[VIDEO] 2021 Benefit Updates All Federal Employees Must Know
With the New Year comes annual updates that Federal Employees must know.
If you are a federal employee, you know there are constant annual changes and adjustments to important numbers which affect your benefits, whether you are actively employed or separated from federal service. In this video, I’d like to give you updates on some of the more important ones for 2021.
For starters, let’s go over the changes to the Federal Employee Health Benefits, or FEHB. The Office of Personnel Management stated that the average total premiums for current employees and retirees enrolled in plans under the Federal Employee Health Benefits will pay 4.9 percent more on average for health-care premiums in 2021. This increase is driven by long-running upward pressures on premiums. The good news, the enrollee average increase was 5.6 percent in 2020 so this increase is a certainly lower than last year’s increase.
Next, let’s look at the Thrift Savings Plan contributions. The Internal Revenue Service has recently announced the contribution limits for 2021, and it turns out the limits will stay the same as they were in 2020, which is $19,500. These limits define the contributions that can be made to individual Thrift Savings Plan account for the calendar year. This limit of $19,000 applies to the traditional and Roth contributions made by an employee during the calendar year. The combined total of traditional and Roth contributions made during the calendar year cannot exceed this limit. The elective deferral limit does not apply to the agency or service automatic contributions, agency or service matching contributions, catch-up contributions, traditional contributions made from tax-exempt pay, or amounts transferred or rolled over into the TSP.
For 2021, catch-up contributions have also stayed as they were in 2020, at $6,500. Here is how catch-up contributions work. If you are a federal employee who is 50 years of age or older, and have maxed out your TSP contributions limit of $19,500, the IRS gives you an opportunity to contribute an additional $6,500 on top of the $19,500 limit, taking your potential all-in contribution to $26,000.
Okay, at this point, I’d like to speak specifically to the retirees. Your cost-of-living adjustment, or what’s often referred to as your COLA, was recently announced that it will be increased 1.3% for 2021. The concept behindCOLA adjustments is that the federal government is trying to make sure your federal pension does it’s best to keep pace with inflation. COLA for 2021was and it will be 1.3% for CSRS and FERS annuities. So, this adjustment is a bit lower than the COLA from last year when CSRS and FERS retirees received a 1.6% adjustment. Further, the cost-of-living adjustment to Social Security is also being increased 1.3% from last year, like the COLA adjustment for federal pensions.
Now, let’s discuss the social security earnings limit increase and what it means to retirees. If you weren’t already aware, you are absolutely allowed to work in retirement while taking your monthly social security benefits. However, social security has some limits in place as to exactly how much you are allowed to make before your social security benefit is affected.
The social security earnings test applies only to people below their full retirement age, or what’s referred to as FRA. For most people, this is usually between 66 and 67 years old. If your earnings exceed a certain level, called the retirement earnings test exempt amount, Social Security withholds a portion of your benefits. The earnings limit for workers who are younger than full retirement age will increase to $18,960 in 2021. Essentially, this means that social security deducts $1 from your benefits for each $2 earned over $18,960. The earnings limit for people reaching their full retirement age in 2021 will increase to $50,520. In THIS scenario, social security deducts $1 of your benefits for each $3 earned over $50,520, until the month the worker turns full retirement age. Once you reach FRA, you are no longer subject to the annual earnings limit. You can earn as much as you like without incurring a reduction in your Social Security benefits. These exempt amounts generally increase annually with increases in the national average wage index.
One very important note on any benefits withheld because you exceeded the exempt amount while you continued to work…the good news…the benefits are not “lost”, they are just delayed. Once you reach full retirement age, your monthly benefit will be increased permanently to account for the months in which your benefits were withheld
FERS employees who retire on an immediate annuity before reaching age 62 are also entitled to receive a FERS Special Retirement Supplement, or what’s often referred to as SRS. This is a payment you’d receive in addition to your Federal pension and was designed to help fill the gap between when you retire and age 62, which is the earliest you can begin drawing Social Security benefits. Many federal employees don’t know this, but the Social Security earnings limit also applies to the FERS Special Retirement Supplement, so please keep that in mind.
So, there you have it. Whether you are an active or separated federal employee, it’s extremely important for you to stay on top of the changes to your benefits every year since they can certainly affect your numbers, now and throughout retirement. While you have no real control of these adjustments, being in the know is critical so you can ensure you are doing what you can to maximize your benefits.