Changes in the Retirement Process

Micah Shilanski 00:50
Welcome to Plan Your Federal Retirement podcast. I’m your co-host, Micah Shilanski, and we’re going to dive into some excellent benefits, and with me to make sure we get into this is my co host, Tammy Flanagan, Tammy,it’s been a little while. How have you been?

Tammy Flanagan 01:03
It has been, Micah, it’s been a crazy year. So I’m glad we’re gonna regroup together and start to talk about some, some of the things that are going on this year.

Micah Shilanski 01:11
Oh, so many things are happening, right? From the beginning of the year and all the craziness with the fork in the road. Then there’s the DRP now, there’s the one big, beautiful bill, right? We got all, boy, and that’s just halfway through the year. Who knows what the other half is going to have in store for us?

Tammy Flanagan 01:24
Yeah, we learn all new vocabulary this year.

Micah Shilanski 01:27
That’s right. Well, we wanted to jump in, Tammy and I were kind of breathing about like, several things that were happening, and really wanted to jump in and let you guys know about some changes that are taking place that you need to be aware of, regardless if you’re retiring this year or not, because it’s different, right? The answers that we gave it, and Tammy, I’ve probably said this joke before, I had a client years ago, like all your clients come in, I’m sure we roughly have the same questions. They’re just bored about giving the same answers all the time. Actually, no, because the laws change. And so then my answers change. The questions are the same, but like, answers are now different. And Tammy, I would say that’s pretty much the synopsis of what we’re going to talk about. Is a lot of the same questions, but now our answers are going to be different because of changes in the system. Is that fair?

Tammy Flanagan 02:11
That’s definitely fair. And I would add to that, just to be sure, when you’re listening to what we say, Take it as your starting point, so look into it for yourself individually, because what you said made me think about people who listen to what their neighbors have done or their colleagues have done, and that one little difference makes a different answer or a different action that they should take. So listen to us carefully, but don’t follow everything we’re saying until you’ve checked it out for your own situation.

Micah Shilanski 02:36
You are 100% correct. Your tax bracket could be different. Your age could be different. Years of service can be different, and now all of a sudden it’s a completely different answer for you at spot. Tammy, let’s jump into like I would say. I think it’s a good change, but it’s definitely a change that’s taking place, going from paper applications and being able to fill them out to now the online retirement process. What does that look like? What are the pros? What are the cons, and where’s the things we’re excited about and things we’re watching for to see what happens?

Tammy Flanagan 03:11
Yeah, well, like everything else in the government, we’re going by ORA online retirement application. I think it’s always funny whenever they have to make an acronym for every little thing that we do in the government. So if you hear that, ORA, that’s what your HR office is talking about, the online retirement application. And I’ve talked to some employees who have already filled it out and submitted it, and luckily, the news is coming back saying that this seems to be an improvement, which I’m really happy about. I think it is going to make things a little easier for someone to submit their retirement application, seeing that it’s kind of like follow the prompts instead of filling out this long application with 18 pages of directions. It can be daunting, you know, just to look at it. The one person mentioned to me a little tip that they would recommend filling out the, you know, the paper application, so you can kind of go through it once you’re married, go through it with your spouse, so you kind of have an idea of how you’re going to answer those questions that come up. But the other good news is that when you are filling out the online application, it can be done in stages, so you can save where you are, come back to it and work on it again. And the other good thing about it is they’re using the login.gov which is kind of a universal login, so it’s kind of easy to access. So there are some good things about it. I believe the HR specialist has to give you access to use it on your home computer, but from what I understand, you don’t have to use your government computer, since so many employees have lost access to that anyway, if they’re in the DRP period. So, yeah, so lots, lots there. That’s really interesting.

Micah Shilanski 04:48
Yeah, Tammy, I I’d say a solid advice. I would really recommend people go look at that retirement application, right? Go, go look at the PDF version of it, the first half of it, you know, just kind of set aside. That’s just all the instructions that are there. And just look at the form fields, and it becomes a little bit less daunting, at least, that’s been my experience when I explained it to kind of a little overwhelmed at first, and we go kind of line by line through this is your basic information, your employer information, marital information, survivor benefits. Take it one step at a time and get more comfortable with it. It’s more of a emotional reaction to this big change in life, is what I see. So I love that advice about doing it in person. After doing it deeper, first really looking at it, then jumping online. Also, it’s not an irreversible thing until it kind of goes off to OPM. There’s going to different levels of this. So when you first fill it out, that’s okay. That’s how I can fill it out and just give me a copy of it, right? This doesn’t automatically go to OPM when you click the Submit button. If you’ve accidentally done something wrong, we can go back to your HR and we can make changes, which is why I also like to get it done in advance, and I’ll wait till the 11th Hour, right before retirement.

