OIG Report on CSRS Overpayment 2010 

Friday Alert June 22 2009

H.R. 3579: A Win-Win Bill

(This article first appeared in the September/October 2008 issue of The American Postal Worker magazine.)

The APWU continues to pursue the re-employment of postal retirees in new retail outlets. One of the crowning achievements of the 2006 contract negotiations was the agreement under which Postal Service retirees would be eligible for part-time positions in retail outlets.

However, this agreement was never implemented because federal law stipulates that when retiree annuitants return to work for a federal agency, their annuity must be offset by the salary they earn. The Office of Personnel Management (OPM) may grant waivers of this requirement, and if a waiver is granted, there is no offset. This exception should be the rule.

H.R. 3579, a bill currently before the House of Representatives, would allow federal agencies to reemploy federal employees on an “as-needed” basis. The APWU supports this legislation. In seeking its passage, we would like to see an amendment that explicitly mentions retired postal workers.

In testimony this spring to the Subcommittee on Federal Work Force, Postal Service, and the District of Columbia, APWU President William Burrus said.

“The workforce of the future will, of necessity, include a blend of the young and old, with each category contributing their special skills to the task of growing our economy. The old model of restricting the contributions of an earlier generation is outdated and limits our national potential. The federal government should be an example of the workforce of tomorrow.”

APWU members (both retirees and active employees) must join the fight for this legislation. Please write your congressional representatives and ask them to support H.R. 3579.

Retirement Planning

Countdown to Retirement

By Tammy Flanagan National Institute of

Transition Planning March 14, 2008

So you've set your retirement date and discussed your plans with those who will be affected by your decision. Your co-workers and family members all have assured you that you've made the right choice and you're beginning to picture your new life.

Even if you've picked a date almost a year away, though, there are things you should begin to do to make sure the process is a smooth one. Here's a brief checklist.

Complete your retirement application. This should be done at least three months before your retirement date (or as soon as possible after you've made the decision to retire if you are leaving in less than three months). You might need some time to research and ponder decisions regarding survivor benefits, previous federal service and insurance options. Here are links to the relevant forms: Civil Service Retirement System Application, Federal Employees Retirement System Application.

Request a final retirement estimate from your human resources office. You might have an estimate you requested a year or more ago. But now that you've set an exact date, you'll be able to get a more accurate calculation. Then you can review it and ask questions to be sure you understand how it was computed and that it accurately reflects your career. Remember, it still will be only an estimate. The Office of Personnel Management must finalize the amount you receive.

Make decisions regarding any service credit payments that are outstanding. These unpaid "deposits" can permanently affect the amount of your retirement benefits. If you're not sure about this issue, here are four columns that address it:

• Getting Credit (Jan. 27, 2006)
• Buying Retirement Credit (Feb. 10, 2006)
• Redepositing CSRS Refunds (Feb. 17, 2006)
• Military Service Payback (Feb. 24, 2006)

If you're divorced, consider the implications. Does your former spouse have any rights to a portion of your retirement, survivor benefits, or Thrift Savings Plan funds? You will need to submit a copy of your divorce decree with your retirement application if your former spouse was awarded a survivor annuity under CSRS or FERS. For more information, see D-I-V-O-R-C-E (Aug. 24, 2007).

Request that state taxes be withheld from your benefits, if necessary. OPM will automatically advise you regarding federal income tax withholding. (Here's a withholding calculator from the OPM Web site.) But it's up to you to request to have state income tax withheld. Some states won't tax your retirement payments; others will, but not necessarily at the same rate as other income. Here's a summary of state tax rules for 2007.

Make a plan to withdraw your TSP funds. Don't send in a withdrawal request until you have been out of government for at least 30 days. It's important to allow time for your agency to notify the TSP that you are no longer a current employee. Here are some forms and publications to get you started:

• TSP 77, Request for Partial Withdrawal When Separated
• TSP 70, Request for Full Withdrawal When Separated
• TSP Book 2, Withdrawing Your TSP Account after Leaving Federal Service
• Important Tax Information about Payments From Your TSP Account

Contact the Social Security Administration if necessary. Here are a couple of situations where it might be: If you're old enough and eligible to begin receiving Social Security benefits; or if you already are receiving benefits because you are over the full Social Security retirement age, but are getting ready to retire and collect a CSRS retirement. You can contact SSA on its Web site or by calling 800-772-1213.

Reevaluate your insurance needs. You may be able to reduce your life insurance if your kids are now grown and your house is paid off. Here's a calculator to determine how much Federal Employees Group Life Insurance you are currently carrying and how much it is costing you. You may also want to consider purchasing long-term care insurance if you don't already have a policy.

