While many federal employees will be eligible to retire in the next fifteen

years, unfortunately some of them will discover they will be

unable to retire at the time they intend to because  important tasks --

that should have been performed during their federal service -- were not

completed.   

This article discusses the 10 biggest mistakes that many employees

make during their years in federal service prior to retirement.

It is hoped that this discussion will assist all employees -- especially

those employees in mid-career or those who are relatively new to the federal

government  -- to not overlook these tasks and therefore be able to achieve

the goal of retiring when they want to.

The following list is not in any particular order of importance or priority:

Mistake #1:  Failure to carefully review personnel

records.

Employees should routinely review and make sure that the information

contained in their Official Personnel Folder (OPF) is correct and current; in

particular, Form SF 50 (Notice of Personnel Action) which is updated annually.

Form SF 50 contains some extremely important pieces of retirement-related

information. In particular, Box 30 of form SF 50 that is entitled "retirement

plan", officially states which retirement plan an employee is covered by. This

includes the Civil Service Retirement System (CSRS), CSRS-Offset, or the Federal

Employees Retirement System (FERS). Employees should check to make sure they are

in fact covered by the correct retirement system. Unfortunately, there have been

cases in which federal employees were placed in the wrong retirement system at

the time they were hired and did not discover that fact until they were very

close to their anticipated retirement date.

Box 31 of Form SF 50 is entitled "Service Computation Date" (SCD) (usually

accompanied by the word "leave" in parenthesis). The SCD for "leave" usually

denotes a federal employee's original entry date into federal service. But there

could be exceptions to that. For example, if an employee had active military

service or civilian temporary time (sometimes called "nondeduction" service),

then the SCD for annual leave will usually be adjusted backwards (the employee

gets credit for annual leave hour accrual purposes according to the number of

years the employee spent in the military or in "nondeduction" service) unless

the employee is an active duty military retiree. An employee also receives

credit for annual leave purposes for time working as a temporary or a seasonal

employee, or as a "non-appropriated funds" (NAF) employee.   

The SCD for retirement purposes is usually the date an employee started

contributing to his or her retirement system, whether it is CSRS or FERS. But

there may be exceptions to the SCD for retirement being the day an employee

started contributing to either CSRS or FERS. For example, a CSRS or CSRS-Offset

employee who entered federal service prior to Oct. 1, 1982 with prior military

service or temporary ("nondeduction") service automatically receives credit for

retirement purposes for these types of services. An employee who leaves federal

service and withdraws his or her retirement contribution and then re-enters

federal service will have an adjustment in their SCD for

retirement.
   
The SCD for retirement is one of the two

determining factors that will determine when an employee can retire and how much

of a CSRS or FERS annuity the retiring employee will receive. Employees are

therefore encouraged to verify their SCD-retirement with their Personnel

Offices. 
   
Employees should also review their OPF

and take note of the following items that can affect their eligibility for

retirement and the computation of their CSRS or FERS annuities: (1) beginning

and ending dates of each separate period of service; (2) type of retirement

coverage - CSRS, FERS, FICA, or none; (3) type of appointment - temporary,

intermittent, WAE (When Actually Employed), part-time, career, or career

conditional.

Employees should note that their "leave and earnings" statements, usually

showing the SCD for retirement, may not be the same as their official SCD for

retirement.

Mistake #2:  Failure to make timely requests estimates of unpaid

deposits or redeposits.

Many employees are not aware that by making a deposit for military or

temporary ("nondeduction") time, they push their SCD for retirement backwards,

thereby increasing their service time and ultimately the amount of their CSRS or

FERS annuities. Another result of making a deposit is perhaps being able to

retire earlier than they first expected. For employees who were in federal

service, left federal service and withdrew their CSRS or FERS contributions but

subsequently reentered federal service, they can redeposit their withdrawn

contributions (usually with interest charges)  thereby restoring the years

of service that were lost as a result of withdrawn CSRS or FERS contributions.

Some employees are told about their deposits or redeposits later in their

careers, thereby owing and paying more in interest charges.

Mistake #3: Failure to fill out and if necessary, update beneficiary

designations.

The following beneficiary forms should be filled out and, if necessary ,

updated -- for example, if the employee gets married or divorced, etc: (1) Form

SF 1152, Designation of Beneficiary for Unpaid Compensation and Unused Annual

Leave of a Deceased Federal Employee; (2) Form SF 2823, Designation of

Beneficiary of Federal Employees Group Life Insurance (FEGLI); (3) Form TSP 3,

Thrift Savings Plan (TSP) Beneficiary Designation; (4) Form SF 2808 - CSRS and

CSRS-Offset employees: Designation of Beneficiary of CSRS Contributions, or Form

SF 3102 - FERS employees: Designation of Beneficiary of FERS Contributions.

Mistake #4:  Failure to understand the rules for maintaining

federal health insurance (FEHB) during retirement.

Many federal employees fail to understand the rules for keeping for

retirement their health insurance benefits offered through the Federal Employees

Health Benefits Program (FEHB). Note that both employees and annuitants pay on

average 28 percent of the total FEHB premiums with the federal government paying

the remaining 72 percent.

The rule is that an employee must retire on an immediate annuity (one that

begins within 30 days after separation) or on a postponed annuity under the

Minimum Retirement Age (MRA +10) provisions of FERS. In addition, the employee

must be covered by FEHB under his or her own enrollment, or as a family member

under another FEHB enrollment, for the five years of service immediately

preceding retirement or since the retiring employee's first opportunity to

enroll in FEHB.

