If there’s a government shutdown, this is what it means for federal retirement benefits

If there’s a government shutdown, this is what it means for federal retirement benefits

WASHINGTON — A partial government shutdown would interrupt the income of most federal employees, at least temporarily.

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But that would not be the case for government retirees, since their payments come from permanent trust funds, and the government would make sure those payments continue to go out.

Retirement benefits also are a concern even for active employees, since those benefits are one of the more attractive aspects of working for the government.

Following are questions and answers regarding retirement benefits for those still working and those already retired.

Q. Will federal retirees get their annuity payments?

A. Here’s how the National Active and Retired Federal Employees Association explains it:

“Because [Office of Personnel Management] retirement operations are not funded through general revenues, retirees should expect to receive their annuity payments deposited into their accounts or received in the mail on time as usual. OPM sends annuity payment tapes to the Department of Treasury in the middle of the month prior to the payment date so that Treasury has time to process the payment tapes/cut checks and ensure that annuity payments are received by the first of the month.”

Federal retirement annuities are timed to be received by retirees on the first business day of each month, which in this case would be Thursday, Oct. 1. All but a few retirees receive their payments by direct deposits made on that day, with paper checks for the rest timed to be delivered that day.

While OPM authorizes the payments, the Treasury Department is responsible for actually processing the direct deposits and checks.

Premiums in the federal health care plan and other insurance programs would continue to be withheld from those payments and thus there would be no interruption in coverage.

OPM did not respond to a request for information apart from relaying a standard Obama administration statement that it remains hopeful there will be no shutdown. The Treasury Department referred questions to OMB, which provided only that same statement.

Q. What about other retirement services to federal retirees?

A. OPM’s office that provides services such as answering questions and dealing with missed payments was excluded from the most recent shutdown in 2013, and presumably would remain open again because that office gets its operating money from the federal retirement trust fund.

That office also processes new applications for benefits, so that also would continue. However, processing applications often involves back-and-forth between OPM and the employing agencies, and the offices involved at those agencies may be closed, causing delays. Processing of applications has been plagued for years by backlogs that result in smaller “interim” payments for many months until the full benefit is calculated.

Q. What about Social Security payments and services?

A. Most federal retirees worked under a retirement program, the Civil Service Retirement System, that does not include a Social Security component. The CSRS system generally covers those hired before 1984.

However, some of those retirees earned Social Security benefits through other work, and others receive them from a spouse’s employment, although commonly reduced by one of several possible offsets. About a quarter of federal retirees worked under the newer Federal Employees Retirement System, or FERS, which pays Social Security benefits on the same terms as for other workers in addition to a civil service benefit smaller than what CSRS provides.

Like civil service retirement benefits, Social Security is funded through a trust fund, and payments would continue to go out on schedule. Those payments are sent on the second, third or fourth Wednesday of the month, depending on the recipient’s birth date.

However, certain parts of the Social Security Administration are funded through regular appropriations. The 2013 shutdown resulted in delays in processing medical disability reviews, verification of Social Security numbers to lenders and employers, and processing of claims appeals. Some services provided in field offices also were cut off.

The SSA did not respond to a request for information about plans for a possible shutdown this year.

Q. Will the shutdown affect the eventual federal retirement benefits of those still working?

A. Not unless it drags on much longer than any past shutdowns have lasted. A civil service retirement benefit is based on two parts: service time and the “high-3” salary, meaning the highest 36 consecutively paid months in an employee’s federal career.

The policy is that up to six months of unpaid leave in a calendar year counts as creditable service time. Similarly, the high-3 is based on the salary rate, not the salary actually received, for up to six months of unpaid leave in a year.

Q. What’s the impact of a shutdown on the Thrift Savings Plan?

A. Because it is self-funding, the 401(k)-style savings program for federal employees and retirees will operate as normal.

Employees invest in the TSP through payroll deduction (retirees may not make new investments, although they can continue to move money among the investment funds and request withdrawals). For employees still in paid status during a shutdown – those whose salaries are not funded by appropriations from Congress – investments will continue as normal unless there is a disruption in their agency’s payroll processing.

For those put in unpaid status, whether remaining on the job or furloughed, investments may be affected.

Employees invest in the TSP based on a dollar amount per two-week pay period or based on a percentage of salary.

For those using the percentage method and who are put on unpaid status, the percentage invested will be of actual pay received in the pay period, reflecting days in paid status during that period.

Employees under the FERS retirement system also would face a reduction in the employer contributions to their accounts. The automatic 1 percent of salary contribution is based on pay earned during each pay period, and matching contributions of up to another 4 percent are based on the amount the participant actually invests. (Employees under the CSRS get no government contributions.)

Investments based on dollar amounts would be unchanged, if the employee received enough salary during the pay period to make that investment, after certain other required deductions are taken out. For FERS employees, that would mean the matching contributions would stay the same; but the automatic agency contributions would be based on the reduced salary rate.

When in non-pay status, employees may not take out new loans but they may continue to manage their accounts by moving money among the investment funds. They also could request a financial hardship withdrawal, although various conditions would have to be met before they would qualify, and there would be potentially severe tax consequences.

Those with loans must continue to pay on them during an unpaid period, although the repayments will not be made by payroll deduction. Borrowers would need to make sure that payments are caught up when they begin receiving pay. There would be tax consequences if they default, although that would not happen for several months.

Q. Will missed investments and agency contributions be made up?

A. Once funding is restored, employees who are kept on the job during a shutdown will be paid for that time, and their investments in the TSP will be made out of that pay; they also would then receive the agency contributions, if in the Federal Employees Retirement System.

Congress would specify if furloughed employees are to be paid retroactively, as well; the precedent is that they are. If so, the same policies would apply to them.