June 2013 NARFE Magazine by NARFE

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P.30

State taxes on Pensions In Flux

P.38

Strategy for success with YOur Roth TSP

COVER STORY

Paperless Payment Need to be green and lean means no more checks

P.24 Volume 89 • Number 06

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Cover Story

paperless PAYMENT. Checks are out. Direct deposit is in. As of March 1, most federal benefits, including federal annuities, are required to be delivered electronically.

WashingTon Watch

President’s FY 2014 Budget Would Reduce Retirement, Curb Pay

House Hearing Examines Value of FEHBP to Feds

Bill Would Improve FEHBP Drug Pricing

Reminder: August Is “Advocacy Month”

NARFE Bill Tracker

Memorial Honors Fallen Federal Employees

Columns

From the President

Managing Money

The Informed Citizen

Alzheimer’s Update

DEPARTMENTS Taxes In flux. Until recently, states had been expanding their tax exemptions for pension income. Now some are going in the other direction.

Questions & Answers

For the Record: TSP Investments, COLA Chart

NARFE News

The Way We Worked

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On the Web

special section P.30

STATE TAXES ON PENSIONS IN FLUX

visit us online at:

www.narfe.org like us on facebook:

NARFE National Headquarters follow us on twitter:

@narfehq

P.38

STRATEGY FOR SUCCESS WITH YOUR ROTH TSP

NARFE 2012 Financial Statement

COVER STORY

PAPERLESS PAYMENT Need to be green and lean means no more checks

P.24

ON THE C OVER

Illustration by Bill Pragluski, Critical Stages, LLC

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JUNE 2013 | Volume 89 | Number 06

Editor Margaret M. Carter Assistant Editor Donna J. St. John Editorial Administrator Toni Vallario Graphic Design Charlene Gridley Editorial Board Joseph A. Beaudoin, Paul H. Carew, Elaine C. Hughes, Richard G. Thissen Editorial Office: narfe magazine, 606 North Washington St., Alexandria, VA 22314-1914; Phone: 703-838-7760; Fax: 703-838-7781; Email: communications@narfe.org Advertising Sales: Warren Berger, Media People Inc., 122 East 42nd St., Suite 725, New York, NY 10168; Phone: 212-779-7172, ext. 223; Email: wberger@mediapeople.com NARFE for the Visually Impaired On the Telephone: This publication can be heard on the telephone by persons who have trouble seeing or reading the print edition. For more information, contact the National Federation of the Blind NFB-NEWSLINE® service at 866-5047300 or go to www.nfbnewsline.org. On Tape: Issues of narfe magazine are also available on cassette through the National Library Service for the Blind and Physically Handicapped. To find out about availability in your area, call 800-424-8567 and ask for the Reference Section. The Association, since July 1970, has been classified by the IRS as a tax exempt labor organization [not a union]; however, dues and gifts or contributions to the Association are not deductible as charitable contributions for income tax purposes.

NATIONAL OFFICERS JOSEPH A. BEAUDOIN, President; natpres@narfe.org PAUL H. CAREW, Vice President; natvp@narfe.org ELAINE C. HUGHES, Secretary; natsec@narfe.org RICHARD G. THISSEN, Treasurer; nattreas@narfe.org

REGIONAL VICE PRESIDENTS

REGION I Arthur Pike (Connecticut, Maine, Massachusetts, New Hampshire, New York, Rhode Island and Vermont) Tel: 207-764-4468 Email: artpike1937@aol.com REGION II Evelyn Kirby (Delaware, District of Columbia, Maryland, New Jersey and Pennsylvania) Tel: 410-604-1141 Email: ekirby@atlanticbb.net REGION III Donald Stewart (Alabama, Florida, Georgia, Mississippi, Puerto Rico, South Carolina and Virgin Islands) Tel: 305-442-6388 Email: dejs33149@aol.com REGION IV Paul E. Johnson (Illinois, Indiana, Michigan, Ohio and Wisconsin) Tel: 812-306-5137 Email: pejohnson@tds.net REGION V Carol R. Ek (Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota and South Dakota) Tel: 620-241-1131 Email: ek617@att.net

Here’s How to Contact Us… If you want to:

Join NARFE Call (toll-free): 800-627-3394 or go to: www.narfe.org Change or update your membership record Call (toll-free): 800-456-8410 Email: memberrecords@narfe.org

REGION VI Jerome S. Smith (Arkansas, Louisiana, Oklahoma, Republic of Panama and Texas) Tel: 903-534-5849 Email: retiredjer@aol.com REGION VII Frank Impinna (Arizona, Colorado, New Mexico, Utah and Wyoming) Tel: 303-482-1747 Email: impinna@gmail.com REGION VIII Helen L. Zajac (California, Guam, Hawaii, Nevada and Republic of Philippines) Tel: 707-644-7565 Email: hlz17@aol.com REGION IX Lanny G. Ross (Alaska, Idaho, Montana, Oregon and Washington) Tel: 360-692-9741 Email: lannyjean@comcast.net REGION X William F. Martin (Kentucky, North Carolina, Tennessee, Virginia and West Virginia) Tel: 540-872-3345 Email: narfe2065@hughes.net

For any other NARFE matter:

Call NARFE Headquarters: 703-838-7760 Email: hq@narfe.org Fax: 703-838-7785 Write: NARFE 606 N. Washington St. Alexandria, VA 22314

www.narfe.org

narfe (ISSN 1948-4453) is published monthly by the National Active and Retired Federal Employees Association (NARFE), 606 N. Washington St., Alexandria, VA 22314. Periodicals postage paid at Alexandria, VA, and additional mailing offices. Members: Annual dues includes subscription. Nonmember subscription rate $45. Postmaster: Send address change to: NARFE Attn: Member Records, 606 N. Washington St., Alexandria, VA 22314. To ensure prompt delivery, members should also forward changes of address without delay. Because of the volume involved, NARFE cannot acknowledge nor be responsible for unsolicited pictures and manuscripts, although every reasonable precaution is taken. All submissions become the property of NARFE. Copyright © 2013, NARFE. Advertisements in the magazine are not endorsements of products and/or services by NARFE, unless officially stated in the ad. We shall accept advertising on the same basis as other reputable publications: that is, we shall not knowingly permit a dishonest advertisement to appear in narfe, but at the same time we will not undertake to guarantee the reliability of our advertisers.

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From the President

Putting a Price on policy

or more than a year, NARFE has been protesting a proposal that surfaced in the debt-reduction

debate to change the way cost-of-living adjustments are calculated for federal

annuities and other inflation-adjusted federal benefits, including Social Security and military retired pay. We ratcheted up our lobbying efforts in Washington as the plan to change from the current formula, using the CPI-W, to the Chained CPI generated outrage from NARFE members. We also developed and posted on the NARFE website a calculator where members can plug in the amount of their annuity or Social Security payment – or what they expect to receive when they retire – and find out what the change would mean to them in lost benefits over a period of

years. The calculator put the potential impact of this policy shift in clearer focus, and members began to understand its personal price tag. In turn, member response to our request for messages to Congress started to grow. Keep it up! In the weeks ahead, we need to light up congressional switchboards and fill congressional email boxes with messages of opposition. And we need to send the same messages to the other end of Pennsylvania Avenue – to the White House. We were disappointed to see that the Chained CPI appeared in President Obama’s fiscal year 2014 budget proposal. See the story about the president’s budget on p. 6. In March, the federal government completed the transition to paying most benefits, including federal annuities, electronically, rather than with paper checks. Our cover story this months looks at the move away from checks. In another feature, economist Karen Smith Conway provides an analysis of developments within several states to clamp down on tax exemptions for retirement income. The story includes a history of state tax law as it pertains to pensions. A sidebar story recalls NARFE’s participation in a 1989 U.S. Supreme Court case that ended unequal tax treatment of federal and state pensions. Enjoy the June issue!

Joseph A. Beaudoin NARFE national President natpres@narfe.org

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Washington Watch

President’s FY 2014 Budget would reduce retirement, curb Pay

or federal retirees, President Obama’s Fiscal Year (FY) 2014 Budget would mean real and permanent reductions in retirement annuities. For active employees, the news is just

as bad. The president submitted his budget proposal to Congress on April 10, two months beyond the statutory deadline. Not waiting to get the president’s proposal, the House and Senate both passed their own budget resolutions in March. In his budget, the president proposes changing to a less generous measure of inflation – the Chained CPI – to calculate costof-living adjustments (COLAs) for retirement programs, including Social Security and federal civilian and military retirement. Using the Chained CPI (consumer price index), rather than the current CPI-W, would result in benefits that are smaller by an estimated 0.3 percent per year. Because this difference would compound over time, benefits would be 3 percent lower after 10 years, 6.2 percent lower over 20 years and 9.4 percent lower over 30 years. The president estimates the savings from this proposal would be $230 billion over 10 years. For the average federal annui-

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tant, the change would mean the loss of tens of thousands of dollars in retirement income. As NARFE President Joseph A. Beaudoin said, “Simply put, the long-term reduction resulting from the Chained CPI will be substantial.” The news for active federal employees was no better. The president’s budget includes a proposed 1 percent pay raise in calendar year 2014. Last year, he proposed a 0.5 percent increase. Instead, Congress extended the pay freeze for a third year. While the president’s 2014 proposal would end the current pay freeze, the 1 percent raise is smaller than the rate at which wages rose in the private sector, the baseline for federal wage adjustments. The proposal is

Customers at the U.S. Government Printing Office Bookstore lined up April 10 to buy FY 2014 budget books. U.S. Government Printing Office

expected to save $18 billion over 10 years. The president’s budget also included an administration proposal advanced last year that would require current federal employees to pay an additional 1.2 percentage points of their pay to fund their federal pensions. The increase would be spread out over three years, with an additional 0.4 percent increase annually. There would be no corresponding increase in the value of their retirement annuities. The move would save $20 billion over the course of a decade, according to the budget blueprint. For newly hired federal employees, the president’s budget would end the supplement payable under the Federal Employees Retirement System (FERS) for retirees who are not yet eligible for their Social Security benefits. Unlike previous House proposals, which would eliminate the benefit for current employees (at a 10-year savings of nearly $2 billion), the president’s plan is a prospective policy change, which generates savings far in the future.

advocacy action Your legislators want to hear from you. The president’s budget plan also proposes a series of reforms to the Federal Employees Health Benefits Program, expected to generate savings of $8.4 billion over 10 years. Among the proposed changes: authorizing the Office of Personnel Management to directly contract with pharmacy benefit managers, provide for “self plus one” enrollment, allow “modern types of health plans,” provide premium differentials for wellness (to encourage healthy lifestyles) and permit health insurance benefits for domestic partners. In addition, the president’s budget proposes changes in the workers’ compensation program for federal employees. Under the plan, workers’ comp beneficiaries would begin receiving retirement annuities when they reach retirement age rather than continuing workers’ comp benefits. It also would impose an up-front waiting period for benefits for all beneficiaries, permitting the Labor Department to recapture compensation costs from responsible third parties, provide addi-

tional tools to reduce improper payments and make other changes “to improve the program.” According to the budget document, these reforms would generate governmentwide savings of more than $500 million over 10 years. The timing of the president’s budget submission is unprecedented. By law, and tradition, the president’s February budget message is supposed to mark the beginning of the congressional budget process. This year’s April 10 presidential budget submission comes after both the House and Senate had passed their competing version of FY 2014 budget resolutions. At press time, House and Senate leaders were bickering over the parameters of a conference to resolve differences. The president’s budget adds yet another element to an already complicated mix. Together, the now three budgets (House, Senate and president’s) set the stage for a “grand budget deal” or another shutdown showdown as a summer public debt limit deadline looms large.

During NARFE’s Legislative Training ConFerence in March, NARFE members visited with legislators and staff on Capitol Hill. Several members reported that their elected officials said they would like to hear from NARFE members about their personal stories and their work with the federal government. This becomes especially important as the sequester and furloughs take effect. Another positive outcome of the meetings is that at least two legislators are now working with their NARFE constituents to set up a town hall meeting or forum on federal employee issues. But grass-roots communication cannot wait for the next NARFE Legislative Training Conference; it must be an ongoing conversation. NARFE will host a National Congressional Call-In Day in September – another opportunity to reach out to your legislators. Watch this space for more details.

