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Federal Retirement Benefits for FERS Employees. The National Institute of Transition Planning. intro. Bob Braunstein, Federal HR Consultant. 1966-1997 Federal Government Predominantly in Treasury Department Bureaus (IRS, ATF, OCC); full range of HR positions

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Federal Retirement Benefits for FERS Employees

The National Institute of Transition Planning

intro


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Bob Braunstein, Federal HR Consultant

  • 1966-1997 Federal Government

    • Predominantly in Treasury Department Bureaus (IRS, ATF, OCC); full range of HR positions

  • Expertise in Staffing, Classification, Benefits, Employee Relations, Retirement Counseling, FERCCA

  • 1997 to present – consultant to Federal agencies for Human Resources Projects through:

    • National Academy of Public Administration

    • Kelly Anderson and Associates

    • Economic Systems Inc.

    • National Institute of Transition Planning

  • Latest HR projects have been with NASA, Navy, HHS, NIH, TSA, Peace Corps

  • FERCCA Project (OPM, USPS and DOJ cases)

  • Developed eSeminar application for ESI


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1-1

Four sources of financial security



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Module 1: Your Retirement Benefit

1-2

Step 1: Determine your eligibility

Step 2: Determine your basic retirement benefit

Step 3: Identify age factors that affect a benefit

Step 4: Determine whether to pay a civilian deposit

Step 5: Consider survivor benefits

Step 6: Determine whether to pay a CSRS redeposit

Step 7: Determine whether to pay a military deposit


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Determine Your Eligibility

1-3

  • Your retirement system

  • The type of retirement

  • Your age

  • Your years of creditable service


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The Federal Retirement Systems

1-4

1920

1987

1984

CSRS

CSRS Interim

FERS/

CSRS Offset


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1-5

Employee and Agency Contributions: FERS

7% to Retirement (.8 to FERS; 6.2 to SS/Matched by Agency)/TSP match

$

$

$

$

$

$

$

$

Social

Security

CSRDF

TSP


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Retirement Options

1-6

  • Immediate (regular)

  • Early (VERA or discontinued service)

  • Disability

  • Deferred

  • Special provisions


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Creditable Service

1-7

  • Civilian Service

  • Military service

  • Includes:

  • Part-time

  • Breaks in service of 3 days or less

  • LWOP (up to 6 mo)

  • Intermittent

  • Uncovered service (with exceptions)

  • Refunds for CSRS

  • CSRS Handbook (chaps 20-23)


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FERS Minimum Age and Service Requirements

1-9

MRA based on year born (chart on page 1-9)

ORDS

  • LEO and FF (age 57 mandatory.)

  • ATC (age 56 mandatory.)


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Steps for Planning Your Retirement Benefit

1-10

1: Determine your eligibility

2: Determine your basic retirement benefit

3: Identify age factors that affect a benefit

4: Determine whether to pay a civilian deposit

5: Consider survivor benefits

6: Determine whether to pay a CSRS redeposit

7: Determine whether to pay a military deposit


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Length of

Service

High 3

Determine Your Basic Retirement Benefit

1-10

Formula

Retirement Benefit

(CSRS, CSRS Offset, FERS)


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Length of Service

  • Retirement Date – SCD = Length of Service

  • Not always same as leave SCD

  • All months have 30 days; add one day for last day worked

1-11

31

2

19

Certified Summary on pages 1-12 and 1-13


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Calculate Your High-3 Salary

1-16

Your high-3 salary is your highest average basic pay over any consecutive 3-year period in Federal service.


Basic pay l.jpg

Regular pay

Locality-based pay

Premium pay

Night differential for WG

Special Pay for recruitment/retention

Annual leave lump sum

Bonuses and overtime

Night differential other than WG

Travel allowances

Geographic/post differential

Basic Pay

1-16

YES

No

Tip: Your % ret. Deduction is a direct fraction of your allowable base pay


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Determine the Beginning of High-3 Period

1-16

31

12

2011


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Determine Your Average High-3 Salary

1-17

Reference Chart on Page 1-18 for factors



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FERS Retiree Annuity Supplement

1-23

Social Security

Retirement

  • Must be under FERS

  • Must be under 62

  • Not age-reduced retirement

  • LEOs/FFs/ATCs at MRA

  • Earnings Tested



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Disability Retirement (FERS)

