At Serving Those Who Serve, we understand that facing a Reduction in Force (RIF) can be stressful, especially for federal employees who are concerned about their benefits, retirement, and long-term financial plans. To help guide you through this challenging process, we’ve compiled this Q&A to address common questions about how a RIF may affect your financial planning and investment management.
- How do I prepare for the RIF process?
Preparing for a RIF involves both understanding the potential impact on your current benefits and your future financial situation. Here are a few steps you can take:
- Review your benefits: Understand how your federal benefits, such as health insurance, life insurance, and retirement savings, may be impacted. Need help with this? Check out our complimentary benefits education webinars.
- Evaluate your TSP (Thrift Savings Plan): Consider how a RIF may affect your ability to access or manage your TSP funds, depending on your age and situation.
- Plan for transition: Look into potential job opportunities or rehire lists to ease your transition into a new role.
- Consult with a financial advisor: Given the complexities of federal benefits, working with a financial planner who is also well-versed in federal benefits can help ensure you’re making the right decisions for your financial future.
- How does a RIF impact FEGLI coverage?
The Federal Employees Group Life Insurance (FEGLI) program may be affected in several ways:
- Active Employee Coverage: If you're separated due to a RIF, your FEGLI coverage generally ends 31 days after your separation. However, you may have the option to convert your coverage to an individual policy at the time of your separation.
- Continuation of Coverage: If you are eligible for retirement (regular retirement, VERA, or discontinued service retirement), you may continue FEGLI coverage indefinitely, depending on your retirement status.
- How does a RIF impact FEHB coverage?
If you're separated due to a RIF, your Federal Employees Health Benefits (FEHB) coverage typically ends 31 days after separation. However, you may be eligible to continue your health benefits through Temporary Continuation of Coverage (TCC), which allows you to keep your FEHB for up to 18 months. You will be responsible for paying the full premium (both employee and employer portions).
If you are eligible for retirement (regular retirement, VERA, or discontinued service retirement), you can generally continue FEHB coverage into retirement, as long as you meet the required eligibility criteria.
- How does a RIF impact TSP?
A RIF may have an impact on your Thrift Savings Plan (TSP). If you are separated from federal service, you’ll have several options for your TSP funds:
- Leave the money in your TSP account: You can leave the balance in your TSP account, and it will continue to grow based on your investment choices. While not the cheapest option out there thanks to the advent of “no-load funds” at firms like Fidelity and Vanguard, the TSP is still pretty darn cheap when it comes to fees. The downside is the lack of investment options in the TSP with key assets classes like value funds, emerging markets, etc. being entirely excluded.
- Transfer to an IRA or eligible employer plan: You can rollover your TSP balance to a private IRA or another employer’s retirement plan to gain access to an expanded list of investment options for better diversification. If rolling over to an IRA, though, be conscious of the fees associated with the new IRA—they could be significantly higher than the fees in your TSP. While this can be offset through the value of broader-based diversification and, potentially professional management, it’s still something to be aware of. Also, some employer plans do not accept incoming rollovers of funds outside the plan, so you’ll want to research your plan’s ability to accept incoming rollovers before pulling the trigger.
- Withdraw the funds: You can choose to take a partial or full withdrawal from your TSP. However, be aware of the tax implications and potential penalties if you withdraw before the age of 59½. Penalty-free early withdrawals from the TSP may be available, provided that you meet the requirements for the rule of 55.
- How do I access the funds in my TSP in the event of a RIF?
In the event of a RIF, accessing your TSP funds is straightforward, but it’s important to plan carefully:
- Request a withdrawal or rollover: You can request a withdrawal or a rollover to another qualified account online or by submitting a TSP withdrawal form.
- Check for penalties: If you are under the age of 59½, withdrawing from your TSP could result in early withdrawal penalties unless certain conditions apply, such as separation from service.
We recommend consulting with a financial advisor to evaluate your best course of action based on your unique situation.
Learn more about your retirement benefits at our No-Cost webinars, featuring Ed Zurndorfer -
- Do I still get to cash out annual leave in the event of a RIF?
Yes, you are generally entitled to receive a lump-sum payment for any unused annual leave if you are separated from federal service due to a RIF. The payment is based on your current pay rate and the amount of unused leave. This payment is subject to federal income tax, but it can provide a helpful financial cushion during the transition period.
- How do I get on a potential rehire list after a RIF?
Federal agencies often create a rehire list for employees separated due to a RIF. To get on the list, you will typically need to:
- Express interest in being rehired during the RIF process.
- Ensure that your qualifications and skills match the needs of the agency or department that may be re-hiring.
- Stay updated on job openings within your agency or other federal agencies.
Being proactive, staying in touch with your agency’s human resources department, and networking with colleagues can help you increase your chances of being rehired.
For more information on the re-employment priority list regulations, check out Dan Sipe’s article on the topic here.
- Do I get severance pay in a RIF?
Severance pay may be available to eligible federal employees separated by a RIF, provided you meet certain conditions, such as:
- You have at least one year of continuous federal service.
- You are not entitled to an immediate retirement annuity.
- You are not re-employed by the federal government within a certain time frame.
The severance pay is based on your years of service and pay grade, and it can be paid in either a lump sum or gradually over time, depending on your situation.
- If you are RIF’d now and defer your retirement, can you still get the 1.1% pension factor that is achieved at age 62?
No, if you are RIF'd (Reduction in Force) before age 62, you unfortunately cannot get the 1.1% pension multiplier by deferring your FERS annuity. The 1.1% multiplier only applies if you retire at age 62 or later with at least 20 years of service. Neither VERA nor discontinued service retirement offers you the ability to obtain the 1.1% multiplier. The multiplier cannot be attained through postponed or deferred retirement either. The only way to get the 1.1% multiplier is to be employed through age 62 (with at least 20 years of service).
A RIF can be a challenging experience, but with the right preparation and guidance, you can navigate the process with confidence. At Serving Those Who Serve, we are committed to helping federal employees understand their benefits and make informed financial decisions, especially during important transition periods like a RIF.
If you have any questions or need assistance with your financial planning or investment management, feel free to reach out to us at [email protected] to schedule a 1-on-1 consultation. You can also learn about your benefits in a group setting through our complimentary webinars: register here.
**Written by Katelyn Murray, CFP®, ChFEBC®, FBS®, CFT-1™, ECA. The information has been obtained from sources considered reliable but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Katelyn Murray and not necessarily those of RJFS or Raymond James. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy suggested. Every investor’s situation is unique and you should consider your investment goals, risk tolerance, and time horizon before making any investment or financial decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. **