—By Alan Lopatin, Legislative Counsel

Use the Chained CPI Calculator Use NARFE’s online calculator to see how moving to the Chained CPI would affect you. Go to www.narfe.org and click on the “Chained CPI Calculator” in the graphic carousel or scan the QR code at right with your smart phone’s QR reader.

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Washington Watch

House Hearing examines Value of FEHBP to FEDS

he House Oversight and Government Reform Subcommittee on the Federal Workforce, U.S. Postal Service and the Census held a hearing on April 11

on whether the Federal Employees Health Benefits Program (FEHBP) is a good value for federal workers. Members of the subcommittee heard from witnesses, including a representative from the Office of Personnel Management (OPM), and discussed how to improve the FEHBP, which was described as a model health insurance program for the nation. NARFE President Joseph A. Beaudoin submitted written testimony, highlighting the importance of the FEHBP and noting that NARFE wants to ensure that the program continues to provide affordable, quality coverage, while also allowing for a thorough analysis of any proposals to change the program. (The testimony is available at www.narfe.org.) Subcommittee members discussed OPM’s proposal to introduce regional preferred provider organizations (PPOs) as a way to increase competition and lower costs. Several members said that competition is only desirable if it reduces the price consumers pay and does not lead PPOs to “cherry pick” healthy, young patients, which would in turn raise costs for nationwide plans and seniors. NARFE expressed similar concerns in its written testimony. Jonathan Foley, OPM’s director of planning and policy analysis, announced at the hearing OPM’s intention to negotiate with potential insurance programs to prevent

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this; members voiced significant concerns with what some called OPM’s stance of “just trust us.” Another proposal concerned whether OPM should have more authority to contract directly with pharmacy benefit managers to purchase prescription drugs, which

pays the same premium as a twoperson household. NARFE would support this idea if it would lower the cost for retirees but would have serious concerns if retirees on fixed incomes would be forced to pay more for the same coverage, as retirees potentially represent a higher risk pool. OPM also proposed allowing adjustments to premiums based on tobacco use or enrollment in a wellness program. While NARFE supports incentivizing healthy habits through premium differentials, it has significant concerns about whether such programs would infringe on privacy. In addition, OPM proposed expanding the FEHBP to domestic partners — including both oppo-

The subcommittee discussed several ways to modernize the FEHBP, including creating a “self plus one” enrollment category. OPM states would more efficiently leverage the federal government’s purchasing power. Again, members of the subcommittee suggested that they were concerned about which drugs would be covered and indicated that more data would be needed to make a decision. The subcommittee also discussed several ways to modernize the FEHBP, including creating a “self plus one” enrollment category. Currently, FEHBP enrollees can only choose between self-only or family coverage, meaning that a family with three or more members

site- and same-sex couples — in order to align the program with best practices in the private sector and to aid in recruitment. Subcommittee members seemed hesitant to provide OPM with more flexibility regarding all of these proposals without receiving additional evidence of their impact, cautioning that any changes to the FEHBP should be made only after much thought and careful consideration, including establishing pilot programs and allowing time for public comment. —By Jason Freeman, legislative staff assistant

Bill would improve FEHBP drug pricing Lynch has previously introduced. Although the bill’s language has not been enacted into law, the Office of Personnel Management has adopted many of the requirements into its standard fee-for-service and experience-rated health maintenance organization contracts. But unless the provisions are enacted into law, those administrative decisions regarding contract requirements could be changed by the current or future administrations.

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Myth: Members of Congress don’t pay into Social Security but collect benefits. Reality: Under Public Law 98-21, Social Security coverage was required for all federal employees, including members of Congress, who entered federal service after 1983. The law also required all incumbent members to be covered regardless of when they entered Congress. Social Security tax is withheld from their paychecks at the same rate as all covered workers (6.2 percent).

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ep. Stephen F. Lynch, D-MA, ranking member of the House Subcommittee on the Federal Workforce, U.S. Postal Service and the Census, introduced the FEHBP Prescription Drug Integrity, Transparency, and Cost Savings Act on March 21. The bill (H.R. 1367) would expand federal oversight of prescription drug benefits provided to federal employees, annuitants and their families. It also would regulate pricing practices in an attempt to prevent anti-competitive practices from pushing drug prices upward. NARFE supports the bill as well as other efforts aimed at assuring fair prescription drug contracting and pricing practices to keep costs for Federal Employees Health Benefits Program (FEHBP) participants and taxpayers under control. Specifically, the legislation would require that pharmacy benefit managers (PBMs), who currently contract with individual insurance plans to provide FEHBP prescription drug benefits, return 99 percent of all rebates, market share incentives and other monies received from pharmaceutical manufacturers for FEHBP business. In addition, the legislation would prohibit “drug switching” without prior physician approval, impose new disclosure and transparency requirements on PBMs in line with industry trends, and cap prescription drug prices paid by the FEHBP at the amount of the average manufacture price. H.R. 1367 is similar to bills that

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Washington Watch

Reminder: August is ‘Advocacy Month’

Legislative Resources • Legislative Hotline: A weekly update of legislative news, compiled by the NARFE Legislative Department staff, distributed via email and available by phone (toll-free) at 877-217-8234 and online at www.narfe.org. • Legislative Action Center: A one-stop site to send a letter to Congress, and more, at www.narfe.org.

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AUGUST IS “NARFE GrassRoots Advocacy Month,” and the August congressional recess is an excellent opportunity to meet with members of Congress. If your chapter does not meet during August, or you have tried to schedule a meeting but your member of Congress is unavailable, there are other ways to reach out during the summer months. One of the best ways to meet with your legislators is in the community. Members of Congress frequently participate in holiday as well as attend 9:49 AM Page parades, 1 county and state fairs. Take

advantage of these opportunities – and make sure that you wear something with NARFE on it to these events. Even if you do not get a chance to speak with your legislator, your NARFE apparel or button will have an impact. If you do get a chance to speak with the member of Congress, thank him or her for a vote, or mention your chapter’s interest in having the member speak at a meeting. Do not bring NARFE materials, but ask for the business card of an accompanying staff member to follow up. —By Sarah Holstine, Grass-Roots Program Manager

NARFE’s

CONGRESSIONAL DIRECTORY for the 113th Congress (2013-2014)

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Order your copy of the new Congressional Directory today! Clip and mail to: NARFE Congressional Directory, 606 N. Washington Street, Alexandria, VA 22314-1914 Name __________________________________________________________________________ Address ________________________________________________________________________ City_______________________________________________State _______ZIP_____________ Member ID# (As it appears on narfe magazine label) __________________________________

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Washington Watch

narfe bill tracker The NARFE bill TRACKER is your monthly guide to the congressional legislation that NARFE is keeping an eye on. Check back each issue for updates. ISSUE

Bill Number / Name / What Bill Would Do Sponsor H.R. 26: Deferred Benefits Adjustment Act of 2013 / Rep. Nydia M. Velรกzquez, D-NY

Amends federal civil Referred to the House service law to provide Committee on Oversight and for the indexation of de- Government Reform ferred annuities, including survivor annuities, under the Civil Service Retirement System (CSRS) and the Federal Employees Retirement System (FERS) and for individuals becoming subject to FERS by election. Terminates the entitlement of a survivor who remarries before age 55 (currently, who remarries at any age) to an annuity based on the service of a deferred annuitant who dies before establishing a valid claim for a CSRS annuity.

H.R. 273: To eliminate the 2013 statutory pay adjustment for federal employees / Rep. Ron DeSantis, R-FL

Extends the federal employee pay freeze for the rest of 2013, which would be the third year of the pay freeze.

H.R. 517: To provide that four of the 12 weeks of parental leave made available to a federal employee shall be paid leave / Rep. Carolyn B. Maloney, D-NY

Allows federal employees to substitute any available paid leave for any leave without pay available for either the birth of a child or placement of a child with the employee for either adoption or foster care. Makes available for any of the 12 weeks of leave an employee is entitled to for such purposes: four administrative weeks of paid parental leave in connection with the birth or placement involved; and any accumulated annual or sick leave.

DEFERRED ANNUITIES

federal pay

Paid Parental Leave

Latest Congressional Action/s

Passed the House on 2/15/13 Included in H.R. 933 and signed into law on 3/26/13

(P.L. 113-6)

Referred to the House Committee on Oversight and Government Reform

(continued 0n p. 14) 12

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Washington Watch

narfe bill tracker (continued from p. 12) ISSUE

Retirement Calculations/ Contributions

federal pay

Bill Number / Name / Sponsor

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Latest Congressional Action/s

H. Con. Res. 25: Fiscal year 2014 Budget Resolution / Rep. Paul D. Ryan, R-WI

Among other things, Passed the House on reduces the federal 3/21/13 workforce by 10 percent through attrition and increases the amount that federal employees contribute toward their retirement (but does not specify by how much).

H.R. 933: Fiscal Year 2013 Continuing Appropriations Act / Rep. Harold Rogers, R-KY

Funds the federal government for the remainder of fiscal year 2013 (through September 30, 2013) at sequestration levels. Freezes federal pay for a third year (2013).

H.R. 1367: FEHBP Prescription Drug Integrity, Transparency, and Cost Savings Act / Rep. Stephen F. Lynch, D-MA

Provides the Office of PerReferred to the House sonnel Management greater Committee on Oversight oversight authority of the and Government Reform prescription drug contracting and pricing methods of the Federal Employees Health Benefits Program (FEHBP). It requires that pharmacy benefit managers (PBMs), who currently contract with individual insurance plans to provide FEHBP prescription drug benefits, return 99 percent of all rebates, market share incentives and other monies received from pharmaceutical manufacturers for FEHBP business; prohibits “drug switching” without prior physician approval; imposes new disclosure and transparency requirements on PBMs in line with industry trends; and caps prescription drug prices paid by the FEHBP.

H.R. 249: Federal Employee Tax Accountability Act of 2013 / Rep. Jason Chaffetz, R-UT

Makes any person who has a “seriously delinquent tax debt” ineligible for federal employment or to continue serving as a federal employee. Defines “seriously delinquent tax debt” as an outstanding tax debt for which a notice of lien has been filed in public records.

Health Care

Tax Delinquency

What Bill Would Do

Signed into law on 3/26/13 (P.L. 113-6)

Passed the House Committee on Oversight and Government Reform on 3/20/13 Failed to pass the House on 4/15/13

Memorial Honors fallen federal employeEs As one of his last official duties as director of the Office of Personnel Management (OPM), John Berry dedicated the “Wall of Honor” at OPM headquarters in Washington, DC. The memorial recognizes civilian federal employees killed in the line of duty. “The people we remember today loved their country. They loved their neighbors and their nation,” Berry said at the April 11 ceremony. “They rose each morning, and whether they pinned a badge over their hearts or faced danger unexpectedly, they laid down their 2013-14_PAC_Coupon:2013 Coupon

lives in our service.” The wall features 52 stars, representing each state, the District of Columbia and the U.S. territories. “Although we often think of the federal government as a monolith, confined within the Beltway, most of the people honored by this wall are not from Washington, DC,” Berry noted. “They lived, as the vast majority of federal workers live, far from the capital.” The names of the fallen are listed on a page on the OPM website, www.opm.gov. Having3:42 completed his1four-year 3/26/13 PM Page

Photo by Jerry Porter, OPM

term as head of OPM, Berry left office on April 13. Elaine Kaplan, OPM general counsel, was named acting director until a new director is nominated and confirmed.

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$50 Silver (qualifies for Silver 2013-2014 NARFE-PAC lapel pin) $20 Basic (qualifies for Basic 2013-2014 NARFE-PAC lapel pin) Other: ______ -orI would like to be a Sustainer and make a monthly credit card contribution to NARFE-PAC of: $25/month $10/month

Please find my check or money order enclosed payable to NARFE-PAC Please charge to my credit card (required for monthly contribution) Credit Card Information Type: MasterCard Visa Discover AMEX Card #: ________________________________ Expiration Date: ____ / ____ Name on Card:__________________________ Signature: ______________________________ Date: __________________________________

Other: ______/month (minimum of $10) Monthly contributions qualify you to receive a NARFE-PAC Sustainer lapel pin along with a blue NARFE-PAC LEADER hat.

I do not want to receive any gifts for my contribution marked above.