1-25

  • Combination of civil service and Social Security benefits

  • Benefit is recalculated after the first 12 months and at age 62


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Example: FERS Disability

1-25

  • Age: 42

  • Years of service: 20

  • High-3 salary: $45,000

  • Denied a SS disability benefit*

  • *If SS disability approved:

  • Fully Offset by disability annuity during first year

  • 60% offset during years until age 62

  • At age 62, no longer offset


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Cost-of-Living Adjustment

1-27

Based on the change in the CPI – p 1-27 chart

  • Provided for all CSRS retirees

  • Based on CPI

  • Immediate

  • Prorated per retirement date

  • Generally provided for FERS retirees 62 and older

  • Diet Colas

  • Usually 1% less

  • Prorated per date eligible


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The Best Day to Retire

1-28 & 29

Best Day for CSRS Employees

  • Discontinued Service and Disability – annuity begins next day

  • Disability – better of date after separation or last day of pay

  • Deferred – annuity begins on 62nd birthday for CSRS; for FERS 1st day of month after 62nd birthday or MRA (with 10 yrs or more)

Best Day for FERS Employees


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Steps for Planning Your Retirement Benefit

1-30

1: Determine your eligibility

2: Determine your basic retirement benefit

3: Identify age factors that affect a benefit

4. Determine whether to pay a deposit

5: Consider survivor benefits options

6: Determine whether to pay a CSRS redeposit

7: Determine whether to pay a military deposit



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Steps for Planning Your Retirement Benefit

1-35

1: Determine your eligibility

2: Determine your basic retirement benefit

3: Identify age factors that affect an benefit

4. Determine whether to pay a civilian deposit

5: Consider survivor benefits options

6: Determine whether to pay a CSRS redeposit

7: Determine whether to pay a military deposit


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Determine Whether to Pay a Civilian Deposit

1-35

  • A deposit is payment for civilian service that was not covered by retirement deductions (temporary service, military service, WAE service)

  • Consider your retirement system, dates of service, and how much you owe


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FERS Civilian Deposits

1-38

Two time periods:

  • Pre 1/1/89 (must be paid for credit in both SCD and annuity)

  • On or after 1/1/89 (deposits cannot be made; service will not count)


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Example: FERS Civilian Deposit Pre-1/1/89

1-38

  • 1 year of nondeduction

  • Total base pay = $20,000

  • Deposit = $800

  • Employee’s high-3 salary = $65,000


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Steps for Planning Your Retirement Benefit

1-39

1: Determine your eligibility

2: Determine your basic benefit

3: Identify age factors that affect a benefit

4. Determine whether to pay a civilian deposit

5: Consider survivor benefits options

6: Determine whether to pay a CSRS redeposit

7: Determine whether to pay a military deposit


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Consider Survivor Benefits

1-39

  • Survivor Elections:

    • Spousal survivor benefit

    • Insurable interest survivor benefit

  • Other survivor benefits:

    • Child’s survivor benefit

    • Lump-sum payments to beneficiaries


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Spousal Survivor Benefit

1-40

May elect maximum, partial, or no benefit

  • The retiree does not need to be in good health at the time of election

  • Generally, the marriage must have lasted at least 9 months or birth of first child

  • Ends if the survivor remarries before age 55, unless married for 30 years or more



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Example: FERS Spousal Survivor Benefits

1-41

Retirement Benefit = $20,000


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Death in Service Benefit for Spouse

1-42

  • A lump-sum benefit of $28,093, plus 50% of your final salary with less than 10 years of service (but at least 18 mos.)

  • Survivor benefit paid with 10 years or more of service


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Insurable Interest Survivor Benefit

1-44

Retiree must:

  • Be in good health

  • Not retire under disability

  • Can name only one person at time of retirement:

    • A close relative (OPM assumes relationship)

    • Someone who depends on retiree for support (affidavit needed)



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Children’s Survivor Benefit

1-45

  • Payable to dependent children upon the death of a retiree (page 1-45)

  • An automatic benefit; no election is required



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Lump-Sum Payment (of Retirement Contributions)

1-46

If no one entitled to survivor annuity

  • Retirement contributions go to beneficiaries on SF-3102; or

  • Your widow or widower

  • Your children or their descendants

  • Your parents

  • Executor your will

  • Other next of kin

    Other beneficiary forms in Appendix B on page B-3


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Steps for Planning Your Retirement Benefit