Tammy Flanagan 05:51
Yeah, and I think that’s, you mentioned something that I think a lot of people don’t understand, that when you submit this, you’re not submitting it to OPM. You’re submitting this to your HR office, your human resource. Human Resources off your agency or your component, whatever, wherever it is that you work so I think that’s an important thing to note. And as you mention, you are filling out the paper form or the pdf, then you can get the form, the pdf still at opm.gov. Just go to opm.gov/forms and it will take you to the forms page and this is a standard form, so for FERS employees, this is a standard form 3107 and if your are still under CSRS that’s a 2801. So it’s a it’s a form that you can still find it. You can still even fill it out online, but you can’t submit it that way. you have to submit it through the ORA.

Micah Shilanski 06:41
And Tammy, i’m excited about this, because what i’m hoping for is this is going to and i’m not just anything disparaging about the the HR personnel want to make this power so don’t take it that way. but i’m hoping it creates a better a better system for submitting all the documents to OPM at the end of the day. right? Because right now, under the old paper process, anyways, you know, they would get all the stuff together and they would then submit it, you know, to OPM, and it would go through. But if they were missing a health insurance server or a certified summary federal service or something like that, it would delay retirement on the back end. So fingers crossed, there’s a good checklist in there that they got to submit all these things, so it’s like, fully their application going to OPM.

Tammy Flanagan 07:20
Yeah, I definitely agree with that, because there are mistakes employees have made with the paper application, where they check the wrong box or they fill out the wrong portion that will be eliminated because they won’t let you do that on the online application, it’s going to prompt you to where you need to go next. But like you said, Micah on the agency side of it, the HR office has a lot of work to do to prepare a retirement package to send to OPM, and there is an agency checklist, but there’s also an error rate of agency submissions to OPM that runs in the neighborhood of 20%.

Micah Shilanski 07:54
That’s one out of five, right? One out of five is that number?

Tammy Flanagan 07:58
Yeah, I think what happens is I would probably do this too, if it was me. In an effort to get this thing over to OPM in a timely manner. I may not have everything I need yet, but hey, I’m just going to send it off and see what happens. And that’s going to be an error rate because I left out the health insurance confirmation or transfer, or left out the standard form, 2801-1, or 3107-1, which is the summary of service that my employee needs to sign before I can send it to OPM. So now you can’t leave those things out. Those all have to be included in order order to submit that claim for retirement benefits to OPM after the employee has retired, doesn’t go to OPM until after your separation date.

Micah Shilanski 08:43
Yeah, so here’s what I’m telling my clients. And Tammy push back on me if you’re advising any differently, saying what this probably means is you’re going to get a cleaner app to OPM, but that also means it might be a delayed app to OPM says before they were just going to send things off right after retirement. Now, if that’s their plan, and they go to do it, they don’t have documentation, it might take a little bit more before that application goes. I don’t think that’s going to affect this is me guessing, by the way, so it’s a great opportunity for me to be wrong, but I don’t think that’s going to affect leave cash out and how that goes through if HR is delayed in processing that retirement. But that’s something I’m just advising my clients on. Is just saying it’s an unknown right now. And so anytime there’s an unknown, my default is better cash savings, like if you’re banking on your leave payment, that’s your only savings you’re going to have, and this potentially could delay it for whatever reason for your leave cash out, we probably need to have access to other money just in case.

Tammy Flanagan 09:35
The key thing for your annual leave payout is that the separation notice, the fact that you’re leaving federal service, gets notified to payroll in a timely manner, and that you don’t have any government property. So if you still have your work computer or some other document that you have to turn in, if that’s not turned in, you’re not going to get your annual leave. So that’s where I’ve seen delays in annual leave payouts for individual employees where there’s something that they they’re missing, the agency’s missing it. So they kind of hold that hostage until, until you get all that equipment or that property turned back into the agency. So that can be a problem there. So just be sure, if you have something at home that needs to go back to the agency, you get it back there, if that’ll help speed up that process. But, you know, I don’t know how that application, if it goes, I know it goes from the employee straight to HR, does HR then send it to payroll, and payroll submits it to OPM. I’m not sure about that whole process. I’ve seen some training materials on that, but it hasn’t been real clear to me, so but the other thing I would tell employees, and again, you don’t have a lot of control over this, but stay in context. Stay in touch with your HR specialist. If you’ve been assigned a retirement specialist, contact that person. Make a connection with them, ask them questions about things you’re not sure about, and consider yourself very fortunate if you do have a name and an email address or a phone number, because that person can be key to making sure you’re making the right decisions, or at least understanding the decisions that you’re making.

