Ask The Experts: Retirement

By Reg Jones

Reporting retiree pay on taxes

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Q. This year’s tax (2012) is the first I will file as a FERS retiree. I understand a portion of my retiree pay is a return of contributions and is tax-free. How do I report this? Will it be identified on my 1099?

A. The 1099 form that the Office of Personnel Management sends you will show the amount of your retirement contributions. Plug that number into the worksheet you’ll find in Internal Revenue Service Publication 721, which you can access at www.irs.gov.

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Military buyback

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Q. I was active-duty Navy (1980-84), then active Coast Guard (1991-2000). I received a tentative offer for employment with Army a few weeks ago (I’ve been a contractor since 2000). All required documents are submitted. Now I wait.

How do I buy my 13 years active duty into FERS? Can I use my existing 401(k) to pay this? How much would it cost me?

I also found out that, as of Jan. 1, the deduction for retirement went up to 3.1 percent. I guess a tentative offer before Dec. 31 doesn’t count for hired, so my pay is decreased. Adding on an increase in the cost of living (D.C. area), increase of health care coverage, retirement, Thrift Savings Plan, Social Security and decrease from my current salary, there’s not much of a paycheck left. What are the benefits of government employment? Any idea why Fort Belvoir does not have a cost-of-living adjustment?

A. Yes, you will be able to make a deposit to get credit for either or both your periods of active-duty service. When you are hired, your personnel office can explain how you do that and what it would cost. While you can use any source of money to make the deposit, I don’t know what the tax consequences of using your 401(k) would be.

The fact that you were made an offer of employment before the change in retirement deductions went into affect won’t change the fact that you’ll be required to pay the higher amount.

Your question about COLAs and Fort Belvoir makes no sense. Employees don’t receive COLAs, only retirees. And whatever COLAs one retiree gets are applied to the annuities of all eligible retirees. On the other hand, if you are referring to annual pay increases, these have been frozen for all employees for the past few years.

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Medical disability delay

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Q. How long after the last day of a pay period should one begin receiving their first annuity check? My former human resources department placed a remedy ticket with the Defense Finance and Accounting Service, yet still no paycheck. The DFAS received my Office of Personnel Management paperwork five days after the last day of the pay period.

A. According to OPM, “Title 5, Code of Federal Regulations specifies the annuity commencing dates. For disability applications, the date the annuity begins is either the date after the last day of pay or the day following separation. The check dated the first of the month represents benefits for the preceding thirty days.”

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Retirement eligibility and annuity computation

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Q. I retired from active-duty service in the U.S. Army in 2002. I became a Department of the Army civilian in 2009. When — how many years — can I retire from federal service? What is the computation/formula used to determine retirement pay?

A. When you can retire is determined by your age and service. You can retire at age 62 with five years of service, 60 and 20, at your minimum retirement age with 30 or at your MRA+10 (but fewer than 30). If you make a deposit for your years of active-duty service, you’ll get credit for that time in determining your eligibility to retire, but only if you 1) have at least five years of actual FERS service; and 2) waive your military retired pay when you retire.

FERS annuities are calculated as follows: 0.01 x your highest three consecutive years of average pay x your years and full months of service. The first multiplier is increased to 0.011 if you retire at age 62 or later with at least 20 years of service.

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Pay computation

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Q. I voluntarily retired May 3, 2004, GS-2210-12, Step 9, salary $73,703, with 35 years of federal service. If I should accept a pending job offer and return to federal service as a GS-0391-13, how would my pay be computed and at what step at the GS-13 grade?

A. Assuming that you meet the qualifications requirements to move from a series where you were once employed (2210- Information Technology Management) to one in the 0391 series (Telecommunications Services), there is no requirement that you be appointed at the same grade and step that you held before you retired. If the agency makes you an offer, you are free to accept it, ask for it to be modified, or reject it.

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External hires

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Q: Can external hires actually negotiate salary when most (if not all) federal vacancies state a fairly wide pay range? I’ve heard different things, but wish to know from you what the real answer is.

A: Agencies have the authority to negotiate the starting pay of an external hire within the pay range for a position. Whether they are willing to do so, and to what extent, depends on the skills and abilities the candidate brings to the table, his current salary, and how critical the agency’s needs are.

