Workplace benefits can be rather straightforward. You have health insurance, maybe some group life or disability, a 401(k) plan, or some other retirement savings plan. But if you’re a federal employee, your benefits can be a lot more complicated. And retirement planning for those in the federal system can be problematic if they don’t understand their benefits.
Cassie Knight observed firsthand how much federal employees need specialized professional help to make the most of their benefits and avoid a costly and irrevocable mistake. She lived in a community where the federal government and the military have a huge footprint, and her husband is a former civilian employee with the Department of Defense.
Knight is a federal benefits expert consultant with Fed Options, based in Spencer, Tenn., which provides back-office support and training to financial professionals who want to work with the federal employee market.
In this interview with Publisher Paul Feldman, Knight describes the unique needs of federal employees and how advisors can help them make the most of their benefits, and she reveals that federal employees are not concentrated just in Washington.
PAUL FELDMAN: Financial advising for federal employees is an interesting niche. How did you get into this space?
CASSIE KNIGHT: Almost 10 years ago, I went from being a captive insurance representative to being independent. The new IMO I was with offered the federal benefits education course. At the time, my husband was a federal employee, so I thought I needed to know this. I thought I would learn what pertained to me and what retirement would look like for him.
But it wasn’t until after I took the course that I realized how many misconceptions there are about the benefits themselves.
At the time, we were living in the Pacific Northwest area, an hour west of Seattle, in Bremerton, Wash. I don’t know whether you’re familiar with that area, but there is a large federal and military community there. We’re about an hour away from three or four military bases, not including the VA and all the federal offices that are in downtown Seattle. Not only did I have family and friends who were federal employees, but the federal government is such a big employer in the area. I thought, “Wow! People need to know about this.” I wanted to help federal employees understand how these things operate. So I made it my mission to educate the employees about what their benefits are and how those benefits affect them in retirement.
At the same time, my agency kind of split up different sections of the state. They gave me the southeast part of Washington state, so I was traveling four to six hours to meet with employees. I had twin boys at home who were really young, and I thought, this is ridiculous. There’s no reason for me to be traveling like this when there’s plenty to go around close to home.
I reached out to a marketing company to help me do better with marketing from home, how to be more efficient and things like that. They gave me an opportunity to work with financial professionals, just educating them about what I was doing with federal employees but on a different kind of scale. This brought me home to be with my babies. It was a win-win for that company and for me because I was able to be home and they filled a position that could support their advisors.
I started in this role of helping advisors understand the different things that they need to know about working with federal employees. Throughout my experience with that company, I noticed that insurance representatives and financial professionals don’t want to be the experts. In fact, it’s very difficult for them to fully understand all the complexities of working with federal employees.
Our goal is to help save them time, money and energy so they can focus on what they do best and let us do what we do best, which is help advisors look like rock stars. That way, there’s no question of why a federal employee should do business with them, because they’re leading with service.
We don’t work with federal employees, and we don’t work with financial professionals who only focus on the Thrift Savings Plan. We’re more geared toward insurance professionals who want to take a holistic planning approach, because this must be coordinated with each benefit to help employees.
I’m still doing the mission I started with, which is educating employees, but just on a much larger scale. And I feel fortunate to be able to do that.
FELDMAN: How big is the federal employee market? And what kind of opportunities exist there?
KNIGHT: Federal employees are really the backbone of the country. And these folks are working under the mindset that the government’s taking care of them while they’re employed and the government will continue to do that when they’re in retirement. But that’s not true.
A lot of their life insurance gets very expensive because it’s five-year term and premiums start to double as they get older — anywhere between age 50 and age 65. Then, at retirement, that becomes a big deal because the government isn’t paying a shared portion of the premiums anymore. So, there’s a life insurance sale there. Employees get a pension and surviving spouse benefits, but those come at a cost too, so maybe you can coordinate that with some life insurance or other products.
