Category Archives: Federal Disability Retirement

Options to Change FERS

contributions

The federal government spent $91 billion on retirement benefits for civilian employees in 2016 alone.

  • $70 billion for CSRS pensions for civilian retirees and their survivors
  • $13 billion for FERS pensions for civilian retirees and their survivors
  • $8 billion for TSP contributions

These expenses were partially offset by $3 billion in revenue from employee contributions to CSRS/FERS pension plans.

The national debt is close to $20 trillion and continues to rise. Because of this, the House Oversight and Government Reform Committee asked the Congressional Budget Office (CBO) to consider changing the federal retirement system for potential savings. Under the current system, the governments’ net expenses for federal civilian retirement systems are projected to grow by an average of 2.8 percent annually between 2018-2027.

Retirement Options for FERS

The report from the CBO examines how changing FERS would affect federal government spending in the long term.

Option 1

This option would modify the FERS pension plan by changing employee contributions to the plan. It would increase the FERS contribution rate to 4.4 percent for current employees (from 0.8 percent for employees hired before 2013 and from 3.1 percent for employees hired in 2013).

Option 2

This option would decrease pension contributions for some employees with larger contributions from the government to employee TSP accounts. CBO describes this change similar to the shifts over recent decades from defined benefit to defined contribution retirement plans in many private sector companies and state governments.

It would decrease the FERS contribution rate to 0.8 percent for all employees (from 4.4 percent for employees hired after 2013 and from 3.1 percent for employees hired in 2013). This option may help in recruiting new federal employees and retaining current employees, however, it would increase the federal government’s net retirement costs by 10 percent over the next 10 years.

Option 3

Option 3 would change the current pension formula from calculations based on the High-3 salary to a High-5. This would decrease FERS pensions by basing the retirement benefit on 5 years of the highest salary. It would also decrease the government’s cost by one percent over the next 10 years.

Option 4

This option would eliminate the FERS pension and increase the government’s automatic TSP contribution to 8 percent salary. It would also require the government to match employee contributions up to an additional 7 percent.

Option 5

Option 5 would eliminate the FERS pension, increase the government’s automatic TSP contribution to 10 percent of salary and eliminate the governments’ matching contributions. This option would potentially have the biggest long-term savings for the government.

Most of these proposals would have a greater impact on new employees than those who are already employees.

There’s also no guarantee that Congress will adopt these changes.

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Minority Hiring Initiative

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Secretary of State, Rex Tillerson, plans to launch a new initiative to improve diversity in foreign service. This includes a requirement that at least one minority candidate be considered for all ambassadorial positions.

He noted there was a significant gap between the racial makeup of the State Department and the American population. “We have a great diversity gap in the State Department. We need a State Department that reflects the American people, reflects who we are. The State Department must redouble our efforts to increase diversity at the highest ranks of the department, including at the ambassador level,” Tillerson said.

About 12 percent of senior Foreign Service officers are people of color, and that is “about the same” for the agency’s senior executive service contingent.

Tillerson has instructed staff that at least one minority must be considered and interviewed for every open ambassador position.

State Department Press Secretary, Heather Nauert said even if this plan doesn’t produce immediate results, it will advance the agency’s diversity goals in the future. “When we look at ambassadorial candidates, when we look at that pool, we want a minority represented in those interviews, to be interviewed for the job. And if they’re not ready for that position yet, that gives us the opportunity to know who they are and put them on our radar. And it helps us get them ready for the future,” she said.

Tillerson also announced he will retain “all of our fellowship and internship programs”. He plans to boost the agency’s recruitment efforts at college campuses, particularly historically black colleges, and universities.

He said, “While our diplomats in residence at Howard, Spellman, Morehouse, and Florida A&M do an outstanding job ensuring that people understand the opportunities at the State Department, there are more than 100 historically black colleges and universities, and there’s so much more we can do to raise awareness about the range of careers at State. We also want to expand our footprint at minority-focused job fairs, and we can do more to recruit from one of the most diverse and proven talent pools, as I mentioned: our U.S. Military.”

Nauert said she didn’t have a timeframe for when the agency will begin ramping up its recruitment efforts, but she did say the initiative is “important to the secretary”.

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New Ways to Measure Future COLA’s?

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The 2018 Cost of Living Adjustment is set using the Bureau of Labor Statistics CPI-W index, however, there are other possibilities for making the adjustment in 2019 and beyond. The BLS has several measures of inflation. The CPI-W is one of the oldest for making COLA’s for federal retirees, Social Security recipients, and others.

