By Daniel Korleski, MBA
As a federal employee, you have access to an employee benefits package that can include healthcare, retirement, and life insurance benefits. Although the many available options may be confusing, we at Cobalt Private Wealth have created a guide to help break down the benefits available to federal employees to help you get the most out of them.
Key Benefits of Your Federal Employee Benefits Package
Here is an overview of the benefits the government offers its employees: (1,2)
- 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)
1. Retirement Savings Plans
Civil Service Retirement System (CSRS)
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. (3)
Federal Employee Retirement System (FERS)
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.
Basic Benefit Plan
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. (4)
Thrift Savings Plan (TSP)
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. (5)
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 of these accounts for a combined amount of $18,500 or $24,500, depending on your age. Your government match will be deposited in your Traditional TSP.
2. Health Insurance
Federal Employees Health Benefits Program (FEHB)
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 plans that 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). (6) Your eligibility for the different types of plans is determined by the government agency you are employed by and your geographic location.
Fee-for-Service (FFS) Plans
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.
Health Maintenance Organization (HMO)
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.
HMO Plans Offering a Point-of-Service (POS) Product
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.
Consumer-Driven Health Plans (CDHP)
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.
High-Deductible Health Plan (HDHP)
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 Arrangement (HRA)
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.
Health Savings Account (HSA)
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.
3. Flexible Spending Account (FSA)
Federal Flexible Spending Account Program (FSAFEDS)
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.
4. Dental and Vision
The Federal Employees Dental and Vision Insurance Program (FEDVIP)
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.
5. Insurance
Federal Employees Group Life Insurance (FEGLI)
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.
Federal Long-Term Care Insurance Program (FLTCIP)
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.
Gaining Confidence in Your Federal Employee Benefits
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.
1. Start With a Solid Foundation
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.
2. Develop a Plan
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.
3. Maintain Proper Asset Allocation
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.
4. Be Informed
Having a clear understanding of the benefits available to you allows you a more stable financial life today, but also in 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.
Do you have questions about your federal benefits? Or have you yet to develop your retirement strategy? Whatever your situation, I invite you to contact my office for a review. Let’s discuss how to get you from where you are to where you’d like to be. To get started, reach out to me at danielkorleski@cobaltprivatewealth.com or 719-332-3863 to schedule a meeting.
About Dan
Daniel Korleski is the President & CEO for Cobalt Private Wealth, where he helps his clients grow, manage, and protect their wealth so they can work toward a stronger financial future. With over 30 years of experience in the financial services industry, Dan has served as the managing director for Investment Trust Company, chief investment officer for the Wealth Management Group at American National Bank in Denver, and regional investment manager for the Greater Colorado Region of the Private Bank at Wells Fargo, where he oversaw the management of over $2 billion. In 2008, he was appointed by the mayor of Colorado Springs to the City’s Investment Advisory Committee. Dan holds an MBA in investment management from Midwestern State University in Wichita Falls, Texas, a Bachelor of Science in Finance from Florida State University, and is a member of both the CFA Society Colorado and The Financial Planning Association.
Dan loves to give of his time to his community and has served as Chair of the Board of Trustees of Pikes Peak Hospice Foundation, the Board of Directors of Catholic Charities of Central Colorado, President of the Broadmoor Rotary Club and Vice President of the Board for the Pikes Peak Chapter of Trout Unlimited. Dan was born and raised in Spain and is fluent in Spanish. When he’s not working, you can find him traveling around the world with his wife of 23 years, Montse, fly fishing, golfing, and hiking with his golden retriever, Curro. To learn more about Dan, connect with him on LinkedIn.
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