferee –

Employees hired before 1/1/84 Employees with at least 5 years of CSRS employment

who opted to go to FERS in 1987, 1988, or 1998

Rehired with at least 5 years of service under CSRS or CSRS Offset and chose to go to FERS Social Security benefits may be reduced for portion of annuity based on CSRS years

FERS and FERS Transferees

Years of Service Based on Retirement Service Computation Date

High 3 Average Salary

% Formula Based on Years of Service

Components to Calculate Federal Annuity

FERS - Retiring On an Immediate, Unreduced AnnuityAge Years of Service MRA* 30

60 2062 5

Voluntary Early Out With Reduction Age Years of Service MRA at least 10 years If you retire at the MRA with at least 10 but less than 30 years of service, your benefit will be reduced at the rate of 5/12ths of 1% for each month you are under age 62 (5% for each year) unless you have 20 years of service and your annuity begins at age 60 or later.Involuntary Early Out Without Reduction Age Years of Service 50 20 Any age 25 MRA = Minimum Retirement Age

FERS - Minimum Retirement AgeIf you were born Your FERS MRA is:

before 1948 55 in 1948 55 and 2 months in 1949 55 and 4 months in 1950 55 and 6 months in 1951 55 and 8 months in 1952 55 and 10 months in 1953 – 1964 56 in 1965 56 and 2 months in 1966 56 and 4 months in 1967 56 and 6 months in 1968 56 and 8 months in 1969 56 and 10 months 1970 or after 57

Types of FERS Retirement

Special Provisions – Air traffic controllers, law enforcement and firefighters must retire under specific age and years of service requirements

Early Optional – Agency must be undergoing a major reorganization, reduction-in-force or transfer of function as determined by OPM – must be offered by agency

Discontinued Service – Separation must be involuntary and not for misconduct or delinquency

FERS - Retiring On an Immediate, Unreduced Annuity – Special Provisions

Air traffic controllers, law enforcement and firefighters – Age Years of Service

50 20 Any age 25

57 Must retire by age 57 (ATC = 56)

Involuntary Early Out With Reduction = 1/6 of 1% for each month employee retires prior to age 55 (2% per year)

Age Years of Service 50 20 Any age 25

Best Dates to Retire The last day of the month End of a pay period

- Accrue annual and sick leave for that pay period Last day of the year

- Rollover maximum annual leave

- Receive COLA on payout of annual leave

- Pay taxes in new year

Retirement Service Computation DateBased on time between appointment and separation

where deductions are withheld. It includes: Leave without pay (up to six months/calendar year) Part-time service prior to 4/7/1986

- Full credit for eligibility and annuity computation Part-time service on or after 4/7/1986

- Full credit for eligibility – prorated for annuity computation

Intermittent days worked (WAE 260-day year) Military service/Deposits/Re-deposits (SF 2803)

FERS - Buying Back Military Time To Add To Your Creditable Service

Employee Must Waive Active Military Retirement Pay

Make Deposit of 3% ofBasic Pay + Interest = Credit for eligibility and annuity

Do Not Make Deposit = No credit for eligibility or annuity

Deposits

Prior to 1-1-1989:

Deposit Made = 100% for eligibility and annuity computation

Deposit Not Made = NO credit for eligibility or annuity computation

After 1-1-1989:

NO credit = Deposit is not allowed

Re-deposits

Contributions Not Refunded:

100% for eligibility and annuity computation

Contributions Refunded:

Must repay refund + interest to count for eligibility and annuity computation

Sick LeaveAccrue 4 hour per pay period for sick leave.

FERS can include 50% of their sick leave in their creditable service for annuity calculation purposes only if they retire prior to 1/1/2014.

FERS can include 100% of their sick leave in their creditable service for annuity calculation purposes only if they retire after 1/1/2014.

Same forFERS andCSRS

Creditable Service Calculation

Year Month Day

Planned Retirement Date ____ _______ ____

Retirement SCD ____ _______ ____

Creditable Service ____ _______ ____

Unused Sick Leave ____ ______ ____

Total Creditable Service ____ _______ ____

2012 12 31

1985 8 14

27 4 17

3 13

8 27

Part-time Service

Any part-time service prior to April 7, 1986 counts 100% toward eligibility and annuity calculation

Any part-time service after April 7, 1986 counts 100% toward eligibility but is prorated for annuity calculation

High 3 Average

Average of your base + locality pay over any 3 consecutive years of creditable service

Does NOT include:

BonusesOvertimeMilitary PayCash AwardsHoliday PayTravel Pay

High-3 Calculation

YearSalary

2008 _____________

2009 _____________

2010 _____________

2011 _____________

2012 _____________

2013 _____________

2014 _____________

2015 _____________

2016 _____________

2017 _____________

74,02576,912

79,21979,219

1% X Years of Service X High 3 Average = Annual Annuity

At age 62+ with at least 20 years of service =

1.1% X Years of Service X High 3 Average = Annual Annuity

Calculating Your FERS Annuity

Annuity Calculation

High-3 Average ________________




78,450

.276666

21,704

$1,808

FERS - Survivor Benefits

Provides 25% or 50% of annuity at a cost of 5% or 10%

Available to: Current spouse Former spouse Insurable interest Minor children

MUST keep at least minimal survivor benefit to allow spouse to continue health benefits if employee passes away

FERS - Survivor Benefitswhat happens if you die before you have a chance to retire?

With at least 18 months of creditable service – survivor receives: * Lump sum benefit of $29,722.95 (adjusted annually for inflation) PLUS * Half of the greater of your average high-3 or your current salaryAdditionally, with at least 10 years of creditable service: * 50% of your annuity calculated as of the date of your deathSocial Security and other survivor benefits are not affected by the lump sum payments.