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Micah Shilanski 12:39
Yeah, and Tammy, I will say there’s some really good ones out there, by the way. You know, there’s some great HRs, but now maybe there’s one, this guy named Micah, that works, you know, Department of Interior. That’s not me, by the way, but I was biased to his name right away. But there’s some really good ones out there that do a fantastic job. So if you’re lucky enough to have one, I love that build a connection with them, talk with them, make their job easier. It’s another thing I talk about retirees all the time, is do as much as you can. Because just like anyone else, right? If I have two projects on my desk, and one is pretty easy and I can slam through that order, one is like, oh, grab that. That’s a beast. I’m going to put the beast off. I stand and I’m going to go through the one that I can really get through. So that’s really what I want the employees to do. As much as you can make this an easy process for HR person, which means it’s an easier process for OPM, which means you get paid sooner, which is what we’re solving for at the end of the day.

Tammy Flanagan 13:29
Sorry, I guess another tip I would give employees is it, when you are conversing communicating with HR, if you’re going to send them an email, don’t send them a book. Send them no more than three questions and make them brief, because I got an email probably two weeks ago from somebody who sent me a book, you know, paragraph after paragraph of all this explanation that really wasn’t relevant to the question. And I put it off, and I sent him an email response when I had some time yesterday, and I maybe wasn’t in the best of mood when I did this, but I gave him a tip. I said, Hey, you know, next time you send me an email, make it briefer, because that’s the reason why I got a delay in your response, because I didn’t have time to sit down and read it all, you know. And the question really one, one sentence. So he could have done that much fewer words, which would have made things go a lot smoother for him and for me.

Micah Shilanski 14:19
Speaking of smoother, you know, OPM is going through a little bit of a change, so there’s a new director, and inside of this, around a 1000 people are expected to be let go of OPM by the end of this year. Now that’s probably not all coming from the retirement department, right, but some of them are definitely going to come from the retirement department. So again, Tammy, this comes to the aspect that more than likely, in the near term, retirement might take longer to be processed than shorter. Now, I hope I’m wrong with this. I hope it’s Johnny on the spot. They fix things they go through. But also, didn’t we have with I don’t know if it was a record who’s a huge amount of people that retire May and June of this year?

Tammy Flanagan 14:57
Absolutely, it was. I think it must have been a record, because in the month of May, the month of June, this is coming into the summer months, everybody’s gone on vacation. Typically, no one’s really retiring in those months. So we usually see anywhere from four to maybe 6000 employees retire each of those months, not this year. This year, we had close to 30,000 retirements hitting OPM between those two months. And I think, and we talked about this before we went on the air, I think it’s all due to the fear, the fear factor, because that big, beautiful Bill had a lot of provisions in it that were going to really negatively affect retirement, but it was a proposal. And what do we always say about proposals Micah?

Micah Shilanski 15:42
We don’t pay attention to proposals. We don’t plan on the proposals. We plan on current wall, and that’s really, really important. Whether it’s tax changes, the state changes, or benefit changes, social security changes. Get a ton of questions: Micah, Social Security’s gonna run out of money by 20 going to run out of money by 2032 turn it on now, and I’m like, Well, hold on a second. Let’s kind of look at the bigger picture here. Because Tammy, what this turns into is an emotional decision, and I know you know that, right, not a financial decision. So I really want to try to separate those out as much as I can. And I think this example, 30,000 retirees, is a really good one. It’s fear that came upon us, and we said, we have to go down now maybe you were ready to go. Maybe it was a good decision. And you’re like, you know what? I just don’t want to worry about this thing. I want to retire six months sooner than I plan. There’s nothing wrong with that. But if you’re like, oh my gosh, they’re about to give me out all my benefits, I’m going to go from a high three to a high 30, right? Or, you know, whatever the fear is that’s there now a sudden, this is now an emotional decision, and we got to check that, because I know a big thing was the FERS supplement was going away, but Tammy, what actually happened to the FERS supplement and the one big, beautiful bill?