Mail to: National Active and Retired Federal Employees Association Attn: NARFE-PAC 606 North Washington St. | Alexandria, VA 22314

Only members of the National Active and Retired Federal Employees Association may contribute to NARFE-PAC. NARFE will neither favor nor disadvantage anyone based on the amount of a contribution or the failure to make a voluntary contribution to this political action fund. NARFE-PAC contributions are not deductible for federal income tax purposes.

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Questions & Answers

The following Questions & Answers were compiled by NARFE’s Federal Benefits Service Department staff. NARFE does not provide legal, financial planning or tax advice or assistance.

active Employees Pre-Retirement must-dos

I am getting ready to retire. Do you have any suggestions for what I should make sure to do as I prepare to put in my retirement papers?

You want to make sure that you meet the fiveyear requirement to carry into retirement your Federal Employees Health Benefits Program and Federal Employees’ Group Life Insurance coverage. You also should review your official personnel folder to make sure that there is verification of all of your military (if applicable) and civilian service. If any of these records are missing, your human resources office should help you document the service and obtain any missing records. If you have civilian service for which you must pay retirement contributions or repay a refund of contributions, your human resources office should tell you

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about the impact payment or nonpayment has on your eligibility and the amount of your retirement benefit. If you owe a payment to receive credit for military service you performed after 1956, you must make that payment before you retire. If you are receiving military retired pay, you should discuss with your agency personnel officer whether you must waive the retired pay. Your personnel officer also can tell you about receiving credit in your annuity computation for various types of service and about the payments described above, as well as help you with service documentation. For more extensive guidance on getting your retirement

paperwork in order, please see the April 2013 narfe magazine article, “Speeding the Retirement Journey,” pp. 22-28. This contains a retirement document checklist provided by the Office of Personnel Management.

FEGLI Coverage

I have Federal Employees’ Group Life Insurance (FEGLI) coverage. But I don’t know if I have any of the Optional insurance. How do I determine the amount my loved ones will receive when I die?

FEGLI offers: Basic insurance, Option A, which is worth $10,000; Option B, with up to five multiples of your salary; and Option C, which is payable to you upon the death of your spouse or dependent child. You should check your SF-50s (“Notification of Personnel Ac-

tion”) or your leave and earnings statement, or contact your human resources office to determine if you have any of the optional coverage. Federal employees are automatically enrolled in the Basic version of FEGLI when they are first hired and can add optional insurance to supplement it. There’s no underwriting (medical exam or questions) for new hires or for employees who wish to increase their coverage when they experience certain life events, such as marriage, divorce, birth or adoption of a child, or death of a spouse. FEGLI is a form of term life insurance. It falls into that category because it doesn’t build up cash value. But FEGLI actually doesn’t have a term, such as 15 or 20 years, as private term life insurance has. Federal employees can maintain Basic FEGLI throughout their federal careers and into retirement. Employees who opt for no reduction of Basic FEGLI at retirement can maintain this level of coverage for life if they are willing to pay for it. As an employee’s salary increases, the amount of Basic life insurance increases automatically. The value of Basic insurance is determined by your annual basic pay rate (including locality pay adjustments), rounded up to the next even $1,000, plus an additional $2,000. For example, if you make $58,252, this would be rounded up to $59,000, and $2,000 would be added, for a total of $61,000 worth of Basic life insurance. Employees who are under age 45 have

extra coverage without paying an extra premium. Many employees enroll in FEGLI when they are appointed to their first job, but don’t remember what they elected and don’t even think about it again until they get ready to retire. It is important to review the amount of life insurance that you have with the federal government to determine if you need to decrease or increase your insurance. If you decrease your coverage, you would save yourself some money. But remember: It is very difficult to increase your insurance once you drop it.

Apply for Social Security benefits?

I am about to retire with 38 years of federal service, and I also have the minimum 40 quarters for Social Security from my younger days and part-time jobs as well. I am under the Civil Service Retirement System (CSRS), and I didn’t think I could get Social Security in addition to my pension. But in a recent retirement class, the instructor said file anyway because I will still get the minimum, which would help pay for Medicare. Is this true, or am I out of luck once the law was changed to eliminate double dipping?

If you are eligible for an earned benefit such as Social Security, we would always suggest you apply for it. Because you will be receiving a CSRS annuity, you will

be receiving a benefit based on employment not covered by Social Security taxes. Your earned Social Security benefit is subject to the Windfall Elimination Provision, which means your benefit will be computed under a modified formula. Your CSRS annuity will definitely offset your Social Security benefit, but it will not erase it. It may reduce as much as 60 percent, but you will still receive some benefit.

retirees Proof of Life Insurance

My 95-year-old mother is a retired federal employee. She is in an assisted living facility, paying her own way until her savings are depleted. We’re getting very close to that point now. I’m trying to apply for Medicaid for her so that she may stay in assisted living and have been told that I need to produce her life insurance policy. How do I do that?

We suggest that you contact the Office of Personnel Management (OPM) and ask it to send you a “Verification of Life Insurance” to your mother’s address. You should call 888-767-6738 at 7:30 a.m. or between 6:30 and 7:30 p.m. EST, or make your request by email at retire@opm.gov. You also should have your mother’s CSA number or Social w w w. n a r f e . o r g

Questions & Answers

Security number when contacting OPM.

Required minimum Withdrawals in TSP

I retired under the Civil Service Retirement System and have a Thrift Savings Plan (TSP) account. Will I be required to take a minimum distribution from my TSP account when I turn age 70-1/2, which is the requirement for an individual retirement account?

According to the TSP, the deadline for beginning minimum distributions from your TSP account is April 1

of the year following the year you become age 70-½ and are separated from federal service. The TSP requires that you either withdraw your entire account balance in a single payment, begin receiving monthly payments, purchase a life annuity or use a combination of these withdrawal options. This withdrawal deadline is the same as that stated in Internal Revenue Code rules for required minimum distributions. If you do not make a withdrawal election by the required deadline, your account balance will be forfeited to the TSP. You can reclaim your account, but your account balance will not accumulate earnings after it is forfeited. In order

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to reclaim your account, you must make a full withdrawal election using form TSP-70-A, “Late Request for Full Withdrawal.” (For more information on required minimum distributions under the TSP, please see this month’s “Managing Money” column, p. 38.)

Ex-Spouse Benefits

My friend is considering a divorce. She is age 55 and has been married for 13 years. She retired from the U.S. Postal Service, and her husband is still a federal employee. If she obtains a divorce, would she lose

her medical benefits and pension from her husband?

drawing survivor benefits under the CSRS?

If your friend met the eligibility requirements to continue coverage under the Federal Employees Health Benefits Program (FEHBP) into retirement, she can enroll in an FEHBP plan of her choice when the divorce becomes final, and she is no longer an eligible dependent under her husband’s enrollment. To be eligible, the retiree must have been enrolled or covered by another’s FEHBP enrollment continuously for the five years prior to retirement. If the divorce decree awards a survivor annuity to your friend, she would be able to receive a monthly benefit after her husband’s death.

Switch to Family Option?

I retired under the Civil Service Retirement System (CSRS). Five years ago, I married a currently employed federal worker covered under the Federal Employees Retirement System. I did not apply to include her for survivor benefits under my retirement because she had her own coverage. We both have self-only plans under the Federal Employees Health Benefits Program (FEHBP). If she were to leave federal employment, could I pick her up under my FEHBP plan by changing to family coverage? Would this be done immediately upon her termination or during the next Open Season? Would she be covered during any interim period? If I predecease her, could she continue to be covered under the FEHBP if she is not

Life is not a rehearsal

If your wife were to leave federal service, you could change to family coverage within 30 days after that event. Because you did not elect to provide survivor benefits, if you were to predecease her, she would not be eligible to continue coverage under the FEHBP.

FERS Annuity Supplement

I retired under the Federal Employees Retirement System (FERS) under voluntary retirement at age 53. When I turned my minimum retirement age (56), I started receiving an annuity supplement. I lost my wife recently and was told that I could receive 70 percent of her Social Security benefits when I turned age 60. Would I lose the annuity supplement if I do that?

No. Eligibility for spousal benefits would not cause you to lose your FERS Annuity Supplement. However, when you become eligible to draw your own Social Security benefits, you would need to choose which Social Security benefit you want to receive; you cannot receive both.

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Questions & Answers

A year ago, I retired from federal service shortly before turning age 65. I was enrolled in a Federal Employees Health Benefits Program (FEHBP) plan, family coverage, and had TRICARE Standard as a secondary insurance for myself and my wife. At age 65, I became eligible for TRICARE For Life, and my wife, who is five years younger, enrolled in TRICARE Prime. I then suspended my FEHBP enrollment. My wife has been informed that her TRICARE Prime coverage will be discontinued October 1. Can I apply for FEHBP coverage for her only, or must I take family coverage since Iâ&#x20AC;&#x2122;m the federal employee who has retired? When my wife

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turns age 65 and has Medicare and TRICARE For Life, could I again suspend my FEHBP coverage and still have the option to reapply for FEHBP coverage again if I should need to do so later?

You may re-enroll in the FEHBP during the next annual Open Season, and your coverage will be effective the following January 1. The law does not allow your wife to enroll in the FEHBP herself, so you must re-enroll and elect family coverage in order to provide her with coverage. You may at any time suspend your FEHBP coverage again for the same reason, even after you have

re-enrolled in the FEHBP, and again re-enroll in the FEHBP at a later date if you need to.

Retroactive Payment for ex-spouse

I recently retired and am in interim payment status. Iâ&#x20AC;&#x2122;ve been told that when my case is finalized, I will have a large retroactive payment due me, which includes the portion owed to my ex-spouse. Will the Office of Personnel Management (OPM) send me the entire back pay or will they split out her portion and send her a check with me getting the balance? I was told that the check would come to me, that it was up

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To obtain an answer to a federal benefits question, NARFE members should call 703838-7760 and ask for the Federal Benefits Service Department; send your question by postal mail to NARFE Headquarters, ATTN: Federal Benefits; or submit it by email to fedbenefits@narfe.org.

Editor’s Note: There is an error on the April page in the 2013 NARFE Calendar concerning the age at which Thrift Savings Plan participants must begin making required minimum withdrawals (RMDs). It should have said: If retired, participants must begin RMDs by April 1 of the year following age 70-1/2 or April 1 of the year following retirement, whichever is later.

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OPM does not pay the ex-spouse until the retirement case is finalized. The effective date of dividing the annuity depends on when OPM received the court order and if the order is acceptable for processing. If OPM had an acceptable court order on file at the time the employee retired, then the division of the annuity is effective as of the date of the retirement. Your catchup payment will be less the courtordered apportionment for your former spouse all the way back to the annuity commencement date. Your former spouse should receive her first payment the same date you receive your catch-up payment – about the first of the month after the case is finalized. Since many court orders require the retiree to pay monthly alimony while still working and to pay the apportionment after retirement, and because it takes many months after the retirement date for the former spouse to get this payment, you may be legally required to continue to pay your former spouse during this period, even though your case has not been finalized. That might result in double payments to your exspouse because OPM will pay her her share, as required by the court order, only when the case is finalized and will not make adjustments for any payment you may have made on your own. You may have to contact your ex-spouse

and ask for the money back that you paid her on your own.

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800-456-8410. NARFE Service Centers are also available in some areas. Use the Service Center listings on the NARFE website,

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Cover Story

By David Tobenkin

Illustration by Bill Pragluski, Critical Stages, LLC

The check is in the mail? Not any more – at least, not when it comes to federal benefits. As of March 1, most federal benefits, including federal pensions and Social Security benefits, are required to be delivered electronically, either by direct deposit to bank accounts or to a government-sponsored debit card (Direct Express®), rather than by checks. Those falling under the paperless requirement this past March join many other federal workers already required to accept electronic payments. Since March 2011, new enrollees for federal benefits have had to elect between the two paperless options, reflecting the Treasury Department’s publication of a rule in December 2010 requiring a gradual phaseout of the use of paper checks as a means for delivering federal benefit payments. Those who must receive payments electronically include recipients of payments from Social Security, Supplemental Security Income, Veterans Affairs, Railroad Retirement Board, Office of Personnel Management (OPM) and the

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electronic delivery

Department of Labor (black lung). Representative payees, who are caretakers for recipients of federal benefit payments, who currently receive paper checks on behalf of recipients, also must switch to electronic delivery. Internal Revenue Service (IRS) tax return payments and a few other types of federal payments,

In January 2013, five million individual checks were still being sent monthly.

