|
|
|
Theresa Carr: Introduction
Hello, I'm Theresa Carr. Welcome to the fourth in a series of satellite broadcasts offered by the Office of Personnel Management that focuses on the FERS open season. We're glad you've joined us.
Today, we are coming to you from the studios in the Department of Housing and Urban Development. We thank HUD for their willingness to offer their studios so that we can provide this information about the open season to employees throughout the Federal government.
We are one month into the open season during which approximately 1.2 million Federal workers have an opportunity to transfer into the Federal Employees Retirement System, or FERS. As one of those 1.2 million workers, we congratulate you for watching.
CSRS or FERS? It's an extremely important decision, and a personal one. That's why to determine if FERS or CSRS is best for you, you need to first think about yourself. That is, the factors in your own personal profile. Factors such as your age. Are you near your retirement or at the middle of your career? Your government service. Your length of time in service affects at least some benefits in both plans. The probability of Federal retirement. Will you be staying with the government until you retire, or do your career plans include some private sector employment? Social Security. Did you acquire any Social Security credit before you went to work for the Federal government? Or are you planning to get Social Security credit by working in the private sector after you leave the government? Post retirement employment plans. Will you be taking another job or starting a new career after you retire from the government? Marital status. Are you married? Does this affect other factors such as your ability to save, your plans to retire, or total family retirement benefits? Ability to save. If you are considering FERS, your ability to contribute to the Thrift Savings Plan is a big consideration.
If the idea of making a decision still sounds a little confusing, well, you're not alone. Over the last few months, we have received a tremendous amount of correspondence and phone calls, and have personally talked to hundreds of employees during open season briefings. From this, we were able to identify some common characteristics shared by many of you in the workforce. We have developed several profiles that represent the situations we encountered. As you watch these profiles, remember to look for similarities between these employees and the factors in your own personal profiles. This will help you look at both FERS and CSRS as they apply to your own personal situation.
As we review the profiles, three benefits counselors will highlight key factors that employees in the profiles should consider in making their decision. Later, we will talk with experts from the Office of Personnel Management, the Social Security Administration, and the Federal Retirement Thrift Investment Board. They will answer some common questions about the open season and answer some of your questions, as well.
We encourage you to phone or fax your questions. We're showing the phone and fax numbers you should use to contact us during the question and answer segment. To call in a question, dial (202)-708- 6073. To fax in a question, dial (202) 708-0996. We'll repeat those numbers during the show. Now, before we begin, just a reminder that this is a government production - and isn't copyrighted - so it's yours to duplicate for use in training, retransmission, or other use. So, feel free to turn on those VCRs.
To start our program, Ed Flynn, the Associate Director for the Retirement and Insurance Service in OPM, and Sam E. Hutchinson, Acting Director, for the Office of Human Resources in HUD, have a few remarks to set the stage.
Ed Flynn: script not available
Theresa: Thank you Ed. We'd like to give you a brief update before we move on.
First, if you haven't visited our FERS Election Opportunities web page yet, we encourage you to take a look at it. It's an easy-to-use, complete reference for employees, like you, who are trying to decide if they should transfer to FERS.
The address of the web page is http://www.opm.gov/fers_election/.
At the site, you'll find the FERS Transfer Handbook, a Quick Decision guide that discusses some major considerations employees may have in making their transfer decision, the FERS Election form, and a section that contains answers to frequently asked questions. You can also download the FERS Transfer Model so you can do your own benefits projections to compare total benefits under CSRS and FERS.
If you've already visited our FERS Election Opportunities web page, you owe it to yourself to visit it again. There's a new version of the FERS Transfer Model that you'll want to download. In addition, we've added a fact sheet on the FERS Retirement Supplement in Employee Resources. As we receive letters and faxes on the open season, we'll be putting answers to the more commonly asked questions up on the web page. When you do visit the FERS Election Opportunities web page, be sure to check out the "What's New on the Site" box. Here you'll find updates about the latest information added to the web site. Since information will be added throughout the open season, we encourage you to visit the site regularly.
Remember that if you transfer to FERS, your CSRS designation of beneficiary is no longer valid. You need to complete a new FERS designation.
The FERS Transfer Handbook is available on audio cassette for the visually impaired. The cassettes are five dollars a copy. If you or your agency are interested in ordering a copy, call 202-462-2900.
If you want a videotape of today's broadcast, you can order a copy by calling 703-620-6000. VISA and Checks only. You can also order a copy of the June 24 broadcast.
Our next satellite broadcast on the FERS Open Season will be September 9, from 1:00 to 2:30 pm eastern daylight time. The show will focus on Social Security and the Federal worker. Check our FERS Election Opportunities web site for more information.
As I mentioned at the top of the broadcast, the decision whether or not to transfer to FERS is an important one, and you need to consider it carefully. Everyone's individual situation is unique. As Ed said, don't make your decision based on what others decide is best for them. Remember, the decision about FERS is a personal one. Still, we feel that it is helpful to view some common situations to see what factors you may want to consider. As you will see in the following profiles, everyone should at least look at what FERS can offer.