There’s a pension maximization strategy that can happen with federal employees — a TSP rollover to annuities or assets under management. Depending on what that employee’s lifestyle is, most of the time they choose annuities because the employee feels they have a guarantee with the government. They like that feeling of security in retirement, so they like more guarantees.
It’s interesting to me that I think financial professionals don’t realize — and neither do employees — that a lot of these benefits are just private insurance wrapped in a government package. The Federal Employees’ Group Life Insurance — or FEGLI — is administered with MetLife. You have the Federal Employees Health Benefits — or FEHB — program and multiple insurance plans.
One thing that’s not talked about much in the federal employee space is federal long-term care benefits. Right now, John Hancock has the contract for it, but many are unaware that it’s an option, or they don’t understand how it works. I think now is the time to educate employees about long-term care and the need for coverage. I love how certain products have some sort of living benefits that act like long-term care insurance, so employees’ money works for them in more than one way. And if you explain it to them like that, they say, “Sign me up. My money is working for me.”
FELDMAN: You just listed so many different benefits that federal employees have — it’s no wonder they’re confused. Does the government provide them with much education on what their benefits are?
KNIGHT: There’s a 60-day hiring window when they give you a crash course, depending on the agency you work for. You and I just went over a lot of information that we understand because we’re in the insurance world. But when you have someone who is just hired, maybe they’re 19 or 20 years old because a lot of people are typically younger when they start working for the federal government. You throw all these acronyms at them and people don’t realize what they’re doing as far as their benefit choices are concerned.
A lot of times, they’ll talk among themselves and say, “What are you doing?” Or “What do you think I should sign up for?” And they don’t have any guidance, they have so much new-hire information thrown at them. A lot of times, they’ll just check a box, and they don’t even know what they’re signing up for.
Then you see someone who has 10 years or more of service and they don’t even realize how much they’re paying for their life insurance. They might have an idea about FEHB because they have to enroll in health insurance but they don’t have to re-enroll every season.
And speaking of health benefits, a lot of people don’t realize at retirement that you have to coordinate the health benefits with the survivor benefit in order for their spouse not to lose health insurance. There are a lot of unintended consequences that can happen when somebody is filling out their retirement paperwork if they’re not careful, because some of those elections are irrevocable.
Another benefit that we offer to financial professionals is being able to help employees with that retirement paperwork and understanding the consequences of their choices.
I think employees simply don’t have enough time to understand what they’re doing. That’s where advisors can capitalize on that and help them understand what benefits they have so they can plan for the future.
FELDMAN: What are some of the biggest surprises that federal employees discover when you start explaining their benefits to them?
KNIGHT: One thing that can be complex, depending on the employee, is their service history. A lot of people who have had military service don’t really understand how it works with the federal government, and there’s an option to have that service count toward retirement.
There are other types of service that can affect an employee’s pension and are often misunderstood by anyone who is not familiar with the federal system. So if you’re an advisor, you must do due diligence with the employee and help them understand their service history and how that will affect them in their retirement. That can be the key to helping an employee maximize their pension benefit.
As for their pension benefit, some employees think they’re going to retire and start receiving it right away. But they don’t get the full amount for three to nine months — or even up to a year — depending on how long the Office of Personnel Management takes to finalize their paperwork.
So, they need to prepare financially, to have some cash reserve to carry them through until that paperwork is finished. And then, the tax snafu that can happen, depending on the timing of their back pay and their pension benefit and all of these different things.
If an employee is not working with someone to help them with all that — whether it’s a tax professional or an insurance representative or someone who understands how to time their retirement and what complications will affect it — there are huge surprises to an employee.
For example, if the employee is divorced and they have a former spouse who is entitled to a portion of their pension or a portion of the survivor benefit, and they haven’t sent in their divorce decree, that could delay the retirement application.
There are many other things that can hold the retirement application up. Not filling it out completely can delay it.
If you factor in all of these things, it can be delayed up to a year.
