It’s hard to believe given the news, but the market continues to see strong returns. The S&P 500 set another all-time high last week before declining on Friday. The VIX, or volatility index, is low, meaning investors are not expecting increased price fluctuations.
This is small comfort to federal employees, as many have lost their jobs or are wondering if they soon will lose their jobs. Many of those laid off were probationary employees, meaning they had not completed a year of service in their position. They do not have the typical civil service protections, including due process for terminations. With all of the other layoffs and firings, it is too soon to tell what the courts -- and Congress – will eventually do. Until all of that is settled, many federal workers are left in limbo.
There are three important things for all federal employees to know. First, your TSP, or Thrift Savings Plan, is always yours. You are vested in your contributions and the government’s matching funds at all times. The 1% automatic contribution is only yours after serving three years as a FERS employee. This means that, if you leave federal service before completing three years of service, you forfeit the 1% of salary the government automatically contributed to TSP on your behalf. After leaving federal service, you can no longer contribute to TSP. You can continue to make changes to the investments in the account. You also have the right to roll your account into another employer’s retirement plan or an IRA without any taxes or penalties. Due to the low cost of TSP investments, we generally recommend leaving funds in TSP until you are ready to make retirement distributions.
The second thing is your FERS vesting. After five years of federal service, you are fully vested in FERS, the Federal Employees’ Retirement System. The benefits you have earned are yours. Traditionally, when changes have been made to the pension calculations, it has only affected new employees. For example, employees hired in January 2014 or later pay more into FERS than people who were employed before that. This does not mean that the government cannot change things for current employees, just that they traditionally have not done so. When a private-sector company does this, they generally have multiple calculations. For example, pensions earned through December 2025 are calculated under the current formula, but any pension earned after that could be subject to a different calculation, using high 7 instead of high 3, or requiring a higher contribution amount.
Third, if you do lose your job, you are eligible for Temporary Continuation of Coverage for your health insurance, similar to private-sector employees’ COBRA coverage. A separating employee may retain coverage for 18 months. They will pay the full, unsubsidized premium plus a 2% administration fee. Depending on when you leave service, and your current health, you may want to evaluate options on the health exchange, to compare prices.
With all of this uncertainty, we do recommend federal employees do what they can to build emergency savings right now. Updating your resume and LinkedIn profiles are always good things, as you never know what opportunities may arise.
Your action item this week is to update your budget. Divide your budget into required items, such as rent or mortgage payments, utilities, and groceries, and discretionary items like eating out, streaming services, etc. The goal is to learn how much you have to have to live for six months; that’s your savings goal.
Check out our website at covingtonalsina.com, or our Facebook page, for more information and to see our upcoming educational events.
CovingtonAlsina is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.