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AFSA Retiree Newsletter - December 2017
In this issue you will find:
- Threats to Your Retirement Benefits
- Texas Outreach Highlights Assistance Embassies Provide to U.S. Travelers
- A Little Known Fact About Your TSP
- Reminder to Annuity Supplement Recipients
- The TSP Modernization Act Just Made TSP A Whole Lot Better
- Letters to the Editor
- Some Changes in Medicare Part B Premiums for 2018
- Join AFSA at an Upcoming Event!
- Remember the Foreign Service in Your Year-End Giving
- News You Can Use: The AFSA Retiree Directory
- Combined Federal Campaign
- Contacting AFSA
Threats to Your Retirement Benefits
The good news is that proposals by President Trump and the House of Representatives to cut federal retirement benefits have been blocked by the Senate so far this year. The bad news is that those proposals may resurface in the coming weeks and months as Congress seeks to trim the federal deficit.
In late October, the Senate blocked a House proposal to cut federal retirement benefits in one or more of the following ways: require employees to contribute more into the trust fund from which their retirement pensions will be drawn, eliminate the Annuity Supplement paid to employees hired in the post-1983 “new” retirement systems who retire prior to age 62, reduce the government contribution to Federal Employees Health Benefits (FEHB) insurance premiums, and decrease the rate of return of the Thrift Savings Plan’s G Fund.
No benefits cuts were included in the December 7 short-term budget deal passed by Congress. As Congress now turns to crafting a longer-term budget deal, AFSA continues to oppose benefits cuts in coordination with the Federal-Postal Coalition made up of 30 organizations including the National Active and Retired Federal Employees Association (NARFE) and the large civil service unions. AFSA will keep members informed of developments.
Texas Outreach Highlights Assistance Embassies Provide to U.S. Travelers
Perhaps now more than ever, AFSA counts on its members to tell their story as a way of helping Americans learn about, understand, and relate to the work of the Foreign Service. Retirees continue to play a critical role in these efforts, by bringing awareness of the Foreign Service into their community through local outreach.
In October, the Foreign Service Group of Texas (TFSG) led such an effort through their participation in the annual National Night Out event held by the Austin Police Department. The event focuses on promoting safe communities and TFSG volunteers took the opportunity to educate people on the work the Foreign Service does to protect American interests, values, and safety and security overseas. With a large map on display showing where Embassies are located they asked people their plans for traveling overseas and then showed them the location of the nearest U.S. Embassy or consulate. Additionally they distributed wallet-sized “safe travel cards” which outline how citizens can contact the State Department if need be when traveling overseas. In doing so, they were able to remind people that in many countries, members of the Foreign Service play the critical role of “first responders” for U.S. citizens traveling or living abroad.
This is a great example of how local outreach can provide the opportunity to engage your community and remind them of the tangible benefits our diplomats provide to U.S. citizens.
A Little Known Fact About Your TSP
Financial advisors recommend keeping retirement savings in a diversified portfolio. The most basic diversification is between stocks and bonds. Stocks provide gains over the long-term that allow the value of your investments to outpace inflation. Bonds limit short-term drops in the value of your investments during stock market downturns.
Two examples of diversified portfolios are:
- the TSP L Income Fund (usually recommended for current retirees) which is 80 percent bonds (G and F Funds) and 20 percent stocks (C, S, and I Funds).
- the TSP L 2030 Fund (usually recommended for people who expect to begin TSP withdrawals around 2030) which is 38 percent bonds and 62 percent stocks.
However, few TSP account holders realize that their Foreign Service pension is a functional equivalent to a bond. That is because pensions like bonds provide a reliable stream of fixed periodic payments. Moreover, a Foreign Service pension is equivalent to a U.S. government bond that, unlike corporate bonds, is backed by the full faith and credit of the USG.
This means that, for example, a retiree who is receiving, or a current employee who will receive, a $5,000 per month pension is benefiting from periodic payments equivalent to their owning a $1.5 million bond that pays four percent of its value annually.
