Understanding Your FS Benefits

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

Pay

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.

Leave

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.

Summary

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.

Stepping Stones on the FS Path to FI: Understanding Your Pension

The Foreign Service Pension System (FSPS) is one of the spectacular benefits of the Foreign Service. In a world where pensions are going the way of the dinosaur, having a known annuity, in addition to any investments you have, and in addition to Social Security (which will hopefully still be there when you need it), is an incredible bonus.

What is the FSPS?

There are actually 3 different types of retirement pensions available to the Foreign Service:

  • FSPS – the Foreign Service Pension System;
  • FSRDS – the Foreign Service Retirement and Disability System;
  • FSRDS Offset – the Foreign Service Retirement and Disability System Offset;

Barring injury or extraordinary circumstances, most FSOs will fall under the FSPS. The FSPS is a branch or version of the Federal Employees Retirement System (FERS), which is different than the system for civil servants. This post also assumes that you joined the FSPS after 1983, as that’s when rules shifted significantly for the pension system.

With those caveats, the FSPS is a standard pension plan that both the employee and the Agency pays into every pay check. The money is used and invested to generate income and growth, and to pay for annuities (a fixed amount received monthly after retirement) for retirees from the program.

What Does the FSPS Cost?

Participants currently contribute 1.35 percent of basic salary to the FSPS.  The employing agency contributes an actuarially determined amount to reflect “normal cost” (less the employee contribution).

3 FAM 6110.

The FSPS is one of the (many) payroll pullouts you will see on your paycheck. To sort out what the FAM means, look at it this way. First, the people running the FSPS figure out how much you should pay in now to cover your expected cost to the FSPS later (‘actuarially determined amount’). Then, you pay 1.35% of your base salary, not including any of the locality bonuses. Any difference between that 1.35% and the amount the FSPS needs to keep running, is paid for by your agency.

What is this ‘normal cost,’ you ask? According to Note 10 of the
FY 2014 Department of State Agency Financial Report , “The Plan uses the aggregate entry age normal actuarial cost method, whereby the present value of projected benefits for each employee is allocated on a level basis (such as a constant percentage of salary) over the employee’s service between entry age and assumed exit age. The portion of the present value allocated to each year is referred to as the normal cost.” In 2014, this ‘normal cost’ for the FSPS was 25.07%

So, what does that actually mean for you? Let’s say that you are an FS-03-01. Per the FS Pay Scale, you are making $69,022, pre-tax, no bonuses. That means that, at least in 2014, the following went into the FSPS to be used for your pension:

  • $932 from you
  • $16,372 from the agency

For a grand total of $17,304. This money is expected to grow over time, hopefully outperforming both inflation and the draw down that you will eventually take, to ensure that there will be far more than $17,304 when you retire. The miracle of compound growth.

Who is Eligible for the FSPS?

Coverage

FSPS eligibility is covered by 03 FAM 6120, which states:

To be covered under FSPS, an individual must: (1)  Be an individual identified in section 803 of the Foreign Service Act of 1980; (2)  Be covered by Social Security; and

(3)  Have retirement deductions withheld from pay and have agency contributions made to the Fund.



Retirement Age

Section 811 of the Foreign Service Act of 1980 sets the ‘normal’ retirement age at 50, regardless of what your minimum retirement age would be elsewhere (which can get confusing when you look at the larger set of data on government retirement plans). Section 812 covers mandatory retirement at 65 for the Foreign Service.

Early retirement

Section 810 of the Foreign Service Act of 1980 states:

Any participant who voluntarily separates from the Service after obtaining at least 5 years of service credit toward retirement under the System (excluding military and naval service) may upon separation from the Service or at any time prior to becoming eligible for an annuity elect to have his or her contributions to the Fund returned in accordance with section 815, or to leave his or her contributions in the Fund and receive an annuity, computed under section 806, commencing at age 60.

In short, this means that if you decide to retire early you can either a) wait until age 60 to start pulling a pension from the system, or b) pull out everything that you’ve pulled in, apparently without any of the interest that money would have accrued, and plop it into your own retirement funds, presumably taking a tax hit on the money removed.

For my money, if you’ve been in for a while, it would make more sense to leave the money in and take the pension when it’s available. Or, work to 50 and make the calculations very simple. But, if you wanted to work to 50 you probably wouldn’t be here 😉

How Do I Calculate My Pension?

Before we can calculate your pension, we need a couple of numbers: your SCD and your ‘high-three’.

The SCD or TIS

If you look on your FSPS benefit statement, in the boxes on the top right you will see something that says SCD. This is your Service Computation Date, which is related to your Time In Service. Essentially, the USG smooshes all of your service together, and subtracts it from the current date to get the SCD.

For example, maybe you worked for 2 years for the FS in 2008-10, then took a break for a couple years, then rejoined on January 1, 2019. Your SCD is not going to be 2008, nor is it going to be 2019. Instead, they will subtract the 2 years from 2019, and give you a SCD of January 1, 2017.

To calculate your TIS, which is what’s used to determine the multiplier for your annuity, you subtract the SCD from your retirement date. In the current example, if you proceeded to work without another break until 2030, you would have 13 years of service instead of 11.

NB: IF YOU SERVED IN THE PEACE CORPS, BUY YOUR SERVICE BACK!! Time spent in the Peace Corps does count against your Time In Service, but because Peace Corps doesn’t take PSPS/FERS deductions from the laughably small volunteer paychecks, getting that time to count requires putting in the funds that would have gone in during those years, along with the interest that would have accrued. Don’t worry, the amounts themselves are pretty small – consider how much you were paid at the time. While this can be an annoying chunk of change that you didn’t budget for, the payout is likely much greater when you consider that your annuity will increase by between 2%-3.4% of your (much) higher salary at retirement age.

The High-Three

The ‘high-three’ is fairly easy to calculate, if you know what it is. Put simply, it’s the highest three consecutive base pay years. Usually, this is the last three years you spend at the agency. For example, if you retired at an FS-01, and your last three years were at steps 08, 09, and 10, you would have made $129,288, $133,167, and $136,659 for an average of $133,038.

The Calculation

Participants who are at least age 50 with 20 years of service receive a basic annuity of 1.7 percent of high three basic salary for the first 20 years of service and 1 percent of high-three basic salary for service over 20 years.

3 FAM 6110

Let’s use the scenario above, where you retired at the top of the FS-01 bracket, with a ‘high-three’ of $133,038. You’ve served the USG for 25 years, according to your TIS/SCD. Here’s what you would make:

  • 20 years x 1.7% = 34%
  • 5 additional years x 1% = 5%
  • Total: 39%

That 39% is then multiplied by the high-three, giving $51,885. That is how much you would receive, annually, from the FSPS. In the SCD example on buying back Peace Corps service, $2,661 of that, annually, comes from that transaction.

In calculating your FI number, the simplest way is to subtract it from your annual expenditures. For example, if your annual budget is $100,000, your pre-pension number would be $100,000*25 = $2.5M. However, factoring in your pension your FI number would be ($100,000-$51,885)*25= $1.2M. Quite the plus up on your path.

FAQ

What rules govern the FSPS?

The FSPS is governed by the Foreign Service Act of 1980 and 3 FAM 6110. This chapter of the FAM covers all things “FOREIGN SERVICE RETIREMENT AND DISABILITY SYSTEM AND FOREIGN SERVICE PENSION SYSTEM”. It’s part of 3 FAM 6000, which covers retirement in general. These are the chapters that I used to put together this article.

FAM chapters can be updated; the information provided here was valid as of January 2019. Please double check the FAM before making any final decisions on FI based on expected pensions.