Retirement Planning Retirement PlanningRetirement Planning
Advice on how to prepare for life after government.

A Few Good Things

It is easy to focus on the bad news coming through the pipeline these days, such as proposed cuts to federal employee benefits and pension processing delays at the Office of Personnel Management. Still, 2011 wasn't all bad, was it? And there are some things to look forward to in 2012.

Payroll Taxes. Congress may be tied up in knots this week debating a payroll tax cut for 2012, but throughout 2011, the FICA tax was cut by 2 percent, giving many federal employees more money in their paychecks despite the ongoing pay freeze. The FICA tax was slated to be applied to the first $106,800 of wages in 2011 at a rate of 6.2 percent. Instead, the employee share was reduced to 4.2 percent. For the 85 percent of the federal workforce covered by the Federal Employees Retirement System, this added up to a savings of between $1,000 (for a $50,000 salary) to more than $2,100 (for a person earning the maximum taxable wage of $106,800). The maximum taxable wage for 2012 will increase to $110,100, so high-wage earners will pay either the 4.2 percent or the 6.2 percent on an additional $3,300 next year.

Widows and Widowers. The Thrift Savings Plan has implemented spousal accounts for widows and widowers of TSP participants. These accounts allow the balance of a TSP account to remain in the plan under the spouse's name. This benefit was made available under the 2009 TSP Enhancement Act and launched officially at the end of 2010. Here's more information.

Roth Option. In other TSP news, much work has been going on behind the scenes on implementation of the Roth TSP option, which will be unveiled in the second quarter of 2012. Unlike traditional TSP contributions, Roth contributions and the earnings associated with them are tax-free when withdrawn. The TSP has had to revise virtually every publication and form in its repertoire due to this new investment option. And every federal payroll office has been working to revise its payroll systems to accept after-tax dollars into the Roth TSP accounts. More information will be coming in your TSP participant statement toward the end of February. Processing Progress. You may not have seen the results yet, but OPM has been trying to address the retirement processing fiasco, partly by hiring additional help to process new claims. OPM also is working with agencies to provide additional training for retirement specialists to review retirement applications prior to submission to OPM to avoid unnecessary delays caused by common errors. And it has adopted a policy of accepting agency estimates on benefits to provide new retirees an interim payment that is closer to 90 percent of their expected annuity.

Long-Term Care. In 2011, the Federal Long-Term Care Insurance Program held its first open season for new applicants since the original open season was held in 2002. That provided an opportunity to enroll in the program with an abbreviated underwriting application -- fewer questions regarding your health. There was a 20 percent increase in enrollment, bringing the total to more than 270,000 policies.

Lower Life Insurance Premiums. Many people covered under the Federal Employees Group Life Insurance program will get some good news next year in the form of lower premiums. Here's a link to all 2012 FEGLI rates.

COLA Relief. Most federal retirees will receive a cost-of-living adjustment for the first time in two years in 2012. I recently wrote about the upcoming COLA.

Premium Pressure. Premiums under the Federal Employees Health Benefits Program are going up an average of only 3.8 percent in 2012, compared to an expected increase of 5.8 percent for all employee health care plans nationwide.

Staving Off Cuts. So far, Congress has held off on making cuts to federal retirement benefits -- other than the pay freeze, which indirectly affects retirement computations, FEGLI insurance values and TSP contributions. And despite disasters ranging from earthquakes to hurricanes, Washington is still standing and federal employees are ready to face another year.

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 Mondays at 10 a.m. EDT on, or on WFED AM 1500 in the Washington-metro area.


Tammy Flanagan has spent 30 years helping federal employees take charge of their retirement by understanding their benefits. She runs her own consulting business at and provides individual counseling as well as online training for the National Active and Retired Federal Employees Association, Plan Your Federal Retirement as well as the Federal Long Term Care insurance Program. She also serves as the senior benefits director for the National Institute of Transition Planning Inc., which conducts federal retirement planning workshops and seminars.

For more retirement planning help, tune in to "For Your Benefit," presented by the National Institute of Transition Planning Inc. live on Federal News Radio on Mondays at 10 a.m. ET on WFED AM 1500 in the Washington-metro area. Archived shows are available on

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