The CPI-W measures goods and services purchased by hourly wage earning or clerical workers, which applies to a smaller and smaller percentage of the population. Congress has pushed for an alternative method of computing COLA’s. Below are a few options.

CPI-U

The BLS produces another major index called the Consumer Price Index for All Urban Consumers (CPI-U). This includes expenditures by urban wage earners and clerical workers, professional, managerial, and technical workers, self-employed, short-term workers, unemployed, retirees and others not in the labor force.

This index is most often cited when talks of inflation occur because it reflects a much larger share of the U.S. population than the CPI-W. The CPI-W and CPI-U closely followed each other for the 12 months ending in July. The CPI-U rose 1.7 percent, while the CPI-W rose 1.6 percent.

Moving to this index may be less controversial than others.

CPI-E

The BLS also produces a monthly index focused on the purchasing habits of the elderly (CPI-E). It tends to rise faster than the two mentioned above. It measures the average change in prices over time for a fixed market basket of goods and services for Americans age 62 or older.

The National Active and Retired Federal Employees Association (NARFE) has advocated for the use of the CPI-E. Richard Thissen, president of NARFE, said,

“The fact that we do not use the CPI-E already is shocking. Instead, COLA’s for seniors collecting Social Security and federal civilian or military retirement benefits are based on costs experienced by ‘urban wage earners and clerical workers’, not upon the costs retired individuals experience. And that does not make a lot of sense. Worse yet, it is costing seniors, including federal civilian and military retirees, precious dollars every year. The 2019 COLA was 0.3 percent, and the year before, there was no COLA at all. Yet, over these 2 years, the actual cost of living incurred by seniors increased by 2.7 percent—2.1 percent in 2016 and 0.6 percent in 2015. That is what seniors should have received and that is what this bill would provide them. For the average federal annuitant, that would have meant an increase of approximately $950 per year.”

Currently, the BLS says that the CPI-E has methodological limits which make it unreliable as a substitute for CPI-U or CPI-W. With more funding, the CPI-E could develop into a statistically reliable index.

C-CPI-U

A more controversial measure of inflation, known as the Chained CPI (C-CPI-U), is designed to mathematically “use expenditure data in adjacent time periods to reflect the effect of any substitution that consumers make across item categories in response to changes in relative prices. The new measure is designed to be a closer approximation of ‘cost of living’ index than existing BLS measures”, according to the BLS.

This index gets closer than other indexes by better reflecting how consumers react to changing prices. An example is if the price of pork increases while the price of chicken doesn’t, consumers may shift away from pork to chicken. The C-CPI-U accounts for this type of substitution between CPI item categories.

The BLS has determined that the C-CPI-U tends to show a lower inflation rate than other indexes. For this reason, NARFE has opposed using the C-CPI-U in calculating federal retiree COLA’s because lower COLA’s would reduce the long-term cost of providing federal retiree and Social Security benefits.

Elimination of the Automatic COLA

“Congress enacted the COLA provision as part of the 1972 Social Security Amendments, and automatic annual COLA’s began in 1975. Before that, benefits increased only when Congress enacted specific legislation,” according to the Social Security website.

Prior to automatic COLA’s, Social Security benefits were sporadic. Congress moved to an automatic formula because some saw Social Security increases as too generous and others argued they failed to keep up with inflation.

Losing an automatic COLA would mean retirees would have to go to Congress each year and compete for funding against other government programs.

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Why the Slow Processing Times at OPM?

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Some officials at the Office of Personnel Management attributed a slowdown in the processing times of retirement claims to the hiring freeze that occurred earlier this year.

July saw an increase in the number of retirement claims—10,070 up from 6,141 in June. This brought the backlog of claims up to 17,091, an increase of 18 percent over June. Before last month’s influx, OPM was making progress on its inventory, with the backlog steadily decreasing since February. (13,000 is considered a steady state)

However, the percentage of claims processed within 60 days since the beginning of FY2017 (October 2016-September 2017) lagged behind the rate of previous years. Last month, only 55 percent of claims in that time had been processed within 60 days, compared to 79 percent a year ago.

A spokeswoman at OPM said that one factor in the slowdown was the hiring freeze earlier this year. “The hiring freeze did impact the percentage of claims processed within 60 days. Retirement Services has mitigated the impact of staff shortages in the retirement claims process by implementing process improvements and working with agencies to improve the quality and timeliness of their submissions,” OPM said.

They also said there are procedures in place to ensure retiring federal employees don’t feel the brunt of government issues. One of these procedures is retirees are placed in an “interim pay status” within 5-7 days of OPM receiving their claim. From then until the claim is fully processed, the retiree receives an estimate of what their post-employment annuity will be based on final salary and length of service. Generally, the estimate equals about 80 percent of their final retirement pay.

