Federal Employees: Retirement & Layoffs

0:00 Welcome to Something More with Chris Boyd. Chris Boyd is a certified financial planner, practitioner, and senior vice president and financial advisor at Wealth Enhancement Group, one of the nation's largest registered investment advisors. We call it Something More because we'd like to talk not only about those important dollar and cents issues, but also the quality of life issues that make the money matters matter. Here he is, your fulfillment facilitator, your partner in prosperity, advising clients on Cape Cod and across the country. Here's your host, Jay Christopher Boyd. Welcome to the program, Something More with Chris Boyd, and I'm here with Jeff Perry, my co-host, and we are pleased to have our guest today, Brian Kuhn.

0:43 He's also a financial advisor with Wealth Enhancement Group, an authority, I will say, when dealing with federal employees. So with all that's been going on with DOGE and early retirement offers and layoffs, it has been a time for federal employees to have a lot of concerns. So we're going to talk about that. But before we do, Brian, let's start off with a little, get to know you a little bit. Yeah, absolutely. Appreciate it, Jeff and Chris, for having me here. So my name is Brian Kuhn, certified financial planner. I've been in the business for 24 years now. I'm also with Wealth Enhancement based out of the Maryland area in a county called Anne Arundel.

1:27 And if anybody's familiar with the Maryland area, you know, there is this hub of federal employees, Montgomery, Howard, Anne Arundel, and Prince George's predominantly, but there's federal employees all over. But they're very highly located in that area in the suburbs of DC. So many years ago, I kept noticing them coming into the office looking for financial planning and retirement planning. This was around the 2006-2007 timeframe. It started due to a thing called BRAC. We had the base realignment after 9-11 that took many years. And they all kept coming in with these monster pensions and thinking about retiring because all of the changes. So, and as you guys know, being financial advisors, we're all supposed to develop a niche, if you will, something we're really good at.

2:11 So I said, well, if I could, I don't, not sure I could find a larger niche than the multi-million federal employees that there are out there. So I decided to devote my practice to helping them. At the moment, if we could only have something that was as complicated, is as complicated as BRAC, this is about 10 times more complicated than it, unfortunately, but we're all doing our best to navigate it. Well, I mean, I think it's definitely a topic on people's minds that just the general public is aware of all that's going on. And if you work in the federal government, you know, I think everybody's kind of watching their back a little bit of like, what's going to happen, right?

2:57 And so I imagine you're dealing with people who are, this is really interesting expertise, by the way. You know, I think that we'll hopefully get some good lessons for our listeners and anyone who's dealing with these kinds of clients. But one of the things that I was thinking about is, you know, you must be dealing with not only people who have gone through a layoff recently, or a retirement package offering, but also people wondering, am I going to be next? Or what's my plan if things change? So where should we begin, do you think, tackling this topic? Yeah, so we'll begin where we are at the moment with the offers federal employees are being given to leave.

3:44 Basically, that's pretty much how it's how it's going so far. So we had the original DRP, or fork in the road, as it's called, back in late January. And predominantly, federal employees didn't really sign up for that, because there was a lack of clarification, a lack of an understanding of what you were even signing up for. I mean, it was coming from OPM, rather than their direct agency was really how employment topics arrive. So we had the reconciliation bill, subsequent to that original fork in the road. So not too many people took that, unless they were intending, perhaps, to retire in the next couple months anyway, and just saw it as what they felt was an opportunity worth taking.

4:29 Yeah, we're past the deadline of that one. But then VERAs have come out. So opportunities to retire under more favorable conditions, basically people who are eligible to retire that might not have otherwise been eligible for what's called an immediate retirement. And then also now we've had the DRP come back. And this time, through their direct agency and as with and with a lot more clarification, doesn't mean it's a good thing to take. And specifically, federal employment, unlike private sector employment is really a legal employment contract. There's all sorts of nuance and documentation and policies to working for the government that doesn't really exist in the private sector.

