Weekend Reading on Your Federal Benefits 15-18.jpg

(for the week of April 7th – April 13th)

You’re too busy during the week to keep up on all the news around your employee benefits and pay. My weekly summary of the most interesting and relevant news stories could help you and includes my comments and insights.

By the way, if you’ve read something about your employee benefits that you think is important or interesting, share it. And, let me know about news sources that you follow. Have a great weekend.

George Ray
Federal Benefits Online

In this week’s Federal benefits news, we uncover the retroactively reduced Health Savings Account limit, learn where benefits came from, explain Social Security’s future in plain English, and continue to discuss the President’s management agenda and civil service reform. Let’s get started.

IRS Retroactively Reduces HSA Contribution Limit

From employeebenefitsadviser.com

If I included this headline in the newsletter issue two weeks ago, you might have thought it was an April Fools’ joke. It’s not. Many Federal employees use a Health Savings Account (HSA) attached to their high-deductible health plan to save money from their paychecks on a pre-tax basis to be used for things that are not paid for by their health insurance program, like deductibles, co-pays, etc. Health Savings Accounts can be an excellent way to put money aside for future needs and unlike the Flexible Spending Account (FSA) you won’t lose your contribution if you don’t spend the money by year-end. Use it or lose it. (Yes, I know there is a $500 carry-forward provision on the FSA now.)

The Internal Revenue Service increased the contribution limits to the HSA for 2018 but because of the 2017 Tax Cuts and Jobs Act, the IRS now needs to reduce the maximum limit for family contributions (not for individuals) by $50, from $6,900 down to $6,850. This means that if you’re fully funding your HSA, you could wind up with an excess contribution by year-end. The excess $50 (plus any earnings on it) will get included in your income and there is a 6% excise (penalty) tax to pay too.

What should you do? To be safe, you could decrease your contributions between now and the end of the year if you’re contributing regularly to avoid exceeding the limit or request a refund from your account custodian if you’ve already contributed the older maximum limit amount. Or you could simply wait to see if the two members of the House Ways and Means Committee, Representatives Mike Kelly (R-PA) and Erik Paulsen (R-MN), who wrote to Treasury Secretary Steven Mnuchin about the burden, get us a delay of enforcement of the new contribution limit until 2019 as they requested. It’s your call.

Where Retirement Benefits Came From

From Govexec.com

We can learn a lot from history. Tammy Flanagan looks back at the creation of retirement benefits in her article from Government Executive this week. Providing a check to retired workers comes with the acceptance of responsibility and the idea of charity. The earliest form of benefits came from an inheritance tax, proposed by founding father Thomas Paine, that distributed funds to those age 50 and older. Military pensions for those who fought in the Civil War came next and were paid to soldiers for many years, and later continued for their surviving spouses. In 1882, the first private sector employer that started a pension for its workers was a company that built pianos and organs.

In case you don’t know, the Civil Service Retirement System (CSRS) was created in 1920. (It will celebrate its 98th birthday on May 22nd.) You’ll find in Tammy’s article that the original requirements for a CSRS pension, the calculations, and when it was paid have changed dramatically from when it began. And, of course, the newer FERS system made big (and some would say uncomfortable) changes when it was introduced. FERS has also continued to change with modifications like the introduction of new classes of employees (FERS RAEs and FRAEs). That’s the lesson that history teaches us. Things must to change to adapt to our needs and the resources that are available. And that leads us to . . .

Social Security’s Future in English

From Fedsmith.com

This is a story about a story about a story. Back on April 1st, a USA Today article titled Social Security's Future: Millennials can count on program, despite the worries suggested that the Millennials don’t care much about Social Security because 80% of them don’t believe it will be around when they are ready to retire. (In case you don’t know, Millennials were born between 1979 and 2000, some 81 million children who will replace the Baby-Boomers as they retire.) But Dean Baker, a senior economist at the Center for Economic and Policy Research says that there is “zero doubt that Social Security will be there for Millennials.” The USA Today article then goes on to explain why Social Security will continue to be around although it may not replace the same percentage of your income. The ‘replacement rate’ for an average-earning 65-year-old who retires in 2035 is expected to continue to drop to 36%, from 39% in 2015 and 43% in 1995, based on data compiled by the Center for Retirement Research.

Brenton Smith, who writes for Fedsmith.com, doesn’t agree with the USA Today article or the author’s math. If benefits are reduced as expected, how can reduced benefits increase faster than inflation? Smith says “the result depends upon the possibility that wages rise faster than inflation. Historically they have. Given that Social Security rewards earnings, rising wages will make the program close the gap in buying power created by a shortage of money or “insolvency.” The only question is the number of years. It may be 40 and it may be 100.”

I always suggest in benefits training programs that it’s highly likely we will see changes made to Social Security. The last time we saw major change was in 1983 when the full retirement age was stretched from 65 to age 67. Brenton Smith makes some relevant arguments in his commentary for Fedsmith, but I also agree with the last section of the USA Today article titled “Keep Saving for Retirement”. Social Security is simply a social insurance program designed to provide a base level of income to ‘keep you off the streets’ after you retire. It’s not a retirement program or a pension. We don’t know how much it will be able to help us in the future, but remember that how comfortable you are in retirement is really up to you.

The President’s Management Agenda & Civil Service Reform

From govmatters.tv

Jeffrey Neal, Senior Vice President at ICF and former Chief Human Capital Officer (CHCO) at the Defense Logistics Agency and Jeri Buchholz, former CHCO at NASA, discuss the Office of Personnel Management’s new director Jeff Pon’s “holistic” civil service reform strategy in an interview this week with Government Matters TV host Francis Rose. Pon has said that he wants to completely overhaul the government’s human capital management process. Neal and Buchholz agree that the new director should probably start with the cumbersome and lengthy hiring process first while also working on compensation, retention, and employee development.

Jeff Neal tells Dr. Pon (if he’s listening) to not listen to the ‘Dr. No’s’ who will attempt to thwart any change with their negative attitudes. Buchholz says that Jeff Pon has a great opportunity to address and educate the Federal workforce if he can develop a strong digital communications plan to communicate directly with employees in plain language. Whatever methods are used or wherever it begins, the ball is rolling and it’s coming your way. You may want to jump on to avoid being run over.

See you next week. Thanks!

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