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Step increases can help thaw wage freeze

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Whether you are an employee or a retiree, this year is a real bust when it comes to benefits.

Employee pay scales are frozen at 2010 levels for two years under a presidential proposal that was approved by Congress. Frozen are cost-of-living adjustments to the General Schedule, Senior Executive Service, wage grade and other pay scales in the executive branch for 2011 and 2012.

On the bright side, employees eligible for step increases will still receive them in those years. About 1.1 million GS employees — three-quarters of the GS population — will receive $2.5 billion in raises through step increases over the next two years, according to a Federal Times analysis. Others will also be eligible for promotions and bonuses.

Also on the bright side, the maximum taxable earnings amount for Social Security purposes will stay at the 2009 level — $106,800 — just as it did in 2010. That’s because there won’t be any increase in Social Security benefits in 2011. Therefore, if you are under the Federal Employees Retirement System or Civil Service Retirement System Offset, any amount you earn over $106,800 won’t be subject to the 6.2 percent Social Security deduction.

As a retiree, for the second year in a row, you won’t receive a cost-of-living adjustment in your annuity; and, if you are receiving a Social Security benefit, you won’t get an increase in that, either.

COLAs for retirees and Social Security beneficiaries are determined by changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers from the third quarter of one year to the third quarter of the next. The CPI-W dropped between 2009 and 2010, as it did between 2008 and 2009 — negating a COLA increase in 2011, as it did in 2010.

Among the good news: There’s a “hold harmless” provision in the law, which does two things to make not getting a COLA increase more palatable: First, it prevents benefit recipients from having their annuities and Social Security benefits reduced. Second, it protects nearly three-quarters of Medicare Part B enrollees from having their monthly premiums increased.

On the other hand, more than one-quarter of Medicare Part B enrollees will see an increase. You will be among those if you are a new enrollee in Medicare Part B, are subject to the income-related additional premium amount or don’t have your Part B premiums withheld from your Social Security benefit payments.

If you receive a Social Security benefit, the Social Security exempt amount — the amount you can earn from another job or self-employment without causing that benefit to be reduced — is the same as it was in 2009 and 2010: $14,160 for an individual or $37,680 for a couple.

If you are under full retirement age, $1 in benefits will be deducted for every $2 you earn above the limit. In the year in which you reach full retirement age, $1 in benefits will be deducted for every $3 you earn above the limit. There is no limit beginning with the month in which you reach full retirement age.

While there was talk all last year about giving Social Security recipients a $250 payment to compensate for their loss of a COLA in 2010, nothing happened. And, barring a legislative miracle, nothing is likely to happen in 2011.

Although many benefits for employees and retirees will not increase in 2011, some expenses will increase. Depending on which Federal Employees Health Benefits Program plan you are enrolled in, a substantial bite for premiums might be taken out of your income. The same is true if you are enrolled in the Federal Long Term Care Insurance Program. There are no “hold harmless” provisions that can keep these premiums in check.

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Early retirement and severance

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Q: I am a federal firefighter (GS-081) facing an involuntary early retirement. I am 48 and have 27 years of service. My Agency is offering severance packages to those folks who can’t retire early. Do I have the right to accept a severance package? And if so, how will it affect my involuntary early retirement?

A: If you were eligible for a reduced annuity under a voluntary retirement authority, you wouldn’t be entitled to receive severance pay.

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Basic pay is actual amount received

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Q: Why is it that the GS base salary does not equal the annual salary when multiplied out? (I’m a GS 13/3 in D.C. My annual salary is $94,969.  My base salary is computed as $45.51/hour x 80 hours x 26 weeks = $94,660.80, a difference of $308.20, or approximately 38 hours). We’re in the middle of refinancing the house and the bank is asking.

A: Regardless of what you see on a pay chart, your basic pay will always be the actual amount received during a calendar year, which, by law, is 2,087 hours long.

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Military to government employee

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Q: I retired from the Army in August 2008, after 28 years of service. I currently receive my retirement pay and VA Compensation. If I get hired for a government job, how will my current benefits be affected?