That’s where we can help the advisor understand what the employees can do to shorten that time frame and ensure that the employees are taken care of during that time. When you can get people taken care of, they’ll want you to write whatever life insurance or annuity around what you’re doing with them that serves that purpose, because they feel you’re supporting them and answering their questions.
It’s not just bringing that service to ensure those things are taken care of for the employee — it’s also about the employee’s beneficiaries, avoiding probate and all that.
There are so many different pieces that we help advisors understand when it comes to federal employees and helping these advisors look like rock stars when they meet with these employees.
FELDMAN: A good advisor will have a team of people who work with them, because you can’t give legal advice, you can’t give tax advice. You’re limited in the things you can do.
KNIGHT: I completely agree. That’s why we’re here to help anyone who is interested in working with federal employees, because it is so complex, and we help them navigate those complexities.
FELDMAN: How difficult is it to serve this market if they’ve never done it before?
KNIGHT: I would say it takes a little while. I’m a quick learner, and like I said, my husband was a federal employee, and I have lots of friends and family who are federal employees. For me, it was kind of a natural progression. And I already had seven years in the insurance world. I worked for State Farm Insurance, and we had a plethora of knowledge because we offer all lines of insurance. But when it comes to a learning curve, I would say it takes someone six months to a couple of years to get into working with federal employees.
For one thing, they have to understand federal employee benefits. But then, there’s also location. Now it’s a little easier because you’re not limited to the number of employees in your area because you can do this virtually.
FELDMAN: How are successful advisors serving this market? Are they mostly working with people on a one-on-one basis? Are they doing seminars? What is their method?
KNIGHT: I think the most successful ones have a process in place. And that’s where we help them. They’re doing some sort of education with an employee, and it’s not just a one-hour lunch-and-learn. Most of the time, they’re doing a three-hour webinar or seminar for the employees. Then they have a meeting process that they’ll take the employee through and guide them through their benefits and get them to understand some of the complexities. They provide the employee with a benefit analysis of some sort to help them understand the consequences of their benefit choices.
Then they can get into the planning, and they’re keeping the federal benefits separate from the planning aspect. They’re not getting personal with these employees right away; they’re helping them. They’re coming from a base of wanting to help employees understand what they have, so they’re leading with that service.
The advisors who I see are having the most success are doing it virtually right now. They’re doing three-hour webinars and then following that process, but they are clear on those processes and having those systems in place. That is what is really helping people be successful in this market.
The Alphbet Soup of Federal Benefits
TSP — Thrift Savings Plan — The Thrift Savings Plan is a retirement savings and investment plan for federal employees and members of the uniformed services, including the Ready Reserve. It was established by Congress in the Federal Employees’ Retirement System Act of 1986 and offers the same types of savings and tax benefits that many private corporations offer their employees under 401(k) plans.
The TSP is a defined contribution plan. The Federal Retirement Thrift Investment Board (FRTIB) administers the TSP.
FEGLI — Federal Employees’ Group Life Insurance — The federal government established the Federal Employees' Group Life Insurance Program on August 29, 1954. It is the largest group life insurance program in the world, covering over 4 million federal employees and retirees as well as many of their family members.
Most employees are eligible for FEGLI coverage. FEGLI provides group term life insurance. It consists of basic life insurance coverage and three options. In most cases, new federal employees are automatically covered by basic life insurance, and their payroll office deducts premiums from their paycheck unless they waive the coverage. In addition to the basic, there are three forms of optional insurance employees can elect.
FEHB — Federal Employees Health Benefits Program — The largest employer-sponsored health insurance program in the world, covering more than 8 million federal employees, retirees, former employees, family members and former spouses. Federal employees, retirees and their survivors enjoy the widest selection of health plans in the country.
OPM — The U.S. Office of Personnel Management — This serves as the chief human resources agency and personnel policy manager for the federal government. OPM provides human resources leadership and support to federal agencies. OPM directs human resources and employee management services, administers retirement benefits, manages health care and insurance programs, oversees merit-based and inclusive hiring into the civil service, and provides a secure employment process.