Despite a deficit of $12 trillion or so, a major recession and unemployment of about 10%, this has been a banner year for federal employee benefits.
With the passage of the Defense authorization bill into law, federal employees found themselves with a new list of benefits (or at least changes) including:
- Allowing federal agencies to re-employ federal retirees on a limited, part-time basis without an offset of their annuity;
- Permitting Federal Employees Retirement System (FERS) workers to initially credit half, and in 2014 all, of their unused sick leave toward retirement;
- Providing for pay system changes that will alter the retirement system for federal employees in Hawaii, Alaska and the U.S. Territories;
- Ending the National Security Personnel System (NSPS), and restoring employees to the General Schedule pay system;
- Allowing former federal employees under the Federal Employee Retirement System (FERS) who withdrew their contributions to the retirement trust fund, and waiving retirement credit for those years of service, to redeposit their earlier contributions, plus interest, upon reemployment with the federal government.
As an aside, a number of readers have written us with questions about various aspects of these new benefits and how an individual would be impacted. We are not able to answer these. Until the Office of Personnel Management issues guidance on how it will interpret and apply this new law, any advice we give would only be speculation. When more information is available, we will quickly pass along the information.
Enhancing Your TSP Benefits In the Tobacco Bill
But that isn’t the end of the list. Earlier this year, a "tobacco bill" was passed into law. Within this bill were changes to the Thrift Savings Plan that will benefit many readers.
- Enabled creation of a Roth Plan within the TSP;
- Automatically enrolled new employees in the TSP;
- Allows spouses of deceased TSP participants to maintain TSP accounts;
- Provides authorization for a mutual fund option that would allow participants to invest their retirement money in private-sector mutual funds.
Another Enhancement to the TSP?
While the year is rapidly coming to an end, there may still be another benefit that becomes a reality for the federal workforce in the current Congress.
You may find that you have the ability to rollover the cash value of your unused sick leave or annual leave balances that cannot be carried into the next year into your Thrift Savings Plan account. Presumably, you would not be taxed on this money until you started drawing from your federal 401(k) plan balance.
Many private sector employees are now allowed to do this with their 401(k) retirement plans if they have unused leave that cannot be rolled over into the next year. Federal employees cannot do this under the Thrift Savings Plan unless or until Congress modifies the law that created the Thrift Savings Plan.
Currently, only basic pay, or bonus and special pay for uniformed service members, can go into your Thrift Savings Plan. If a federal employee leaves government service, you will not receive a lump-sum payment for your unused sick leave as it is not considered part of your salary. CSRS employees get credit for unused sick leave toward their retirement annuity and, as noted above, FERS employees will now receive a similar benefit under legislation that has just passed.
You will receive a lump sum payment for unused annual leave when you leave government service. Depending on your salary and how much leave you have, this can be a substantial amount of money. It also means that you may end up giving some of it back to the government when you pay taxes on this money. If this new benefit becomes a reality, you would presumably have the option of investing this money through your TSP account.
The National Active and Retired Federal Employees Association (NARFE) is pushing this benefit with its contacts in Congress. "As a matter of equity, NARFE believes that federal workers should have this choice if it is offered to private-sector employees" according to the NARFE president.
What Are The Chances?
As of this writing, this is just an idea. The actual details of what money could be deposited into your TSP and the tax benefits you would receive would be revealed in any bill that is introduced. Congressman Stephen Lynch (D-MA) has indicated he intends to tale action on this idea.
One question that always arises when a new benefit is being bandied about is: "What are the chances this will become a reality?"
My guess is that there is a good chance this benefit will be passed into law. The White House wants more private sector employees to have this option. And, perhaps more importantly, this benefit would provide a financial benefit to government officials that have high salaries, including many in the legislative branch.