Federal employees: An emerging market for advisors

It’s in the news every day - a major audit of federal departments is currently under way, resulting in closures of agencies and mass layoffs of federal employees. These workers could face significant financial and benefits-related challenges.

This is an emerging market with opportunities and predictable lifestyle issues. Financial advisors and insurance agents have a unique opportunity to help federal employees navigate these issues.

Here’s what these employees will need help in reviewing, considering and possibly changing - along with key strategies advisors can use to guide them.

Key federal benefits at risk and what to review

Laid-off or fired federal employees may lose or may need to adjust the following:

• Federal Employees Retirement System

If vested (5+ years), they can keep deferred benefits but lose employer contributions if not yet eligible. While reviewing their specific plan, you can offer advice and options to keep, move, revise or better benefit from as they make their transition.

Early withdrawals from Thrift Savings Plan may have tax penalties which you can illustrate and project for them.

• Thrift Savings Plan

They will need to decide whether to leave funds in TSP, roll over to an individual retirement account or transfer to a private-sector 401(k). These will be life-changing decisions, and your input and counsel can help them make decisions that will directly impact their future retirement lifestyle.

You can help them consider the financial impact of early withdrawals and different ways they can optimize their rollovers.

• Federal Employee Health Benefits

Their coverage ends unless they retire with eligibility. There will be various family makeups, each with different needs, and you can help them navigate a market they could have little experience in.

Many will need to replace health care with COBRA, Affordable Care Act plans, or private insurance. These can be scary decisions for some.

• Federal Employee Group Life Insurance

This federal benefit ends after 31 days unless converted to a private policy at a higher rate. The key word here is “unless.” That must be reviewed so they can make decisions they and their family can live with as they move to life after federal employment.

Some of the options you can bring them is to consider term or permanent life insurance as a replacement, while considering any conversion options.

- Long-Term Care Insurance

Many of these terminating employees may need to convert to a private LTCi policy if benefits are lost. Eligibility issues could play a role in these decisions, so creative options will be welcome.

• Pension and Social Security impact

If they are under FERS, you can help them assess how job loss affects pension eligibility. Doing custom illustrations allows them to visualize their options and the impact over their lifecycles.

You can help them review Social Security credits and consider private-sector options for themselves and their spouse.

• Job transition and private sector adjustments

Income disruption means budgeting and debt review are critical. We often see that people with longevity on a job become complacent in their money management, so a robust review of expenses and potential income allocation could be critical.

Things to consider include but are not limited to new 401(k) or IRA contributions when switching jobs.

How financial advisors and insurance agents can help

• Retirement and investment strategies. You can review and advise on TSP rollovers to IRAs or employer plans. Illustrate different funding options, beneficiary wording along with ownership types.

You can help them protect FERS pension benefits and optimize private retirement accounts which will include timing, qualifications and rider options.

You can guide this emerging market on safe money strategies using indexed universal life insurance, annuities or other options, consistent with qualification issues (health, conversion, etc.).

• Income protection and insurance solutions. You may recommend disability income insurance to replace federal job protections predicated on conversion options and future lifestyle issues.

They may consider replacing FEGLI life insurance with private term or permanent policies, considering conversion options, finances or other changing lifestyle issues.

You can illustrate long-term care insurance or hybrid life/LTCi products, again taking into account conversion or health issues.

• Health insurance and benefits replacement. Navigating through ACA plans, COBRA, or private health insurance options could be confusing and scary. If they’ve had government benefits, they could experience culture shock or sticker shock.

With you, they could have options such as health savings accounts or supplemental coverage solutions or hybrid products with guaranteed issue options.

• Career transition and financial planning. You must be familiar with structure severance payouts or early retirement buyouts to help them make wise choices.

It could be important for you to be involved in the long-term to offer support for budgeting, emergency savings and financial planning for job gaps.

Marketing and messaging for advisors and agents

• Target audience: Federal employees at risk of layoffs, those who are close to retirement but forced out early, and workers needing private-sector benefits for the first time.
• Key positioning:
  "Protect your retirement savings and benefits after government service."
  "Replace your federal benefits and stay financially secure in the private sector."
  "Your government benefits are changing — here’s how to stay protected."
• Sales channels: Webinars and educational seminars for federal employees, targeted ads on LinkedIn and Facebook aimed at federal workers, and partnerships with career transition coaches and outplacement firms.

The sudden loss of federal employment can be financially devastating, but financial advisors and insurance agents can position themselves as essential guides during this transition. The keys are proactive outreach, customized financial planning and strategic benefits replacement.

 

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