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such as vendor payments, remain outside the rule’s reach but are likely to be the focus of future efforts to expand electronic transactions.

Progress to Date

The move to paperless is well along, but many still receive paper checks. Some 95.2 percent of federal nontax payments were made electronically in February 2013, with $75.6 billion in benefit payments made electronically, compared to approximately $3 billion made by check, says Bradley Benson, a Treasury Department spokesperson. Of the payments made electronically, Benson says that about $2.5 billion of the $75.6 billion in electronic payments is made via Direct Express® Debit MasterCard, representing about 3.5 percent of the total. Overall, there has been a 2 percent increase in electronic payment volume and a 34 percent decrease in check volume in February 2013, as compared to February 2012, Benson says. In January 2013, five million individual checks were still being sent monthly to federal benefit recipients, and the focus continues to be reducing the remaining outstanding payments by check. “We are very optimistic about the continued transition to paperless benefits,” says Walt Henderson, director of the Treasury Department’s GoDirect Campaign. “Hitting 95 percent [paperless benefits] as we did [in February] is a significant achievement in itself. Two years ago, we were pleased with 85 percent. And with many continuing to respond and in the pipeline, we’ll be higher than 95 percent, though there will always be people with unique circumstances who may need to keep paper checks. We’ve struck a good balance between implementing the requirement and being thoughtful to accommodate people’s unique circumstances.” The conversion to paperless continues. Henderson says that the Treasury Department is working with the IRS, which is not covered by the paperless payment rule, to encourage electronic filing. Benson says that OPM also has a key role in making sure that anyone signing up for benefits gets direct deposit from their initial disbursements. OPM is expanding its efforts to inform its benefits recipients of the need to go paperless, says one OPM official.

“OPM is actively informing retirees about electronic payment,” says Kenneth J. Zawodny, associate director, retirement services, at OPM. “During the past two years, annuitants receiving checks have received periodic inserts notifying them of this new regulation. As a result, OPM has made significant progress in having our customers receive their payments electronically. Ninety-eight percent of the 2.4 million payments made each month are through an Electronic Funds Transfer. Additionally, since this is a Department of Treasury regulation, we have been working closely with them and their Direct Express® campaign to meet their time frames. “In order to accomplish this, we encourage all annuitants and survivors to establish direct deposit or another electronic payment option,” Zawodny says. “The 2012 revision of the Federal Employees Retirement System ‘Application for Immediate Retirement’ contains a notice of the Department of Treasury direct deposit requirements and asks retiring employees for their direct deposit bank information. The Civil Service Retirement System ‘Application for Immediate Retirement’ also asks retiring employees for their direct deposit bank information.” Benson says the Treasury Department also is working closely with other federal agencies to ensure new beneficiaries are aware of the requirements and their options for receiving payments electronically. Despite the March 1, 2013, deadline and requests from the Treasury Department, not all federal agencies have stressed to their employees the need to comply with the deadline and elect an electronic payment option, Benson says. The Treasury Department now is working with the agencies to gain their cooperation in communicating the requirement to employees, Benson adds. A union executive says that the conversion to paperless benefits is one where employee rights have been respected. “NTEU negotiated this issue some time ago in our agencies, and the transition has progressed according to schedule — we have not heard of any outstanding issues,” said National Treasury Employees Union National President Colleen M. Kelley in a statement.

Why Electronic Is Better

Behind the switch are a number of factors; saving money is a large one. The Treasury Department estimates that the government will save $1.28 billion through the use of direct deposit over 10 years, says Benson. “Going green” also is a factor, says Benson, noting the environmental benefits of getting rid of all of that paper. Convenience is another reason, and Benson notes that payment recipients who are elderly, ailing, or who lack convenient transportation are saved a trip to their financial institution to deposit the check. Electronic payments also are faster, as they are directly deposited on the payment day. There are a host of other reasons electronic delivery of benefits is better than paper delivery, Benson says. Research shows that paper checks are 125 times more likely to have an issue than are electronic deposits. Among the dangers posed by paper checks are late arrival in the mail, mail delays due to natural disasters, delivery to the wrong address, theft from mailboxes, fraudulent endorsement of checks and disclosure of personally identifiable information to potential identity thieves. Once an electronic payment is set up and established, it is very rare to have any problems with monthly payments, Benson adds. He also notes that, in 2011, 440,000 Social Security and Supplemental Security Income checks were reported lost or stolen, and $70 million in Treasury checks were fraudulently endorsed.

Electronic Options

As noted, there are two options to receive electronic payments. The first and preferred option for agencies and most employees is direct deposit into bank accounts. This is the most practical for most employees, says Benson: “If you have a bank, Treasury believes the best option is direct deposit. Your bank or credit union offer convenient options to get cash and pay bills.” While the second option, the Direct Express® Debit MasterCard®, was designed as a low-cost option, there are fees associated with the account. A debit card allows cardholders to make purchases and withdraw cash directly from the card. There also are plans to add a bill-paying option to the w w w. n a r f e . o r g

electronic delivery

service. The card is initially sent through the mail. Once activated, the card’s balance is automatically credited with monthly payments to the beneficiary. There are no annual fees for the card from the federal government or MasterCard, though merchants or ATMs may impose charges. Any money on the card is insured by the Federal Deposit Insurance Corporation. The Direct Express® cards target those without access to bank accounts. For information about the programs, go to www.godirect.org and www.usdirectexpress.com. Federal benefits recipients also can sign up for direct deposit or the Direct Express® Debit MasterCard® by contacting the Treasury Department’s Electronic Payment Solution Center at 800-3331795.

Out of Compliance

Those receiving federal benefits payments who have failed to elect between electronic direct deposit or Direct Express® payments are now out of compliance, save for the narrow exceptions previously described. Previously, the Treasury Department considered sending Direct Express® cards to anyone who hadn’t complied by March 1, 2013, but

has since eased that position. Treasury now will contact people who are out of compliance (initially by mail) to inform them of their options for electronic payments, Benson says. “In 2010, we used language that, if you haven’t signed up [for electronic delivery], we would force you into Direct Express® by March 2013; but in the last six months, we have let it be known that we wouldn’t automatically do that, although we retain that option,” Benson says. “Instead, we’ve been sending out two out-of-compliance letters. We also have tried sending out to some people Direct Express® cards, though the cards aren’t activated or funded. Instead, letters that accompany the cards say to contact Treasury to activate it. We’ve had a good call-back response. Of those calling back, about three-quarters are electing direct deposit, and the rest choose to activate the Direct Express® card. We have been trying different versions of the letter in small groups to see which generates the best response.” The lack of compliance in many cases is not willful, says Henderson of Treasury’s GoDirect Campaign. “I’ve found that the biggest barrier was a lack of information about electronic payments or

Direct Deposit Procedures According to the Office of Personnel Management (OPM), the agency can make payment by direct deposit into an account in a bank, credit union, savings bank or thrift institution. To sign up for direct deposit, OPM provides many options:

n You can make your change on your online retirement account at Services Online at www.opm.gov.

n You can fax form 1199A to 724-794-6633. This form can be obtained from your financial institution.

n You can mail form 1199A to OPM, Retirement Operations Center, P.O. Box 440, Boyers, PA 16017-0440.

n You can call OPM at 888-767-6738. Be sure to have your bank routing number and account number handy.

n You can visit www.GoDirect.org or call GoDirect at 800-333-1795.

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Behind the switch are a number of factors; saving money is a large one. misconceptions regarding what was required,” he says. “That was why the campaign was focused on why payment recipients should make the switch and how direct deposit works. Those without computers think they couldn’t get direct deposit. Truthfully, you don’t need a computer. You are just replacing paper deposits to a home with electronic deposits to a bank account, and that doesn’t require a computer.” Benson notes that employees transitioning between banks or residential locations, or simply forgetting, given life changes, are other leading reasons for failing to sign up. The Treasury Department grants some waivers from the requirement that benefits recipients go paperless. Benson notes that citizens born on or before May 1, 1921, who would now be at least 92 years old, can automatically receive an exemption from the requirement upon request based on age. Others requesting a waiver who would receive consideration to continue receiving paper checks are those who are geographically isolated without banking services or without access to stores that accept debit cards, those with mental impairments or others who would be negatively affected by the change to electronic deposits, Benson says. Through February 2013, 837 waivers were granted, Benson adds, though he expected the total to rise in March 2013, when the deadline took effect, and more people began to apply. A big part of the education effort is training on how to use Direct Express® in a manner that minimizes charges, Benson says. Direct Express® recipients should try to make cash withdrawals from ATM machines in the Comerica ATM syndicate, as Comerica ATMs allow one free withdrawal for every deposit and further withdrawals cost only

90 cents, in contrast to fees as high as $3 or $4 per withdrawal at other ATMs. Many receiving Direct Express® cards, who Benson says tend to be poorer and less technologically adept, may not be aware of the charges and may rack up charges quickly by making frequent withdrawals with the card, he notes. Benson adds that educational efforts seek to instruct employees to make fewer, larger withdrawals or, better yet, ask for cash back from purchases, which avoids the fee entirely. While such distinctions may appear trivial, Benson says that small habits can make a big financial difference for someone relying on their federal payment as a lifeline.

Where to Go With Problems

Another area of the education effort is where federal workers and retirees should go to address problems with electronic payments. Benson says that there are three points of contact that should be approached, in order, until the problem is resolved. The first is the paying agency or OPM, which Benson says recipients should approach first to make sure the payment was processed correctly. The second stop is the Treasury Department, which can verify whether the payment went out, and if the payment was received or the check cashed. The third stop is the recipient’s bank, to determine if the benefit was deposited into the wrong account. One question frequently asked is how electronic payment recipients can receive a receipt to confirm delivery of electronic payments. Direct Express® allows recipients to call an 800 number and also allows them to sign up for notification alerts, such as free text messages via cell phones or free emails to an email account. For those who have banking services, there are a variety of different ways, such as receiving emails when a deposit is registered. —David Tobenkin is a freelance writer in the Washington, DC, area. w w w. n a r f e . o r g

Tax Breaks for

Flux x u l F Flux are in

Where Do We Go From Here? 30

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Pension Income By Karen Smith Conway

The federal government and every state offer some kind of income tax break to their senior citizens. While these tax breaks also include extra deductions based on age and favorable tax treatment of Social Security benefits, the potentially largest and, until recently, fastest growing tax breaks are exemptions for pension income. The federal government has always taxed pension income, but states offer a wide variety of exemptions. Some states, such as Illinois, Pennsylvania and Mississippi, levy no income tax at all on pension income, regardless of the household’s income level. Other states limit the amount or type of pension income that is exempt, sometimes phasing out the tax break for high-income households. What all of the states have had in common is that these tax breaks have typically moved primarily in one direction – upwards. However, a series of events beginning in 2011 makes it appear that the times may be changing. Michigan and Georgia have decreased their tax breaks substantially; and Illinois, Hawaii and Kentucky have debated or are currently debating doing so. To predict what may lie ahead for these tax breaks, it helps to first understand how these policies began and have evolved. It also helps to understand the important role that public pensions – both state and federal – have played in these developments.