Representative Gerry Connolly (D-VA) called this lag “unacceptable” and linked it to lack of agency leadership. He said, “It’s troubling that the percentage of retirement claims processed within 60 days is trending in the wrong direction compared to last year. Continued backlogs are unacceptable. This issue needs the attention of OPM leadership and highlights the importance of having a Senate confirmed director and deputy director in place to help address the problem.”

OPM also has said, “RS has the authority and flexibility to address workload spikes, including the ability to move qualified employees to areas of greatest need. However, our ability to maintain desired processing time will depend upon the extent of the increase in the number of cases received.”

They also noted that some cases just take longer than others because they involve “more complicated situations that may require additional information from agency or employee”.

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Do’s and Don’ts of Filing

filingNo federal employee ever thinks (or hopes) they’ll need to file for federal disability retirement. This process is often long and confusing. There are many rules and deadlines you must follow. Below are some “do’s and don’ts” to keep in mind when filing for federal disability retirement.

filingDON’T WAIT

The main reason not to wait to file is the one-year deadline. You must apply before you are separated from your agency or within one year of the date of separation. Not only that, but the process can take a year, or more, so waiting to file only delays a decision. Also, it is generally easier to prove a case while you’re still employed so that you don’t have to rely on “post separation medical evidence”, where you must prove that “proximity in time, lay testimony, or some other evidence provides the requisite link to the relevant period”.

filingDO PROVIDE AS MUCH EVIDENCE AS POSSIBLE

The Office of Personnel Management must consider the following types of evidence:

  • Objective clinical findings
  • Diagnoses/medical opinions
  • Subjective evidence of pain/disability
  • Evidence relating to the effect of your condition on your ability to perform your essential job duties

Each of these may not be enough on their own, but as a whole can provide a compelling case to OPM.

filingDON’T ASSUME

Don’t assume your doctor will support your federal disability retirement application or that they know about the process of filing for it. What your medical evidence must show is that your condition adversely impacts your ability to perform essential job duties and requirements. Be sure to inform your doctor of what the process involves exactly and what forms and medical evidence you need from them.

filingDO SHOW A CAUSAL CONNECTION

This is worth repeating. It’s one thing to have a medical condition or disability, but to be eligible for federal disability retirement, you must show the causal connection between your condition and your inability to perform your job duties. If you can’t, it’s likely OPM will deny your case.

filingDON’T BELIEVE EVERYTHING YOUR AGENCY TELLS YOU

Unfortunately, some individuals in your agency may not provide complete or accurate information about filing for federal disability retirement. Not out of malice, but maybe they don’t know themselves. One way this is evident is when your agency allows you to perform “light duty” work, as an accommodation. There is nothing wrong with you doing this work, however, this doesn’t constitute an “accommodation” under the law, and shouldn’t preclude you from filing, even if the agency ends your light duty work. Accommodation means “an adjustment made to the employee’s job or work environment that enables the employee to perform the duties of the position”.

filingDO PRESENT YOUR CASE IN A PROFESSIONAL MANNER

Don’t overstate the case and have a lot of “fluff” thrown in or overemphasize an emotional aspect of the case. Instead, let the medical documentation and evidence speak for itself.

filingDON’T ACT AS A LAWYER

This doesn’t mean you must have a lawyer to apply (although helpful), it just means don’t act as something you’re not. If your application is complete and correct, let that speak for itself at OPM.

There are so many things to consider when applying for federal disability retirement. It’s often and long and arduous process. Harris Federal Law Firm has helped thousands of federal employees, in every state, get the benefits they deserve. If you would like to set up a FREE consultation to discuss your unique situation, please give us a call at 877-226-2723 or fill out this INQUIRY form.

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Join Us for a Webinar This Wednesday

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Join us this Wednesday, August 16th at NOON EST for a FREE webinar titled “Federal Disability Retirement–Approvals Before Separation”

One of the eligibility requirements for federal disability retirement is that your agency must certify that they are unable to accommodate your medical condition causing a deficiency in your current position AND that they have considered you for any vacant position at the same agency, same grade or pay level, and in the same commuting area, for which you are qualified. But what exactly does this mean?

In this webinar, we will discuss what qualifies as accommodation and look at how it can affect your chance of approval on your federal disability retirement claim.

Other topics that will be discussed are:
• Reassignment
• Modified Job Assignments
• How far must your agency go to accommodate you
• What qualifies as accommodation and what does not.

Register here https://register.gotowebinar.com/register/448223995036310274

We hope to see you all there!