1-47

1: Determine your eligibility

2: Determine your basic retirement benefit

3: Identify age factors that affect a benefit

4. Determine whether to pay a civilian deposit

5: Consider survivor benefits options

6: Determine whether to pay a CSRS redeposit

7: Determine whether to pay a military deposit


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Determine Whether to Pay a Redeposit (for CSRS Component)

1-47

Two time periods:

  • Pre 10/1/90

  • On or after 10/1/90

  • Time counts for SCD even if not paid

  • Affect on annuity will differ by period (p 1-47)


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Example: CSRS ComponentRedeposit Pre 10/1/90

1-48

  • Age 60

  • Refund = $10,000

  • Redeposit = $25,000 (principal and interest owed)

* From Present Value Factor Table on p 1-49


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Example: CSRS Redeposit Post 10/1/90

1-48 & 49

  • Refund = $10,000 for 10 years of service

  • Redeposit = $25,000 (principal and interest owed)

  • Employee’s high-3 salary = $65,000

VC


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Steps for Planning Your Retirement Benefit

1-50

1: Determine your eligibility

2: Determine your basic retirement benefit

3: Identify age factors that affect a benefit

4. Determine whether to pay a civilian deposit

5: Consider survivor benefits options

6: Determine whether to pay a CSRS redeposit

7: Determine whether to pay a military deposit


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Example: FERS Military Service Deposit

1-51 & 52

  • Total base pay = $20,000

  • Deposit = $1,800 (principal and interest owed)

  • Employee’s high-3 salary = $65,000


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Retired From the U.S. Military

1-53

  • Combine military with civilian service

  • Waive military retirement annuity

  • May or may not benefit by combination


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Example: Retired from the Military (FERS) page 1-54

  • Total base pay = $200,000

  • Deposit = $18,000

  • Military pay = $15,000 (principal and interest owed

  • High three average salary: $65,000


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Summary

1: Determine your eligibility

2: Determine your basic retirement benefit

3: Identify age factors that affect a benefit

4. Determine whether to pay a civilian deposit

5: Consider survivor benefits options

6: Determine whether to pay a CSRS redeposit

7: Determine whether to pay a military deposit



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Module 2: Social Security

Module 2: Social Security

2-1

  • Qualifying for a benefit

    • Who

    • How

    • When

  • Calculating your benefit

  • Benefits for family members

  • When to apply for a retirement benefit


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Qualifying for a Benefit: How

2-3

  • Pay FICA taxes (6.2% of wages up to $106,800

  • Earn 40 credits

$1,090 = 1 credit

4 credits per year


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Qualifying for a Benefit: When

2-4

  • Full benefit at your full retirement age

  • Reduced benefit at age 62

If you were born in 1960 or later:

  • Your retirement age is 67

  • You will receive 70% of your full benefit at age 62 – see chart on Page 2-4


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Topics

2-5

  • Qualifying for a benefit

    • Who

    • How

    • When

  • Calculating your benefit

  • Benefits for family members

  • When to apply or a retirement benefit


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Calculate Your Estimated Monthly Benefit

2-5

1. Enter actual earnings

2. Multiply earnings by index factor (see example on page 2-6)

3. Add the 35 highest annual indexed amounts

4. Divide by 420 to establish the AIME


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Calculate Your Estimated Monthly Benefit

2-5

5. Apply the AIME to the formula:

a. 90% of $744

b. 32% of $744 through $4,483

c. 15% of amount over $4,483

6. Add a, b, and c



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Reduction Due to Earnings (from other work)

2-11

*Full Retirement Age


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Delayed Retirement Credits

2-10

  • Your full benefit increases for every month you delay retirement beyond full eligibility age

  • Increase varies based on your year of birth

  • Generally 8% per year up to age 70 (see chart on p 2-10)

  • Spousal benefit also increases


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Reduction Due to Earnings

2-11

Pearl, age 62

  • Receives $12,000 per year SS benefit

  • Earns $25,000 per year ($10,840 over the limit)

  • Will receive a benefit of $6,580 (reduced by $5,420)

    Should she postpone her benefit?


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Reduction Due to Earnings

2-12

Jerry, age 62:

  • Retired on August 30

  • Earned $45,000 through August

  • Earns $800 per month in retirement

His earnings through August will not affect his benefit.