Make sure you'll be eligible to maintain your Federal Employees Health Benefits Plan coverage into retirement. To continue coverage, you must have retired on an immediate annuity, and have been continuously enrolled (or covered as a family member) in any FEHBP plan for the five years of service immediately preceding retirement -- or if less than five years, for all service since your first opportunity to enroll. You can continue coverage under the Federal Employees Dental and Vision Insurance Program into retirement without having five years in the plan. And retirees can enroll in FEDVIP coverage during annual open seasons.

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.

Retirement Planning

Last-Minute Tips

By Tammy Flanagan National Institute of Transition Planning December 14, 2007

If you are among that group of people who will be retiring in the next few weeks, let me be among the first to offer congratulation on your career of dedicated federal service. As a final send-off, here are some tips for your last days on the job.

Review your final retirement estimate. You did get a retirement estimate, didn't you? If not, now's the time to ask human resources for one. Check the dates and reported salaries, analyze your survivor options, if applicable, and look for any comments that were added. Make sure you understand what it says. Much of what goes on this final estimate will be the same information that is transferred to the Office of Personnel Management and used to determine your retirement benefit.

Stay connected. Ask for the best way to contact your retirement specialist and payroll office after you retire (phone, e-mail or U.S. mail). A specialist can be helpful if you have a question about your retirement computation, insurance coverage or service history. And if you have a question about your final leave payment, your final Thrift Savings Plan contributions, taxes on your leave payment or your final pay check, you will want to be able to contact your payroll office.

Stay in touch. Be sure to remember to keep your address and contact information current with your agency during the transition period (after you retire and prior to your communications from OPM). Let them know if you are moving, going on a trip across the country, or spending the winter in Florida. The same goes for OPM and TSP officials. You will probably be placed in an "interim" retired status while OPM is finalizing your claim. That means OPM might need to contact you in the first few months following your retirement while they review all of your application materials. Throughout your retirement, it is important to update your address if it changes.

Sign everything. Your retirement application needs a signature. You need to sign a form called Certified Summary of Federal Service before retirement. It provides a list of your federal service attached to the documentation of your service that is going to be used to compute your retirement. Look this over carefully, to be sure all of your federal service is accounted for. If your spouse is waiving full survivor benefits, a notarized consent must be provided. Ask your retirement specialist to review your application to be sure you've completed all of the forms and filled in all of the blanks. This should be part of the retirement process.

Copy everything. You should maintain a copy of your retirement application as well as all the supporting documentation. If you have questions, you may wish to refer to the application or to your service history documents. Of course, you should have maintained copies of your service history throughout your career, but if you don't have copies of your Notification of Personnel Actions (SF 50's) and your military records, be sure to obtain a copy before these documents leave your agency.

Designate beneficiaries. You also should have copies of your beneficiary designations for your retirement, life insurance and TSP account. To be valid, they must be certified by OPM, your agency or the TSP. If you don't have copies, it might be a good time to file new beneficiary designations. The forms are available here.

Make IRA contributions. My friend Bob Leins, an accountant, offers this tip: If you retire on Dec. 31 or Jan. 3, your last pay check and your payment for unused annual leave will arrive in 2008, and thus will be counted as earned income for 2008. You will be able to make an IRA contribution of $5,000 and if you are 50 or older, you can make an additional $1,000 catch-up contribution. Some people may qualify for Roth IRA contributions, depending on your 2008 income. You cannot contribute to the TSP from your lump sum annual leave payment, however. If you are retiring later in 2008 but before the end of the year, you can plan to contribute the maximum to your TSP account prior to your retirement by adjusting your payroll allotment. Here's some additional information on traditional vs. RothIRA's.

If you're in NSPS... If you are retiring under the National Security Personnel System, to be eligible for a performance payout you must be in NSPS on the day of the payout. This means you will miss out on the payout by leaving on Dec. 31 or Jan. 3. You may have to decide if getting the lump sum leave payment for more than 240 hours is more important than the performance payout you are due to receive. In this case, you may want to postpone your retirement until Jan. 31 (if you're under the Federal Employees Retirement System) or Feb. 1 (if you're under the Civil Service Retirement System). For more information, see my columns When to Retire (July 20) and Best Dates to Retire 2008 (July 27).

Empty out your FSA. Be sure to incur expenses in your health care flexible spending account prior to your date of separation. If you have a 2007 balance, you will not be able to submit claims for expenses incurred after your date of separation.

And Finally... If you are reading this and thinking you would like to retire, but you don't know where to start, here's a checklist for employees who are thinking about retirement.