Tammy Flanagan 16:51
It’s still there where it always was. I mean, I know this has been attacked in the past several times in different legislation. And if you look back, I’ve been doing this, and you’ve been doing a long time too, but I’m a little older than you, so I go back almost 40 years in this business, and I could count on one hand how many negative changes to retirement there have been in those 40 years. Those are really hard the past, because they take congressional action, and Congress doesn’t like to make their constituents unhappy, and there’s a lot of lobbying effort in there to protect and preserve our benefits. And last but not least, the staff in Congress. Congress, men and women themselves. Guess what? They’re covered under FERS or civil service, just like, you know, other federal employees. So they don’t want to make those negative changes. They’re going to hurt themselves and their their loyal staff. So you very rarely see those big negative changes happen. So there was no elimination of the FERS supplement, not this year, not next year, not the year after.

Tammy Flanagan 16:51
I would say fantasy, because I’m still getting questions is Micah the FERS supplements going away in 2028 right? That’s, I got an email yesterday about that, and that was, it came from a proposal, right? Which is why I kind of have it in our notes to chat about, right? It didn’t make it to that final draft. Now, I think it was in the proposal up to, like, the 11th Hour, by the way, it was definitely in there. But now that’s not a thing. Tammy, what about like the high three to the high five?

Tammy Flanagan 17:36
High three still there. So we don’t have to worry about high five or high 30 or nothing. It’s still the high three. What else was in there, was the increased contributions for all employees that went away. You know, there was a lot of really scary things in there. So I can understand why people were afraid. In fact, I was really hesitant to tell people don’t retire, because what if it did happen, and that’d be the one with the face. So I didn’t say one way or the other. I wouldn’t recommend that, but I did see people make some pretty sad mistakes. I had one employee who misunderstood, so he’s going to be 62 in January of 2026 and he has over 20 years of service. And he put his retirement application in for, not not for June 30, but for September 30, thinking that he can just delay sending the application to OPM in January.

Micah Shilanski 19:15
Mhm, that’s another word.

Tammy Flanagan 19:16
It’s on the separate the age you were on the date of separation. So he lost 10% bump in his retirement, which added up to 1000s of dollars a year. I mean, this is sad thing, and he can’t pull it out. The agency’s not letting him resend his application.

Micah Shilanski 19:32
So Tammy, what we’re talking about, I’m sure our listeners are track of it, just to make sure, right? You get that extra bonus, extra 10% increase in your pension if you make it to 62 and 20 or more years of federal service, but you got to meet both of those requirements, right? Not just one of those. And that’s what he made. He made, he made it to 61 and nine months with 20 years, but that’s not 62 with 20 years of service.

Tammy Flanagan 19:57
Yeah, and what we mean by 10% bonus? Because I hear a lot of misunderstanding on this, it’s not 10% of your high three more, it’s 10% of the retirement. So instead of 1% for every year of service, you’re getting 1.1%. That’s 10% per year more. So that’s what it means. So it’s not as good as you know, get an extra 10% of 150,000 it’s 10% more on the 30,000 or whatever your retirement would have been, but it’s still 1000s of dollars for many employees.

Micah Shilanski 20:29
It’s 1000s of dollars. It’s a great bonus. Is it a reason to keep working between 57 if you’re eligible 62. No like like that alone, if you’re financially so eligible that that’s a stretch. Should you work an extra couple of months to get a 10% bonus? Yeah I’m gonna go with that, you know, we’re tired of September. Move it to to January to get a 10% bonus. I think that would probably make a lot of sense.

Tammy Flanagan 20:51
I’ve talked many 60 year olds off the ledge. You know, they, they’re 60 with 20 years, I’m like, Man, two more years, not only the 1.1% but you’ll have 22 years, and it’s only two years, and you’ll get the real social security, which is so much better than the supplement, and you’ll get COLA. So there’s so many good things about waiting until 62 if you’re within a couple of years, you say month, I say a couple of years. My years go like months.

Micah Shilanski 21:17
So the important lesson that’s here, and there’s a lot of stuff in OBA, however, we’re saying that right now, and actually just got up a tax conference talking about this. There’s so many things inside there that we need to understand from a tax perspective. So I know we’re gonna do a future pod on that. Definitely some things to think about inside of there, but the great news is, at the end of the day, you have the same great set of federal benefits. There’s nothing material, material stuff on taxes have changed for the better, in my opinion, but nothing better isn’t lower taxes, but nothing from the aspect of the federal benefits changing, going away, getting renewed.

Tammy Flanagan 21:54
Right. And the one thing I want to clarify, and this is a question for you or comment later. We did pre talk about this, but I think you definitely know the answer. So I got an email from somebody who was really upset about the new elimination of tax on Social Security benefits, and I had to tell them, I’m like, you know, it’s not an elimination of tax. The tax on Social Security hasn’t changed. It still would have won before this law passed. But what did you Micah, just in a brief little sense, what do people think? What do they think Social Security is now tax free?