We are fortunate to have with us three exceptional retirement counselors. They'll help us explore the options in our employee profiles. We have Wanda Morris, from our host facility, HUD. Ann Rzepka, from the Federal Deposit Insurance Corporation. And Ed Chmielowski, from the Department of Labor. Ed recently moved to Labor from OPM. Thank you all for joining us today!
Employees have asked, since I'm close to retiring, should I consider transferring to FERS?. In our first two profiles, we will explore what FERS may offer employees who are approaching retirement.
Profile #1
John Maddox is 50, and is planning to retire when he has 30 years in. John has 6 years of Social Security credits he earned before coming to work for the Government. He's spent his entire Federal career working as a carpenter in the same agency. His brother does subcontracting and keeps asking him to work with him after he retires, doing carpentry work. But, John doesn't know what he'll feel like doing by the time he retires. He can't see himself doing more of the same thing he's done for the last 30 years. John is interested in gaining enough credits to qualify for Social Security benefits and he sees FERS as a way to accomplish this. Wanda, what are some factors he should consider?
Wanda: I think the key here is the Social Security credit John already has -- six years worth. All he needs is another 4 years credit and he can collect. He has 5 years until retiring so transferring to FERS will allow him to do just that.
But, if John wanted to work in his brother's business, or elsewhere, he probably should stay in CSRS, then earn his additional years of Social Security credit after he separates. That way he would qualify for the higher CSRS basic benefit plus collect Social Security.
Theresa: Ann, what about the benefits John will lose if he transfers from CSRS to FERS?
Ann: Well, John won't lose what he's already earned under CSRS. Those benefits move over to FERS with him. He's already earned a good CSRS benefit. The time he works after his transfer will be computed under the less generous FERS formula. In effect, he's trading 2% of his average salary for his remaining years of service for 1%. John must decide if the Social Security benefit and increased TSP options will make up for the smaller retirement benefit.
If he contributes to TSP, he'll get the government match. He can also increase his contributions. And, even if he doesn't participate in the TSP, he will receive the agency automatic 1% contribution. In addition, he can elect to begin participating.
Theresa: John is married. Although he's in excellent health, he doesn't want to make a decision that would hurt his wife's survivor benefits when he dies. She doesn't have any benefits of her own because she stayed home and raised their children. Ed, how does being married affect his decision?
Ed: Well, John can still provide survivor benefits for his wife if he retires under FERS. The survivor benefit would be smaller than it would have been if he retired under CSRS, but his wife will be entitled to spouse benefits from Social Security when he files for his Social Security benefit, and a survivor benefit upon his death.
Theresa: So for John, the key points seem to be:
Except for 2 years when she was right out of school, Annie has never worked under Social Security. Almost her entire career has been with the Federal government. She'll have 30 years service in a few more years. She loves her job, but she is starting to look into her future and make plans for change. She'd like to retire in 3 years when she turns 55. She's looking forward to traveling, doing volunteer work at the hospital and helping with her sister's kids. Like John, work doesn't fit into her retirement plans. Unlike John, she has only 2 years under Social Security. She thought about transferring to FERS to gain a Social Security benefit, but that would mean working 5 years longer than she had planned. She's not sure she wants to change all her plans in order to gain a Social Security benefit. Ann, what all should she consider?
Ann: CSRS is a very good retirement plan. An employee with a full career under CSRS does not need Social Security to have a generous retirement benefit.
Her decision hinges on the Social Security element. Annie would need 8 more years of credit to qualify for Social Security benefits. That means if she were to choose FERS, she would have to extend her time to retirement until age 59-4 more years. Or, she would have to get another job in the private sector once she retired from the government at age 55.
If Annie transferred to FERS and didn't work long enough to gain a Social Security benefit, she would be giving up 2% of her average salary for her last work years for 1% and not gain anything in return. If she doesn't work after her retirement to get the additional credits she needs, she'll end up with a smaller benefit than the one she would have had if she had remained in CSRS.
She would have paid more Social Security taxes for nothing if she doesn't work the 8 more years she would need to collect Social Security.
Ed: I'd like to add something here. Those 2 years Social Security credit will do Annie no good at all. It will be as if she never earned them if that's all she has.
Theresa, you didn't mention whether she was currently contributing to TSP.
If she's contributing and transfers to FERS, she'll get the agency automatic 1% contribution and agency matching contributions. In addition, she can increase her contribution rate to 10%. She needs to remember that these are tax-deferred contributions, so she has the added tax advantage. Normally, the TSP alone for such a short time will not make up in benefits what she would be losing under CSRS if she doesn't gain a Social Security benefit.
Theresa: So for Annie, as with John, the Social Security eligibility is the primary consideration. In Annie's case, she would have to work longer than she planned to gain the Social Security benefit. Annie wouldn't want to transfer, and then not work long enough to qualify for Social Security.