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More Congress Members Coming Forward

congressMore members of Congress are coming forward and voicing their concerns about the recent FY2018 budget proposals. In these proposals are significant changes to the federal retirement system for current and future employees and retirees.

Ten House Republicans have appealed to the House Oversight and Government Reform Committee Chairman.

“No one needs to remind us of the deficit and debt problem our nation faces, but federal employees are an easy political target. Therefore, we respectfully request they reject any further legislative changes to the federal employee retirement system at this time,” the 10 members wrote in a July 26 letter.

At the same time, 18 Senators, most of them Democrats, also wrote to their leadership. “These proposed changes, if enacted, would significantly harm the retirement plans that our federal employees have made over the course of decades in public service. In addition, they would further hamper the federal government’s ability to recruit and retain the best and brightest talent, particularly when we are concerned about brain drain in critical areas of our civilian workforce,” the senators wrote in a July 26 letter to Senate Majority Leader Mitch McConnell (R-KY) and Minority Leader Chuck Schumer (D-NY).

A similar letter was written in June, but this time, the lawmakers reference several FY2018 budget proposals that suggest a variety of changes to the federal retirement system for current and future employees.

The House Budget Committee’s 2018 request includes instructions for budget reconciliation, which tasks the House Oversight and Government Reform Committee to make changes to the federal retirement system. The proposals call for higher contributions to federal pensions and the removal of Supplemental Social Security payments to employees who retire before age 62.

“This would achieve significant savings while recognizing the need for new federal employees to transition to a defined contribution retirement system. The clear majority of private sector employees participate in defined contribution retirement plans. These plans put the ownership, flexibility, and portfolio risk on the employee as opposed to the employer. Similarly, federal employees would have more control over their own retirement security under this option,” the House budget proposal said.

The House Budget Committee budget calls for similar yet different recommendations than President Trump’s. Trump proposed $4.1 billion in federal retirement cuts next year, with a total of $150 billion over 10 years. This is higher than the House Budget Committee’s recommendations.

Both the Trump administration and many House Republicans, however, see these changes to bring the federal retirement package in line with private sector. Close to 100 Democrats have voiced their opposition to these proposals in a letter to House Speaker Paul Ryan (R-WI) and Minority Leader Nancy Pelosi (D-CA).

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Phased Retirement Now Available for DOD Employees

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Air Force civilians are now eligible for phased retirement and taking a “semi-retired” status at the Department of Defense. The program is part of the DOD-wide initiative to give civilian workers the option to work on a part time basis and receive a portion of their retirement annuity. The phased retirement time frame lasts for one year with the option to extend it for an additional year.

Participation is voluntary. To participate, those interested must have been employees for at least three consecutive years. Phased retirement gives retirees an opportunity to work less and use their expertise to mentor younger employees.

A human resources specialist at the Air Force Personnel Center, Annette Castro, said, “This program allows dedicated employees with decades of experience to pass on critical knowledge to our other employees in the organization. It serves as a mentoring and training tool to ensure the next generation of civilians are prepared for success. Institutional knowledge is often difficult to replace.”

Phased retirees must mentor employees at least 20 percent of their working hours.

DOD civilian employees have been asking for the phased retirement policy. The department currently has about 77,000 employees in CSRS/FERS that are eligible for retirement.

Taiwanna Smith, Chief of Benefits and Work-Life Programs for the Defense Civilian Personnel Advisory Service said, “We worked really hard to develop the policy. What we did is establish a working group from several of the components and we came up with recommendations for the program requirements, the application procedures, the criteria for approval, and the criteria for denying requests. Basically, we looked at everything that would be necessary to implement the program.”

The department plans to gradually work in phased retirement into other areas.

VSIP

Along with phased retirement, Voluntary Separation Incentive Pay (VSIP) is an option for DOD employees. Last year, Congress approved a program that increased VSIP pay for DOD civilians from $25,000 to $40,000 for one year.

The House Armed Services Committee wants to extend that incentive to 2021.

They offer early retirement to positions that aren’t needed anymore or are in less demand so they can hire employees for more needed positions.

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Taxes You May Face in Retirement

taxesOnce you retire from federal service, you face new tax issues. This could affect whether you change tax brackets or not. Retirement generally means lower income, so that means lower taxes, right? Maybe. But retirement can also mean multiple sources of income, which can complicate tax payments. You may have Social Security income, distribution income from retirement accounts, military retired pay, and/or income from investments, property, part-time work, etc.

Each one of these comes with its’ own set of tax rules.