History Lessons

Most state income tax systems began in the early 1930s, during a time when pensions were a rarity, and Social Security had not yet

been enacted. The very first pension exemptions seem to have arisen as an oversight; legislators simply didn’t consider pension income when drafting their tax laws. This oversight even extended to the U.S. government. When Social Security was first enacted in 1935, the law was silent on whether those benefits were taxable. It wasn’t until 1941 that the Internal Revenue Service ruled that Social Security benefits were not subject to federal income tax. The states mostly followed suit. When it came to private pension income, however, very few states offered any exemption until the mid-1970s. In contrast, public pensions, especially those for state employees, were treated favorably in nearly all states. In some cases, such pensions were created as tax-exempt by law or specified as such in the state constitution. One rationale for this treatment is that the state could pay a lower pension if it remained free of state taxes. These exemptions for public pensions, along with a host of other factors, influenced the development of exemptions for private pensions. In the late 1960s and early 1970s, a small wave of states without income tax systems began adopting them, including Illinois, Pennsylvania and Ohio. Illinois and Pennsylvania ended up exempting all pension income w w w. n a r f e . o r g

Tax Breaks for Pension

as an expedient way of dealing with legal and administrative challenges to their new income taxes. Ohio completely exempted only state pension income and offered a limited exemption for private pensions. These events seem to have sparked the beginning of widespread private pension exemptions. Within a few years, several states, including Michigan, Utah, Colorado and West Virginia, enacted exemptions for private pensions, often with the apparent goal of achieving some parity with public pensions. This process continued, and, by 1985, half of the states had granted some exemption for private pension income. During this time, the treatment of federal pensions varied by state; they were treated equally with state pensions in some states

Pension tax exemptions increased to help recruit retirees to locate in states. and less favorably in others. All that changed with a 1989 U.S. Supreme Court ruling that tax exemptions for state and local government pensions must extend to federal pensions. (See story, p. 33, on NARFE’s involvement in that landmark decision.) To satisfy this ruling, some states increased the exemptions for federal pensions to match those of state pensions, while others reduced their exemptions for state public pensions instead. Two other developments at the federal level led to a reduction in tax breaks for seniors in some states as well. The first was a 1983 law that began taxing up to 50 percent of Social Security benefits of high-income households. A 1993 law further expanded that portion to 85 percent for the highest income households. The second was the Tax Reform Act of 1986, which reduced the extra exemption for those age 65 and over. While only about a dozen states followed the federal government in tax32

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Income are in flux

ing the Social Security benefits of high-income households, the states overwhelmingly followed the federal government in reducing exemptions for senior citizens. Meanwhile, the exemptions for private pensions continued to grow, both in their size and in the number of states that granted them. Michigan, Kentucky and Georgia were particularly generous in their expansion of these exemptions. Michigan increased its $5,000 per person exemption during 1974-94 to $30,000 in 1995; it was $45,120 in 2010. Similarly, Kentucky’s $6,250 exemption in 1995 had grown to $41,110 by 2010. Georgia was perhaps the most aggressive. After years of steadily and substantially increasing its exemption for retirement income, which includes many kinds of income in addition to pensions, in 2010 Georgia voted to increase its $35,000 exemption each year such that, by 2016, all retirement income would be exempt. Why did the states increase these pension exemptions? The rationale most commonly given was that these tax breaks would help recruit retirees to locate in the state or, conversely, a failure to offer seniors a tax break would drive them away to lower cost, lower tax states. The implication, sometimes stated explicitly, was that retirees were an economic boon for the state, bringing in more economic stimulus than they would bring in costs. In the words of Georgia Gov. Sonny Perdue in 2007, promoting a law that would eliminate all taxes on retirement income: “This tax cut … will help attract retirees to our state and make our economy even stronger.” However, somewhere along the way, that thinking seems to have begun to change.

Is the Tide Turning?

Interestingly, it is these same three states – Michigan, Georgia and Kentucky – that now appear to be leading the change in the long trend of expanded tax breaks for private pensions. In May 2011, Michigan enacted sweeping reductions in a wide range of tax breaks for seniors, including the exemption for public pensions. The constitutionality of that provision was challenged but ultimately upheld by

Three states appear to be leading the change to reduce tax breaks. the Michigan Supreme Court in September 2011. These reductions, while widespread and substantial, were phased in over time so those who were over age 65 were unaffected. However, slightly younger taxpayers, especially those currently age 60 or younger, are strongly affected. Two states that exempt all pension income – Illinois and Hawaii – also debated increasing their taxes on pension income in 2011, but no change in tax policy took place. In March 2012, it was Georgia’s turn. Rather than actually reducing the exemption for retirement income, Georgia chose to freeze the exemption at its current 2012 level of $65,000. The exemption would otherwise

have increased to $100,000 this year and $150,000 next year. Somewhat surprisingly, in both Michigan and Georgia, these provisions were part of larger bills that granted several new tax breaks to other groups of taxpayers, especially businesses, and were projected to cause a loss of revenue on balance. In other words, these tax increases on pension income were being used to offset even larger decreases for other groups. Both were promoted as tax bills that would help the business environment and improve the economy – but not as a way of increasing tax revenues. Kentucky’s situation appears somewhat different and is, to date, unresolved. In February 2012, Gov. Steven L. Beshear formed the Governor’s Blue Ribbon Commission on Tax Reform to perform an extensive review of Kentucky’s tax code. According to the Commission’s website, its five goals are fairness, competitiveness, simplicity and compliance, elasticity (meaning that state revenues should

NARFE Played Role in U.S. Supreme Court Pension Case The landmark 1989 U.S. Supreme Court case that held that states may not tax federal pensions if they exempt state and local government pensions from taxation was filed by a NARFE member, Paul S. Davis of East Lansing, MI, a retired federal lawyer. According to narfe magazine archives, after paying state income tax on his annuity from 1979 to 1984, Davis filed suit in the Michigan Court of Claims, alleging discrimination in the treatment of retirement benefits. He lost in that court as well as in the Michigan Court of Appeals, so he took the case to the U.S. Supreme Court. He argued the case himself before the high court. On March 28, 1989, in an 8-1 decision, the Supreme Court ruled that states may not discriminate against retired federal workers by taxing their annuities if they exempt the pensions of state and local employees from such taxation. NARFE filed an amicus curiae brief in support of Davis’ case. In his column in the May 1989 issue of this magazine (which was known as Retirement Life at that time), NARFE National President H.T. Steve Morrissey wrote: “The amicus curiae is a legal means of supporting a pending case as a ‘friend of the court.’ But we are more than that. We are also a friend of Paul Davis, who happens to be a member of NARFE Chapter 289 in Lansing. This modest soft-spoken man who just wouldn’t quit when the lower courts ruled against him deserves our congratulations and our thanks.”

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Tax Breaks for Pension

follow changes in the economy) and adequacy (i.e., generate sufficient funds). The Commission issued many recommendations for all elements of the tax system. For personal income taxes, it recommended reducing marginal tax rates and enacting an earned income tax credit, a policy that mirrors the federal policy in helping low-income wage earners. More than offsetting the revenue losses from these two provisions was the recommendation to reduce the pension exemption from $41,110 to $30,000 and phase it out for high-income taxpayers. It also recommended capping the itemized deductions that all taxpayers could claim. The proposed reduction in pension exemptions is, therefore, part of a larger reform of the income tax, as well as the entire tax system. And, unlike the cases of Michigan and Georgia, it results in an overall increase in tax revenues. As of this writing,

The fairness of these tax breaks has begun to be questioned. many of these provisions are in a bill that was introduced in February and is currently pending in the Kentucky legislature. However, several other states have moved in the opposite direction since 2011, continuing the long-time trend of expanding these tax breaks. In the fall of 2011, Maine Gov. Paul R. LePage proposed eliminating income taxes on all pension income. He once again gave the usual rationale: “I believe that we need to take income tax off retired pensions … We keep the brain power in Maine, we keep whatever estate they have to their name – we keep that in Maine. We have them available to assist our business community. And a very important thing is, they don’t put a whole lot of burden on your public services.” Maine ended up modestly increasing its pension exemption from $6,000 to $10,000 in 2012. 34

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Income are in flux

Just this past February, at the same time that the Kentucky bill was introduced, four different bills were proposed in Nebraska that reduced the income taxes on retirement income to varying degrees. Media outlets there reported veterans’ groups telling lawmakers how taxes on military pensions are driving retirees out of the state. Exempting military pensions, in particular, from taxation also is currently being considered in two other state legislatures, Montana and Minnesota. Here again, proponents argue that such exemptions are needed to retain and recruit military retirees, and will be good for the economy.

What Does the Future Hold?

These developments all suggest a policy that is in flux. States that are pushing for additional tax breaks for pension income are leaning on the same arguments given in the past – that they are important to recruiting and retaining retirees, who are in turn good for the economy. However, questions are being raised about the wisdom of these tax breaks, suggesting that the tide may indeed be turning – or at least slowing. A small but growing body of research, including some of my own, suggests that such tax breaks actually have relatively little influence on location decisions – that a more temperate climate, a low cost of living and family ties are likely more important factors. The most credible studies investigate the effects of changes in policy over time, such as the recent “millionaire” tax in New Jersey or the changes in pension exemptions since the 1970s, summarized above. This approach enables researchers to separate the effects of tax policy from other state amenities, such as climate, cost of living and quality of life. (Low-tax states have historically been in the southern United States.) This research was cited in the Kentucky Tax Reform Commission’s report, and the same points were raised by lawmakers in Nebraska in response to the veterans’ testimony. This is not to say the Nebraska veterans are necessarily wrong; in fact, some research suggests that veterans are among the groups most likely to move for taxes and other

Nebraska, Minnesota and Montana – are among the least generous. Thus, rather than an overall reduction in pension exemptions, what we may be witnessing is a convergence to a middle ground. Even so, the growing size of the elderly population – and, thus, the revenue lost to these tax breaks – combined with the fiscal distress faced by many states seem likely to lead to additional scrutiny of these tax breaks. For example, Kentucky’s proposed reduction in the pension exemption is estimated to generate $485 million – without increasing the tax burden of middle- and lower-income seniors. The fact that many state pension systems also are in distress may lead the tax treatment of these pensions to be reconsidered. Rather than reduce pensions paid to state employees – which may be legally impossible – states may decide to begin subjecting them to the income tax instead. The ultimate fate of these pension exemptions is, therefore, hard to predict. However, the relative affluence and growing size of the elderly population, combined with fiscal realities, seem likely to keep this state policy in the spotlight – just as the same forces are leading to serious discussions about the insolvency and need for reform of federal entitlements such as Social Security and Medicare. And, if those federal entitlements are cut or increasingly become the responsibility of the states, the argument that retirees are an economic boon that “don’t put a whole lot of burden on your public services” could change as well. —Karen Smith Conway is a professor of economics at the University of New Hampshire.

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amenities, rather than for health and family reasons. Still, research shows that, historically, very few people over age 65 move across state lines in a year – typically less than 1 percent – which casts doubt on how much of an impact these tax policies could really have on economic development. The fairness of these tax breaks also has begun to be questioned, especially as the amount of pension income exempt from taxation has grown. It is telling that all five states that have either debated or enacted reductions in their pension exemptions – Hawaii, Illinois, Michigan, Georgia and Kentucky – are among those with the most generous policies. In these states, married couples with pension incomes of $80,000 or more pay little or no income tax – and their Social Security benefits are exempt as well. Policy advocates and even some elderly taxpayers themselves point out that tax breaks for such high-income seniors are difficult to justify. More generally, the poverty rate for seniors is now less than that of the general population, and so they appear a less needy group. In fact, since the very inception of age-specific tax breaks, economists have questioned their justification, arguing that age alone is not a good measure of enhanced need or diminished financial resources, and that other policies (e.g., deductions for health care expenses, reduced tax rates for low-income groups in general) are more appropriate. Moreover, far lower pension exemptions would be sufficient to protect seniors of more modest means. It is also telling that the states debating or enacting expanded exemptions – Maine,

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Managing Money

Distribution rules vary for TSP, IRA

oth individual retirement accounts (IRAs) are funded with after-tax dollars but provide taxfree distributions, which can be a great tool for

retirement planning. They also can be used to transfer wealth to future generations. Until recently, options for funding Roth accounts were limited to relatively small annual Roth IRA contribution limits or Roth IRA conversions from traditional IRAs and retirement plans. But beginning in 2012, the Thrift Savings Plan (TSP) began offering the Roth TSP, providing federal employees with another option for funding Roth accounts.