Let's now look at two employees who are in the middle of their careers. Let's begin with Carlos Montoya.
Profile #2
Carlos is 45 with a total of 25 years of service. He is a procurement specialist at an agency in Maryland. He enjoys his job and has always planned to retire from the Government when he reaches 55. However, Carlos is concerned that he may need to give up his Federal career to take care of his father, who lives alone in Arizona. His dad suffered a stroke last year and hasn't recovered as Carlos had hoped. Carlos is worried about how much longer his father can live alone and take care of himself. Trying to help at such a long distance hasn't been very satisfactory. However, leaving his job just hasn't been a viable option to Carlos because he only has 2 years of Social Security credits. Giving up the prospect of that CSRS annuity at age 55 hasn't been a practical thing to do. Carlos has been getting information about Federal jobs in Arizona, but has found that the only procurement jobs were in Phoenix, which is nowhere close to where his father lives.
Ann, do you think Carlos should consider transferring to FERS?
Ann: Carlos has a tough decision. It appears that he is uncertain what is going to happen to his career over the next 10 years, so he may want to consider transferring to FERS because it offers him a more flexible retirement package.
If Carlos stays in CSRS and then leaves government before attaining age 55, he'll be eligible for a deferred annuity beginning at age 62. If he transfers to FERS and then leaves government, he can receive a deferred annuity as soon as he reaches the FERS minimum retirement age -- for Carlos, age 56. So by transferring to FERS, he would be eligible to receive a deferred annuity earlier than if he stays in CSRS. In addition, if he elects FERS, he'll have the flexibility of having Social Security coverage that continues to build if he leaves the Federal government to work elsewhere.
Theresa: Wanda, what are the drawbacks for Carlos if he transfer to FERS?
Wanda: If Carlos transfers, and is able to continue working for the government, he'd actually have to work one more year before he can retire. Under CSRS, Carlos would be eligible to retire at age 55. Under FERS, 56. Also, we don't know if Carlos is currently participating in the TSP, or how much he might be able to save if he switches to FERS. If he thinks he'll leave Federal service in a short time, his ability to save in the TSP is less important. However, if he's able to stay in the government, the TSP participation will be important.
Ed: Theresa, there is one other point I'd like to make. While Carlos has to work another 10 years before he can qualify for a regular retirement, he already has the service needed for early retirement under either CSRS or FERS. He may want to check with his agency. If he transfers to FERS, and then retires early, the FERS part of his annuity will not be reduced. The CSRS part, though, will be reduced because he is under age 55.
Theresa: It appears, then, that the big issue Carlos needs to think about is whether he will be able to stay in the government until he retires. If he leaves government before retiring, FERS offers him the advantages of being able to collect a deferred annuity earlier than he could under CSRS, and also being able to start earning more Social Security credits.
If he is able to stay in the government until he retires, FERS still offers him an opportunity to earn a Social Security benefit. However, he would have to wait a year longer before he could retire. And if he stays, TSP will be important.
Profile #3
Let's look at another profile that is similar to Carlos's.
Pete Gibson is a colleague of Carlos. He is 47 years old and has performed 23 years of service. He's a widower whose last child just finished her first year of college. With 3 more years of college expenses to help pay for, Pete doesn't expect to have any extra money to save in the short run. He hasn't been able to participate in the TSP or save any other money because of the children's school expenses. However, as soon as his youngest daughter graduates, he fully expects to have enough money that he could save at least 10%. Since he hasn't been able to save any extra money for his retirement, Pete has planned to work until at least age 60 if his health permits. He has had some health problems in the past and hopes they won't recur. He also worries some about whether his job will be there until he's ready to retire. There has been a lot of downsizing in his agency, and a lot can happen in the 13 years until he hopes to retire. Between employment in the private sector and several temporary appointments Pete already has 40 Social Security credits, including several years of substantial earnings. Although he has the minimum credits needed to qualify for a Social Security old age benefit, he isn't currently insured for a Social Security disability benefit.
Ed, is FERS worth considering for Pete?
Ed: There are several things Pete should consider. The first issue is the same one we discussed in Carlos's case -- what is the likelihood that he will stay with the government until retirement? Since his agency has experienced a lot of downsizing, is there a chance he'll lose his job within the next 2 years? If he loses his job before he has 25 years of service, he will only be eligible for a deferred annuity. As we saw in Carlos's case, FERS offers Pete the opportunity to collect that deferred annuity sooner than he could if he stays under CSRS.
Another issue is his health. He should consider the possibility of needing to apply for a disability retirement at some point. The requirements for disability retirement under CSRS and under FERS are the same. In addition, under FERS, Pete would also have to apply for a Social Security disability benefit. The criteria for a Social Security disability benefit are more stringent than for CSRS and FERS. Even if he meets the medical criteria, he would have to work at least 5 years under FERS to qualify for the Social Security disability. However, even if he doesn't qualify for a Social Security disability benefit, he still should consider FERS. The FERS basic benefit alone might yield a larger disability benefit than the CSRS disability. I would recommend to Pete that he contact a benefits counselor within his agency to get special counseling on the disability benefits under both CSRS and FERS.
