You know that being an FSO comes with a lot of benefits, but how do you find them, and know what they mean for you? Thankfully, the Foreign Service Pension System (FSPS) provides an annual update on the benefits you have received. It’s the PBF10 form, and can be found in your HR system. Here I’ll walk you through it.
First, though, I want to highlight the caveat that the PBF10 gives you: “Benefits amounts shown in this document are estimates. If you are considering retirement please seek more precise information from your employing organization.” Seriously, double check with an HR professional before pulling the FI parachute. (I am not an HR professional).
The Box on the 1st Page
On the top right, you’ll find a box that has some very important numbers.
- Retirement SCD – This is the date that the government is using to compute your retirement. It reflects the total amount of time that the USG thinks that you have been working for it. This is the date that they will use when determining if you’ve hit your 20 years for full pension.
- Leave SCD – The length of time that you’ve been in service also dictates how much leave you get per pay period. Make sure that you’re getting your time off! This is doubly important as it can help you with ‘retiring’ early either through selling your leave back, or tacking it on to the end of your service to hit your 20 years.
- TSP Contribution Amount– This is the amount that you’re contributing PER PAY PERIOD. Make sure that this jives with how much you think you’ve been contributing – if not, talk to your HR specialist. Ideally, this amount is 1/26 of the max that you’re allowed to contribute to a 401k – $19,000 in 2019, so it ‘should’ be $730.
The Grey Sections
This number is your base pay – the pay level that they are using to calculate from. If you are overseas, this will include your overseas comparability pay bump of 18.81%. It does not reflect any of the bumps you will get from locality, danger, or COLA. This is not what you actually got paid this year.
Total Compensation and Costs
This is what you actually got paid this year. It includes varying overseas pay bumps, pro-rated for time that you spent in individual posts. It does not cover any additional benefits, such as employer contributions to health insurance, life insurance, TSP, or pension.
These are your leave balances as of the date of the report. Make sure that they match with what you see in your HR system. Also, keep a mental note of your sick and annual leave if you are getting close to FI, or are getting burned out. These give you an idea of how much leave you can take to either reset your sanity, or provide an ‘early’ retirement.
For example, if you’re close to retiring and you have 176 hours of leave, that is, on average, about a month of paid vacation. So if your 20 year retirement date is December 2019, you could stop working November 2019 and use up that leave. This is something you’d need to clear with your boss & HR, of course, but it should be allowable.
Federal Employees Health Benefits (FEHB) Program
One of the benefits of working for the government is access to very niche health insurance packages. Here is where you see how much you, and the government, have been paying to keep you covered. The values will vary, but essentially you’re paying somewhere between 20-25% of your health care coverage, with the rest covered by the government.
Your FEHB Contributions are Pre-Tax. What this means is that the money is pulled out of your salary before that salary is used to compute Medicare, Social Security, or income taxes. So, you’re effectively lowering your tax basis while ensuring you’re staying healthy. Not Bad!
For those close to FI, please read carefully the side block: “To continue health insurance coverage in retirement you must retire on an immediate annuity and have been covered for the 5 years immediately before retirement, or since your first opportunity to enroll, if fewer than 5 years.” My reading of this means that to stay covered you have to take the ‘normal’ retirement at 50 years old and 20 years of service, but that may not be the case. Make sure that you work with your HR team as you’re retiring if you want to stay covered.
Federal Employees Group Life Insurance (FEGLI) Program
In addition to providing you health coverage, another benefit provided by the U.S.G. is life insurance, which essentially means that your survivors (usually your relatives) will have some money to cushion your loss, and help them get back on their financial feet if you are the primary breadwinner.
There is a lot of information in this block of the benefits statement, and it will vary according to your own circumstances. Of most interest to the FI folks is the section on “Coverage in Retirement after Age 65″… but who’s going to retire at 65? We’re all out of here at 50, max, right?
To be eligible for life insurance coverage during retirement (including FECA benefits), you must retire on an immediate annuity and be enrolled for the 5 years immediately before retirement or since your first opportunity to enroll. Again, as with my reading of the health insurance, the phrase ‘immediate annuity’ seems to require that you’re retiring at 50 with 20 years, which is the standard retirement figure for FSPS.
Thrift Savings Plan (TSP)
This is your 401(k) statement, essentially. It shows your contributions on both the bi-weekly paycheck level, and at the annual. The first thing that you want to ensure is that your Employee annual contribution is maxed. In 2019, the maximum 401(k) contribution is $19,000, so your employee contribution ‘should’ be $730 per paycheck.
These numbers change annually, so be sure to check with the IRS to make sure you’re putting the most in that you can.
Now, take a look at the Agency match portion. The Agency generally matches your contribution up to 5% of your Base Pay (the first grey box not your total compensation). This does not count against your contribution limit – it is ‘free’ money.