5:15 So federal employment attorneys are a regular thing that I've been referring people to just to make sure they know as much as they can what they would be signing up for if they take it. So that's where we are right now. Different agencies have different deadlines. Some have passed, some are still ongoing. Some are actively pursuing as many people volunteering to leave as possible. Others are not. Some people, some agencies are actively forcing a return to office once the DRP is over five days a week. Some are a little bit more flexible with how they're implementing it. So it's not easy by any stretch of the imagination. All of the public speaking that I'm doing for feds and just talking to my clients, one of the biggest things I'm trying to convey is I'm just trying to give everybody a big virtual hug because this is what they're going through.

6:05 It's one that... Would you start by giving us a little bit of an overview of how does the federal employee retirement system work? You know what I mean? There might be some nuances there. And are there differences, for example, in different kinds of federal employees, military versus something that works for the government in some other fashion? Maybe just give us an overview of how that all fits together. Yeah, absolutely. So if you work for the federal government, you can qualify for a pension. That's one of the main differences. And some private sector companies, they offer pensions, but they're different and rare.

6:46 So if you work for the federal government and you have certain conditions, which is time and age, then you can exit federal employment and receive a pension. So the most common way that people want to do that is on what's called an immediate retirement, meaning there wouldn't be a delay between their last paycheck and other than processing time, the start of their pension. And an immediate retirement allows them to continue their health insurance throughout retirement, the FEHB plan. Not for free, they have to pay for it, but it's a plan that gives them the option to continue the health insurance they were previously on rather than switching over to Medicare or in addition to switching over to Medicare.

7:27 So some basic credentials that you have to have is five years of civilian service and age 62, or you can have what's called MRA, which is an age range between 55 and 57 and 30 years of federal service, which 30 years sounds like a real long time. But when you go into the federal government, on average, you don't leave, unlike the private sector. That could be a sign of how you might change from where you're doing it, but just right in the government. Yeah. Yeah. Yeah. You could change around agencies. You could change your job description, but generally once you're in, on average, you stay. So 30 years in MRA is something people attain all the time.

8:08 There's another one called MRA plus 10. So you would only need to be late 50s and have 10 years of service, but there's a discount to your pension. And then there's another one age 60 and 20, which is another one that a lot of people qualify for. So that's what everybody is striving for. The biggest thing with federal employment, I would say, is everybody is striving for a particular date in the future. In the private sector, you retire whenever you have enough money, or you think you have enough money, or when you reach some sort of round number like 65 or 60 or 62, because that's when you can start social security, right? Or just when you get tired of it. There isn't as much precision to timing what you become eligible for.

8:51 So all the federal employees, this is a common thing we're doing, is we're planning to get to some particular qualifier that would allow them to retire, ideally with that immediate pension. And then the VERA, which is an opportunity to leave under easier conditions, is a different set. So that's age 50 and 20 years in, or any age and 25 years in. So predominantly what I'm doing is we'll talk and the employee will have, I have eight years and I'm 55. Well, I don't care how good the offer sounds, if you could just make it another two years, or one year and seven months and three days.

9:38 We're literally calculating that timeframe down to the day so that they can qualify to exit under the conditions that they want. That's what we're doing a lot of, and that's what's unique about federal employment. So Brian, are any of these offers out there, rumors of offers, where they consist of giving credit for additional years? Yeah, the offers aren't producing additional credit. They haven't rolled out a system like that. That might be a good idea, actually. I don't know that the leadership wants to hear what we think, but if they were to consider that, that would incentivize a lot of people to consider, to think about it because they're trying to get to that date.

10:26 But that's not how it works. The DRP was a program that didn't exist prior to three months ago. And that was basically just saying, we'll put you on paid leave until September. So you don't have to commute around the 495 beltway and then you're done. And then the VERA is an established program. So that is sort of what you're describing where it makes things easier to exit, but they're not customizing it. They're not making any easier than those conditions. So now the VERAs and the current DRP, as I understand, as I'm following things, a lot of people are signing up for. I've had more people sign up for this round of it. So there are a number of federal employees that are eligible and choosing to exit, but there are many more.