Theresa: So you are saying that FERS may still be a viable option for someone thinking about disability retirement, even though the person might not qualify for a disability from Social Security?
Ed: That's right. The computation of the FERS disability benefit paid by OPM is described in the FERS Transfer Handbook. It's too complex to describe here, but anyone who thinks he or she may need to apply for a disability retirement in the future should see a benefits counselor. You shouldn't automatically write off FERS just because you may not qualify for disability benefits from Social Security.
Theresa: Ann, would there be any drawbacks for Pete if he transferred to FERS?
Ann: One issue is Pete's ability to save. You indicated that he isn't participating in the TSP, and that it will probably be another 3 years before he can start saving. If he then finds that he can't save very much money, he may end up with less than what he would have had if he stayed in CSRS. Even though he would be increasing his Social Security benefit if he transferred, he would still be affected by the Windfall Elimination Provision. If he switches, he will in effect lose 13% of his average salary, which he probably can't make up with Social Security alone.
Theresa: Can you explain what you mean by the Windfall Elimination Provision, and also where you came up with the 13% figure you mentioned?
Ann: The 13% figure represents the difference in the two computations. If he stays under CSRS, Pete will accumulate annuity at the rate of 2% for each year of service. If he changes to FERS, he would earn annuity at the rate of 1%. If he works until age 60, as he plans, he would work another 13 years, so he would lose 13%.
The Windfall Elimination Provision affects the Social Security benefit. It applies to Federal workers who have service covered under CSRS and who have less than 30 years of substantial earnings subject to Social Security tax. Federal employees who qualify for both a Government benefit and a Social Security benefit on their own record can receive both. But, under the Windfall Elimination Provision, the Social Security Administration uses a different formula to compute the Social Security benefit.
Theresa: That's an important point that many employees misunderstand. Under the Windfall Elimination Provision an employee may receive a reduced social security benefit. However, he will still be able to receive his social security.
What if Pete had 30 years of substantial earnings under Social Security?
Ann: Then he wouldn't be affected by the Windfall Elimination Provision. In Pete's case, though, he only has a few years of substantial earnings, and working for 13 more years under Social Security wouldn't be enough for him to avoid the "Windfall Elimination Provision.
Theresa: So it seems in Pete's situation, if he can work until age 60 and retire under regular retirement, he probably would be better off staying in CSRS, since his ability to save is a question. However, if there is a chance that he will lose his job before he can retire, or if his health declines, then FERS is worth considering.
Our next three profiles highlight some special situations.
Profile #4
I'd like to introduce our panel to Shirley Johnson.
Shirley is 52 years old and plans on retiring in three years. She's married, and she and her husband have been discussing how they'll spend their retirement years. She has 12 credits under Social Security and doesn't expect to earn a Social Security benefit based on her own earnings. However, her husband has worked his entire career under Social Security, and in a few years, will receive a large Social Security benefit. Shirley may be able to receive a Social Security benefit based on her husband's earnings record.
Ed, would FERS have anything to offer Shirley?
Ed: The significant consideration in this profile is the Social Security benefit Shirley could receive based on her husband's earnings record. If she retires in three years, she would be subject to the Government Pension Offset, or GPO, which would affect how much, if any, of that Social Security benefit she would ultimately be able to receive. The important point here is that if she only works three more years, she will be subject to the GPO whether she transfers to FERS or not.
She does have an opportunity, though, to protect that Social Security benefit. If she transfers to FERS and then works five more years, she would be exempt from the GPO and would be entitled to the full Social Security benefit payable to her based on the earnings record of her husband.
Theresa: Can you explain the Government Pension Offset for us?
Ed: I'll try. This is another Social Security provisions that causes a lot of confusion among Federal workers.
Quite simply, the Government Pension Offset is a provision that applies to a Federal worker covered under CSRS, such as Shirley, who is eligible for a Social Security benefit based on the work record of a spouse.
Unfortunately for Shirley, under the GPO, the Social Security Administration will offset the benefit payable to her by two thirds of the amount of her government pension. If Shirley's CSRS benefit were $1,200 per month, for example, Social Security would subtract $800 from the benefit they'd pay Shirley based on her husband's earnings. In many situations, the amount of this offset exceeds the amount of the Social Security benefit, so no Social Security benefit would be payable. CSRS employees can avoid the GPO, however, if they transfer to FERS and work for at least 5 more years.
Theresa: So you're saying that if Shirley were willing to work for five more years instead of three, and transferred to FERS, she would qualify to receive the full Social Security benefit payable to her based on her husband's Social Security record?
