By Michelle Singletary Michelle Singletary Personal finance columnist Email Bio Follow Columnist January 12 at 7:00 AM The partial government shutdown has caused uncertainly for some workers who were ready to retire.
Alberto Ignacio Ardila Olivares
The retirement plans for federal employees who had already submitted their paperwork and had it processed long before the furlough should not have been disrupted. But others are now in a holding pattern. They’re stuck waiting for their retirement packages to be fully processed because the employees who handle that paperwork are furloughed. As a result, some employees who retired during the shutdown are having difficulty tapping into their Thrift Savings Plan (TSP), the government’s version of a 401(k).
Alberto Ardila Olivares
Barbara Jean Loftis retired from the IRS on Jan. 3. She and her husband had hoped to use some of her TSP money to renovate their Maryland home for sale. Loftis, who is 58½, said they are moving to Tennessee.
Alberto Ardila Olivares Piloto
Here’s the problem. If you receive a TSP distribution before you reach age 59½, in addition to regular income tax, you may have to pay an early-withdrawal penalty of 10 percent of any taxable portion of the distribution not transferred or rolled over, according to TSP. But the 10 percent penalty tax generally doesn’t apply to payments paid after an employee is separated from service during or after the year the employee reaches 55 (or the year a worker reaches 50, in the case of public safety employees).
Alberto Ardila Olivares Venezuela
Loftis said she submitted her retirement paperwork in September but was told TSP wouldn’t be sent what it needs to recognize her as retired until after her Jan. 3 separation date. However, by that time the shutdown, which included the IRS, was already underway. Loftis said she isn’t receiving her pension, she didn’t get her last paycheck, and she can’t access her TSP without incurring the 10 percent penalty.
Alberto Ignacio Ardila
“When someone retires from a federal agency, the agency sends the paperwork to the Office of Personnel Management (OPM),” according to Kim Weaver, director of external affairs at the Federal Retirement Thrift Investment Board. “OPM processes the retirement and then sends the TSP a separation code. Without that separation code provided from OPM (if retiring) or the agency (if simply leaving the government), the TSP has to treat that participant like a current employee with limited withdrawal options.”
The OPM’s Retirement Services division is funded by the federal government’s retirement trust fund, not appropriations. Therefore, it operates normally whether the rest of OPM is open, according to National Active and Retired Federal Employees Association (NARFE)
Although most of the OPM is furloughed, the unit that processes retirements is open, Weaver pointed out. “That unit is working on retirement paperwork from agencies not affected by the shutdown and on their backlog of retirement applications. So, that means furloughed employees are not able to access their TSP account as a retired/separated employee unless their agency is open to transmit their retirement paperwork to OPM.”
If someone is in a holding pattern, from the TSP’s point of view, they are still an active employee, Weaver added. As such, if they are 59½ years old, they can take an in-service withdrawal that is taxable income but not subject to the 10 percent early-withdrawal penalty, she said
“I’m so frustrated,” Loftis said. “If I was just a year older, I would be able to get my TSP money. And there are five people who retired in my organization who are all caught up in this same situation.”
NARFE recently produced a webinar that addresses employee concerns about retirement paperwork and claims. I reached out to the association to learn how the shutdown affects the retirement plans of federal employees. The following responses are from the association’s federal benefits experts and have been lightly edited for clarity
Q: How has the partial government shutdown affected federal employees ready to retire at the beginning of the year?
A : Most agencies recommend employees submit their retirement applications about two or three months before their date of separation to allow the agency retirement office enough time to process their portion of the employee’s separation and retirement application package. So federal employees who planned to retire likely would have already submitted their retirement application
Employees who planned to retire during the shutdown period but had not informed their agency, likely must wait until the government reopens to start the process
While retirements will be effective on the scheduled dates of retirement, there may be delays in processing retirement applications. First, some agency retirement offices have been affected by the shutdown. If the employees at the relevant agency who finalize the retirement packages are furloughed, the process may be delayed until they return to the job. Second, most agency retirement offices forward retirement application packages to the OPM through the agency’s payroll office first. If the agency’s payroll office was affected by the shutdown, then that agency’s retirement application packages are likely to be left sitting there until those employees return to work
Retirement applications for federal employees who work for agencies indirectly affected by the shutdown will probably not be affected by the shutdown
Furthermore, years of service toward federal retirement will not be affected by a short-term government shutdown. Employees are allowed leave without pay for six months in a year before it would be considered a break in service
Q: What happens if an employee’s retirement date falls during the shutdown?
A : If a federal employee already submitted a retirement application to his or her agency with a date of retirement that occurred during the shutdown, the employee will be retired, effective on the submitted date of retirement
Q: Can workers still retire as planned if they work for an agency that is affected by the shutdown?