Social Security

When the Social Security Act was passed, these benefits were never intended to be a primary source of retirement income. According to the Social Security Administration, today payments replace approximately 40 percent of pre-retirement wages for retirees. Initially, Social Security payments weren’t subject to taxes. That’s no longer the case. Those who rely primarily on Social Security to pay their bills to escape taxation, because their overall income is too low.

However, for the high-income recipients, 15 percent of benefits are tax-free and 85 percent are taxed. The amount that is taxable depends on how much income you have in addition to Social Security. Another thing of note regarding Social Security is where you live. This determines how your benefits are taxed at the state level. There are 28 states, and Washington, D.C., that don’t tax Social Security income.

IRA and 401K Withdrawals

Except for Roth IRA withdrawals, all other income from retirement accounts is taxed in some way. Once you reach age 70 ½, you are required to start withdrawing money from your retirement accounts each year. This includes IRA’s, 401k, 403(b), and 457 plans. The government requires you to take a Required Minimum Distribution (RMD) so it can collect taxes on this income.

The IRS imposes a 50 percent tax penalty on amounts that aren’t properly disbursed from your 401k account. The amount of tax you pay depends on the total amount of income and deductions you have and what tax bracket you’re in for that year.

Roth IRA disbursements aren’t taxed because those contributions are taxed when they are deposited into the retirement account. To withdraw tax-free, you must wait until age 59 ½. These accounts don’t have a required distribution, so you can let the money grow tax-free your whole life.

Pensions

Benefits from pensions and annuities are taxed. If the money went into your fund, by you or your employer, before it was taxed, it will be taxed when you withdraw it. Most pension accounts are funded with pre-tax income, which means the entire amount of your annual pension income is included in your taxable income each year.

Annuities

Tax rules for annuities purchased with after-tax dollars are determined by the type of annuity you own.

  • Immediate annuities—payments from an immediate annuity include principal, as well as the interest-only interest portion. Both are considered taxable income.
  • Fixed and variable deferred annuities—If you put money in a fixed/variable deferred annuity, you don’t pay taxes on the gain in the annuity until you take withdrawals. If you take withdrawals before age 59 ½, any gain withdrawn is taxed at your ordinary income tax rate and is subject to a 10 percent penalty tax.

If your annuity is owned by an IRA or another retirement account, then the tax rules of those retirement accounts apply to any withdrawal or annuity payments you receive from that annuity.

Other Taxable Retirement Income

Other income accrued during retirement is also taxed. Interest income, dividends, and capital gains on investments will be taxed just as they were before you retired.

However, not all retirement income is taxed. If you own a bank CD, and it matures, that extra money isn’t considered taxable income. Only the interest it earned must be reported.

The main thing to remember is your tax rate in retirement depends on your total amount of income and deductions.

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Do I Need a Lawyer for Federal Disability Retirement?

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Question of the Week: Do I Need a Lawyer to File for Federal Disability Retirement?

A: This question is a common one. We hear it quite often. And the answer, quite simply, is no. You do not have to hire a lawyer to file for federal disability retirement. However, a lot of thought should be put into this question and decision.

Filing for federal disability retirement yourself, while manageable, is a complex, and often, confusing process. There are deadlines and requirements you must be aware of and meet.

The following are important to consider when deciding whether to hire a lawyer or not.

Eligibility

The Office of Personnel Management has laid out specific criteria you must meet to qualify for federal disability retirement. However, it’s not always clear if you meet those criteria. Seeking a lawyer is beneficial here. Harris Federal Law Firm offers FREE consultations so we can help discuss your case and specific situation and help determine if federal disability retirement is right for you.

Medical

The important thing with federal disability retirement is tying your medical condition to your inability to perform your duties at an efficient level. Doctors may not be aware of the one-year deadline t submit your application to OPM. On top of that, you need to know which forms to submit with your application.

Application

Often, federal disability retirement applications are lengthy and might include hundreds of pages. If filing on you own, that may get overwhelming. A lawyer can help you understand, not only what forms you need, but can make sure those forms are accurate and complete.

Appeals

Sometimes cases get denies by OPM, whether by mistake or an incomplete application. Again, there are deadlines, much tighter in this event, and having a lawyer in this stage is extremely beneficial. You may hire a lawyer at this stage, however, if you had one already at the initial stage, they generally represent you at any subsequent stages, should your application get denied.

Again, it’s not required that you retain a lawyer to file for federal disability retirement. However, having one may put your mind at ease when moving through the federal disability retirement process. We have represented thousands of federal employees with their cases, and we can help navigate you through the process. Call us at 877-226-2723 to set up a FREE consultation with us so we can discuss your specific situation. You can also fill out this INQUIRY form.

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