Ed: That's right. And it is something I'd encourage Shirley to look into. If she were able to work five years instead of 3, the amount of her FERS benefit would be roughly equivalent to the benefit she'd receive if she retired after three years from CSRS. In addition, she'd qualify for the special retirement supplement until she reached age 62, and then she could start receiving the Social Security benefit based on her husband's work record.
Ann: Theresa, that's an excellent point, and I'd like to offer an observation about this profile as well.
A lot of people seem to want to rely on computer projections to guide them on what they should do. This is a case where the computer projections probably won't tell the full story. Projection models focus only on the benefits earned by the employee. They don't include the benefits an employee could receive from a spouse.
For example, in Shirley's case, if she were to rely on a model alone, she would only see that she would not be entitled to a Social Security benefit based on her own record. It would show that she could receive the retirement supplement until age 62. However, the model would show that she wouldn't be entitled to a benefit from Social Security. If she relied only on the model projections, she might conclude that she would not benefit by changing to FERS.
What she should do, however, is obtain a copy of her husband's Social Security estimate. If her husband hasn't received one from the Social Security Administration, he should request one. She would then be able to see for herself how much she could gain by transferring to FERS and working 5 more years instead of 3 more.
Theresa: Wanda, what would happen if the situation were a little different? Suppose that by transferring to FERS and working five more years, Shirley would become eligible for a Social Security benefit based on her own record. Would the benefit from her husband's record even be relevant then?
Wanda: Well it would depend on which is higher. If a worker is entitled to a Social Security benefit based on her own earnings, and based on the earnings of a spouse, she can't receive both. Basically, Social Security would pay the higher amount. Shirley should compare the two benefits. If the amount she'd receive from her husband's record were greater, then that benefit would be very important.
For more information, people can obtain a copy of the Social Security Administration's fact sheet, Government Pension Offset. It's available on their web site, at http://www.ssa.gov/.
Theresa: I know the Government Pension Offset is discussed in OPM's FERS Transfer Handbook. That fact sheet is also on OPM's FERS election web site.
Well, I guess for Shirley, it sounds as though it will boil down to whether or not she wants to work to age 57 instead of age 55. If she transfers to FERS and works for 5 more years, she will be exempt from the GPO, and will be able to collect the full Social Security benefit that she qualifies for based on her husband's work record when she reaches age 62. If she doesn't want to work until age 57, FERS may not be a good choice because she won't qualify for Social Security on her own record, and the Social Security benefit she could receive based on her husband's record will continue to be subject to the GPO.
We have received quite a few inquiries from CSRS employees covered under the special provisions for law enforcement officers and fire fighters. In our next profile we will highlight some of the issues these employees should consider.
Profile #5
Ken Fletcher is 45 years old with 23 years of service as a law enforcement officer. He has approximately 20 credits, or 5 years, under Social Security. He plans to work after retirement. He is currently contributing 5% to the TSP and won't contribute any more if he transfers.
Wanda, what can FERS offer Ken?
Wanda: Quite a lot, actually. I think transferring to FERS would be an attractive option for a lot of law enforcement officers and fire fighters.
If Ken stays in CSRS, he could retire at age 50. If he transfers to FERS, he could retire as soon as he completes 25 years of law enforcement service, which in his case, would be at age 47. So by transferring to FERS, he could retire sooner.
If he does transfer, he will start to accrue retirement benefits at a lower rate than what he is accruing under CSRS. However, the FERS rate is not a significantly lower rate, and the difference can easily be made up with his Social Security benefit and his enhanced TSP account.
Theresa: Well, if Ken transfers and retires at age 47, will he have enough credits to qualify for a Social Security benefit? It seems to me that he'll be three years short?
Wanda: That's a good point. However, you mentioned that he plans to work after retirement, so he'll only need to work three more years to earn his 40 credits. If he stayed with the government until age 50, under FERS, he'd earn those credits before he retired.
If he stays in CSRS, on the other hand, he'd have to work at least 5 more years after he retires to earn that Social Security benefit.
Ann: Theresa, I'd like to point out that if Ken transfers to FERS and retires in two years, he would be eligible for the special retirement supplement. As long as he works one full calendar year under FERS, he will receive the supplement whether he is eligible for Social Security or not.
Theresa: Someone mentioned this supplement in an earlier profile. Can you explain what this special supplement is?
Ann: It's a benefit paid by OPM. It substitutes for the Social Security benefit until age 62. It represents the amount of the Social Security benefit earned while covered under FERS. And, like Social Security, it's subject to an earnings test.
Normally, the supplement is not payable until the minimum retirement age, or MRA. However, law enforcement officers and firefighters can receive the supplement as soon as they retire. In addition, their supplement won't be subject to the earnings test until they reach their MRA. So, Ken can work as much as he likes up to his MRA without it affecting his supplement.
Theresa: So, by transferring to FERS, Ken wouldn't have to work as long, and would probably get as much, and perhaps even more, from his retirement, Social Security, and TSP. Ed, are there any drawbacks to transferring?