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.

The Windfall Elimination Provision and CSRS Offset Retirees

By John Grobe

9/26/2007

Click here for more articles by John Grobe

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I was looking at some of the comments on my article "Windfall Elimination and Your Retirement Future" (WEP) and several readers asked for some information as to what the WEP does to CSRS Offset retirees.  Now, CSRS Offset folks are an exclusive bunch; and if you don't know what I mean by CSRS Offset – you are not one of them.

CSRS offset employees are employees who were vested in CSRS as of 12/31/1986, had a break in service of over one year and chose CSRS Offset over FERS upon their return to federal service.  The fact that they are vested in CSRS is what makes them subject to the WEP.

The good news is that many CSRS Offset employees have enough years of substantial earnings under Social Security to either eliminate or mitigate the WEP.  A link to the Social Security factsheet on the WEP was included in the September 26th article and the sheet contains a list of what constitutes substantial earnings.

It takes 30 years of substantial earnings to eliminate the WEP.  More than 20 years of substantial earnings can mitigate it.  To determine how many of these years you have, take your most recent Social Security Statement and compare the annual earnings out of which Social Security taxes were withheld with the substantial earnings thresholds.  If you've got 30 – you're home free.

Windfall Elimination and Your Retirement Future

By John Grobe

9/26/2007

Click here for more articles by John Grobe

You can have daily headlines from FedSmith.com delivered right to your desktop each business morning. The service is free and you don't get junk e-mail as the price of your subscription. Just visit our newsletter page to sign up!

The Windfall Elimination Provision (WEP) and Government Pension Offset (GPO) are two provisions of the Social Security law that affect Social Security benefits to which CSRS retirees may be entitled. Like many other aspects of retirement rules and regulations, they can cause a good deal of confusion among current and prospective CSRS retirees. Consider the names themselves:

• The Windfall Elimination Provision does not eliminate a Social Security benefit to which you are entitled on your own earnings record. It will, however, generally drastically reduce it.
• The Government Pension Offset's offset of any Social Security benefit to which you would be entitled on the earnings record of another is usually so severe that it completely eliminates such benefit.

These two provisions were introduced in the 1980's in an early attempt to shore up the Social Security system and public employee supporters in Congress have been trying to repeal or revise them since then.

In fact, these two provisions do not target only CSRS employees. They apply to anyone who has earned pension benefits based on work not covered by Social Security (i.e., work from which Social Security deductions had not been withheld). This would include CSRS Offset employees and FERS employees who transferred from CSRS after having five years of civilian service (enough to entitle them to a CSRS retirement benefit).

The remainder of this article will take a look at the Windfall Elimination Provision. A future article will review the Government Pension Offset and discuss legislation about the repeal or modification of WEP and GPO.

The Windfall Elimination Provision affects only Social Security benefits to which you are entitled based on your own earnings record. As long as you have earned 40 credits (formerly known as quarters of coverage) you will receive some kind of Social Security benefit.

The Social Security System has a need-related component that is designed to replace a much greater portion of a low wage earner's income than that of the high wage earner. CSRS employees, and others who have earned a retirement benefit based on work that was not covered by Social Security, most likely have many years in their Social Security earnings record where they had little or no employment covered by Social Security. They would look like a low wage earner to the Social Security system, even though they had been working at a good job and earning a pension the entire time.

Describing how Social Security retirement benefits are computed would take up too much space here, but Social Security uses a much higher (90%) computation factor for the lowest portion of Social Security earnings. For retirees who are entitled to a pension based on work not covered by Social Security, that computation factor could be as low as 40%.

If you have 20 or fewer years of substantial earnings (most of us CSRS folks) your benefit will be computed using the 40% factor. For years over 20, the factor increases by 5% a year until it reaches 90% after 30 years. A Social Security Factsheet on the WEP is available here and has a chart on what constitutes substantial earnings.

We all should be getting Social Security Statements from the Social Security Administration on an annual basis. If we have already earned 40 credits, there will be an estimated benefit listed. Unfortunately, the SSA computers do not know that we are CSRS employees who are subject to the WEP. You can go to the Social Security website and use their WEP calculator, or you can try this computation:

• If the monthly benefit shown on your Social Security Statement is less than $680, cut it in half
• If the monthly benefit shown on your Social Security Statement is greater than $680, subtract $340 from it.

Taxing Retirees: Some States Will Give You a Break (And Some Won't)

By Ralph Smith

Monday, February 11, 2008

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If you are a federal employee who has 25 or more years of federal service, chances are you are thinking hard about becoming one member of the "retirement tsunami" predicted by the Office of Personnel Management that will be overwhelming federal agencies in the next several years.