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Topics

2-13

  • Qualifying for a benefit

    • Who

    • How

    • When

  • Calculating your benefit

  • Benefits for family members

  • When to apply or a retirement benefit


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Benefit for Family Members

2-13

  • Based on the employee’s full benefit

  • Maximum amount payable to a family ranges from 150 to 180% of the worker’s full benefit

  • Chart on page 2-13 shows % amounts


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Benefit for a Current Spouse

2-14

Gary, age 65, receives an earned benefit of $1,200

Lucinda, age 62, receives a spousal benefit of $450 (37.5% of $1,200)


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Widow’s Benefit

2-14

Gary is now deceased

Lucinda’s widow’s benefit is $1,200


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Benefit for a Former Spouse

2-15

  • Marriage lasted over 10 years

  • Former spouse is at least 62 and unmarried

  • Worker is entitled to or receiving benefits


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Benefit for a Former Spouse

2-16

  • Juan, age 65, receives $1,200

  • Ex-wife, age 62 and unmarried, receives $450

  • Current wife, age 62, receives $450


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Dual Entitlement

2-17

  • Workers may qualify for an earned and a spousal benefit

  • You cannot apply for a spousal benefit until your spouse receives a benefit

  • You will receive the higher of the two benefits, not both


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Dual Entitlement

2-17

Example 1

Joe’s earned benefit = $1,600

Becky’s reduced earned benefit = $375

Becky’s spousal benefit = $600

Example 2

Leon’s earned benefit = $1,000

Patti’s earned benefit = $1,400

Could draw spousal and wait for own benefits at 70


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Topics

2-19

  • Qualifying for a benefit

    • Who

    • How

    • When

  • Calculating your benefit

  • Benefits for family members

  • When to apply for a retirement benefit


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When to Apply

2-19

Ana may receive:

  • $750 per month at age 62

  • $1,000 per month at age 66

She will have received $36,000 by age 66. It will take 12 years to break even. Age 78 is the break-even point.

Consider longevity, financial need, other income, tax bracket



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TSP Contributions

4-2

CSRS and FERS employees may contribute but only FERS employees receive matching funds

2009: $16,500 employee tax deferred limit


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Catch-Up Contributions

4-3

  • Employees age 50 and over

  • Supplemental tax-deferred contributions of $5K

  • IRS sets maximum catch-up amount ($5.5K in 2009)

  • Must maximize regular contributions to be eligible ($22K is possible total in 2009)

  • Use TSP 1-C (must elect every year)


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Investment Options

4-4

Risk

High

I

S

Moderate

C

F

G

Low

Funds

See Chart on p 4-4


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L Funds

4-5

  • Diversify the funds in your TSP

  • Investments tailored to your time horizon

  • Investments are more aggressive with later time horizon

    (See L Funds Allocation Chart on Page 4-5)


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TSP loan program

Minimum 1K

Up to vested balance capped at 50K

Pay back at G fund rate

In-service withdrawal program

59 ½ for any reason

Earlier for hardship (penalty if under 59 ½)

TSP 75

In-Service Withdrawal Options

4-6


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TSP at Retirement or Separation

4-7

  • Can withdraw a portion or all of funds

  • Can make interfund transfers

  • Cannot contribute to your account

  • Cannot borrow from your account


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Options at Retirement or Separation

4-8

  • Partial (once)

    • not available if in-service withdrawal taken

  • Full

    • Single payment

    • Monthly payments

      • Life expectancy

      • Amount of your choosing

    • Life annuity

  • If withdrawn at separation and

    under 55, can avoid penalty through:

    • Life annuity

    • Life expectancy payment stream


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Transfer Funds to an IRA

4-9

  • Taxes will continue to be deferred

  • Choose from limitless investment choices

  • Make multiple partial withdrawal

  • May pay high management fees

  • Early withdrawal tax penalties may apply

    • (usually must be 59 ½ to withdraw without penalty vs 55 in TSP)


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Monthly Payment Based on a Specific Dollar Amount

4-10

  • Choose an amount of $25 or more

  • Receive payment until fund is depleted

  • Continue to make interfund transfers

  • May change amount once per year

    (Your TSP account is still active … this is not an annuity! – so you can outlive your money!)