Ed: If Ken is married, he should be aware that the survivor benefit protection for his spouse would not be as much as he could provide under CSRS, and it will cost him a little more under FERS to provide the lesser benefit. Aside from that, I think FERS would be an attractive option for Ken.
Theresa: Would FERS be any less attractive if Ken had less than 20 years of law enforcement officer service? What if he only had 15 years?
Ed: Since Ken is already 45, if he only had 15 years of law enforcement officer service, he'd have to work 5 more years before he could retire under either CSRS or FERS. So he wouldn't have the advantage of retiring earlier.
Also, under CSRS, Ken would continue to accrue benefits at the rate of 2 percent of his high-3 for the next 5 years. If he transfers, it would only be 1.7%. He would probably want to run a computer projection to see if his Social Security benefit and his TSP could make up the difference.
Theresa: Okay. Thanks Ed. Before we move on to our next profile, I'd like to mention that there is a misprint in the FERS transfer handbook with respect to the mandatory retirement age for law enforcement officers under FERS. The mandatory retirement age for law enforcement officers under FERS is age 57. The mandatory retirement age for fire fighters under FERS is 55.
Profile #6
In our final profile, we are going to look at a CSRS-Offset employee.
Chris Taylor is 55 years old and has performed 18 years of service. For the last 12 years, she has been covered under CSRS Offset. Chris was recently given notice that her office is being abolished and she will lose her job within the next year. While she is able to successfully perform the duties of her job, Chris has a chronic medical condition that requires costly medical care. She has been enrolled in the Federal health benefits program since she returned to the government 12 years ago, and she doesn't want to lose that coverage. She has been actively seeking employment within the government so she can continue her health benefits coverage. At the moment, she is more concerned with finding another job to keep her health benefits coverage than she is with the FERS open season. Although Chris's husband has a very good job in the private sector and will be eligible for a high Social Security benefit, his company offers limited health benefits coverage and it will stop when he retires.
Ed, before we discuss whether or not Chris should consider FERS, could you explain what CSRS Offset is?
Ed: As an employee covered under CSRS Offset, Chris is subject to all of the CSRS retirement provisions. CSRS Offset employees pay Social Security taxes and a reduced CSRS contribution. CSRS retirement and survivor benefits are offset by the value of the offset service in their Social Security benefit. Any offset employee who wants to learn more about this plan may want to read Retirement Fact 13, CSRS Offset Retirement. It was written by OPM and is on their web site. Personnel offices also should have copies.
Theresa: So a CSRS Offset employee is covered under CSRS rules. Well, Ann, should Chris consider transferring to FERS?
Ann: It sounds as if Chris's over riding concern is to keep her Federal health benefits coverage. If she stays in CSRS Offset and leaves government within a year, her health benefits will stop. She will have the option of electing to continue the coverage, at a much higher cost, for 18 more months. She could then convert that coverage to private insurance.
On the other hand, by transferring to FERS, she immediately qualifies for an MRA+10 retirement. She would be able to keep her Federal health benefits coverage when she leaves, at no additional cost.
So, by transferring to FERS, Chris can guarantee that she won't lose her Federal health insurance coverage. However, there are some drawbacks to electing FERS, and Chris may want to wait to see if she can find a more secure Federal job before transferring.
Theresa: Wanda, what would be the drawbacks for Chris if she elected FERS?
Wanda: Well, I doubt that the drawbacks would matter to Chris since she seems to be more concerned with her health benefits than with her annuity. However, she still should be aware of a couple of things.
First of all, there is some more good news. If she transfers to FERS and then loses her job, she will be able to start receiving an annuity right away. If she stays under CSRS and then loses her job, she would have to wait until age 62 to get a deferred benefit, without health benefits. However, if she transfers to FERS and then starts drawing her MRA+10 benefit, the amount of her annuity will be significantly reduced. It will be reduced on one hand because the 12 years of Offset service that she has performed will be computed under the FERS computation rules, and not under the CSRS rules. In addition, her entire annuity, both the CSRS part and the FERS part, will be reduced by 5% for each year she is under age 62. This reduction is required under the MRA+10 retirement provision.
Theresa: Well, even though her benefit is reduced, she'll still be receiving an annuity under FERS for 6 or 7 years before she'd be able to receive any benefits under CSRS.
Wanda: I think that's an important point. The reductions to her benefit would be offset somewhat by the fact that she would be receiving an annuity for 6 or 7 years before she could draw a benefit under CSRS. Also, the CSRS part of her MRA+10 annuity would receive CSRS cost-of-living adjustments. However, if she were able to find another Federal job, she could avoid this reduction altogether.
Theresa: Can she also receive the special retirement supplement?
Wanda: If Chris does retire on an MRA+10 retirement, she will not be entitled to the special retirement supplement. The supplement is not payable to employees who retire under the MRA+10 provision.