Mistake #5:  Failure to contribute as much as possible to the

Thrift Savings Plan (TSP) and starting during the earlier years of an employee's

federal service.

This is especially important for FERS-covered employees whose retirement

income will depend to a large degree on TSP-source income. All employees should

attempt to contribute the maximum regular contribution ($16,500 during 2010) and

if they will be age 50 or older as of Dec. 31, 2010, they should attempt to

contribute an additional maximum $5,500 in "catch-up" contributions. Many

FERS-covered employees - especially those who have less than five years of

service - are contributing less than five percent of their gross pay, thereby

missing out on their agency's maximum four percent matching contributions. New

employees should be aware that effective June 22, 2009, all new employees

immediately obtain the automatic agency one percent of gross salary contribution

and four percent agency maximum matching. But there will be a maximum four

percent match from the agency only if a FERS-covered employee contributes a

minimum of five percent of his or her gross salary each pay date throughout the

year.

Mistake #6:  Failure to consider the TSP as a "long-term"

investment plan and properly investing as such in the TSP funds.

The TSP is a retirement savings plan that allows participants to contribute

some of their pre-taxed salary for the purpose of growing the monies in these

accounts on a tax-deferred basis. Any earnings - this includes interest,

dividends and capital gains - are not taxed until withdrawn. As such, TSP

participants must think long-term with respect to which TSP funds they want to

invest their contributions. Long-term is defined as the period throughout which

an employee contributes to the TSP until the time  the TSP participant or

the beneficiary no longer needs his or her TSP account. A TSP participant should

not define "long-term" as the time the participant contributes to the TSP and

the day of retirement. A TSP account must continue to grow after an employee's

retirement date. As past investment performance has shown, long-term growth will

most likely be accomplished when most of one's TSP account is invested in the

stock (C, S, and I) funds or in the Life Cycle (L) funds that are invested

mostly in the stock funds (the L2030, L2040 and L2050 funds). and not in the

bond funds (F and G funds) or in the L income fund. TSP participants are also

cautioned not to "time" the stock market and constantly move TSP funds around in

order to achieve long-term goals and to "preserve" one's TSP account in stock

market downturns. But as any investor is warned, TSP investors should heed that

past investment returns are no guarantee of future performance. 

Mistake #7:  Failure to plan for "incapacity" while employed and

when retired.

While federal employees accrue sick leave hours each pay period that can be

used in the event an employee becomes  ill or is injured and is unable to

come to work, few employees purchase long-term disability income insurance that

will replace - in most cases tax-free - as much as 60 percent of an employee's

gross salary in the event the employee suffers a long-term disability. The

federal government's sick leave program should be considered as a short-term

disability income insurance program. Most Executive Branch agencies do not offer

long term disability income insurance to their employees. The federal government

offers long-term care (LTC) insurance to its employees and retirees. Most

episodes of LTC occur on average when an individual is in his or her 70's or

80's. Individuals are encouraged to buy LTC insurance when they are young and

healthy enough to qualify as well as be able to pay reasonable LTC insurance

premiums. Many insurance professionals recommend buying disability income

insurance when employees starts their profession careers - usually when a

professional is in his or her 20's or early 30's - and buying LTC insurance

towards the end of their working careers when they are in their late 50's or

early 60's.

Mistake #8:  Failure to have a proper and up-to-date estate

plan.

As part of their overall estate plan, employees to name beneficiaries for

their bank and brokerage accounts, life insurance policies, TSP accounts and

IRAs, and have prepared important estate-related documents. A proper estate

plan, established by consulting and working with a qualified estate attorney,

includes a Will or Living Trust, a durable power of attorney, an advanced health

care directive (health care power of attorney) and Living Will.

Mistake #9:  Failure to plan properly for retirement -- in terms

of income, housing and lifestyle changes -- for themselves as well as for family

members, especially spouses.

Retirement should be considered as another "life event" that can have

significant effects on the income, housing needs and lifestyle of the retiree

and immediate family members. Not properly planning for these changes could be

devastating.    

Mistake #10:  Failure to attend a mid-career and retirement

seminar.

Many federal agencies offer to their employees two to three day mid-career

and retirement planning seminars. These seminars, conducted by federal employee

benefits experts, teach attendees what employees should expect in income and

lifestyle changes once they retire from federal service. Among the topics

usually discussed are retirement eligibility requirements, how the CSRS and FERS

annuities are calculated, the best days of the month and the time of the year to

retire, survivor benefits, what happens in the event an employee dies in

service, how to invest in the TSP, what to expect to receive in Social Security

benefits, how federal pensions are taxed by the federal government and the state

governments, estate planning for soon-to-be retirees, and lifestyle changes

during retirement. Many employees attend these seminars very late in their

careers. They subsequently discover that they have made errors or omitted

certain tasks that should have been dealt with earlier in their careers.

About the Author

Edward A. Zurndorfer is a Certified Financial Planner, Registered Health

Underwriter, Registered Employee Benefits Consultant and Enrolled Agent in

Silver Spring, MD and the owner of EZ Accounting and Financial Services, an

accounting, tax preparation and financial planning firm also located in Silver

Spring, MD.  He is an instructor at federal employee retirement

seminars throughout the country for the National Institute of Transition

Planning, Inc. and writes numerous columns and books on federal employee

benefits.