TSP Beneficiary Designations
Certain contingent beneficiaries named on a TSP-3 (designation of beneficiary form) changed in 2022 under the new TSP service provider. Previously under the old system, TSP participants would link contingent beneficiaries to specific primary beneficiaries. In a situation where there are multiple primary beneficiaries, and one of the primary beneficiaries dies, the contingent beneficiary on the deceased primary beneficiary plan would receive the deceased primary’s share. The majority of financial institutions only pay the contingent beneficiaries when all primary beneficiaries are gone. TSP no longer links contingents to primary beneficiaries and will only pay out to contingents once all primaries are gone (which is in line with most other financial institutions).
TSP regulations changed on June 1st, 2022, and going forward all primary beneficiaries must be deceased before the TSP will pay out to any contingent beneficiaries.
Another important piece of information regarding beneficiary designations is that the TSP will continue to pay as they previously did for contingent beneficiaries on TSP-3s submitted before June 1st, 2022.
TSP Beneficiary Participant Accounts
Individuals who must receive a Required Minimum Distribution from their TSP account in 2024 were recently sent a Minimum Distribution notice. Under the new law, individuals born January 1st, 1952, through December 31st, 1959, must take their first RMD by April 1st of the year after the participant is separated and at least 73 years old. For beneficiary participant accounts, if at the time of death, the spouse was not the applicable age for RMDs, then the first RMD must be taken before December 31st of the year said spouse would have reached the applicable age.
FEGLI Changes After Retirement
FEGLI provides basic insurance valued at your salary rounded up to the next thousand plus $2,000, along with optional life insurance protection from your first day on the job throughout your life after retirement.
At retirement, federal workers must elect how they want their insurance to continue after retirement. For Basic FEGLI, they can choose to have this coverage reduced by 75% starting at age 65 (or at retirement, if later) or reduce by 50% starting at age 65 or retirement, if later, or they can elect for it not to reduce at all.
There are additional premiums to pay for the 50% and “no reduction” elections which makes the 75% reduction option the most popular, considering that for most people, the need for life insurance goes down after retirement when the kids are often on their own and the house may be paid off or at least close.
For Option A, valued at $10,000 of additional life insurance, this coverage automatically starts reducing at age 65, or retirement, if later, by 2% a month until it reaches $2,500, where it remains for life. For options B (additional coverage valued at multiples of the final salary rate, up to five times) and C (family coverage worth up to $25,000 on the spouse and $12,500 for each eligible child), the options available at retirement include “no reduction” or “full reduction.” Under the full reduction election, the coverage begins reducing by 2% a month at retirement (or age 65, if later) until it terminates after the fiftieth month. If “no reduction” is elected, the coverage continues and the premiums for Options B and C continue to increase every five years until the final increase at age 80.
while reviewing the FEGLI Handbook, one learns that if an employee elects to have “no reduction” at the time of retirement, they can later change to “full reduction” for options B and C so that your coverage goes away gradually (2% each month) instead of all at once as it would if you were to cancel the coverage (unless it’s already been more than 50 months since your 65th birthday). Under the “full reduction” election, the reductions don’t start (and premiums don’t stop) until the second month after you reach age 65. If you die after changing a multiple to full reduction, benefits are paid on whatever amount of that multiple is left at the time of your death.
Additionally, retirees may also change the 50% or no reduction elections for Basic FEGLI to the 75% reduction. You do not get a refund of the additional premiums you paid for the higher level of coverage during the time you had it. It should be noted that if you elected a partial living benefit, you must elect no reduction for your basic insurance. You cannot later cancel that election.
Also, if you have assigned your insurance, you cannot cancel your choice of 5% reduction or no reduction. Only your assignee(s) can cancel your election.
FEGLI vs. WAEPA
Although there are quite a few differences between the Worldwide Assurance for Employees of Public Agencies offerings, and FEGLI, both programs cater to the life insurance needs of federal employees. WAEPA says they’ve been “insuring FEDS and their families for more than 80 years.” FEGLI has been around for 70 years as it was established in 1954 and has become the world’s largest group life insurance program in the world, insuring over four million federal employees, retirees and some family members.
Most life insurance requires medical underwriting to be approved for a policy. For FEGLI, no medical underwriting is required for new hires or for employees who have experienced a qualifying life event such as marriage, divorce, death of your spouse, or birth or adoption of a child.
On occasion, there have been FEGLI open enrollment periods for employees, with the last one held in 2016. Individuals may generally cancel FEGLI at any time. Employees may cancel a waiver of Basic insurance, Option A, and Option B (but not Option C) so they may re-enroll by providing satisfactory medical information to prove insurability.
For WAEPA, medical underwriting is generally required, however, you cannot be declined for guaranteed issue coverage under WAEPA for $25,000 to $100,000 in life insurance coverage which is available to new hires younger than 70 who apply within one year of being hired.
Other options for life insurance are available through an insurance agent or broker and you may also find offers for insurance online.