Ed: Theresa, this profile illustrates several points relating to the amount of the retirement benefit, but it also shows that sometimes, the bottom line numbers aren't as important as other considerations. Conventional wisdom would normally suggest that Chris should stay in CSRS Offset because she has so many years of offset service. And if you ran a projection, the numbers on the FERS side would look smaller than the CSRS numbers because the offset service is credited under FERS rules and because of the MRA+10 age reduction. However, for Chris, the health benefit coverage is her primary concern. And the importance of that coverage cannot be factored into a model that runs numbers.
There's one other point that we haven't mentioned yet, which is important to anyone covered under CSRS Offset. Although Chris will not be eligible for the special supplement if she transfers to FERS, she will be eligible for a Social Security benefit based on her own earnings record at age 62. However, if she would be entitled to a higher Social Security benefit based on her husband's Social Security record, she would receive the higher amount. She wouldn't be subject to the GPO.
Theresa: So you're saying that even though Chris would not have worked for 5 years under FERS, she still wouldn't be subject to the Government Pension Offset?
Ed: That's right. Since Chris was an Offset employee, she was automatically exempt from the GPO. She wouldn't need to work 5 years under FERS to be exempt. Only employees who are subject to full CSRS coverage would have to work 5 years after transferring to FERS before becoming exempt from the GPO.
Theresa: That's an important point for CSRS Offset employees. They're not subject to the Government Pension Offset under Social Security. Ann, are there any other points about CSRS-Offset that we should mention?
Ann: I'd like to mention two more things. If Chris were to transfer to FERS, we noted that her 12 years of Offset service would be credited with her FERS service. However, many offset employees have asked me if they could make additional TSP contributions for that service, and, get retroactive government contributions. The answer is no. They would not be able to make additional TSP contributions, nor would they be entitled to agency TSP contributions for that period.
The second point I want to make is that Chris doesn't have to decide now. She has until December 31st. She might know by then whether she has another job.
Theresa: I'm glad you mentioned that. Employees need to remember that we're just at the beginning of the FERS open season. It runs through the end of the year. You have plenty of time to consider your options carefully.
That's all the time we have for this segment of the broadcast. I'd like to thank Wanda Morris, Ann Rzepka, and Ed Chmielowski for joining us and sharing their knowledge and insight with us today.
In our next segment, experts from the Office of Personnel Management, Social Security Administration, and the Federal Retirement Thrift Investment Board will join us to answer some common questions employees have asked about the open season. Then we will open the phones to allow you to call in and ask our experts questions.. Before we get to that, we've highlighted some information that you may find helpful. Some of this information reinforces several of the key points addressed in the profiles.
Slide Show
In a few moments, we'll be going to the phones to answer your questions. The phone number for questions is (202) 708-6073. If you'd like to fax your questions, the fax number is (202) 708-0996. We've received quite a few faxes already.
Before we open the phones, we've put together an assortment of frequently asked question from previous broadcasts, email, faxes, and seminars. To help us answer these questions, we have with us a distinguished panel of experts. From the Office of Personnel Management, we have Mary Sugar, Chief of the Agency Services Division, and Ray Kirk, a Federal Retirement Benefits Specialist. From the Social Security Administration, we have Bob Gleason, a Public Affairs Specialist. And from the Federal Retirement Thrift Investment Board, we have Patty Muller, a TSP Liaison Specialist. Thank you all for being with us today.
(Note: Questions to Mary, Ray, and Bob were not scripted. Questions and answers to Patty were scripted and appear below.)
Theresa: How soon will an employee start getting the agency contributions added to his or her account after transferring FERS?
Patty: As a FERS employee, you would automatically receive an agency contribution to your account each pay period of an amount equal to 1% of the basic pay you earn for the pay period. This is what we have so cleverly named the Agency Automatic (1%) Contribution. This money would not come out of your pay but rather from your agency's appropriated funds. Short of going on leave without pay, there would be nothing you could do to stop these Agency Automatic (1%) Contributions.
Also, as a FERS employee, you could contribute up to 10% of the basic pay you earn each pay period to your TSP account. If you contribute your own money, your agency will make matching contributions to your account. By law, your agency must match the first 5 percent that you contribute to your account each pay period. The first 3 percent is matched dollar for dollar and the next 2 percent is matched 50 cents per dollar.
Consequently, if you contribute 5 or more percent to your account each pay period, you will receive the maximum Agency Matching Contributions of an amount equal to 4 percent of the basic pay you earn for the pay period. If you transfer to FERS, your Agency Automatic (1%) Contributions will begin immediately and if you are contributing your own money, so will your Agency Matching Contributions.
In addition, you have 30 days from the effective date of your transfer to FERS to make a new TSP election. If you are not already contributing to the TSP, you may elect to begin contributing or to allocate the investment of your Agency Automatic (1%) Contributions. If you are contributing, you may elect to change the amount or investment of your TSP contributions. Your agency must make your TSP election effective the first pay period after it receives it. You may also turn in your TSP election along with your FERS transfer election. In that case, your TSP election would become effective the same day as your transfer to FERS.