Micah Shilanski 22:25
Right, so they didn’t make Social Security tax free. They put a senior bonus deduction in place with an extra $6,000 per person over the age of 65 so if you’re married filing joint and you’re over both over 65 the signature $12,000 deduction that’s on top of your current standard deduction, on top of the extra 1600 for being already over 65, this is a bonus, but the bonus has a phase out with it. The phase out starts at $150,000 of modified adjusted birth income. All right, you said a sentence. I’m giving you a novel. Sorry, I just got on the tax stuff. Long story short, there’s an extra, huge bonus that’s there. But if you have a really good pension in CSP, you got to be careful on how you’re going to plan for this, because a lot of people might be over that 150 so it’s actually working on a case before we jumped on the podcast Tammy, just outlining it for a client, how we’re going to utilize this every other year, with a combination of IRA and Roth money, we’re going to go back and forth with this, because why not get as much of the deduction as we possibly can before it goes away? Because it is a short deduction. It’s like 28 or 29 I written down somewhere. It goes away the next now few years. So this isn’t a permanent thing.

Tammy Flanagan 23:36
That’s right. And this goes to say, as I always say to people, when I’m done counseling someone on their benefits, I’m like, if you haven’t done any tax planning, get with someone who can help you there, because that’s really a place where you can save some money if you do it the right way. Don’t wait till you’re 73 to start tax planning.

Micah Shilanski 23:57
Boy, another thing that was not part of this bill was actually part of last year. But I do want to remind you keep forgetting that if you’re between 60 and 63 you get a bonus contribution. Right now, your catch up contribution, if you will, $7,500 in addition to your TSP, normal TSP contribution that goes from 7500 to 11,002 50. So you can put more money in your TSP If you’re between 60 and 63 so really important, this doesn’t happen automatically. If you’re in that window, you gotta jump online to TSP. You gotta increase those contributions in order to max that out.

Tammy Flanagan 24:31
You can only do it while you’re working. I’ve been getting emails from people say, can I contribute to my TSP after I leave? I’m like, No, but you have to take advantage of that before you separate. And if you are leaving September 30, you can put all of that in there by September 30, if you increase your bi weekly allotment, because you’re still getting paid if you’re in the DRP phase out period.

Micah Shilanski 24:55
Yeah, 100%, so big takeaways that I’m going to say on this is, boy, this whole podcast, I guess, really talks about separating out your emotions from the facts, starting with the retirement application, it’s an online thing. Clients are getting a little concerned about that, thinking it’s an irreversible thing. Great news. It’s not right. I want to get it correct before it goes to OPM, but when you first fill that out, right? It’s just going to HR. Let’s fill it out in paper, you know? And then we go through it. And then, Tammy, I love the point that you brought up that there’s only been a couple of things in 40 years, which is benefits changes, which were negative for federal employees, and we see this again in a current legislation.

Micah Shilanski 25:31
No. So it’s pretty I mean, you have a great benefit system, not a good benefit system. You have a great benefit system, and knowing and understanding it to get the maximum. That’s that’s really the key.

Tammy Flanagan 25:32
Yeah. And so if you’d asked me to name what those handful of things are, I really can’t think of anything that was really onerous. Probably the worst thing that happened was getting rid of civil service and replacing it with FERS. But if you ask people under FERS today, if they go back to civil service, many of them say, No, thanks. I don’t want to give up, I don’t want to give up the flexibility. So that really wasn’t a bad thing for most people.

Tammy Flanagan 26:07
It isn’t the easiest system in the world. Some complications, but it’s only because it is so, so generous. I feel free. It’s intact. We haven’t lost any of it.

Tammy Flanagan 26:16
That’s absolutely right. That’s, I think that’s the biggest problem, but you can solve it by doing your research, ask questions.

Micah Shilanski 26:16
It is, it is, and it made it through this OBA bill, and it’s still intact. And you have great benefits that are out there, so it’s fantastic. So your homework assignment is to make sure you have facts, not feelings about your benefits. It’s not, oh, the misunderstanding boy, Tammy, your example of that, of saying, Oh, well, I’ll just delay my retirement until I’m 62 and submit that application. That’s not how it works. Because you think it’s a good idea, it doesn’t mean how the system is. Now, the good news is, it’s pretty spelled out how the system works, but it’s a little complicated, so you got to make sure you understand that.

Micah Shilanski 26:21
Awesome. Well, remember to like and describe our goals of another 1 million federal employees with their retirement to send this out to some more people. Tammy things again for being on here I always love having on until next time, happy planning.