By Tammy Flanagan
February 20, 2009How about a little Q&A this week? I am always impressed by the number and variety questions I receive. Retirement is obviously on the minds of many people in government right now.
But before I get to your questions and comments, I need to clarify something from my recent column on the Medicare Part B late enrollment penalty.
In that column, I wrote about the 10 percent surcharge added to the Part B premium for every year older than 65 that a person is when he or she enrolls. But according to Social Security regulations, the penalty only goes back to age 65 if the individual was not covered by health insurance through their own or a spouse's current employment.
In the example I used, the employee didn't retire until several years after turning 65 and neglected to enroll in Part B during the eight-month special enrollment period following her retirement. If she decides to enroll now, she would only incur a 10 percent surcharge on the premium for Part B for the months that have passed since her retirement, not since she reached 65. So, to use another example, if a person enrolled in Part B at 70 after retiring from federal service at 69, she would incur only a 10 percent surcharge, not 50 percent.
Now, on to the questions and comments.
Military Service Credit Deposit
I joined the federal government about four years ago and paid off my military service credit deposit right before my third anniversary, when the first interest accrual was due. I was very disappointed to find out the only acknowledgement I got from my agency was a one-liner that acknowledged it was paid in full. Nowhere in the document does it acknowledge the amount paid or the amount of time bought back.
The record of your military service deposit will be retained by your payroll office until you leave federal service. When you retire, that record will be submitted to the Office of Personnel Management along with a form indicating your deposit has been paid in full and what period of military service was covered. If you choose not to pay a deposit for military service, your agency will send a form to OPM noting that fact when you retire. This form provides a warning of the consequences of not paying the deposit.
You can request confirmation from your payroll office of the amount you've paid and the fact that your deposit has been paid in full. When I worked in a federal benefits office years ago, we would encourage our employees to keep their canceled checks showing their military deposits had been paid.
There are a whole bunch of folks (including me) who started as seasonal employees with land management agencies such as the Forest Service and Bureau of Land Management in the late '80s or early '90s, but we didn't get positions that paid benefits for close to a decade. Although our service computation dates reflect our seasonal time (in case of a reduction in force and for leave category purposes), we don't currently have the option to make a deposit and buy back time that will count toward an earlier retirement. So, most of us are looking at working into our 60s. I'd like to have the option of buying back those years as a seasonal. Have you heard of any move by OPM or Congress to allow this?
I understand your dilemma and wish something could be done to allow you to receive credit for federal service that wasn't covered by contributions to the Federal Employees Retirement System. Employees with seasonal, temporary or other "nondeduction" civilian service before 1989 can make a service credit payment into FERS to receive credit for the service. But the FERS law did not allow credit for such service performed after 1988. I can see how this can be unfair to employees who work at agencies that use a lot of seasonal employees.
I'm not aware of a bill yet that would allow for post-1988 nondeduction service to be paid into FERS.
I was 20 and worked for three years before quitting and taking my Civil Service Retirement System retirement. It was about $3,800. I came back three years later, and no one told me about paying back the money to the retirement fund. Over 10 years after that I attended a retirement seminar where I discovered I owed a redeposit. I checked into it and it was over $9,000 with additional interest due. I was told by my personnel office that it was OK if I couldn't pay it back, it would just come out of my annuity when I retired. I attended another retirement seminar eight years later and found out the money is taken from your annuity until you die, not until it is paid back. I refinanced my house to pay the $17,900 at that time. I still wonder where the government can invest the money to make that kind of return.
If it makes you feel any better, the decision to pay back a refund has a positive as well as a negative angle. You paid back $17,900 to avoid an actuarial reduction to your retirement, which is designed to provide the same value (taking into account interest) of total lifetime benefits as would have been payable if contributions had remained (or been paid back) to the retirement fund.
If you retired at 60 and owed a $20,000 redeposit (including refunded CSRS contributions and any interest that has accumulated), the actuarial factor is 188.7. OPM would divide $20,000 by 188.7 and your retirement benefit would be permanently reduced by $106 per month. By paying back your redeposit, you've avoided this reduction. And by keeping the money in the equity of your house until you paid back the $17,900, your house was able to appreciate enough so you had $17,900 in equity to use for the payback.
In this economy, some people might say you did the right thing at the right time considering you might have refinanced your home at a lower interest rate and were still able to use some of the funds to permanently increase your CSRS retirement benefit. But I agree that there should be a way for all employees to be made aware of these issues closer to their entry into service, rather than when they are nearing retirement.
Military and Medicare
I would like to see an article discussing Medicare, the Federal Employees Health Benefits Program and TRICARE. My husband turns 65 in 2-1/2 years. Should he apply for Medicare? Right now, Blue Cross Blue Shield FEHBP is our primary and TRICARE is secondary.
Military retirees and their family members become eligible for TRICARE for Life at 65. Medicare Parts A and B are required if you enroll in TFL. Although it is acceptable to have additional coverage such as FEHBP, it is not necessary. OPM will allow a retiree or a retired couple who both have Medicare and TRICARE for Life to suspend their FEHBP coverage indefinitely. OPM has more information on this topic.
Part B or Not?
My current plan is to sign up for Medicare Part A at 65 and continue with FEHBP coverage into retirement at age 70, in lieu of Medicare Part B. Is this a feasible scenario? Does having Part A in any way commit me to having Medicare as a primary payer? Thanks.
Your FEHBP plan will not drop you if you do not sign up for Medicare Part B at age 65. Therefore, if you don't enroll you will still have health coverage. Your FEHBP plan will benefit if you do enroll in Part B when you are retired, since by law Medicare would be the primary payer on most claims. Check the language in your FEHBP 2009 brochure to find out what benefits or incentives your plan provides if you have Part B as primary payer on your outpatient claims.
Keep in mind that if you are in good health, you may not receive as much in Part B coverage benefits as it will cost you in Part B premiums. So keep your focus a little further down the line. You may experience some decline in your health as you age. One suggestion would be to consider enrolling in a lower cost FEHBP plan that waives co-payments and deductibles when Part B is primary. The SAMBA standard option and plans offered by the National Association of Letter Carriers and the Government Employees Hospital Association are two examples of plans that have less expensive premiums than Blue Cross Blue Shield and waive most out-of-pocket expenses when Medicare is primary payer.
The goal for many retirees is to receive quality health care at a reasonable cost and to have the freedom to choose your own providers. This can be accomplished by combining Medicare A and B with a reasonably priced FEHBP plan. If you live in an area that is serviced by an HMO, such as Kaiser, or an open access plan, such as Aetna, these also might provide relatively low-cost options for health care after 65. And keep in mind that even though the 2008 open season has ended, the rules allow you to change health plans outside of open season when you turn 65.
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.
By Tammy Flanagan
February 20, 2009