If you are thinking hard about retirement, you face an important decision: Where do you want to live?

This can be a complex decision. When you are working, the decision about where to live is often made by where your job is located and where you can make the most money. You may decide to move to the Washington, DC area while an active federal employee to build up your retirement annuity because you are likely to make more living in the Washington metropolitan area than in many other areas of the country.

On the other hand, you may find that big-city living isn't for you when you retire. If you bought a nice house for $100,000 in Alexandria, Virginia back in 1978, that house may be worth $600,000 or more now depending on the usual real estate factors (location, location and location). You could sell the house, take the money from the sale and move.

There are advantages to living in Washington or any other big city but there is more congestion, higher taxes, and that $600,000 or more you may get from selling your house may buy a magnificent luxury condo on the ocean or in the mountains or a beautiful golf resort far away from the stresses of your former life as a hard-working federal employee (Check out the options at this one Florida beach and golf community which has advertised on the FedSmith site.). Of course, there are also more restaurants movie theaters, and other entertainment venues in a large city than you will find in areas with a smaller population. And, if you are retiring, you will want to consider where your children, relatives and friends may be living and how far away you want to move from these people important to you.

There are also considerations such as climate. If you like warm weather, you might be inclined to check out cities in Florida where the weather is warmer than most other parts of the country. In some parts of the state, housing is relatively inexpensive and there are communities that cater to retirees. Phoenix and Southern Calilfornia are other retiree hot spots and they all have some advantages. (Check out Looking for a Warm, Sunny Retirement Haven?)

When you retire, you have choices that you do not have when you are working. If you have always wanted to move to a different area, you can do so--or at least you are not restricted by your job from moving.

There are also financial considerations. One of the biggest considerations is taxes. Some states give retirees a tax break. It may not sound like much but the extra money you may find yourself handing over to state and local taxing authorities during the last few decades of your life can make a difference in how well you live.

Several readers have written in recently asking about the best states for retirees with the primary consideration being taxes. Below you will see a list of states that do not tax income from federal pensions. Before you check over the list and start packing your bags, please note these very important disclaimers because your situation may be different than that others.

First, this is a broad list. Our American tax structure is horrendous. It is complex, difficult to understand, expensive to administer and you will probably need a tax lawyer or a tax adviser to tell you about any complications you may encounter. Just because your former office mate found that a state was ideal, you may find it is a tax hell for reasons that did not apply to your colleague.

Second, there are numerous variations on state and local taxes just as there are with federal taxes. I am not a qualified tax adviser and don't make any claim to know the details of the tax structure of all states and localities--including those you may be considering as your retirement haven.

Third, tax laws change and may change quickly (even after you make the big move). What may have been accurate several years ago may no longer be accurate. Check with your tax adviser for any changes that may have occurred during the recent sessions of the legislature in a state in which you have a particular interest. I have put together a list from several sources based on relatively recent information but make no claim as to the accuracy today or next month or next year. Pay your tax adviser for the most recent advice you can get for the particular state and town you are considering before making your big move.

For example, several lists of states with no income tax do not include Florida. Florida does not have an income tax. It did have an intangible personal property tax under which a person paid a small percentage of tax based on the total value of stocks and bonds. That tax was eliminated in the past year so Florida is now a state that does not have an income tax. If you are a retiree in Florida and have substantial assets in mutual funds, bonds or stocks, your income just went up because you no longer have to pay this tax.

In fact, when you research, you will find different value and lists because of how the figures are calculated. But, to assist you in making your decision, here are some lists that may be a good starting point. (Check out this retirement housing guide as well.)

Here are ten states that exempt all federal, state and local pension income from taxes:

• Alabama
• Hawaii
• Illinois
• Kansas
• Louisiana
• Massachusetts
• Michigan
• Mississippi
• New York
• Pennsylvania

Several other states also do not tax pension income but have various restrictions. For example, some states have different tax rates depending on the years in which government service was performed, or the date on which a person retired, or the date on which the government service was first started. One example: North Carolina does not tax annuities beginning with 1998 if an individual had five years of government service as of August 12, 1989.

Perhaps you are planning to retire but work part-time. Which states offer the best deal on state income taxes?
Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming do not have a personal income tax. Tennessee and New Hampshire claim not to have a personal income tax but that isn't entirely true. They do tax income from interest and dividends.