Here are two examples of the impact of that fact:
- for a retiree with a $5,000 per month pension who has $800,000 in the TSP L Income Fund, their combined portfolio of TSP plus pension is equivalent to their holding 93 percent (not 80 percent) of their retirement assets in bonds.
- for a current employee who expects to receive a $5,000 per month pension and to retire with $800,000 in the TSP L 2030 Fund, their combined portfolio of TSP plus pension is equivalent to their holding 78 percent (not 38 percent) of their retirement assets in bonds.
Those allocations may satisfy people whose top concern is the preservation of their current TSP balance during the stock market’s inevitable next major downturn. However, people who are more concerned about maintaining the purchasing power of their retirement assets over several decades may wish to consider moving more of their TSP holdings into stocks knowing that their pension is the functional equivalent of a bond.
For example, someone who is currently retired or who expects to retire in the next ten years could nevertheless invest in the TSP L 2050 Fund which is 17 percent bonds and 83 percent stocks. Or they could create their own stock-heavy portfolio of C, S, I, G, and F funds. Inter-fund transfers to redistribute TSP balances can be done at www.tsp.gov.
This information is provided for informational purposes only. You should conduct your own research and due diligence and/or consult with a professional financial adviser to determine what may be best for your individual needs.
Reminder to Annuity Supplement Recipients
Retirees who are receiving the FSPS Annuity Supplement and who have reached their minimum retirement age (between age 55 and 57 depending on year of birth), must submit a Form DS-5026, “Statement of Entitlement to FSPS Annuity Supplement” to the HR Service Center in Charleston, SC by January 8, 2018 or else their annuity supplement will be suspended in February. On that form, report any 2017 wage income (not pension or investment income) so the Department of State can reduce your means-tested Annuity Supplement if you earned over $16,920.
The form and instructions are on pages 9 to 12 of the Department of State’s 2018 Foreign Service Annual Annuitant Newsletter posted at https://rnet.state.gov under the “What’s New?” tab (to access that site, be sure to include the “s” in https). A copy of the newsletter is posted on www.afsa.org/retiree. State no longer mails printed copies of the newsletter unless you request it by emailing your name and address to FS_Newsletter@state.gov.
The TSP Modernization Act Just Made TSP A Whole Lot Better
We all know TSP is a great deal for Federal workers: good portfolio diversification, easy convenient reallocation of contributions, and extremely low management fees (about $0.29/$1,000, a fraction of the $4.60/$1,000 average for 401K plans). But the restriction to a single partial withdrawal (either age-based after turning 59½ while active or after separating), and the limitations on changing or adjusting periodic withdrawals, resulted in many employees “rolling over” their TSPs into IRAs upon retirement. (Note: Some retirees erroneously believe that, upon retirement, they must close out their TSPs. Although retirees can no longer contribute to their TSPs in retirement, there is no requirement to close them. In fact, retirees need do nothing at all until they turn 70½ and must begin taking required minimum distributions (RMDs), which are taxed.)
The TSP Modernization Act, recently signed by the President, will allow multiple age-based and post-separation withdrawals, as well as allowing the election of quarterly or annual withdrawals and, importantly, changes to those periodic withdrawals at any point in the year. The TSP issued the following statement: “On November 17, 2017, President Trump signed into law the TSP Modernization Act of 2017, which will provide TSP participants with more flexible withdrawal options. The law eliminated the statutory prohibition on multiple post-separation withdrawals and multiple age-based withdrawals while a participant is still working. It also removes the restriction that participants cannot take partial post-separation withdrawals if they’ve already taken an age-based in-service withdrawal. Though it has no effect on required minimum distributions mandated by the internal Revenue Code, the law also allows separated participants who are over age 70 ½ to remain in the TSP, eliminating the requirement to make a withdrawal election on an entire account balance. Participants will also be able to stop monthly payments, change payment frequency, or elect to purchase an annuity while receiving monthly payments.”