As I intend to discuss in another post, there are strong arguments for ONLY contributing up to that 5% match in the TSP, and then using the rest of the buffer between that 5% and the max for the 401(k) contribution in a private investment vehicle. For example, if you look at an FSO at FS03-01, they have a base salary of $82,005. Annually, the Agency will match 5% of that, or $4,100. Hypothetically, the employee could contribute only $157.70 to the TSP per pay check ($4,100/26), to get the full match, and then contribute the remaining $14,900 ($19,000 max – $4,100 match) to a vehicle of their choice under the pre-tax 401(k) rules. This is more complicated, but allows for more control, and potentially more growth.
The benefits statement also provides you with some nice numbers. First, the balance of your TSP account at the end of the year. Here’s hoping there are lots of digits in yours! Second, it makes some assumptions to calculate how much you would get in retirement. It assumes that:
- You continue to contribute at the same rate until you can retire
- That the returns average 7% per year
- That you wait to retire at the 50 years old/20 years of service threshold.
Using that (hopefully very long) number, they calculate how much you could receive monthly for life as an annuity. Again, they assume you retire at 50, minimum. For me, the monthly annuity at 50 is less than half of the monthly annuity at 60. This is due to the miracle of compound interest. But, the real question is, is the extra money really worth the extra 10 years of your life? If you’re here, the answer is likely ‘no’, but it is something to consider when making the transition to FI.
Benefits Under the Foreign Service Pension System (FSPS)
Another benefit of U.S.G. service is access to a pension plan – something that is quickly dying in the private sector. I’ll go in depth into the FSPS in a separate post, but in general, know that the pension calculations assume that you will not retire until a minimum of age 50 with 20 years of government service.
The amount of your pension is based on two factors
- The average of your highest three base salaries (provided by FSPS)
- Your length of service when you retire (provided here by FSPS)
The value of your pension is calculated by multiplying the average salary by a percentage based on your length of service. For each year up to 20, you get 1.7%. For each year after 20, you get 1%. So, if you retire at 25 years with an average high three of an FS03-01 (let’s hope not!), your annual pension will be $82,005 x ((20×1.7%)+(5×1%)) = $82,005 x 39% = $31,982, or $2,665 per month. This is in addition to the TSP payout.
If, by the time you hit 50, you don’t have 20 years, you are not ‘allowed’ to retire with the full annuity. You can work until minimum retirement age (55 or 57) as long as you have 10 years of service, but they’ll take away 5% per year that you’re younger than 62 (mandatory retirement age).
Social Security Benefits/Medicare Benefits
In addition to your TSP and FSPS annuities, you will also be eligible for Social Security and Medicare when you turn 62. It would make more sense to work with your HR person or the Social Security Administration on this if you have questions; the details provided here aren’t particularly detailed. You can contact the Social Security Administration at 1-800-772-1213.
Benefits Under the Federal Employees Compensation Act (FECA)
As a USG employee, you have benefits related to disability and death resulting from on-the-job incidents. As with the Social Security and Medicare benefits, these are topics best delved into with your HR team.
If You Leave the Federal Government Before You Retire
This box is actually mislabeled. It should be “If you retire from the federal government before you are 50 years old with 20 years of service”. I guess that was too long.
First it covers your pension (FSPS which is a variant of FERS). It lays it out fairly straightforwardly.
You may leave your retirement contributions in FERS [FSPS]. If you have at least 5 years of service covered by contributions, but less than 10, you may apply for a deferred annuity at age 62. If you have at least 10 years of service covered by contributions, you may apply for retirement at the Minimum Retirement Age (MRA), which is based on your date of birth. Simply put, if you hit FI, and decide to bail prior to 50 years old and 20 years of service, your benefit will change. If you have 5 years, you have to wait to receive anything until you hit Mandatory Retirement Age (62). If you have more than 10 years, you can receive benefits at the MRA, which is 55 or 57 depending on your birth year.
If you are younger than age 62 when you begin to receive benefits, depending on your age and length of service, your benefits may be reduced. So, in addition to not being able to receive benefits until at least 55 based on the above calculations, you will also be receiving less (which is logical – you put less in).
You may also apply for a refund of your retirement contributions. If you do so, however, and are reemployed by the Federal government, you will not be eligible to receive benefits based on service covered by the refund. Essentially, cashing out resets your SCD, and restarts your government service calculation. If you’re not coming back, this may make more short term sense, but often a lump sum payment makes a lot less sense than leaving it in there. YMMV.
Individuals who are subsequently reemployed can make a redeposit of the amount refunded, plus interest, and to have credit for the service reinstated. Essentially, you would be buying back your service, much as one does to get their Peace Corps or Military service credited when you first join the Foreign Service.
I hope this walkthrough helps you sort out your Foreign Service Benefit package. If you have any questions, please reach out, and I’ll do my best to answer them, or point you in the direction of someone who can.