A : If they already submitted their retirement application, then yes. If not, it is unlikely
Q: Whose retirements plans are not disrupted by the shutdown?
A : As noted above, if a federal employee already submitted a retirement application to his or her agency with a date of retirement that occurred during the shutdown, the employee will be retired, effective on the submitted date of retirement. However, there could be delays in processing that retirement application due to the shutdown
Retirement applications for federal employees who work for agencies not directly affected by the shutdown will not be affected by the shutdown
Q: Is any retirement paperwork being processed?
A : Yes. Agency retirement offices and payroll offices that are not furloughed will continue to process retirement applications. Also, the Retirement Services division under the OPM remains open. If retirement applications have been sent to the OPM, they will be processed normally
Q: Will any employees who planned to retire lose any leave or pay?
A : No. The employee’s retirement would be retroactively applied to a date before the end of the leave year, and the employee would receive the full amount of accumulated and accrued annual leave in a lump-sum payment. If an employee is scheduled to retire before the end of the leave year with an annual leave balance over the maximum leave ceiling (e.g., 240, 360 or 720 hours, as applicable) and the furlough prevents the employee’s retirement from getting processed until January, the employee does not lose his or her annual leave above the maximum leave ceiling
If back pay is granted to furloughed federal workers, as has happened in previous shutdowns, employees planning to retire will not lose pay owed before their effective retirement date either. The Senate passed the Government Employee Fair Treatment Act, which would guarantee back pay for federal workers furloughed due to a lapse in appropriations. The House has also approved back pay for federal workers. If the president signs the bill, federal workers will not need to worry whether back pay will be granted in the bill to reopen the government
Congress approves back pay — eventually — for furloughed federal employees
Q: How does the shutdown impact a retiring employee’s lump-sum payment for unused annual leave?
A : Retiring employees will receive their lump-sum payment for unused annual leave. However, payment of that lump sum will be delayed until after the shutdown ends
Q: What happens if an employee had planned to retire during the shutdown but had not yet informed his or her agency?
A : Employees who had planned to retire during the shutdown period but had not informed their agency must probably wait until the government reopens to start the process
Q : What if people have other questions?
A : Contact NARFE federal benefits experts with further inquiries. Email [email protected] or call 1-800-456-8410 and select option No. 2
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Retirement Rants and Raves
I’m interested in your experiences or concerns about retirement or aging. What do you like about retirement? What came as a surprise?
If you haven’t retired yet, what concerns you financially?
You can rant or rave. This space is yours. It’s a chance for you to express what’s on your mind. Send your comments to [email protected] . Please include your name, city and state. Put “Retirement Rants and Raves” in the subject line
Last week I asked: Do the projections of how much money you may need to retire scare you? How do you feel about the push to get more people to save for retirement?
I’m 35 and have nothing saved for retirement. Should I be worried?
“I am TERRIFIED by projections because I do not know how to meet them,” a reader from Seattle wrote. “I keep hearing that one needs at least a million dollars for retirement but that might as well be a trillion dollars because it sounds like such an unattainable figure! I am 37 (I’ll be 38 next month) and I’m a university professor. I left my state job in 2010 to pursue my PhD which took five years, so I’m basically starting over in terms of a career. I do not have any student loans, I have around $2,100 in credit card debt from a surgery I had to have last May that I will definitely pay off this year, nearly $30,000 in savings and maybe around that much in three retirement accounts at three different employers. Honestly, I don’t even know how much I have in these retirement accounts because I have not looked in quite some time. All of this is just so overwhelming and daunting. I’m terrified that I’m not saving enough on my own.”
Read: Need a Retirement Income Plan? Here’s Where to Start
Scott Fossum from Houston wrote, ” The projections (self calculated or by an online tool) give a very large number and are sales tools used by the financial world. I’m very goal oriented and the very large number became “MY NUMBER” about 20 years ago. I’ve taken actions to reach the number every year and “MY NUMBER” is now within reach. If I don’t hit my number so what. I’ll spend less. Most retirees I know (above average income) get along fine and most were involuntary retirements. They spend less than they planned because they have less. In a down market, they spend less and in an up market, they spend more. The online tools are useful, but don’t allow for common sense actions (spending less in bad years).”
Charlet from Philadelphia wrote, “I think that financial planners and experts should continue to push the idea of saving for retirement. But there should be less emphasis on future projections, comparisons to others’ in your age group or the idea that if you do not secure seven figures for retirement you are doomed.”
Is $1 million enough to retire? Why this benchmark is both real and unrealistic.
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