While the Roth TSP has many advantages over Roth IRAs – such as no income phase-out limits and higher contributions limits – it’s important to understand how the TSP distribution options and the Internal Revenue Service’s (IRS’s) required minimum distribution (RMD) rules apply to the Roth TSP to ensure you’re maximizing your retirement savings vehicles. In some cases, you may find you’re better off financially if, after you separate from service, you transfer your TSP account to an IRA that provides you with greater control over your distributions. For example, from age 59-½ to age 70-½, the IRS provides IRA owners with complete control over the amount and timing of distributions without incurring any penalties and, 38

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in the case of Roth IRAs, any taxes (assuming the five-year rule has been met). Only after age 70-½ must traditional IRA owners begin taking minimum distributions. This same RMD applies to the TSP if the participant no longer works for the federal government. Roth IRA owners have the added benefit of not being subject to RMDs. On the other hand, the TSP’s distribution rules are a bit more restrictive, and can make it difficult to take advantage of having both traditional TSP and Roth TSP balances. For example, TSP distribution rules limit participants to a one-time partial distribution (subject to certain requirements), or one of the following full distribution options: single payment; monthly payments

By Mark A. Keen,

CFP®

(in an amount the participant chooses or based on life expectancy); a life annuity purchased through an annuity vendor; and any combination of the previous three options. While these distribution options may satisfy the needs of many – particularly when a participant has only a traditional TSP balance – the real issue is when a participant has both a traditional balance and a Roth balance. When a participant takes any distribution from the TSP, the participant has no control over which balance the distribution comes from – any distribution will be taken proportionately from both the traditional TSP balance and the Roth TSP balance. This rule not only makes it difficult to take distributions strategically from traditional and Roth balances, it also throws a curveball to those who want to preserve their Roth accounts and pass them on as a tax-free asset to future generations. Furthermore, unlike Roth IRAs, Roth TSP balances are subject to RMDs beginning when the participant turns age 70-½ (assuming the participant has retired). This is not unique to the TSP; it’s also true for Roth 401(k) accounts and other Roth accounts within employer-sponsored plans.

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Managing Money

For those retirees who wish to have more control over their retirement savings, the solution is relatively easy, as both the traditional TSP and Roth TSP balances may be transferred to an appropriate type of IRA. Getting Roth TSP balances into a Roth IRA will put the control over distributions back into the hands of the retiree. Unfortunately, because all distributions come proportionately from both the traditional TSP and Roth TSP balances, you must transfer out both balances. If a retiree won’t be taking withdrawals from his or her TSP account, the money can be left in the TSP account without any issues until RMDs must start at age 70-½. At that time, a TSP participant likely would be better off financially if he or she transfers the traditional TSP balance to either a traditional or Roth IRA and the Roth TSP balance to a Roth IRA. The retiree would still have to take RMDs from the traditional IRA, but he or she wouldn’t be required to take RMDs from the Roth

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IRA, and could let it grow untouched and tax-free. The Roth TSP can be a great tool for federal employees, but you’ll need to understand the rules to take full advantage of it. Mark A. Keen, CFP®, is partner, Keen & Pocock, 10300 Eaton place, Fairfax, VA, and an investment adviser representative and registered principal of The Strategic Financial Alliance, Inc. (SFA). Securities and advisory services are offered through SFA. Email: mkeen@keenpocock.com.

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The Informed Citizen

Looking AHEAD to 35 Senate Races

ection 3 of Article I of the Constitution provides for staggered elections to the Senate “so that one third may be chosen every second year.” The 34 states that will be conducting 35 Senate elections in 2014 are listed below to incite special NARFE outreach and federation forums. Also shown are the percentage of the vote the incumbents garnered in 2008, the date they first were elected to the Senate and campaign cash on hand (COH) at the end of March 2013. Appointed Senators While House vacancies can only be filled by election, Senate vacancies can be filled by appointment, subject to state law. Federation officers should use the summer congressional recess, early August through Labor Day, for visits to senators’ state offices. Also, it is not too early to invite Senate candidates to speak and take questions at 2014 federation conventions. Conventions gather

STATE

SENATOR-PARTY

NARFE’s most active members and provide the best forum to have statewide incumbents and their challengers address NARFE’s legislative agenda. The Senate website, www. senate.gov, provides a gateway to all senators. Using that website, you can contact any of the “2014” senators via a web form to send an electronic message, subscribe to their eNewsletter or ask to schedule a meeting.

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Congressional Directory One of the many useful features of NARFE’s newly published Congressional Directory for the 113th Congress: 2013-2014 is the listing on page 10 of senators by their next election cycle. The senators seeking your vote sooner than others should be more attentive to our concerns. To purchase the new Congressional Directory, use the order form on page 10.

Look at Your Label – Again! Because of printer error, the congressional district for each member did not appear on the magazine label as promised in the May column. It appears beginning this month. Let us know if the district is incorrect.

SENATORS WHOSE TERMS EXPIRE IN 2014 ’08 VOTE 1st WIN COH (millions) STATE SENATOR-PARTY

AL Jeff Sessions-R 63% ’96 AK Mark Begich-D 48% ’08 AR Mark Pryor-D 80% ’02 CO Mark Udall-D 53% ’08 DE Chris Coons-D 57% ’10 GA Saxby Chambliss*-R 57% ’02 HI Brian Schatz-D Appointed 2012 ID Jim Risch-R 58% ’08 IL Richard J. Durbin-D 68% ’96 IA Tom Harkin*-D 63% ’84 KS Pat Roberts-R 60% ’96 KY Mitch McConnell-R 53% ’84 LA Mary L. Landrieu-D 52% ’96 ME Susan Collins-R 61% ’96 MA William Cowan*-D Appointed 2013 MI Carl Levin*-D 63% ’78 MN Al Franken-D 42% ’08 MS Thad Cochran-R 61% ’78 42

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Your continued support is needed

he Alzheimer’s Association recently issued its 2013 Alzheimer’s Disease Facts and Figures report, noting that Alzheimer’s disease is the sixth leading cause of death in

the United States. The report also stated that, while deaths from diseases such as heart disease, HIV/AIDS and stroke continue to decline significantly, Alzheimer’s deaths continue to rise. From 2000 to 2010, deaths from Alzheimer’s increased 68 percent. “Unfortunately, today, there are no Alzheimer’s survivors,” said Harry Johns, president and CEO of the Alzheimer’s Association. “Now we know that one in three seniors dies with Alzheimer’s disease or another dementia.” An estimated 5.2 million Americans of all ages currently have Alzheimer’s disease. The Alzheimer’s Association predicts that, without the development of medical breakthroughs that prevent, slow or stop the disease, the number could reach 13 million by 2050. While this news is certainly disheartening, efforts continue unabated on the research front. For example, in April, Johns participated in a White House event on the Obama administration’s BRAIN (Brain Research through Advancing Innovative Neurotechnologies) Initiative. This major research effort is designed to map brain activity, which is important in advancing the understanding of diseases such as Alzheimer’s. The Alzheimer’s Associa-

| j u n

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tion continues to work with the administration on the National Alzheimer’s Plan. I encourage all NARFE members to continue to do their part in funding research vital to finding a cure for this devastating disease. NARFE met its $10 million fundraising goal in November 2012. We are now working toward a total of $11 million by the end of 2014. Below are some fundraising suggestions from NARFE chapters. ● Hold 50/50 raffle drawings – an easy way to raise funds and a favorite with chapters; ● Ask members to donate pennies or loose change collected since the last chapter meeting; ● Hold an auction with items donated by chapter members; ● Hold a fashion show; ● Ask members to donate in the amount of their age during their birthday month; ● Sell donated books for a small fee (when members finish reading the books, they donate them back to the chapter to be resold to other members); ● Notify funeral homes or cha-

By Jane rodgers NARFE-alzheimer’s Chair

pels in your chapter area about donating to Alzheimer’s research (some families ask what charities are available for memorials to their loved ones); ● Conduct a member challenge in which one member challenges other members for donations over a specified period of time, then the member who issued the challenge matches the total amount in donations raised by the other members; ● Hold bake sales – a popular way to raise funds at chapter meetings (a newer angle is the “bakeless” sale, where members tally what they would spend on baking a cake, pie or cookies, and then donate that amount); ● Contact a local florist just before Valentine’s Day and offer to deliver flowers on this busiest day of floral giving. Members are paid for delivering the flowers, and they then donate their pay. If you are a NARFE member, and you do not attend chapter meetings, please donate to the NARFE-Alzheimer’s Research Fund by using the coupon on p. 47 or going to the Alzheimer’s Association website, which features a secure link to the NARFE page, at www.alz.org/narfe. When all of the donations across the country are added up, the result is a huge success for Alzheimer’s research. Jane Rodgers is chair of the NARFE-Alzheimer’s National Committee. email: ajrodgers@tds.net.

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2012

2013

2012

For the Record

Thrift Savings Plan Monthly Returns G FUND

F FUND

C FUND

S FUND

I FUND

MAY

0.14%

0.91%

(5.99%)

(6.91%)

(11.40%)

JUNE

0.11%

0.05%

4.13%

3.25%

7.08%

JULY

0.12%

1.38%

1.40%

(0.62%)

0.56%

AUGUST

0.11%

0.07%

2.25%

3.57%

3.29%

SEPTEMBER

0.10%

0.15%

2.57%

2.51%

2.96%

OCTOBER

0.12%

0.20%

(1.86%)

(1.31%)

0.85%

All of the TSP Funds showed positive returns in April for the second month in a row, with the I Fund being the standout, up more than 5 percent. The C and S Funds have now risen six months in a row; and the C, S and I Funds have increased in value in 10 of the last 11 months. In that time frame, the C Fund is up 24 percent, the S Fund is up 28 percent and the I Fund is up 35 percent.

NOVEMBER

0.11%

0.16%

0.57%

1.53%

2.41%

—by TRACEY RAY, chief investment officer of the Thrift Savings Plan

DECEMBER

0.12%

(0.13%)

0.91%

2.69%

4.02%

JANUARY

0.13%

(0.56%)

5.18%

6.96%

4.45%

FEBRUARY

0.13%

0.51%

1.36%

1.00%

(0.99%)

March

0.13%

0.07%

3.75%

4.69%

0.88%

APRIL

0.12%

1.02%

1.93%

0.65%

5.32%

YTD

0.50%

1.03%

12.74%

13.82%

9.88%

LAST 12 MO

1.43%

3.88%

16.90%

18.76%

19.75%

L INCOME

L 2020

L 2030

L 2040

L 2050

Countdown to COLA

he Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 0.3 percent in March. To calculate the amount of the 2014 cost-of-living adjustment (COLA), the indices of July, August and September 2013 will be averaged and compared with the 2012 third-quarter average of 226.936. That percentage increase, if any, determines the COLA. The March index of 229.323 is up 1.05 percent from the base. Benefits awarded under the Federal Employees’ Compensation Act (FECA) to individuals suffering work-related injuries or illnesses are adjusted according to each calendar year’s percentage change in the CPI-W. March’s index is 1.52 percent higher than the December 2012 base index of 225.889.

MAY

(1.38%)

(4.20%)

(5.23%)

(6.00%)

(6.85%)

JUNE

1.04%

2.72%

3.32%

3.77%

4.27%

JULY

0.37%

0.63%

0.71%

0.75%

0.78%

AUGUST

0.63%

1.57%

1.94%

2.23%

2.51%

SEPTEMBER

0.62%

1.52%

1.87%

2.12%

2.38%

(0.11%)

(0.45%)

(0.60%)

(0.71%)

(0.80%)

NOVEMBER

0.34%

0.77%

0.93%

1.06%

1.19%

DECEMBER

O.47%

1.19%

1.48%

1.69%

1.93%

JANUARY

1.10%

2.83%

3.56%

4.11%

4.63%

FEBRUARY

0.27%

0.41%

0.49%

0.54%

0.56%

MARCH

0.73%

1.69%

2.12%

2.44%

2.71%

APRIL

0.67%

1.58%

1.91%

2.13%

2.41%

YTD

2.80%

6.65%

8.30%

9.52%

10.68%

October 2012

227.974

-0.1

0.45

LAST 12 MO

4.84%

10.56%

12.91%

14.65%

16.34%

November

226.595

-0.6

-0.15

OCTOBER

2013

I fund leads gains in April; all funds advance again

THIS CHART is provided as a service to NARFE members who enrolled in the Thrift Savings Plan while employed by the federal government. Retirees are not eligible for enrollment. These returns are net of the effect of accrued administrative expenses and investment expenses/costs. Percentages on () are negative. Source: tsp.gov.