11:09 There's been over a million people. It's called FERS-FRAE that have been hired by the federal government since 2014. So now we could have a discussion about whether the federal government needs an additional million people, but that's a different topic. And also there's been attrition. There's been people that have been retiring over that timeframe. But by definition, if they started since 2014, that means they have no more than 11 years in. So that doesn't make them eligible for the early out offers that are being made. I wonder how much of the folks who are accepting some of these offers, which may not be the greatest offers, are doing so because they've been working remotely, meaning some of them, I've heard from a couple of people that we know through our practice that have actually moved and been working remote thinking that this was the way it was going to be.

12:08 And so they're taking these offers because they don't have the ability to go back to work. Absolutely. I just got off a client, off the phone with a client earlier this morning that was specifically about that. You know, they are fully, their agency is now fully enforcing the return to office mandate, what appears to be five days a week, and that just doesn't work for their family. So they're considering all of their options. And unfortunately it appears that at least some of the agencies are intending to enforce that specifically to create attrition, best we can tell. Also for what they believe to be productivity. But so yeah, where you live and your return to office mandates are factoring into their decision because they just can't, or they don't want to do it.

13:00 So what happens to an employee who doesn't have that minimum level of time when they leave federal service? Do they get their contributions back or? Yeah. Yeah. They would get that. That would only, so if they don't qualify for anything, that would imply that they have less than five years of civilian service, which actually is somewhat rare, at least for the people that I talk to, you know, there are the probationary employees, right? There's hundreds of thousands of them and they all deserve two hugs in my opinion. I've made the news recently too. Yeah. So, but by definition of your probationary employee, you have fewer than five years, so they would get a return of contributions.

13:42 But if you have five years in, you know, that's then you would qualify for a pension. It just, you would have this gap period between your last day at federal employment and the start of the income and the income probably wouldn't be enough to exclusively retire with, and it wouldn't have the ability to sign up for the health insurance later, but it would still be a pension. So that's good. Great. So let's go on to the idea of if someone is concerned that they might lose their job, what should they be doing? What steps should they take? Yeah, there's lots of things that they can be doing and human nature, you know, some cases, what I'm finding out is people are, they're ready, fire, aim, or they are just continuing to do the job until they're told otherwise.

14:35 And we don't want to do that. We want to consider all of our options, even if we don't like that particular option. So there's a whole industry of number, there's three different industries that I would consider exploring and I refer them, refer my clients to them all the time. There's federal employment law attorneys. So these are people that make sure your rights have not been infringed upon and help represent you in front of like the MSPB. If there is something that has happened, that's mostly in the cases of terminations rather than any sort of voluntarily leaving the government, but they still consult on, you know, what forms you're being asked to sign because there are new forms that didn't exist before.

15:20 So that's one position or occupation that I would definitely encourage federal employees to talk to before signing anything or making any decisions. There is the whole industry of career counselors, right? So these are the standard people who help with LinkedIn profiles and resumes. And it's somewhat ironic. There's a lot of people who their whole job was focusing on landing people federal jobs, right? So the niche within career counselors who help you find a job within federal employment, they're actually going in the opposite direction now, right? So they know the terminology, they know the industry and the agencies, but they're going in the other direction. So helping people land with contractors and so forth.

16:03 But also, you know, with federal employees, you have tenure, you have the same job for the last 30 years, the last time you had a resume, you know, you might have faxed it to an employer. So it doesn't really work like that anymore. So there's a lot to learn if you are going to transition and keep working. So career counselors can help a lot with that. And then there's a whole other industry called federal employee benefits specialists. So not specifically financial advisors like me, we compliment them, but these are people who typically worked in the federal government in like an HR capacity for years or decades and know all of the paperwork and technicalities and things. And there's a lot of nuance.