A: Being hired as a civilian employee of the federal government won’t have any effect on your military retired pay or Veterans Affairs compensation. However, if you want to get credit for that period of active duty service in determining your eligibility to retire from a civilian job and in your annuity computation, you’d need to make a deposit to the Civil Service Retirement and Disability fund that equals a small percentage of your military basic pay. Further, at retirement you’d have to waive the receipt of your military retired pay. You would still be able to receive any VA compensation, unless you were to retire on disability from your civilian job.

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Federal travel pay

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Q: According to the Office of Personnel Management, if a government employee travels on a federal holiday then no additional compensation is allowed. I’m a National Security Personnel System employee and traveled on President’s Day. I know if I worked I would be entitled to “double” pay: holiday, plus regular pay. What applies to travel on Holidays for NSPS employees?

A: To the best of my knowledge there is no exception to that rule. However, you’ll need to check with your own payroll office on the remote chance that an exception has been carved out for NSPS employees.

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Traveling on a federal holiday

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Q: I am being required to travel on a federal holiday to attend training.  My Human Resources department has advised me that I will not be given travel compensation time off  or paid overtime based on a 2005 OPM directive.  That is:  “Although most employees do not receive holiday premium pay for time spent traveling on a holiday (or an “in lieu” holiday), an employee continues to be entitled to pay for the holiday in the same manner as if the travel were not required.  Thus, employees may not earn compensatory time off for travel during basic (non-overtime) holiday hours because they are entitled to their rate of basic pay for those hours.  Compensatory time off for travel may be earned by an employee only for time spent in a travel status away from the employee’s official duty station when such time is not otherwise compensated.”  My background in contracting tells me that the government cannot accept “free” services.  By forcing me to travel on my own time (holiday), the government is basically accepting free services. Seems like I’m being short-changed a holiday or, at least, pay for hours worked.  I believe  Human Resources is interpreting this guidance incorrectly, i.e., “ . . . when such time is not otherwise compensated.” If I receive no compensatory time off or overtime, how am I being “otherwise compensated“ – the pay for the holiday is already earned by law.  I have been unsuccessful in researching the OPM Web site for newer guidance.  Can you comment on or confirm the validity of this policy?

 A: The OPM quote that your agency provided you is both true and current.

 

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Selling back military time

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Q: I am retired from the Army and receive retired pay and disability pay. I am also a civilian employee under the Federal Employees Retirement System. When I am eligible to retire, will I be paid my military retired pay, disability pay, retirement pay as a civilian employee and also receive my Social Security? Would it be advantageous to sell back my military time to incorporate it into my civilian time under FERS? If I do sell back my military time, do I forfeit continuance of my military retired pay?
A: If you retire without making a deposit to the retirement fund and waiving receipt of your military retired pay, you would receive a FERS annuity based solely on your FERS service, your military retired pay, your disability pay, and a Social Security benefit based on all your Social Security-covered employment. If you do make a deposit for that time and waive your military retired pay, you would receive a FERS annuity based on your active duty and FERS service, your disability pay, and a Social Security benefit based on all your Social Security-covered employment.

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Correcting paygrade

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Q: I did not check the appropriate box for Superior Academic Achievement when I applied for my current position and was hired as a GS-05 instead of a GS-07 even though I am qualified as a GS-07. Is there any way around the bureaucracy to get my paygrade corrected?
A: The matter rests exclusively between you and your agency. You’ll have to discuss the matter with your supervisor and someone in you personnel office.

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What happens when NSPS ends?

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Q: I was a GS-12, and when my organization reorganized, I was assigned to a different YA-02 position and not my original position, which was converted to a YC-02 position.

I was told this was not a downgrade since I lost no pay or benefits. Now that the National Security Personnel System is ending, I understand that they must return me to my original grade and pay. The YA-02 position they assigned me to was a GS-10 before being converted to NSPS.

Will they have to put me in another position that is a GS-12 since the NSPS YA-02 position I am currently in will revert back to a GS-10?

A: You’ll have to wait until the NSPS is, in fact, ended and guidance is issued on how employees currently under that system will be transitioned back to the GS system.

— Reg Jones

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