Sales taxes can also play a role in your decision. Sometimes, a state with a low income tax rate (or no state income tax at all) will make its money from high sales taxes. Before you decide to retire, sell your house, and move to your retirement paradise and buy a new Mercedes, check out the sales tax rate. A tax of 9% on that expensive luxury car may make a difference in your decision. Check out these states with the highest tax rates (including an average for city and county tax rates) as compiled by the Retirement Living Information Center:

• Tennessee (9.4%)
• Louisiana (8.7%)
• Washington (8.5%)
• New York (8.25%)
• Arkansas (8.15%)
• Alabama (8.05%)
• Oklahoma (8.05%)
• California (8.0%)

And where is your lowest tax burden as a percentage of total income?

• Alaska (6.6%
• New Hampshire (8%)
• Tennessee (8.5%)
• Delaware (8.8%)
• Alabama (8.8%)

On the other hand, you may want to avoid Vermont (14.1%), Maine (14%), New York (13.8%) and Rhode Island (12.7%).

Are you confused now? No one said our tax structure was designed for the convenience of individual citizens. But pay close attention. The COLA you get with your federal annuity will not make you rich and you will probably want to cut down on your expenses before you make your final retirement decisions.

For Some Retirees, Health Insurance Is Tax-Free
__

By Stephen Barr
Thursday, September 27, 2007; D04

Since 2000, federal employees have been able to pay their health insurance premiums on a tax-free basis. The tax code does not extend this perk to federal retirees, to their dismay.

But a little-noticed provision in 2006 Pension Protection Act has made an exception for retired "public safety officers." They can request that up to $3,000 from their annual pensions be deducted to pay for medical insurance and long-term-care insurance.

The Internal Revenue Service, for 2006 tax returns, defined public safety officers as firefighters, law enforcement officers, chaplains and members of a rescue squad or ambulance crew.

Eligibility criteria may be updated by the IRS later this year when it issues a new version of the tax guide for civil service retirement benefits (publication 721), used by many federal retirees when preparing their income tax returns.

The Office of Personnel Management has determined that the pension law applies to the two major federal retirement programs, the Civil Service Retirement System and the Federal Employees Retirement System. Retired federal public safety officers whose pensions include a direct payment to a health insurance company or long-term care insurance company may claim a tax exclusion on their federal tax form and lower their federal income tax, the OPM said.

The provision in the new pension law has caused some confusion among federal retirees about who is eligible to claim the tax break. Some retirees believe they performed public safety jobs but held job titles, such as technician, that are not listed in the IRS tax guide.

"Frustration regarding who is eligible for the tax exclusion could be eliminated if all retired federal workers were offered the tax relief," said Dan Adcock, assistant legislative director at the National Active and Retired Federal Employees Association, known as NARFE.

In the group's September magazine, Adcock said the pension law "sets a new precedent of providing retirees with tax relief that will make their health costs more affordable."

NARFE has lobbied Congress in recent years to extend the tax advantage, called "premium conversion," to federal retirees.

Earlier this month, the House Committee on Oversight and Government Reform approved a bill sponsored by Rep. Thomas M. Davis III (R-Va.) that would allow all federal civilian and military retirees to pay their monthly health-care premiums with tax-free deductions from their annuities and allow active-duty military personnel to deduct from their taxable income certain supplemental premiums or enrollment fees for Tricare, their military health insurance.

John W. Warner (R-Va.) and James Webb (D-Va.) have introduced similar legislation in the Senate.

The Davis bill would provide average saving of $820 a year for federal retirees, according to a government estimate. The median federal retiree pension is $1,879 per month, the House committee said.

But the bill carries a high price, about $12.7 billion over 10 years, according to the most recent estimate by the Congressional Budget Office. Although many House members have signaled support for the legislation, the House Ways and Means Committee has not taken it up.

Through a partnership with Lions World Services for the Blind, the IRS has hired 673 employees after providing them with job training that uses adaptive technologies. The IRS, through its employment program, has hired an additional 126 visually impaired computer programmers, the EEOC said.

The award was presented by Naomi C. Earp, who chairs the EEOC, as part of the agency's annual "Freedom to Compete awards. EEOC began the awards in 2002 as part of an initiative to champion access to employment opportunities by all individuals.

Stephen Barr's e-mail address isbarrs@washpost.com.

EEOC Honors IRS

The Internal Revenue Service was honored yesterday by the Equal Employment Opportunity Commission for its efforts to hire persons who are blind or have visual impairments.

This message is generated by the NARFE Global Email Messaging System (GEMS). Please do not reply to this message. If you wish to reply to this message, please compose a new message to the sender. To stop receiving these messages, simply visit our web site at www.narfe.org and remove your e-mail address from your membership record or email us at memsrvcs@narfe.org