Theresa: If I transfer to FERS, how long will I have to work before the government contributions to my TSP account become mine?
Patty: To be entitled to the Agency Automatic (1%) Contributions and their earnings in your account, you must meet the TSP vesting requirement, which, for most of you, is 3 years of Federal civilian service. As a CSRS employee, you already have more service than this, so, consequently, if you transfer to FERS, you would be vested in your Agency Automatic (1%) Contributions as soon as you begin receiving them. There is no vesting requirement for entitlement to the Employee and Agency Matching Contributions and attributable earnings in TSP accounts.
Theresa: What is a realistic rate of return I can expect to receive from my TSP account?
Patty: Is this a trick question? I cannot begin to predict future rates of return. However, you may want to make some predictions based upon historical rates of return. Over the last 10 years, the compound rate of return for the G Fund, the Government Securities Investment Fund, was 7.6%. The compound annual rate of return for the F Fund, the Fixed Income Index Investment Fund, for the same 10-year period was 8.5%, and the compound annual rate of return for the C Fund, the Common Stock Index Investment Fund, was 17.5%. There is no guarantee, however, that these returns will continue.
To project TSP account balances to compare the results of different contribution rates and returns, you may use the calculator on the TSP Web site --- www.tsp.gov. There are also tables in our booklet, the Summary of the Thrift Savings Plan for Federal Employees, that you may use to project account balances, but the web site calculators provide more flexibility. Just remember, these account balance projections are based on assumed rates of return and contributions and your account balance will be based on your actual contributions and investment decisions. How much will you really contribute to your TSP account? How long before you will be withdrawing your account? And what is your risk tolerance?
Theresa: Are there differences in the withdrawal options for CSRS and FERS employees?
Patty: Your withdrawal options and their tax consequences are the same whether you remain CSRS or transfer to FERS. After you separate, you can:
-withdraw your account in a single payment,
-withdraw your account in a series of monthly payments, or
-have the TSP purchase a life annuity for you.
If you elect a single payment or certain monthly payments, you can have the TSP transfer all or part of the payment or payments to an Individual Retirement Arrangement or other eligible retirement plan.
If you have the TSP transfer money to an IRA or other eligible retirement plan, the money continues to maintain its tax-deferred status. The money you receive directly is treated as ordinary income for Federal income tax purposes for the year in which it is disbursed. Also, depending upon your age when you separate and your withdrawal election, you may be subject to the Internal Revenue Service 10% early withdrawal penalty.
There is, however, a difference in the withdrawal program and that is regarding spousal rights. Because the TSP is an integral part of FERS, the spousal rules relating to disbursements are more stringent. If you transfer to FERS, your spouse is entitled to receive your TSP account in the form of a joint annuity. Consequently, if after you separate you elect another withdrawal option and you are married, your spouse must waive his or her right to the joint annuity, and must sign a waiver as part of the application process.
Because the TSP is only a supplement to CSRS, if you remain CSRS, your spouse must be notified of your withdrawal unless you elect a joint annuity with your spouse. This is just a notification of the withdrawal and no entitlement to the account is implied.
In addition, if you transfer to FERS, your spouse must consent to your TSP loan or in-service withdrawal and as part of the application process, your spouse must sign a consent statement.
If you remain CSRS, your spouse must be notified before the loan or in-service withdrawal can be disbursed. Again, it's a notification only with no consent implied.
Theresa: I understand the employee contribution limits may be changed. Is this true?
Patty: Legislation has been introduced in the House of Representatives to eliminate the current employee contribution limits for both CSRS and FERS employees. The bill, HR 2526, would give all employees the opportunity to make employee contributions to their TSP accounts each year up to the IRS elective deferral limit for the year. For 1998, this elective deferral limit is $10,000. However, the legislation must be enacted to eliminate the current statutory contribution limits.
Theresa: Now, we're going to open the phones. So if you have questions for our panel of experts, please call at (202) 708-6073, or fax us your question at (202) 708-0996.
It looks like we're out of time. If you have additional questions relating to your opportunity to transfer to FERS, please direct them to your agency benefits counselor. Each agency is responsible for assisting their employees who have questions, and you should have received information about who to contact if you have questions. A list of headquarters retirement counselors can be found on OPM's benefits web site at http://www.opm.gov/asd/.
OPM and the experts on today's broadcast will not be able to respond personally to questions that we didn't get to.
We'd like to thank all of you for tuning in to today's broadcast. Our next broadcast is on September 9, and will focus on Social Security benefits and the Federal worker. Check OPM's FERS Election web site for more details.
Again, a special thanks to all the panelists and experts who contributed their time and expertise to today's broadcast.
If you would like to order a videotape copy of this broadcast, call 703-620-6000. The cost is $15. Credit cards or checks only, please. I'm Theresa Carr, your host. Thank you for watching.
Updated 3 December 1998