16:44 So I don't claim to know everything. I bring them in to make sure, you know, we're sharing accurate information and they charge for their time, but a lot of time it's really worth the hour or a couple hours to walk through that. So I would check with them because there's all sorts of instances where, you know, you're not exactly familiar with what actions you might need to take to get credit for all of your time. Right. So I was talking to a lady the other day, she said she had 1.7, one year and seven months in, but then it turns out there was another two years prior to that, that we weren't sure whether that counted or she wasn't sure. It sounded like it counted to me. So she really, she wasn't three years and five months away. She was only one year and five months away.

17:25 That's a big deal with what's going on right now. So we're, and other people where they're moving from like within the federal reserve to regular FERS or vice versa, there's military time where you can buy that credit for it. There's all sorts of nuance. So there's a whole team of people that really should be involved with each federal employee, which sounds like a lot, but you know, we try to coordinate that as much as possible. Is that the same for people who might be entertaining one of the opportunities for retirement? Is it to assemble that same group of people or, you know, what should someone who's maybe considering some kind of a, whether they should take an offer or something?

18:13 Yeah. So if they're planning to retire, I suppose they wouldn't need, thankfully, the career counselor, right? They would just wind down their work, but the employee benefits specialist can definitely help with the retirement application and the other technicalities of their process. The retirement process takes months. I mean, and it could take longer now because of the volume of people doing it. The form that you turn in just to say you want to retire is 14 pages long that I've seen. So this is not something where you just, you know, check a box or you send an email to your HR person. There's a whole process to it.

18:53 The federal employment law attorneys, I mean, if you're signing up for something voluntarily, then, you know, it's difficult for the rights to be infringed. But if you're doing it through the DRP, then it's still worth it. I would say regardless, it's still worth it just to get an hour of their time and talk through things. But definitely a financial advisor, if I can put in a plug for what we do, right? I mean, like I said, with people, you know, accepting the offers and then doing planning, not everybody's doing that, you know, but I wouldn't recommend that because, you know, you want to know your numbers. We build cash flow models for a living. You know, you guys do that as well. That's where we live. So we can run all sorts of scenarios to show you how things look, you know, under different conditions.

19:40 If you were to go to work in the private sector, if you were to stop tomorrow, if you got terminated, if they change the rules of your pension, not that I'm saying they're trying to do that. Let's hope they don't do that. And meaning the amount that you are scheduled to get any sort of scenario we can model before it becomes a reality. We hope it doesn't become reality, but that really gives you the confidence to make these decisions. So that's what I would strongly encourage. Yeah, it's so true, right? Knowledge is power, right? The more you can model this stuff out, the better prepared you are for what are the variations? What is this? What is that, right? Yeah. And most of the time I'll say the conclusion we're making after building the model is that they're in better shape than they thought they were.

20:28 And that's always the case with planning. You know, if people have an assumption that, you know, they have less money than they realize or less resources than they realize, but certainly with feds, with the pension, I do an exercise for people a lot where we'll say, if you didn't have that pension, how much money would you need in an account to recreate that income, right? Guaranteed for life with cost of living adjustments, with the survivorship for your spouse, if you have one. And it's a lot of money. It's a lot more than people think. Yeah. Even if you're FERS, you know, the old system, not too many people are the old system anymore, but their pensions were monsters, you know, 60, 70, 80, a hundred thousand dollar a year pensions.

21:12 They did exist. But even FERS, you know, and you get what's called a supplement with FERS, or sometimes if you're eligible, there's qualifications, but that's an extra amount to get you to social security. And then you get social security and we could get into, there's a lot of news about that. And then there's the TSP, which offers a match. So the combination of benefits, you know, it can get you there. We just need to number crunch. You know, I was thinking about this. Jeff has been telling me about all these different pensions offerings at different systems that Massachusetts public employees have. I got to imagine the different kinds of plans for the federal government has got to be all that much more complicated that there's so many variations and different iterations.

