April 3, 2009Do you fall into one of the following categories?
If so, the exciting news that arrived from Capitol Hill on Wednesday might have seemed like a cruel April Fool's joke. But it's not. The House of Representatives really did approve legislation (H.R. 1804) that addressed each of these issues. Of course, the bill still has to pass the Senate and be approved by the president before going into effect, but it's worth looking at some of its key provisions.
Sick Leave and FERS
Current Law: Any balance of unused sick leave evaporates when an employee retires under FERS. And it can be a lot. After 20 years of federal service, an employee accumulates about a year's worth of sick leave. If the employee was healthy and didn't use much of that time, it is forfeited without payment or credit. Federal managers long have complained that this law encourages employees to find creative ways to use up sick leave before retirement.
H.R. 1804: The hours of unused sick leave would be converted to months and days of creditable service to be used to compute the FERS basic retirement benefit. Although the time would not count towards eligibility to retire, a balance of 2087 hours -- about a year -- of unused sick leave would add 1 percent of the employee's high-three average salary (or 1.1 percent if the employee retires at 62 or older with at least 20 years of service) to the retirement benefit. If the employee's high-three average salary were $60,000, the benefit would go up by $600 per year. This is similar to the credit of unused sick leave under CSRS.
Refunded Retirement Contributions
Current Law: Upon resigning from federal service, FERS employees can choose to take a refund of the retirement contributions they have paid. (For most FERS employees, those contributions amount to 0.8 percent of basic pay.) But if they take such a refund, the time for which they were refunded can never be used in eligibility for or computation of a FERS basic retirement benefit. Suppose Sally worked under FERS from 1988 to 1994 before resigning and taking a refund of her contributions. Then assume she returned to federal service in 2001, and wants to retire in 2015 with 20 years of service at age 60. She will learn that she can't count the six years of previous service toward her retirement, and doesn't have the option of repaying the retirement contributions that were refunded.
H.R. 1804: Sally would be able to make a redeposit of the refunded contributions (with interest) upon being rehired into government. She would then be able to use the service towards eligibility for and computation of her FERS basic retirement benefit. If the new law follows the same guidelines as apply to CSRS, she would be able to pay back this money any time during her federal career up until the time her retirement benefit is finalized by the Office of Personnel Management.
CSRS Part-Time Rules
Current Law: In 1986, the law governing the computation of CSRS annuities for employees who worked part-time during their career was changed. Under the change, employees who work part-time during their high-three average salary period have service that occurred before April 7, 1986 computed using their actual high-three average salary. All service after April 6, 1986 is computed using a "deemed" high-three, which is the full-time pay rate even for employees who may be working on a part-time schedule. This service is prorated to reflect the actual hours worked.
H.R. 1804: Under the new rules, retirement benefits would be computed by using the deemed high-three for all years of service. Under these rules, CSRS employees can decide to continue working part-time during their high-three years without fear of jeopardizing their pre-April 7, 1986 service. The result also may encourage more employees to continue working part-time.
For a more detailed look at part-time service rules, see the following columns from March 2007: Part-Time Rules, Part Oneand Part-Time Rules, Part Two.
The bill passed by the House allows for automatic enrollment of new federal employees in the TSP, with contributions ranging from 2 percent to 5 percent of basic pay. The details would be established by the Federal Retirement Thrift Investment Board. In addition, federal employees would be permitted to make after-tax contributions (similar to a Roth IRA) to their TSP accounts that would be allowed to grow tax-free. The bill also allows the TSP to establish self-directed investments for participants that would expand investment choices.
If you're interested in more information about TSP changes, be sure to tune in to a radio program, "For Your Benefit," that I co-host with Bob Leins of the National Institute of Transition Planning. The show airs every Monday at 10 a.m. at federalnewsradio.com and 1500 AM in the Washington metro area. The programs are archived for download any time after the shows air live. On Monday, April 6, our guests will be Greg Long, executive director of the TSP, and the TSP's director of external affairs, Tom Trabucco. If you have any questions for them, send them to firstname.lastname@example.org.
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.
April 3, 2009