By Jay Shareef and Chris Rhoads
Federal employees have several options when it comes to their benefits package—and it can be difficult to know where to start. Our WealthFlow Financial team understands the ins and outs and have created this helpful guide to break down the features available to federal employees in order to help you get the most out of them. Our guide covers topics such as healthcare, retirement, and life insurance benefits, and provides clear and concise information on each category to help you make an informed decision.
Here is an overview of the benefits the government offers its employees:
- Retirement Savings Plans: Civil Service Retirement System (CSRS), Federal Employee Retirement System (FERS), and Thrift Savings Plan (TSP)
- Health Insurance: Federal Employees Health Benefits Program (FEHB) (various plans)
- Flexible Spending Account (FSA): Federal Flexible Spending Account Program (FSAFEDS)
- Dental and Vision: The Federal Employees Dental and Vision Insurance Program (FEDVIP)
- Insurance: Federal Employees Group Life Insurance (FEGLI), Federal Long Term Care Insurance Program (FLTCIP)
The Civil Service Retirement Act, enacted in 1920, provides a retirement system for certain federal employees. This program was replaced by the Federal Employees Retirement System (FERS) for federal employees who first entered covered service on and after January 1, 1987.
The Civil Service Retirement System (CSRS) is a defined benefit contributory retirement system, to which eligible employees contribute 7%, 7.5%, or 8% of their pay, sharing in the expense of the annuities they become entitled to. In general, CSRS-covered employees do not pay Social Security retirement, survivor, and disability (OASDI) tax, but they are required to pay the Medicare tax, currently 1.45% of pay. For full CSRS employees, the contribution from the employing agency is equal to the amount the employee has deducted from their pay.
In 1987, the Federal Employee Retirement System (FERS) replaced the CSRS system for new federal civilian employees. The FERS plan provides three different benefits: a basic benefit plan, Social Security, and the Thrift Savings Plan (TSP). If you leave your employment with the federal government before retiring, both Social Security and TSP benefits can go with you.
The basic benefit plan and Social Security require employee contributions in the form of payroll deductions, and the government agency you’re employed by also makes contributions. Once you retire, you will receive income payments for the remainder of your life.
The basic benefit plan offered by the government is a pension that provides the employee with a set amount of money regardless of how much they contributed throughout their working years. The amount the employee receives is determined by years of service and the highest-paying three consecutive years of service, known as the High-3. The plan then adds a multiplier of 1% to those figures, or 1.1% if you are over 62 and have at least 20 years of service. The basic formula for your pension payment is High-3 Salary x Years of Service x Pension Multiplier = Annual Pension Benefit.
The Thrift Savings Plan (TSP) is a tax-deferred retirement savings and investment plan offered to federal employees (similar to a 401(k) plan that you may have if you worked in the private sector). You are automatically enrolled at 3% of your pay, but you can choose to increase or decrease that amount at any time. The Federal Employee Retirement System (FERS) will also contribute 1% of your basic pay on your behalf. Finally, FERS generously matches your contributions on the first 5% of the pay you contribute. The first 3% is matched dollar-for-dollar, and the next 2% is matched at 50 cents on the dollar.
As with many other types of retirement plans, you can choose to invest pre-tax or after tax. If you choose the Traditional TSP, you will invest pre-tax money but pay taxes when you withdraw the money in retirement. For the Roth TSP option, you pay taxes on your contributions now but can access the money tax-free in retirement.
If it’s the right choice for your financial situation, you can make contributions to both accounts for a combined amount of $22,500 or $30,000 if you are age 50 or older. Your government match will be deposited in your Traditional TSP.
The FEHB program is for federal employees, retirees, and their survivors. The overall program offers the widest selection of health plans in the country. Participants may choose from consumer-driven and high-deductible plansthat offer catastrophic risk protection with higher deductibles, health savings/reimbursable accounts, and lower premiums, or Fee-for-Service (FFS) plans, and their Preferred Provider Organizations (PPO), or Health Maintenance Organizations (HMO). Your eligibility for the different types of plans is determined by the government agency you are employed by and your geographic location.
The FFS plans come in two different forms. The non-PPO option is a traditional type of insurance where you either pay the medical provider directly or you’re reimbursed by filing an insurance claim. With this plan, you have the ability to visit the doctor of your choice but it can be more expensive and require more paperwork. The FFS with PPO option allows you to see medical providers who then reduce their charges, which means less out-of-pocket costs.
The HMO plan provides care through a network of physicians and hospitals in particular geographic or service areas. HMOs limit your out-of-pocket costs to the relatively low amounts shown in the benefit brochures provided by your human resources department.
In an HMO, the POS lets you use providers who are not part of the HMO network. However, as a downside, you will pay more for using non-network providers. This plan usually has higher deductibles and coinsurances.
CDHP is designed to incentivize you to control the cost of your healthcare. You will have greater freedom in spending up to a certain amount and you will also receive full coverage for in-network preventive care. Conversely, you will have significantly higher cost-sharing expenses after you have spent the designated amount.