IF you do not want to take the penalty associated with a Voluntary Early Out – you may defer your retirement to age 62 and then take the unreduced amount.

IF you have at least 20 years of creditable service, you may defer your retirement to age 60 and take the unreduced amount.

You must “suspend” your health benefits if you defer in order to pick them back up when you begin receiving retirement benefits.

Deferred Retirement


May earn up to 80% of fed pay in private sector job

Health and life insurance continue if previously insured for 5 years

Must have at least 18 months creditable service to apply

Employee (or agency, guardian, or interested person if incapacitated) must apply for benefits

Must apply for Social Security disability benefits

No longer able to perform in your position and not qualified for any other position in same location at same grade/pay


1st Year – 60% of High-3 average salary less any benefits received from Social Security

2nd Year – 40% of High-3 average less 60% of any benefits received from Social Security

Benefit recomputed at age 62 with credit for years between disability retirement and age 62

Benefits are calculated as follows:

Cost of Living Adjustments

% Increase of CPI as follows:0%-2% Actual CPI % Increase2%-3% 2%Over 3% CPI increase less 1%

Effective December 1/appears on January 1 annuity payment

Prorated if you retire in middle of year

Do NOT receive COLA until age 62

2009 COLA 4.8% 2010/2011 COLA – Zero 2012 COLA – 2.6%

Prior to retirement based on amount approved in legislation by Congress each year. After retirement:

Thrift Savings Plan2012 Contribution Limits –

$17,000 – under age 50

+$ 5,500 – catch-up contributions age 50 or better

$22,500 TOTAL 2010

5% Match – FERS and FERS Transferees

Tips for Maximizing Your TSP

Don’t contribute too much too soon each year if you are under FERS

Develop a strategy/plan for monitoring your funds What’s the overall state of the economy What are you willing to risk How does your current allocation fit your retirement plan If you have had a loss, what’s your recovery plan

3 Components of FERS Retirement

- FERS annuity

- TSP

- Social Security

Because Social Security is not available until age 62a Supplement is available for those who retire at theirMRA with 30 years or age 60 with 20 years of service

FERS Supplement and Social Security

Supplement is calculated based on:

Years of FERS Service Social Security Benefit 40 X at age 62

Subject to Social Security earnings test for wages - $14,640

FERS Supplement and Social Security

Become eligible by earning 40 “credits”

Receive full benefits based on year you were born


Birth Year Full Benefits Birth Year Full Benefits

1937 65 1943-1954 66

1938 65 + 2 mos 1955 66 + 2 mos

1939 65 + 4 mos 1956 66 + 4 mos

1940 65 + 6 mos 1957 66 + 6 mos

1941 65 + 8 mos 1958 66 + 8 mos

1942 65 + 10 mos 1959 66 + 10 mos

1960 + 67

Benefits are based on Average Indexed Monthly Earnings “AIME”

Formula for calculating your benefits:

90% of first $767 AIME Plus

32% of AIME from $767 - $4,624 Plus

15% of AIME over $4,624

Earnings limit before full retirement age = $14,640*(For every $2 over you give back $1)

Year of full retirement age = $38,880*(For every $3 over you give back $1)


* 2012 Limits

Other members of your family may receive benefits based on your work history:

Spouse: 50% of yours or 100% of their own (whichever is higher)

Child (up to age 18): 50%

Former spouse:

- Married at least 10 years

- Age 62


Your survivors may also be eligible to receive benefits on your work history:

Spouse you’ve been married to for at least 9 months who is age 60 or older

Child under age 18 (19 if still in school) or any age if disabled before age 18

Former spouse you were married to for at least 10 years


By delaying taking Social Security until your full retirement age, you can increase your benefits by 20% - 30%. You’ll get an additional 20% for waiting until age 70.


The Windfall Elimination Provision was enacted in 1986 to cause people eligible for both a pension based on non-covered employment (e.g., CSRS, CSRS Offset and FERS Transferees) and Social Security to have their Social Security calculated using a different formula.

The main exclusion is for workers with more than 30 years of substantial earnings under Social Security.

Social Security Benefits and Your Federal Annuity

Substantial Earnings Years Replacement Factor30 years 90%29 years 85%28 years 80%27 years 75%26 years 70%25 years 65%24 years 60%23 years 55%22 years 50%21 years 45%20 years 40%

Windfall Elimination Provision

Health Insurance - FEHBWhile employed, premiums are paid using premium

conversion provision – pre-tax dollars. Retirees cannot participate in premium conversion.

FEHB continues into retirement if you :

- Insured on retirement date

- Retire on an immediate annuityIf retirement is deferred – FEHB must be “suspended”

- Were enrolled for the 5 years immediately preceding retirement or since first opportunity to enrollSpouse can receive coverage w/out 5 years w/qualifying event

FEGLIBasic coverage – Current salary rounded to the

nearest thousand + $2,000Costs .15/thousand = employee shareFederal government picks up 1/3 of premium

Option A - $10,000Must have Basic coverage to participateCosts increase from $.30 - $.60 from age 35 to age 60

Option B – Current salary rounded to the nearest thousand in multiples from 1-5Must have Basic coverage to participate Costs increase dramatically at age 55 and beyond

FEGLI

Option C– For spouse and minor childrenSpouse = $5,000 in multiples of 1-5Children - = $2,500 in multiples of 1-5Children covered until age 22 unless disabled

Costs increase from $.22 to $2.70 from age 35 to age 60In retirement – you choose how much of the benefits to keep

– 100%/75%/50%.

FEGLIAt retirement, most federal employees choose to

keep their Basic coverage with a 75% reduction and eliminate their other coverages. This reduces or eliminates the cost at age 65.

Recommended strategy:Replace FEGLI Option B with term, return-of-

premium, or permanent insurance