AFSA reached out to the Federal Retirement Thrift Investment Board (FRTIB) to inquire as to the plan for implementation. We were advised that FRTIB intends to touch a few internal processes that are not in the bill: all very positive changes that will only add to the options and will NOT take away anything. However, the regulations need to be written, and once completed, implemented, so it will likely take a year or two to implement, maximum two years of signing, as required by the law. FRTIB has been proposing such changes for years and hopes to implement as soon as possible. We encourage you to review the excellent overview of TSP and withdrawal options provided by FRTIB TSP Training and Liaison specialist Randy Urban last year. AFSA will keep you updated as the law is implemented and you will begin enjoying new, more flexible withdrawal options.
Letters to the Editor
As Ambassador Stephenson noted in her recent message, “A Season to Be Thankful,” the Foreign Service has received much deserved and needed attention around the state of the State Department recently. While the national media attention is welcomed and crucial, so too is advocating for the role of the Foreign Service in protecting our national interests in your local newspaper. In many communities, local newspapers are well-read and as such an important place to share your story and expertise as a member of the Foreign Service. Two recent examples of this have been Letters to the Editor published in the Bryan-College Station Eagle in Bryan, Texas and the Reading Eagle in Berks County, Pennsylvania. Of course there are many more examples and each and every one is important in helping AFSA build a domestic constituency for a professional Foreign Service.
If you’ve had an opinion piece, a letter to the editor, or another type of media piece published highlighting the role of the Foreign Service, AFSA would love to see it. You can send a link to email@example.com and—as always—thank you for using your unfettered voices in support of our institution.
Some Changes in Medicare Part B Premiums for 2018
In late 2015, the Medicare Trustees Report called for increasing the Medicare Part B Premiums for most Medicare beneficiaries (those with $85,000 in income or less filing singly or $170,000 or less filing jointly) from $104.90/month to $159.30/month. However, the Center for Medicare and Medicaid Services (CMS) is proscribed by the “hold harmless” clause from deducting a Part B premium that would result in a monthly decrease in a Social Security benefit. Thus, the 70% of Medicare beneficiaries who have their Part B premium deducted from their monthly Social Security checks saw no increase from the $104.90/month premium they had been paying. That left the 30% of Medicare beneficiaries not having their Part B premiums deducted from their monthly Social Security checks absorbing the entire increase. Thus, Federal retirees (many on FSRDS pensions which had not earned Social Security benefits and thus did not benefit from the “hold harmless” provision) were disproportionately hit by that increase. The “sticker shock” and the advocacy of AFSA as part of the Postal Coalition resulted in Congress “blunting” the increase, reducing the new premium from the originally announced $159 to $134. Those rates—$104.90 and $134—held for 2016 and 2017, during which there was no cost-of-living-allowance (COLA) for Social Security.
But in November, CMS was able to announce new Medicare Part B premiums, in line with the 2018 COLA for Social Security of 2%. Those currently paying $134/month will continue to pay that amount (provided their income does not exceed the $85,000/$170,000 annual threshold). Most (about 70%) of those previously paying $104.90 will now pay the entire $134/month premium. The Part B premiums for the remainder will be raised by the entire 2% of their COLA’s, so they will not see any increase in their monthly Social Security checks.
Beneficiaries in the next income bracket ($85,000-$107,000 for single filers, $170,000-$214,000 for those filing jointly) will see no increase in their current $187.50 monthly premium. But the next three brackets will have new, higher Medicare Part B premiums: $267.90/month ($107,000-$133,500 for single filers, $214,000-$267,000 for those filing jointly), $348.30/month ($133,500-$160,000 for single filers, $267,000-$320,000 for those filing jointly) and $428.60/month (greater than $160,000 for single filers, greater than $320,000 for those filing jointly). For more detailed information, please visit www.medicare.gov.