The CPI represents purchases of food and beverages, housing, apparel, transportation, medical care, recreation, education and communication, and other goods and services. Included are various government fees, such as water charges, auto registration fees, and sales and excise taxes. Month

| J U N

2 013

Monthly % Change

% Change from 226.936

December

225.889

-0.3

-0.46

January 2013

226.520

+0.3

-0.18

February

228.677

+1.0

+0.77

March

229.323

+0.3

+1.05

April G Fund: Government securities (specially issued to the TSP) F Fund: Government, corporate and mortgage-backed bonds C Fund: Stocks of large- and medium-size U.S. companies S Fund: Stocks of small- to medium-size U.S. companies (not included in the C Fund) I Fund: International stocks of 21 developed countries L Fund: Invested in the G, F, C, S and I Funds (The proportion of L Fund balance invested in each of the individual TSP funds depends on the L Fund chosen.)

CPI-W

May June July August September

Donate to NARFE Programs Support Alzheimer’s Research

Your charitable contribution is tax-deductible to the fullest extent allowed by law.

Write your chapter number on check; make it payable to: NARFE-Alzheimer’s Research

Enclosed is my NARFE-Alzheimer’s contribution: $ Every cent that is contributed is used for research. Please circle: Mr. Mrs. Miss Ms. and mail to: Name: Alzheimer’s Association Address: 225 N. Michigan Ave., 17th Floor City: State: ZIP: Chicago, IL 60601-7633 Chapter Number: Credit Card Information: MasterCard Visa NARFE members contributed for If you have any questions, write to: Discover AMEX Alzheimer’s research: $11 Million Fund National Committee Chair Card Number: Jane Rodgers, P.O. Box 234 Expiration Date: (mm)/ (yy) Wadesville, IN 47638-0234 *Total as of March 31, 2013 3-Digit Security Code: 100% of all contributed funds go to Name: (please print) Email: ajrodgers@tds.net

$10,255,840* Alzheimer’s research.

Signature

Join the Silver CIrcle Clip this contribution form and mail to: NARFE Silver Circle, 606 N. Washington St. Alexandria, VA 22314

•For a contribution of $25 or more, you will receive a Silver Circle pin, and your name will be listed in narfe magazine with other contributors. •For a contribution of $1,000 or more, your name will be placed on the “Wall of Fame” at NARFE Headquarters.

YOUR CHARITABLE CONTRIBUTION IS TAX-DEDUCTIBLE TO THE FULLEST EXTENT ALLOWED BY LAW.

Enclosed is my Silver Circle contribution: $ ID # (ID # may be found on your narfe magazine label or your NARFE membership card)

Name: Address: City: Silver Circle contributions are NOT deductible for federal income tax purposes.

Installment Plan Wall of Fame 12-month installment plan

Give to the Scholarship and Disaster Funds

Please mail coupon and check to: FEEA 3333 S. Wadsworth Blvd., Suite 300 Lakewood, CO 80227

All donations go to the NARFE General Fund to support NARFE programs and operations.

State:

ZIP:

My check is enclosed

(Please make check payable to NARFE Silver Circle.)

Please charge my credit card Card type MasterCard Visa Discover AMEX Card Number: Expiration Date: (mm)/ (yy) Name: (please print)

Signature

Make check payable to: NARFE-FEEA Disaster Fund or NARFE-FEEA Scholarship Fund.

Date

YES!

Date

I would like to help with my contribution.

Please check appropriate box(es). To make credit-card contributions, call 800-338-0755. Scholarships are available to children, grandchildren and great-grandchildren of federal civilian retirees and current federal employees who are NARFE members. NARFE-FEEA Disaster Fund

Amount: $

NARFE-FEEA Scholarship Fund

Amount: $

Name: Address: City:

State:

ZIP:

NARFE News

Notice of NARFE annual Meeting

Service Officer of the Year

aren Crews, above, service officer for Chapter 270 in AuburnOpelika, AL, has been named NARFE National Service Officer of the Year. Crews also was chosen as the Region III Service Officer of the Year. The Service Officer Awards program recognizes exceptional NARFE service officers. Crews has been a NARFE member for seven years. She also serves as chapter secretary as well as legislative liaison for District 3A of the Alabama Federation. Service officers are nominated by chapter presidents; winners are chosen at NARFE Headquarters. Other regional winners are:

Region I: Robert Godin, Chapter 1872, Waterville, ME Region II: Robert Fidler, Chapter 458, Lebanon Valley, PA Region IV: William Michels, Chapter 371, Eau Claire, WI Region V: Richard Wood, Chapter 551, Ames, IA Region VI: Charles Dechert, Chapter 778, Boerne, TX Region VII: James Kielty, Chapter 182, Las Cruces, NM Region VIII: Layna Kinsman, Chapter 1529, Fairfield-Suisun, CA Region IX: Garlene Dennington, Chapter 1779, Anchorage, AK Region X: Beulah Latta, Chapter 566, Durham, NC.

Silver circle Donors Update

necticut: Janina B. Nawarskas, 0350; Frances L. Vaclavik, 1949. Delaware: Bernadette Aley, 0085. District of Columbia: Gordon B. Joiner, 2058; eNARFE: Andrelia R. Muse, 2363. Georgia: Jan D. Satterfield, 1033. Illinois: Alan R. Ekberg, 0415. Indiana: Fredric M. Hefter, 0223; Karen Whorrall, 0578. Iowa: Daniel J. Voss, 0133. Kansas: Walter Aucott, 0378. Maine: Claire R. Breton, 1804; Roland A. Metayer, 1804. Maryland: Phyllis G. McGowan, 0264; Armond Darrin, 1747; William T. Price, 2166. Massachusetts: Mary B. Ford, 0479; Robert P. Lyons, 0807; Robert Kane, 1491. Michigan: Mary M. Lee, 1515;

As of April 15, NARFEâ&#x20AC;&#x2122;s Silver Circle donation program stands at $122,695. The program gives members a vehicle to donate to the Association beyond the norm. Donors from January 16-April 15, with their chapter numbers, are listed. Alabama: Tommie B. Hollingsworth, 1957. Arizona: Warren J. Fitzgerald, 1395. California: Roy J. Bailey, 0004; Louis J. Jurus, 0004; Zeno J. Meyer, 1245. Colorado: Thomas R. Reynolds, 0355; Lloyd W. Cargill, 2339. Con-

| J U N

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NARFE will hold its annual meeting from 8 a.m.-noon, July 11, 2013, at the Rosen Centre Hotel in Orlando, FL. No votes or regular business will be conducted at the meeting, held to comply with District of Columbia statutes and NARFE Bylaws. The meeting will consist of a statement by NARFE National President Joseph A. Beaudoin and a financial statement by National Treasurer Richard G. Thissen. All members are invited to attend. The statements will be available after the meeting on the NARFE website, www.narfe.org. The annual meeting will be held in conjunction with meetings of the NARFE National Executive Board and the NARFE Federation Presidents at the same location.

For chapter photos, see our Out and About Photo Gallery at www.narfe.org/narfemagazine.

Juanita McKeever, 1532. Minnesota: Clayton H. Olson, 0150. Mississippi: Ralph A. Boykin, 0209. Montana: James L. Alcorn, 0459. Nebraska: Lawrence D. Obrist, 0199. New Hampshire: Anthony Storace, 1540; Raymond R. Doucet, 1693. New York: Robert D. Goldman, 1203. Ohio: Mary Jo Valdes, 0226. Pennsylvania: Robert Dolceamore, 1384. Tennessee: Billy Grantham, 0727; Mildred H. Murphy, 2133. Texas: Helen Osborne, 0228; John Kevin McGinnis, 0272; Lucile J. Bridges, 0607. Virginia: M. Margaret Boyce, 0180; V. Milton Boyce, 0180. West Virginia: Juanita Zachwieja, 1584. Wisconsin: Kenneth L. Smith, 0094.

Active and Retired Federal Employees ...

JOIN NARFE TODAY!

National Active and Retired Federal Employees Association The only organization dedicated solely to protecting and preserving the benefits of all federal workers and retirees, NARFE informs you of any developments and proposals that affect your compensation, retirement and health benefits, AND provides clear answers to your benefit questions.

Who Should Join?

Three Easy Ways To Join 1. 2. 3.

N A R F E M E M B E R S H I P A P P L I C AT I O N n YES. I want to join NARFE. n Mr. n Mrs. n Miss n Ms. Full Name ________________________________________ Street Address ____________________________________ Apt./Unit ________________________________________

I am a (check all that apply) n n n n n

Active Federal Employee Active Federal Employee Spouse Annuitant Annuitant Spouse Survivor Annuitant

n Please enroll my spouse

City _______________________ State _____ zIP ________

Spouse’s Full Name ________________________________

Phone (__________) _______________________________

Spouse’s Email ____________________________________

Email____________________________________________

NARFE respects the privacy of our members. Personal information is used to provide content and relevant communications to our members, and will not be sold or rented to third parties without your express permission.

Choose Your Membership Type o Local Chapter Close-to-Home Membership — $45 Aﬃliation with the NARFE chapter closest to your home. Receive narfe magazine each month; attend meetings, often with invited speakers; network; and get involved in grassroots lobbying eﬀorts. $45 first-year dues X __________ = __________ Per Person # Enrolling Total Dues

PAYMENT OPTIONS n Check, Money Order or Bill Pay (Payable to NARFE) n Bill me (NARFE membership will start when payment is received.) n Charge my: n MasterCard n VISA n Discover n American Express Card No. _____________________________________

(First-year dues include national and chapter dues.)

Expiration Date _________ /_________

Chapter Aﬃliation (if known, otherwise enroll me in the chapter closest to my zIP code). Chapter #___ ___ ___ ___

Name on Card _________________________________

Signature _____________________________________

o eNARFE Chapter Online Membership — $40

Date _________________________________________

NARFE’s electronic chapter. Receive narfe magazine by mail each month, and all other communications by email and on eNARFE.org. Get important updates and legislative action alerts, and have access to the eNARFE blog. $40 first-year dues X __________ = __________ Per Person # Enrolling Total Dues

yyyy

MAY WE THANK SOMEONE? If applicable, please provide the name, membership and chapter number of the member who introduced you to NARFE: Recruiter’s Name __________________________________ Recruiter’s Membership ID __________________________ Recruiter’s Chapter Number _________________________

MAIL THIS APPLICATION TO NARFE Member Records / 606 N. Washington St. / Alexandria, VA 22314-1914

NARFE’s Dues Withholding Program What is dues withholding? It is a dues-payment method that gives NARFE members (retirees) the option of having their annual NARFE membership dues deducted from their annuities on a monthly basis. How does it work? One-twelfth of your total dues is automatically deducted from your monthly annuity. Your monthly deduction is determined by the following formula: (National dues ÷ 12) + (Chapter dues ÷ 12) = Total Monthly Deduction

Advantages • Save 15% off your annual membership dues! • Sign up your spouse and double your savings! • You’ll never get another dues reminder from us! • Your monthly payment is affordable and convenient! • You may cancel your dues at any time! Application process It takes 60-90 days to process your application. Once the process is complete, you will receive a special membership card distinguishing you as a NARFE dues-withholding member.

To learn more about dues withholding, call 800-627-3394. Retirees, spouses of retirees and annuitant survivors are eligible for dues withholding.

NARFE Dues Withholding Application for Retirees ■ YES. I want to enroll in NARFE’s Dues Withholding Program (Annual dues of $34 plus Chapter dues of record to be withheld annually.) Social Security Number (9-digit number)

–

Civil Service Annuity Number

–

C S

–

(Include prefix, CSA or CSF) (Include any applicable suffix)

■ Mr. ■ Mrs. ■ Miss ■ Ms. Full Name _______________________________________

NARFE MEMBERSHIP INFORMATION

Street Address ___________________________________

NARFE Membership ID ____________________________________

Apt./Unit________________________________________ City _________________________ State _____ ZIP _____ Phone (__________) ______________________________ Email ___________________________________________ Date of Birth _________ /_________ / ____________________ dd

yyyy

NARFE Chapter Number____________________________________

■ YES. I Also Authorize My (NARFE Member) Spouse’s Dues To Be Withheld From My Annuity. (Additional annual dues of $34 plus Chapter dues of record to be withheld annually.) If YES, enter spouse’s information below. Spouse’s Name ___________________________________________ Spouse’s Membership ID ___________________________________

AUTHORIZATION (Withholding will begin in 60-90 days). No payment should be forwarded with application. I authorize the United States Office of Personnel Management to make appropriate deductions from my annuity payments, not to exceed the amount certified by the National Active and Retired Federal Employees Association as the amount of dues for which I am annually obligated, in accordance with elections I make below, and to pay the deducted sum to the National Active and Retired Federal Employees Association (NARFE). This authorization shall also apply to any and all dues changes certified by NARFE membership in accordance with elections I make below: Please allow 60-90 days for processing. I understand that this authorization shall be valid until NARFE receives and processes my written notice of cancellation in accordance with its agreement with the Office of Personnel Management and that any disputes regarding this authorization shall be a matter between NARFE and myself. I hold the Office of Personnel Management harmless for any erroneous allotment deduction made pursuant to this authorization. ___________________________________________________________________________ _______________________________

Signature of Annuitant or Survivor-Annuitant

Date

Dues payments and gifts or contributions to NARFE are not deductible as charitable contributions for federal income tax purposes. MAIL THIS FORM TO: NARFE, ATTN: Member Records, 606 N. Washington St., Alexandria, VA 22314-1914 www.narfe.org 800-627-3394 rr@narfe.org Do not send money with this form

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The Captioning Telephone is intended for use by people with hearing loss. In purchasing a Captioning Telephone, you acknowledge that it will be used by someone who cannot hear well over a traditional phone.