22:03 Yeah. Tell us a little bit about just the range of some of these kinds of, you mentioned FERS is one example as maybe I gather that's not as common today, but what are some of the other possibilities? So, I mean, if you're a civilian employee, then everybody nowadays, if you were hired past 1984 or so, then you are FERS. So it's a universal system referred to as FERS for civilian employees, but you're absolutely right. The nuance to each individual's experience with the federal government can make it complicated because of how they move around, let's say over time.

22:44 So like if you had military service beforehand, or you had time away, right, you left the government and came back, or you worked part time, or you're what's called a term, you have like a term appointment where it's a certain number of years, or I even had one that was an intern for a while and how that factors in and then your leave. So there's annual leave and sick leave, and both of those can factor into how many years, both of those have certain definitions of how they can factor into the size of your pension or eligibility for your pension.

23:24 But then there's the decision that some people make to take their leave because they want the money because that's going to give them liquidity until other things start like social security or wrapping up a certain amount of debt or something. So yeah, it's certainly a full time job. Do you have any involvement with the TSP's? Do you help your clients decide what's the right options for them? Yeah, TSP is definitely a daily conversation I'm having with clients to talk through the plan. Maybe you should define it for our listeners who are familiar. Sure. Yeah. So for anybody not in the TSP or just wanting a refresher on your own retirement plan, so it's the retirement plan of the federal government if you work for them.

24:07 And it's similar to a 401k but defined a little bit differently. It's basically an opportunity to save for retirement. And you can do pre-tax or Roth contributions. And if you're a FERS employee, then you get a match on that. There's $960 billion in the TSP plan across 7 million accounts. So these are current and former accounts. There's not 7 million active federal employees. So last time I checked, $960 billion is a lot of money. It's a factor of 50 times bigger than a company like Apple's 401k plan. So there's a lot of money and a lot of people who have a lot of questions.

24:49 So we could talk about the TSP pretty much endlessly, but there's basically five lettered funds or what are called target date funds or L funds. And people navigate that the best that they can. A thing that's coming up a lot to be objective and clear and help people is that another thing that's specific to their age when they leave is that if they reach age 55 before they leave service, then the TSP plan acts basically like a 401k where they can access money within the TSP from it to their pocket and avoid the 10 % penalty. Whereas if they took that money and roll it to an IRA first and then took a withdrawal, there would be that 10% penalty.

25:31 So that window is valuable. It doesn't necessarily mean all the money needs to stay there, but however much we might need during that window. But we try to make people aware of things like that, even if it prevents them from being interested in rolling it because this is the business we're in is helping people manage money. But there's all sorts of investment opportunities in the private marketplace that sometimes are worth considering, income investing and broader diversification and some international options and all sorts of investment vehicles that we're familiar with that we could get into. Very good. You sound like you kind of wanted to get into just in passing the idea of how things might change.

26:17 Yeah. Do you want to talk about that? Yeah, sure. So that's another thing that a lot of feds are worried about is things are changing in terms of job security and returning to office. But in terms of actual laws being passed that might change federal employee benefits is another thing that people are following or concerned about. That generally would come from Congress. So there's lots of rumors about what could happen and people who are already receiving their pension, they're thinking, well, I really hope they don't do anything with that. And there's nothing active that I'm aware of that would change a pension that's already being received or the size of a pension that has yet to be started.

27:02 But one example of something that is in a house bill would be changing how much current federal employees pay for their pension, but only for those who started, who are not that FERS-FRAE employee. So FERS-FRAE pay 4.4% of their salary for their pension. So if anybody's not a fed and listening, they pay for their pension. It's not free just for working there. They pay a part of their salary. It's 4.4%. But those prior to that start date pay less, in many instances, noticeably less.

27:42 So there is a bill that would, if passed, it hasn't passed yet, hasn't become law yet, it would make everybody pay that 4 .4%. So if you have tenure in the federal government, if you've been there since before 2014, and you had intended to stay a while longer, then there's a chance you could be paying more for your pension, which is unfortunate. But change happens. If I was working with a federal employee, I would probably lean towards them not leaving government just exclusively due to that. If I had a job offer and they told me that I would get a pension one day, but I had to pay 4 .4% of my salary for that pension, I would sign up.

