Playing Catch-up

Sticking with the theme of our weeklong GovExec.com series, Life After Government, here's a look at some retirement issues of the day.

Catch-up Contributions

For the past two years, the government has offered federal employees the chance to make up for lost time, in the form of Thrift Savings Plan Catch-up Contributions. The TSP, which is a 401(k)-style retirement savings plan, is one of the pillars of a government retirement income, so catching up on your contributions can be worthwhile.

There's only so much an employee can contribute to the TSP. For the remainder of 2005, contributors in the Federal Employees Retirement System can give up to 15 percent of their income and those in the Civil Service Retirement System and the Uniformed Services can contribute up to 10 percent, under TSP rules. Beginning in 2006, though, limits on contributions will be eliminated under the TSP rules.

But there's still a contribution ceiling. The Internal Revenue Service has its own restrictions on any tax-deferred savings plan, of which the TSP is one. For 2006, the IRS limit on regular contributions to these plans is $15,000.

That is where catch-up contributions come in. TSP participants age 50 and over can contribute an additional $4,000 in 2005. For 2006, the catch-up limitation is $5,000 above the IRS limit. These extra funds allow employees who are nearing retirement, and as a result nearing the end of the time they can contribute to the TSP, to bulk up their savings.

Employees over 50 can contribute catch-up contributions at any time by filling out this form. The money goes into the same fund allocation you've set up for your regular contributions. Agencies do not match catch-up contributions.

Retirement Legislation

There are several pieces of proposed legislation in Congress dealing with retirement issues for federal employees. The Senior Executives Association, a nonprofit professional group for career federal executives, said there are a few of these issues it's lobbying for.

• Windfall Elimination Provision. The WEP spells out significant cuts in Social Security benefits for retirees under CSRS, because CSRS employees do not pay Social Security taxes from their federal income. According to the SEA, "in many cases, this reduction is unjust, and a number of bills, such as S.619 and H.R.1690, have been introduced to either soften or eliminate these reductions." SEA promotes those bills.
• Premium Conversion. The health insurance premiums of federal employees are deducted from their paychecks before taxes, while federal retirees have to pay taxes on those costs. Identical bills, S. 484 and HR 994, have been introduced in Congress to address this disparity, but the SEA said "the legislation would be expensive and has met resistance because of the budget deficits facing our country." SEA said it is "actively supporting" these bills.
• Prescription Drug Benefits. As a result of the increased Medicare subsidies for prescription drug benefits, the SEA said "there is considerable concern that many employers, including the federal government, may drop or lessen FEP drug benefits for retirees in the future, forcing them into the inferior Medicare program." SEA said it supports legislation such as the one Rep. Tom Davis, R-Va. introduced in 2003 to ensure that the government doesn't do this.