A High-Deductible Health Plan, a health insurance plan in which the enrollee pays a high deductible, can cover preventive care and have higher out-of-pocket copayments and coinsurance for services received from non-network providers. HDHP participants can be eligible for health savings accounts (HSAs).
Health Reimbursement Arrangements (HRAs) can be used with Consumer-Driven Health Plans (CDHP). They may also be available to participants in High-Deductible Health Plans (HDHP) who are ineligible for an HSA. HRAs are similar to HSAs except the participant can’t make deposits into the HRA. A health plan can create a ceiling on the value of an HRA, interest can’t be earned on an HRA, and the amount in an HRA is not transferable if the participant leaves the health plan.
A health savings account allows individuals to pay for current health expenses as well as save for future medical expenses. Contributions are made pre-tax where funds deposited into an HSA are not taxed, the balance grows tax-free, and funds are available on a tax-free basis to pay medical costs. To open an HSA, participants must be covered under a High-Deductible Health Plan and cannot be eligible for Medicare.
Employees are eligible for healthcare FSAs, which allows you to add money pre-tax to pay for eligible medical, dental, and vision expenses. A Limited Expense Health Care FSA can be used if you are in an HDHP and using an HSA, giving you the opportunity to increase your savings. Dependent Care FSAs allow you to pay for eligible dependent care services such as preschool and summer day camps, with contributions made pre-tax.
Dental and vision benefits are available to eligible federal and postal employees, retirees, and their eligible family members. Dental insurance and vision insurance are group plans with no pre-existing-condition limitations. Premiums are paid by salary deductions pre-tax, and participants may enroll themselves, self plus one, or self and family. To be eligible, family members include your spouse and unmarried dependent children under age 22.
Most employees are eligible for group term life insurance. Basic life insurance coverage is automatic and you as the employee pay two-thirds of the premium with the government paying one-third. Additional life insurance is also available to purchase for yourself and your qualified family members. Unlike traditional life insurance offered by employers, the FEGLI program allows some coverage to be continued at retirement.
Long-term care insurance helps pay the costs of care when participants need help performing activities of daily living or if they have a severe cognitive impairment, such as Alzheimer’s disease. Most federal employees and qualified relatives are eligible to purchase long-term care insurance. The key is eligibility, as you must be approved for coverage based on your medical background.
Whether you just started working or you’re getting ready for retirement, you want to feel confident that you’re maximizing the benefits offered to you. Here are several ways you can work to accomplish this.
Your plan should start with preparing for unexpected things to happen in life. Do you have the right amount of life insurance in case you pass away early? Have you purchased long-term care insurance? Do you have an adequate emergency fund? These are great questions to ask yourself to make sure you are more prepared for negative events in life.
What do you want your long-term picture to look like? The government provides great benefits to its employees. Are your actions truly taking advantage of them? If you want to retire early or by a certain age, you need a plan to make that happen.
Your TSP account should align with your comfort with risk and your expected retirement date. If you are too risky and the investments go down right when you want to retire, you may need to delay retirement. Many people don’t review their investments on a regular basis, which can be a mistake should things in the markets change and retirement approaches.
Having a clear understanding of the benefits available to you allows you a more stable financial life not just for today, but also for the future. Speaking with an advisor who can evaluate your options and develop a plan to maximize your benefits can significantly improve your retirement and future wealth.
Are you looking for a trusted professional with whom to discuss your retirement strategy? Are you interested in learning more about the federal benefits that may be available to you? If so, I invite you to reach out to our team at WealthFlow Financial for a review of your current situation. We can discuss where you are and the direction of where you want to be while offering advice on developing a retirement strategy that works for you. Reach out to us at (301) 798-5250 or schedule a phone call now.
Jay Shareef is vice president, financial advisor, federal benefits consultant, and co-founder at WealthFlow Financial. As a U.S. Army veteran, Jay is passionate about helping federal employees create a bulletproof plan for retirement and navigate the often confusing and complicated federal benefits landscape. He spends his days educating and providing clients with unbiased insurance benefits and retirement strategies to help his clients create guaranteed income for life. As a problem-solver and trustworthy resource, Jay always puts his clients and their needs first so they can find financial peace of mind. He holds the Chartered Federal Employee Benefits ConsultantSM (ChFEBCSM) credential. To learn more about Jay, connect with him on LinkedIn.
Chris Rhoads is a co-founder and vice president of WealthFlow Financial. As a registered investment advisor and independent financial professional, Chris is committed to helping his clients in retirement and he takes a holistic approach to financial planning that includes insurance and risk management, investments and wealth management, retirement income planning, and estate and tax planning. He holds the Chartered Federal Employee Benefits ConsultantSM (ChFEBCSM) certification. Chris has been married to his wife, Tia, since 2009 and they live in Frederick, MD, together with their two young daughters. In his free time, Chris enjoys traveling, watching sports, and being active in causes about which he cares passionately. To learn more about Chris, connect with him on LinkedIn.