28:29 That's a pretty good deal overall. But either way, that's factoring into people's decisions. There's another one where hypothetically the retirement supplement might go away. This is all just reading the news. I'm not personally aware of any bill that's about to pass or anything, but the supplement is an extra source of income that would come from MRA to age 62. So it's a short window, but it's more money, it's more income. They talked about changing around the health insurance plan to a form of a voucher system. So those are some of the examples of change that are active.

29:10 Everything else, my knowledge at least, is more of a rumor. Well, I think the point you made is a good one. We've certainly heard from clients who are all anxious about just social security being altered in some fashion and a lot of rumor. But you've made the point that that would require an act of Congress and it would have to be passed into law. And I think there's a lot of representatives in Congress who like working in Congress. So that's probably not something that most people who are actively receiving benefits have to worry too much about.

29:56 That being said, there's definitely some need for change before too long. We've got, was it 2033 that we've got this issue still looming? So something will need to be done, but as we talked about it, Jeff, often it's probably going to be around 2033 that that actually gets done. Yeah. Congress doesn't have a history of being proactive in such matters. Right. Yeah. The last time they made a major change, other than the file and suspend back in 2015, the major change was all the way in the early eighties and they phased it in over 40 years. So whatever happens will probably be phased in over time one would think or hope.

30:38 And it's all over the news in terms of Doge terminating people or restructuring where they work and federal employees taking opportunities to leave. But that's headcount. That's not the benefit that any one individual is receiving. So there's nothing that I'm aware of that is about to be passed. It's going to change the dollar amount that people receive. So it certainly is something that you can look up your benefits online, incorporate it into a model, decide when to take it, learn about things like spousal benefits and survivor benefits. They actually, the last thing they passed actually made it better, not worse with the social security fairness act. So that affects people who had what's called WEP or GPO where they're getting an increased benefit basically that they weren't getting before.

31:29 So that's good. But yeah, long-term, I definitely agree with you. Something needs to happen, but whatever, what change it's going to be is just guessing at this point. Well, Brian, you've been a great resource and I know you're often a wealth of information because you've even written a book about some of these issues over time. Tell our listeners, if they want to learn more, how can they glean from insights from you? Do you have a newsletter or anything that they might want to follow that kind of thing? Yeah. So you can connect with me on LinkedIn. I'm there posting content about federal employee benefits, as well as sharing content of other colleagues that I work with.

32:10 And then just reaching out if you'd like 301-543-6035 or BKuhn, K-U-H -N at wealthenhancement.com. And what I'm telling people is let's just build the model. Give me 30 minutes of your time and a couple data points, and I'll show you visually what your future looks like. It's a free meeting. I would not want to be making any major career decisions before at least building that and we'll get it done and you can go from there. But normally the turnaround time is we get to know each other. We talk about broader planning topics. We gather even more data, but for right now with beds, with what they're going through, just the act of driving into the office, they're less available than they were.

32:56 So we're accommodating that as best we can. And I would encourage, just build the cashflow model and we'll tell you what it says. Yeah. Information is definitely power in this case. We'll include your LinkedIn link in the show notes. And with that, Brian, great content, great insights. Thanks for sharing it with our audience and with us. And if anyone needs help, don't hesitate to reach out. Until next time, everybody keeps driving for something more. Thank you for listening to Something More with Chris Boyd. Call us for help, whether it's for financial planning or portfolio management, insurance concerns, or those quality of life issues that make the money matters matter.

33:41 Whatever's on your mind, visit us at somethingmorewithchrisboyd .com or call us toll free at 866 -771-8901. Or send us your questions to amr-info at wealthenhancement.com. You're listening to Something More with Chris Boyd, and I'll see you next time.