Join AFSA at an Upcoming Event!
There’s always something going on at AFSA – here are some events we hope you can attend.
- Please join AFSA at our holiday happy hour on December 13! It’s a great time to see friends and colleagues and bask in the holiday spirit. Holiday-themed snacks will be served, and drink tickets (wine/beer) are available for $5. Click here to register.
- Ambassador James Pardew speaks at AFSA on January 25 at 12 noon about his new book, Peacemakers: American Leadership and the End of Genocide in the Balkans. Click here to register.
- We are planning a webinar on benefits issues for our retiree members in the January-February time frame – stay tuned for additional information.
And if you missed any event, most of them are recorded and made available on the AFSA website at www.afsa.org/video.
Remember the Foreign Service in Your Year-End Giving
As you consider your year-end giving there are many ways to support the Foreign Service. Some retiree associations make an annual year-end donation to the FSN Emergency Relief Fund, the Senior Living Foundation, and others. This year we ask that you also consider making a donation to AFSA’s Fund for American Diplomacy (FAD).
One of AFSA’s two 501(c)(3) arms, the Fund for American Diplomacy helps AFSA expand its reach as it works diligently to tell the proud story of the Foreign Service to the American people. The FAD’s aim is to build a domestic constituency for the Foreign Service so that we have supporters, ideally in all 50 states, prepared to stand up for the Foreign Service and defend our vitally important mission.
To donate to the Fund for American Diplomacy or to learn more about the programs it helps to fund please visit www.afsa.org/fad.
News You Can Use: The AFSA Retiree Directory
In the mail next month, retirees will receive the 2018 AFSA Directory of Retired Members. In it, you will find contact information to help you stay connected to your Foreign Service legacy by keeping up friendships, renewing contacts with former colleagues and meeting new Foreign Service retirees in your area. You will also find information on the nearly 20 Foreign Service retiree associations that are scattered around the United States.
New this year in the Directory’s “AFSA Resources” section is the article “Reviewing Your Retirement Plans” that details 25 areas that are important to managing your retirement. There you will find a discussion of, for example: beneficiary designations, survivor benefits, the Thrift Savings Plan, Social Security, Medicare and health insurance. Another topic new to this year’s Directory is information on discounts available to AFSA members from a variety of magazines, vendors and retailers.
Younger retirees will find information to help make future decisions about when to apply for Social Security and whether to pay for Medicare Part B. There is also information about how divorce or remarriage after retirement can impact Foreign Service retirement benefits.
As always, the Directory explains which State Department offices do what in terms of answering retiree questions or processing annuitant benefits changes. In case you are not satisfied with an answer they give, or you cannot get an answer from them at all, the directory lists contact information for AFSA staff members who are ready to assist you.
Combined Federal Campaign
The annual Combined Federal Campaign continues through January 12, 2018. Last summer, the Office of Personnel Management (which oversees CFC) announced that, for the first time, federal retirees this year will be able to contribute to CFC-listed charities via automatic deductions from their monthly annuity. Unfortunately, the State Department has not yet made the necessary software changes to permit that in the Foreign Service retiree section of Annuitant Express. State does not have a projected completion time for those software changes.
For now, the only way for Foreign Service annuitants to make a CFC donation is to request a paper pledge form and catalog by emailing CFC@state.gov (providing your name and mailing address) and then sending the pledge form with a check made out to “CFC Processing Center” mailed by January 12, 2018 to CFC Processing Center, P.O. BOX 7820 Madison, WI 53707-7820.
If you encounter problems with your federal retirement benefits or have related questions, AFSA’s Retiree Counselor Todd Thurwachter can be reached at firstname.lastname@example.org and (202) 944-5509. Retiree Outreach Coordinator Christine Miele is at email@example.com and (202) 944-5517. AFSA Retiree Vice President John Naland can be reached at firstname.lastname@example.org.