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Example: Specified Monthly Payments

4-10

Payment: $3,000

An account balance of $500,000 earning 6% will provide payments for 30 years


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Life Annuity

4-12

  • Provides a monthly income for life

  • Purchased with TSP funds

  • Monthly payment is determined by:

    • Choice of annuity

    • Your age

    • Your TSP account balance

    • The market interest rate


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Life Annuity Options

4-12 & 4-13

Calculator example



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Module 3: Insurance

3-1

  • Health

    • FEHB

    • Medicare

  • Life

  • Long-term care


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The FEHB Program

3-2

  • Retire on an immediate annuity or postponed* FERS MRA + 10

  • Are covered continuously for the 5 years of service immediately preceding retirement (as holder or family member)

You may continue your coverage if you:

* If postponed, coverage ends until annuity is activated


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Enrollment in FEHB

3-3

  • Open season same as for employees

  • Same coverage for family members

  • Can’t cancel coverage (unless to be family member or covered under another person’s FEHB plan)

  • Can suspend coverage to be in:

    • Tricare (or Tricare for Life)

    • Medicare Advantage


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Federal Flexible Spending Accounts

3-5

  • Use pre-tax dollars to pay for medical and/or dependent care expenses

  • Elect yearly contributions as allotments

  • Draw funds as expenses are incurred

  • Up to $5K for each account

  • Use it or lose it!


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Federal FSAs and Retirement

3-6

  • Retirees are not eligible to participate, so be sure to plan accordingly

  • You must use HCFSA funds before retirement (but can continue to pay for pre-retirement expenses)

  • You are not responsible for continuing HCFSA payments after retirement

  • You may use remaining DCFSA funds after retirement for expenses incurred during plan year


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Federal Employees Dental and Vision Insurance Program

3-8

  • Comprehensive dental and vision benefits

  • No five year coverage requirement

  • Retirees may enroll during open season

  • May enroll in either, both or none

  • Can drop coverage and later reenroll during Open Season


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Medicare

3-9

Part A—Hospitalization (HI)

Part B—Doctors services, outpatient care (SMI)

Part C—Medicare Advantage Plans

Part D—Prescription drug coverage


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Coordination of Benefits

3-14

  • Primary payer

  • Secondary payer

  • Tertiary payer

Chart on Page 3-14


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Medicare Part A and FEHB

3-11

*Primary payer – Medicare

Secondary payer – FEBP

* Generally when you are 65 AND retired


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Enrollment in Medicare B

3-10

  • Enrollment at age 65

  • Initial enrollment period of 7 months (starts 3 months before you turn 65)

  • Subsequent enrollment from 1/1 through 3/31 each year – coverage starts 7/1

  • Late enrollment for Medicare B – 10% surcharge per each 12 month delay

  • Premiums (page 3-10)

  • Change in FEHB enrollment (outside of Open Season) to better match Medicare coverage


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Medicare Part B and FEHB

3-12

Do you need Part B? Options are:

  • Fee-for-service plan and Part B

  • Fee-for-service plan only

  • HMO only


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FEHP Fee-for-Service Plan and Part B

3-12

* If deductible not met, $135 applied and Medicare pays $465 in this example; FEHB still picks up balance


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FEHP Fee-for-Service Plan Only

3-12

*Depending on whether provider accepts Medicare assignment as payment in full


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FEHB HMO Only

3-13

Consider Part B to get better coverage outside your network – up to 80%


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Topics

3-15

  • Health

  • Life

  • Long-term care


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Life Insurance (FEGLI)

3-15

  • Basic and 3 optional types of coverage

  • The Government pays 1/3 of the premium for basic life

  • Employees pay 2/3 of the premium for basic life and the total cost of optional coverage


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Basic Life

3-16

Coverage = Salary, rounded up, + $2,000

Cost is $0.15 per $1,000 biweekly

Salary = $47,500

Coverage = $50,000

Cost is 50 x .15 = $7.50 biweekly


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Option A: Standard

3-16

Basic coverage plus $10,000


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Option B: Additional

3-16

Basic coverage plus 1 to 5 times your annual base pay (see chart on 3-16 for amounts)


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Option C: Family

3-16

Basic coverage plus:

  • $5,000 for spouse

  • $2,500 per dependent child

Additional coverage in multiples of up to 5 times the base amount


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FEGLI and Retirement

3-17

You may continue your coverage if you:

  • Retire on an immediate annuity or MRA + 10

  • Have been covered for the 5 years of service immediately preceding retirement

  • Have not converted to an individual policy

  • Have not waived basic life insurance


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Basic FEGLI and Retirement

3-18

  • Regular coverage until age 65

  • After age 65:

    • 75% reduction

    • 50% reduction

    • No reduction


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Example: Cost of Basic Coverage After Retirement

3-18


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Optional Coverage and Retirement

3-19

  • Option A coverage reduces to $2,500

  • Options B and/or C coverage

    • Full reduction

    • No reduction (can later change to full reduction)

    • Can also cancel one or more multiples at any time (B is very expensive at 55 and older) –

      see chart on page 3-19 for rates


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Topics

3-20

  • Health

  • Life

  • Long-term care


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Why Plan for LTC?

3-20

  • Longer lifespan

  • After age 65, 70% chance of needing LTC

  • High costs could deplete financial resources


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Long-Term Care

3-20

Nonskilled custodial care:

  • Helps with activities of daily living

    • Bathing

    • Dressing

    • Eating

    • Transferring

    • Toileting

  • Provides supervision of individuals with cognitive impairment


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Cost of LTC

3-20

$190,600

$68,000

$61,685

$23,000

2004

2030

2004

2030

Home Health Care

Nursing Home Care


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Who Pays for LTC?

3-21

  • Medicare and health insurance?

  • Medicaid?

  • The Department of Veterans Affairs?

  • The Area Agency on Aging?

  • LTC insurance?

  • Family/out-of-pocket?


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Savings Versus Insurance

3-21

LTC Insurance

($150 DBA, 3-yr; inflation protect.)

$190,600

$709,878

Savings (6% int.)

$164,250

$93,721

$93.30

$93.30

$93.30

Value in 30 years

Value after first payment

Value in 30 years

Value after first payment

Monthly

savings

Monthly

premium


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FLTCIP

3-22

Underwritten by LTCP

  • Provides an informal care benefit (non-professional; usually volunteer)

  • Provides international coverage

  • No war exclusion (benefits paid for conditions resulting from war/acts of war)

  • Offers a variety of plan options

  • New contract awarded (some rates will increase) – current policy holders can change options without underwriting


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FLTCIP Plans

3-22

  • Choose or design a plan

  • Five essential decisions to make:

    • Facilities-only or comprehensive

    • Daily benefit amount

    • Benefit period

    • Elimination period

    • Inflation protection


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Facilities-Only

Nursing home care

Care in an assisted living facility

Hospice care in a facility

Respite care in a facility

Caregiver training

(All care in formal setting)

Comprehensive

Facilities-only plus:

Home care (75% DBA)

Adult daycare (75% DBA)

Hospice care at home (100% DBA)

Respite care at home (100% DBA)

Facilities-Only or Comprehensive

3-23


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Daily Benefit Amount

3-23

  • $50–$300 ($25 increments)

  • Up to 100% for nursing home care

  • Up to 75% for home and adult daycare (comprehensive option only)


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Benefit Period

3-24

Unlimited . . .

3 years

5 years

1

2

3

4

5

6

7

8

9

10

11

12

13

Enter

nursing

home

Years


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Elimination Period

3-24

  • Choice of 30 or 90 days

  • Satisfy only once in the life of the policy

  • Days are cumulative over the life of policy

  • Needn’t be for same care episode

  • Waived for hospice and respite services and caregiver training

  • Considers only actual dates of service


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Inflation Protection

3-25

  • Automatic Compound Inflation Option (ACIO)

    • Benefits automatically increase 5%

    • No increase in premium

  • Future Purchase Option (FPO)

    • You may increase your benefit

    • Additional premium for additional coverage

    • Switch to ACIO with no underwriting

      (page 3-23)


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LTC Insurance Tools

3-27

  • Cost of care in your area

  • Realities of paying for LTC yourself

  • Calculate FLTCIP Premiums

    (at www.ltcfeds.com)


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Summary

  • Health

  • Life

  • Long-term care


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5

4

3

Countdown to Retirement

Good Luck!

2

1



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eSeminar Website

  • www.csrsfers.com/nitp

  • Enter code: NITPESI070308

  • Set up User ID and Password

  • Log-in to:

    • eSeminar

    • FRBe

    • FBM

  • Access is 24/7 for 30 days