December 19, 2008
I will be taking a break from my weekly column until after New Year's. So for my final column of 2008, I thought I'd create a wish list of changes that, if enacted, would improve retirement prospects for federal employees. Some items on this list would require the cooperation of the 111th Congress when it convenes in 2009, so you might want to let your elected representatives know which ones are important to you. Many will sound familiar because they are proposals that have been introduced, but nothing has happened -- yet. And a few of the ideas are new.
While many employees have pulled the plug on their retirement plans because of the economy or their dedication to serving their agencies, maybe some of these changes will take place in 2009 and ease your transition:
- Offer amnesty to veterans who neglected to pay their military deposits before retirement. Until all agencies provide clear and accurate guidance on this confusing issue, veterans should not be penalized for failing to pay the military service credit deposit. There is no pending legislation to resolve this problem, but many people would like to see some enacted. In September, I addressed the issue in Catch-62 Revisited.
- Correct the rules that penalize Civil Service Retirement System employees who work part time during their last three years of federal service. Legislation was introduced in 2003 to rectify the problem, but it still exists. I wrote about the part-time inequity a couple of years ago in Part-Time Rules, Part One and Part-Time Rules, Part Two.
- Provide retirees the same tax savings on health insurance and flexible spending accounts that employees get. A proposal to extend these benefits, called premium conversion, has yet to go anywhere. But there is already some relief for retired public safety officers. (The Office of Personnel Management has determined that retired federal law enforcement officers meet the definition of retired public safety officers.) Here is more on that from IRS Publication 553:
For distributions beginning in 2007, you can elect to exclude from income distributions from an eligible retirement plan that is a governmental plan if you are an eligible retired public safety officer. The distribution must be transferred directly to an insurance provider to pay premiums for accident or health insurance or qualified long-term care insurance for you, your spouse, or your dependents. The maximum annual exclusion is $3,000. You cannot deduct these premiums as medical expenses or, if you are self-employed, health insurance costs. For more information, see Insurance Premiums for Public Safety Officers in Publication 575, Pension and Annuity Income.
- Encourage workers in the Federal Employees Retirement System to save sick leave by allowing them to add it to their earned FERS retirement benefit, the same way CSRS employees can. This was a popular proposal in 2008, but then nothing more was heard. To learn more about sick leave credit, read my column Taking Your Sick Leave (Feb. 9, 2007).
- Create a governmentwide re-employed annuitant program to encourage retirees to return to federal service without penalty on a part-time or temporary basis to fulfill specific needs. Some agencies have such programs, but a standard process throughout government would make it easier for retiring employees to find job opportunities that would not conflict with the retirement benefits they are receiving. Two of my columns addressed the current condition for retirees who want to return to federal service: Back to Work (March 23, 2007) and Back to Work Again (March 30, 2007).
- Provide relief to spouses and widows who are covered by CSRS and eligible for Social Security spousal/widow benefits by amending the Government Pension Offset. I've written about this in Offsetting Penalty (June 9, 2006).
- Consider changes to the Windfall Elimination Provision to bring more equity to the computation of Social Security benefits for CSRS retirees who also work long enough to earn a separate Social Security benefit. This calculation doesn't seem as unfair as the Government Pension Offset, but it does come as an unpleasant surprise, and many retirees consider it a penalty. Here is my take on this issue: Gone With the Windfall (Sept. 1, 2006).
- Another item on the wish list might not need congressional action, maybe just some divine intervention. Future retirees would like to see OPM automate retirement processing to smooth the transition from paycheck to annuity. There was hope in 2008 with the RetireEZ effort. But after numerous problems the retirement systems modernization project was scrapped. Let's hope for a renewed effort and success in 2009. Here's a review of the unfortunate history: Make Retirement Easy (April 11, 2008).
- Create a position in human resources for a certified financial planner, who would help employees learn how to manage their Thrift Savings Plan and other investments and plan for a financially secure future. If providing such a service presents a conflict of interest for the federal government, then more resources should be available to promote financial literacy, so employees can approach their retirement years with confidence. New employees should receive at a minimum one day of training on their federal benefits combined with financial planning. In the meantime, learn more at mymoney.gov, Choose to Save and, especially for women, Wi$eUp.
The holidays are here, and in many places winter has arrived early. We have major changes on the way in Washington with the new administration getting ready to take the reins and make changes. I am sure 2009 will be an interesting and historic year. Service members continue to fight the nation's wars as federal workers battle terrorism at home and support the troops abroad. Others are administering vital programs and missions, enforcing the laws, and improving the daily lives of Americans. I would like to say thank you for your dedicated service, and best wishes for a safe and joyous holiday season.
Tammy Flanagan is the senior benefits director for the National Institute of Transition Planning Inc., which conducts federal retirement planning workshops and seminars. She has spent 25 years helping federal employees take charge of their retirement by understanding their benefits.
For more retirement planning help, tune in to "For Your Benefit," presented by the National Institute of Transition Planning Inc. live on Monday mornings at 10 a.m. ET on federalnewsradio.com or on WFED AM 1500 in the Washington metro area.
December 19, 2008