Early Outs

This week I presented my second webinar for Government Executive and was amazed by how many of you tuned in to learn more about your retirement! Thank you for taking time out of your day to join in.

I am glad employees are making sure they understand the benefits associated with retirement and are planning ahead. With so many rumors flying about regarding potential changes to the Civil Service Retirement System and the Federal Employees Retirement System, there is a feeling of urgency to learn about what might be coming.

I thought I would take this week's column to address your concerns and questions about voluntary early-out offers, or what is known as Voluntary Early Retirement Authority. Before I get into the VERA issue, I will discuss how the recent debt crisis might affect the government securities (G) fund in the Thrift Savings Plan.

Question: There is no money in the G fund. Since the inception of the G fund, the federal government has been borrowing money from it. The entire balance of the G fund is nothing more than a pile of electronic IOUs representing the money the federal government has borrowed from it. This being the case, how can the federal government double the money? That is the part I don't understand.

First of all, if you think about it, your entire pool of money other than the cash in your wallet is nothing more than electronic IOUs. When I deposit my salary in the bank, I don't take a pile of cash to the teller; I take a check from my employer that is a promise that there is money in my company's bank to pay my salary.

When I do need cash from the bank, it better not be a large sum. I remember one time when I wanted to pay cash for a used car, the bank had trouble coming up with $10,000. (I know I should have paid by check, but some sellers just want that "cash money!") When I pay for items at the grocery store, mall or gas station, I swipe my plastic credit card, which is a promise that I will take my electronic dollars in my bank and use them to pay my debt to the store. No cash usually ever trades hands.

TSP also has responded to this concern on its website. What I have always liked about TSP is its willingness to be transparent to federal employees. Whether it is good news or bad, they don't sugarcoat it, and they let you know what is happening. Mission No. 1 for the people at TSP is the safety of your retirement investment.

A Congressional Research Service memorandum explaining the use of federal retirement funds during debt issuance suspension periods was issued in 2002. This report accurately describes the actions that the Treasury secretary can take and the complete protection of TSP participants' G Fund accounts.

The then-General Accounting Office also issued a report in 1996 confirming that the statutory make-whole protection (which remains in effect) was properly implemented when it was used in 1995-96.

Now, on to your early retirement concerns.

Question: My question is regarding Voluntary Separation Incentive Payment (VSIP) options. Can I elect a lump sum, bi-weekly installment, or 6 month installment? I am retiring 30 Sept 2011.

Your payroll office can decide whether to offer payout options for the VSIP.

For Defense Department employees, generally, the VSIP can be paid in one of three ways: In a lump-sum payment, or in two installment options. The first installment option is biweekly payments in equal amounts. The employee selects the amount, but the payments must be completed within one year of the date of separation. Under the second installment option, one-half of the buyout is paid six months after separation and the remaining half is paid six months later.

I've read that payments made from the National Finance Center are paid only as a lump-sum payment.

Employees should ask their payroll office how the VSIP will be paid if it is available. Keep in mind that the maximum VSIP is still $25,000, and this money is subject to income tax. It is not considered "basic pay" and therefore cannot be contributed to the TSP. After taxes, this amount might net the average federal employee only about $17,000. That is not enough to retire early unless you already can afford to retire, or you have a second career lined up that is as good as or better than the one you already have with the federal government.

The Office of Personnel Management has posted general information about VSIP, as well as a comprehensive guide published in 2006.

Question: Regarding the recent webinar 25 July on retirement, a webinar dealing with only Voluntary Early Retirement Authority (VERA) is needed! I am considering VERA and most of what you presented only dealt with "normal" retirement. We need more info on VERA.

As I was preparing to write about VERA, I looked back over my past columns and realized I already covered this topic in 2006. The information really hasn't changed.

One thing that I can add to this information is that there is a waiver policy for employees who take an early retirement benefit but who have not had the health insurance for the minimum five-year requirement. OPM has the latest on the five-year test waiver, including qualifications:

To be eligible for a preapproved waiver, you must:

• Retire during your agency's statutory buyout period; and
• Receive a buyout under the agency's statutory buyout authority; or
• Take early optional retirement as a result of early-out authority in your agency; or
• Take a discontinued service retirement based on an involuntary separation due to reduction in force, directed reassignment, reclassification to a lower grade, or abolishment of position.

If you meet these requirements, then you do not need to write a letter requesting a waiver. Instead, your agency must attach a memorandum to your retirement application stating that you meet the requirements for a preapproved waiver by OPM as set forth in the Benefits Administration Letter 00-220. The memorandum should provide the number of the public law granting your agency VSIP authority and the beginning and the ending dates of your agency's statutory buyout period.

Some employees who retire during a buyout period will not be eligible for a preapproved waiver. This includes employees who retire on a regular optional retirement but do not qualify for a VSIP.

If you do not qualify for a preapproved waiver, then you can ask OPM to waive the participation requirements in your case. OPM will consider each case on its own merits, based on the criteria that are applied to all other retiring employees. You should explain why you believe OPM should consider you for a waiver (e.g. why you are unable to meet the five-year requirement or why meeting it would be harmful to you) and send your waiver request to the following address:

Office of Personnel Management

Office of Retirement Programs

Retirement Services Branch -- Waiver Request

Washington, D.C. 20415-3532

Tammy Flanagan is the senior benefits director for the National Institute of Transition Planning Inc., which conducts federal retirement planning workshops and seminars. She has spent 25 years helping federal employees take charge of their retirement by understanding their benefits.

For more retirement planning help, tune in to "For Your Benefit," presented by the National Institute of Transition Planning Inc. live on Mondays at 10 a.m. EDT on federalnewsradio.com, or on WFED AM 1500 in the Washington-metro area.