Adjusting Federal Benefits Elections To Meet Your Needs

If you do not specify beneficiaries for your federal benefits, you may find they do not get paid as you would have liked upon your death.

Adjusting Federal Benefits Elections To Meet Your Needs

The past year was a whirlwind. It’s hard to know if any area of life was left untouched by the COVID-19 pandemic. The obvious adjustments for federal employees revolved around adapting to new hours, working from home, and learning innovative ways of completing the tasks so vital to the functioning of our nation.

Aside from work life, many felt the impact on a personal level—in tragic ways for some. To anyone who lost a significant other, loved one, or friend in the past year, we at Retirement Benefits Institute would like to offer our sincerest condolences. Mourning and reconciling the loss of a loved one is not done in a day, and healing takes time.

Recognizing that for federal employees the loss of a loved one can be overwhelming in a number of ways, Retirement Benefits Institute created the following blog as a guide to help those dealing with this loss understand how a loved one’s death can specifically impact federal retirement. 

Reviewing Your Federal Benefits Elections

An important first step in reorienting retirement plans after the passing of a loved one is to review beneficiaries: those individuals who will receive benefits at the death of a federal employee.

After years of paying into a retirement system, making FEGLI premiums, and contributing to the Thrift Saving Plan (TSP), it makes sense that an individual would like this money to pass on to surviving loved ones, yet getting benefits to the right people isn’t always as easy as it sounds. This is why reviewing beneficiaries as soon as possible is imperative.

TSP Beneficiaries

According to TSP.gov, having a TSP beneficiary is not absolutely necessary in the sense that if a federal employee passed away today with no beneficiaries, his TSP would be distributed based on a set order listed below. 

  1. To the surviving spouse
  2. If none, to a child or children equally, and to the descendants of deceased children
  3. If none, to parents equally or to the surviving parent
  4. If none, to the appointed executor or administrator of the estate
  5. If none, to the next of kin who is entitled to the estate under the laws of the state the employee or retiree lived in at the time of death

At this point, a federal employee may ask, “Is this where I want my money to go if I passed away tomorrow?”

For instance, if a spouse is already deceased, does the federal employee want the money distributed equally to children and/or grandchildren? Would the preference be to leave some amount to children and leave the rest to a particular church, ministry, non-profit, or favorite charity?

These types of questions need to be addressed and may require the designation of specific beneficiaries. If so, see Form TSP 3, Designation of Beneficiary.

FEGLI Beneficiaries

FEGLI benefits, similar to TSP, are paid in a specific order of precedence. OPM.gov outlines the order of this rank in the following manner: “If you assigned ownership of your life insurance, FEGLI will pay benefits in the following order of precedence:

  • First, to the beneficiary(ies) designated by your assignee(s), if any;
  • Second, if there is no such beneficiary, to your assignee(s).”

If the federal employee did not assign ownership, then additional rules are in place; see OPM.gov for more on this topic. 

Like with the TSP, it’s important for federal employees to align their beneficiaries with where they would like their funds to go after their passing. Updating beneficiaries is the essential task required to achieve this goal. To review or designate beneficiaries, see FEGLI form SF 2823.

Benefits and the Death of a Spouse

As it pertains to FEGLI, the death of a spouse can require a few key action steps. FEGLI option C provides additional coverage for the spouse of an employee and eligible dependent children. If a spouse passes away first, then naturally there is no need for additional life insurance coverage for this beneficiary. However, the federal employee will still continue to pay the option C premiums until OPM is notified of the spouse’s death.

Taking this important step can save real dollars for the federal employee. For more on notifying OPM about the death of a spouse, see OPM.gov.

Other benefits, like FEHB and dental and vision coverage may be impacted by the passing of a spouse. Alerting OPM as soon as possible can help resolve any potential issues. Since less coverages frequently translate into lower premiums, often the opportunity to save money can be maximized.

About the Author

Brandon Christy, CPA, PFS, is the founder and president of Retirement Benefits Institute, Inc. He is an established leader in contracted federal retirement benefits education, and his company has trained over 10,000 federal employees to help them gain clarity and confidence in retirement.