Weekend Reading on Your Federal Benefits 16-18.jpg

(for the week of April 14th – April 20th)

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, there’s no contingency plan for your Federal Long-Term Care Insurance Program, you’ve been liberated by Tax Freedom Day this week, and we continue last week’s history lesson by following where your benefits are today. I’m also going to point out the elephant in the room by answering the question, ‘What If They Change the G Fund?’. Let’s get started.

OPM Doesn’t Have a Contingency Plan if Long-Term Care Insurance Market Upends

From Federalnewsradio.com

As life expectancy continues to lengthen, the percentage of our population who will need long-term care in a nursing home, care at home, or adult day care has continued to increase. The Department of Health and Human Services says that ‘about 70% of individuals over the age of 65 will require at least some type of long-term care services during their lifetime’. That means if you were standing next to me with two of your friends, only one of us, after age 65, is expected to escape the need for long-term care. (By the way, of the four of us, it will be me who doesn’t need it. You three will. Am I right? Although you’re probably thinking the same thing. We never want to believe that it could be us.)

The Federal government recognized this risk for its employees and retirees and passed the Long-Term Care Security Act of 2000. After a process of competitive bidding OPM selected a carrier called Long Term Care Partners formed by MetLife and John Hancock to provide this voluntary coverage. Due to rising costs, and falling profitability in the LTC insurance market, MetLife exited this market soon after. When the contract was up for renewal in 2009, John Hancock stood alone in shouldering the responsibility.

Long-term care costs have continued to rise, and when the contract was recently renewed in April 2016 premiums rose significantly for many policyholders, who could choose to pay the increased premium or lessen the amount of their coverage. John Hancock itself stopped selling group long-term care insurance plans back in 2010 and individual policies in 2016. Now it only offers and administers the LTC plan for Feds. Its current contract with OPM will expire in 2023, and it was the only bidder for the contract back in 2016. Although OPM has an option to extend the contract past its expiration date and require John Hancock to continue providing long-term care services to previous enrollees, OPM’s Inspector General (IG) thinks it’s time for the agency to develop a contingency plan. Yes, but it may not be easy.

Tax Freedom Day is April 19

From Fedsmith.com

Once again, Americans will work well into the new year to pay their Federal, state, and local individual income taxes as Tax Freedom Day occurred yesterday (April 19th) for the average American. As the Tax Foundation’s map included in Ian Smith’s article illustrates, some Americans, like those in California and Illinois won’t experience Tax Freedom Day until the end of April. And if you live in New York, you’ll need to work until May 14th to have earned enough money to pay your full tax bill for the year—after that, it’s all yours to keep. The good news is that Tax Freedom Day occurred earlier this year (2018) for most Americans than in 2017 and 2016 (which were on April 23rd and April 24th respectively).

Do you know how much you pay in taxes? In a Michigan State University study, 85% of adults surveyed didn’t, with most actually overstating their tax burden. As a percentage of spending, Americans pay more in total Federal, state, and local taxes than they do on food, clothing, and housing combined. So now that you’ve worked for 3½ months to pay the government’s bills, you can begin to start working on your own.

Where Benefits Are Today

From Govexec.com

Have you ever wondered why a pre-tax, employer-sponsored savings plan that’s widely used by corporate America is called a 401(k) plan? If you didn’t know, the name comes from the section of the Internal Revenue Code that describes something known as a ‘salary deferral arrangement’. The 869 words of Paragraph K of Section 401 were written into the Internal Revenue Code by a 28-year-old junior lawyer by the name of Richard Stanger as part of his job serving on the Joint Committee on Taxation, the nonpartisan staff that helps Congress write tax legislation. Although Theodore ‘Ted’ Benna has become widely known as the “father of the 401(k)” because he created and gained IRS approval of the first such savings plan while serving as Vice President of the Johnson Companies, Stanger was the one who authored the rule which made it possible. Those few words, and the changes that they created, later led to the creation of your Thrift Savings Plan program which shares similar characteristics and benefits to the 401(k) plans used by many non-Feds to save for retirement.

Last week you may have read Tammy Flanagan’s article titled Where Retirement Benefits Came From which took a look back at how retirement plans, particularly the Civil Service Retirement System, were started. She continues her examination of the history of retirement plans this week by bringing us up to date with information on both the Federal Employees Retirement System (FERS) and the Thrift Savings Plan (TSP). As of January 2018, the TSP plan balance has grown to more than $500 billion. The importance of this plan to the retirement strategies of five million participants in it leads us to a very important question, which is . . . .

What If They Change the G Fund?

From Federalbenefitsonline.com

(I sharpened my #2 pencil this week to write more than 3,300 words for this article. Maybe it’s a bit long, but I hope you find it to be a thoughtful piece on an important topic. Here goes.)

Let’s pretend we’re boy scouts for just a moment. The motto of the Boy Scouts of America is ‘Be Prepared’. With the increasing call to change how the rate of the Government Securities Fund (G Fund) in the Thrift Savings Plan (TSP) is calculated, how should you prepare?

Before we discuss this, let’s first agree that changing how the G Fund rate is calculated is a very ‘touchy’ subject and one on which both Feds and non-Feds have very passionate opinions. It’s the elephant in the room that is finally getting talked about. Jessica Klement, the Legislative Director for the National Active and Retired Federal Employees Association (NARFE) had this to say about the proposed formula change, “What it does is it renders the G Fund useless.” The TSP’s own spokeswoman Kim Weaver said the agency opposes “any change” to the G Fund’s rate of return. “Such a change to the G Fund would do significant damage to TSP participants’ ability to save and invest for their retirement,” she said. And TSP officials have also stated that ‘such a change would make the G Fund virtually worthless for TSP investors, as account growth would not keep pace with inflation nor be competitive with stable value funds. The G Fund would then only be serving the purpose of a money market account.” And that’s where the problem begins . . . .

See you next week. Thanks!

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