Join other NARFE Members on a YMT Vacation!

Best of Ireland Tour 12 Days

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Departs: September 19, 2013 Enjoy spectacular scenery and discover some of Ireland’s most intriguing cities. Start in historic Dublin with a city tour including the Bank of Ireland and St. Patrick’s Cathedral (the largest church in Ireland). Travel to Cork, stopping at the Rock of Cashel and Cobh along the way. Then visit Blarney Castle, and perhaps kiss “The Blarney Stone; Woollen Mill and Muckross House & Gardens en route to Killarney. Drive the “Ring of Kerry” offering stunning scenery, tour Bunratty Castle & Folk Park, built in 1425. Visit the Cliffs of Moher, Galway, the Connemara region, Kylemore Abbey and the Bundoran area. Enjoy a guided tour of Belleek Pottery, visit Ulster American Folk Park, & explore “The Giant’s Causeway.” Finally take a sightseeing tour of Belfast that includes the impressive Parliament buildings plus you will visit the newly opened “Titanic Belfast.” Tour includes 16 meals. * Price per person, based on double occupancy. Plus $199 tax/service/government fees. Alternate departure dates available in 2013. Seasonal rates may apply. Airfare is extra.

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Special Section

National Active and Retired Federal Employees Association

Consolidated Financial Statements for the Year Ended December 31, 2012

REPORT OF THE NATIONAL TREASURER As required by the NARFE National Bylaws, I am very proud to present the results of the external audit of the Association’s financial condition for the calendar year ended December 31, 2012. The consolidated statement of activities shows an increase in net assets from operations of $131,458, compared to decreases of $650,738 and $1,287,088 in 2011 and 2010, respectively. (The auditors indicated in their business advisory letter that this is the first time that NARFE has generated an operating surplus in more than 10 years.) Overall, including investment income, total net assets increased by $659,456; this compares to decreases in net assets of $678,235 and $764,478 in 2011 and 2010, respectively. The consolidated statement of cash flows shows an increase of $438,683 in net cash provided by operating activities compared with decreases in 2011 and 2010. Overall in 2012, there was a net increase in cash and cash equivalents of $470,570 compared to net decreases in 2011 and 2010. The data provided in the previous two paragraphs reflect the effectiveness of our cost-saving measures and the full impact of the dues increase implemented in 2011. It also reflects our use of a new supplier for notepads, cards and calendars, which provided materials at a much lower cost, giving us a larger net return. This outstanding audit was a team effort by the National Officers, the National Executive Board, the NARFE staff and all members. Specifically, I want to thank NARFE members for their loyalty and willingness to contribute so generously to our fundraising efforts. I especially want to commend and thank the Treasurer’s staff for their dedication and professionalism, and for the great effort they put forth every day.

Richard G. Thissen, National Treasurer

REPORT OF THE NATIONAL EXECUTIVE BOARD AUDIT COMMITTEE The National Executive Board (NEB) Audit Committee met April 2 by teleconference with representatives of the audit firm Councilor, Buchanan & Mitchell to review the company’s audit of NARFE finances for the calendar year ending December 31, 2012. The NEB Audit Committee members participating were Regional Vice Presidents William F. Martin (Chair), Evelyn M. Kirby and Jerome S. Smith. Also participating were NARFE President Joseph A. Beaudoin; Vice President Paul H. Carew; Secretary Elaine C. Hughes; Treasurer Richard G. Thissen; Tayo Coker Polson, director of budget & finance; and Veronica Clemons, accounting supervisor. The audit firm’s representatives, John Mullins and Peter Reilly, provided a comprehensive review of the audit. They reported finding no weaknesses, and, as a result, they had no recommendations or findings, other than to say, in their business advisory letter, “During 2012, the Association generated an operating surplus (excluding the effect of investment gains/losses) of approximately $130,000 in 2012. This is the first year that the Association has generated an operating surplus in over 10 years.” They continued to say, “This year’s operating surplus was generated through a culmination of cost-containment initiatives and a dues increase implemented in 2011.” The NEB Audit Committee accepts the report. Based on the report’s findings, the Committee commends the members of the NARFE Treasurer’s Office for their excellent performance again this year.

William F. Martin, Chair

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Independent Auditors’ Report The Executive Board National Active and Retired Federal Employees Association Alexandria, Virginia We have audited the accompanying consolidated financial statements of National Active and Retired Federal Employees Association which comprise the consolidated statement of financial position as of December 31, 2012, and the related consolidated statements of activities and cash flows for the year then ended, and the related notes to the consolidated financial statements. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of National Active and Retired Federal Employees Association as of December 31, 2012, and the changes in its net assets and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Councilor Buchanan & Mitchell, P.C. Certified Public Accountants Bethesda, Maryland April 2, 2013

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National Active and Retired Federal Employees Association and Affiliate Consolidated Statement of Financial Position December 31, 2012 National Active and Retired Federal Employees Association and2010) Affiliate (With Comparative Totals for December 31, 2011 and

National Active and Retired Federal Employees Consolidated Statement ofAssociation Financial Position and Affiliate December2012 31, 2012 Consolidated Statement of(With Financial Position Comparative Totals for December 31, 2011 and 2010) Unrestricted December 31, 2012 (With Comparative TotalsTotal for December 31, 2011 and 2010) Board Temporarily 2012 2011 Operating

Designated

Unrestricted 2012

Unrestricted Board Designated

Assets

Restricted

Total

2010 Total

Total Temporarily 2012 2011 2010 Operating Unrestricted Restricted Total Total Total Current Assets Cash and Cash Equivalents $ 1,082,506 $ 285,829 $ 1,368,335 $ 371,324 $ 1,739,659 $ 1,269,089 $ 1,365,035 Assets Short-Term Investments 201,256 351,247 Accounts Receivable - Net 167,267 167,267 16,964 184,231 214,432 190,147 Current Assets 29,742 - * - * Interorganization Receivables 29,742 - * Cash and Cash Equivalents $ 1,082,506 $ 285,829 $ 1,368,335 $ 371,324 $ 1,739,659 $ 1,269,089 $ 1,365,035 Prepaid Expenses and Deposits 119,846 119,846 1,599 121,445 185,975 193,659 Short-Term Investments 201,256 351,247 Investments 2,248,979 2,644,111 4,893,090 4,893,090 4,650,365 4,770,604 Accounts Receivable - Net 167,267 167,267 16,964 184,231 214,432 190,147 29,742 - * - * Interorganization Receivables 29,742 - * Total Current Assets 3,648,340 2,929,940 6,521,117 * 6,870,692 * 6,578,280 389,887 6,938,425 * Prepaid Expenses and Deposits 119,846 119,846 1,599 121,445 185,975 193,659 Investments 2,248,979 2,644,111 4,893,090 4,893,090 4,650,365 4,770,604 Property and Equipment Land Current Assets 700,000 2,929,940 - 6,578,280 700,000 700,000 700,000 700,000 Total 3,648,340 * 6,521,117 * 6,870,692 * 389,887 - 6,938,425 Buildings 4,150,120 4,150,120 4,150,120 3,976,188 3,904,342 Furniture, Equipment, and Property and Equipment Software 1,534,877 1,534,877 1,534,877 1,632,114 1,657,432 Land 700,000 700,000 700,000 700,000 700,000 Less Accumulated Buildings 4,150,120 4,150,120 4,150,120 3,976,188 3,904,342 Depreciation Furniture, Equipment, and and Amortization (2,914,751) (2,914,751) (2,914,751) (2,809,787) (2,674,598) Software 1,534,877 1,534,877 1,534,877 1,632,114 1,657,432 Less Accumulated Net Property and Depreciation Equipment 3,470,246 3,470,246 3,470,246 3,498,515 3,587,176 and Amortization (2,914,751) (2,914,751) (2,914,751) (2,809,787) (2,674,598) Total Assets Net Property and Equipment Liabilities and Net Assets Total Assets $ Current Liabilities Accounts Payable and Liabilities and Net Assets Accrued Expenses Interorganization Payables Current Liabilities Chapter Dues Payable Accounts Payable and Deferred Revenue Accrued Expenses $ Interorganization Payables Total Current Liabilities Chapter Dues Payable Deferred Revenue Noncurrent Deferred Revenue Total Current Liabilities Total Liabilities Noncurrent Deferred Revenue Net Assets Unrestricted Total Liabilities Temporarily Restricted Net Assets Total Net Assets Unrestricted Temporarily Restricted Total Liabilities and Net Assets Total Net Assets Total Liabilities and Net Assets

$ 7,118,586

$ 2,929,940

$ 10,048,526

3,470,246

7,118,586

$ 2,929,940

$ 10,048,526

389,887 -

389,887

$ 10,408,671 * $ 10,019,632 * $ 10,457,868 * 3,470,246

3,498,515

3,587,176

$ 10,408,671 * $ 10,019,632 * $ 10,457,868 *

521,458 $ 295 $ 521,753 $ 29,727 29,727 118,977 118,977 2,852,761 72,000 2,924,761 521,458 $ 295 $ 521,753 $ 29,727 29,727 3,493,196 102,022 3,595,218 118,977 118,977 2,852,761 72,000 2,924,761 487,152 504,112 991,264

327 $ 522,080 $ 588,499 $ 585,259 - * - * 15 - * 118,977 158,326 171,003 2,924,761 2,963,540 2,470,913 327 $ 522,080 $ 588,499 $ 585,259 - * - * 15 - * 3,710,365 * 3,227,175 * 342 3,565,818 * 118,977 158,326 171,003 2,924,761 2,963,540 2,470,913 991,264 1,117,134 1,360,325

3,493,196 3,980,348

3,595,218 4,586,482

342 342

991,264

487,152

102,022 606,134 504,112

3,710,365 * 3,227,175 * 3,565,818 * 4,827,499 * 4,587,500 * 4,557,082 * 1,117,134

1,360,325

3,138,238 3,980,348 -

2,323,806 606,134 -

5,462,044 4,586,482 -

342 389,545

5,462,044 4,557,082 * 389,545

4,780,230 4,827,499 * 411,903

5,409,191 4,587,500 * 461,177

3,138,238 3,138,238 -

2,323,806 2,323,806 -

5,462,044 5,462,044 -

389,545 389,545

5,851,589 5,462,044 389,545

5,192,133 4,780,230 411,903

5,870,368 5,409,191 461,177

$ 7,118,586 3,138,238

$ 2,929,940 2,323,806

$ 10,048,526 5,462,044

389,887 389,545

$ 10,408,671 * $ 10,019,632 * $ 10,457,868 * 5,851,589 5,192,133 5,870,368

$ 7,118,586

$ 2,929,940

$ 10,048,526

389,887

$ 10,408,671 * $ 10,019,632 * $ 10,457,868 *

* Interorganization receivables and payable eliminated in consolidation. See accompanying Notes to Consolidated Financial Statements.

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* Interorganization receivables and payable eliminated in consolidation. See accompanying Notes to Consolidated Financial Statements.

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National Active and Retired Federal Employees Association and Affiliate National Active and Retired Federal Employees Association and Affiliate Consolidated Statement of Activities National Active and Retired Federal Employees Association and Affiliate For the Year Ended December 31, 2012 Consolidated Statement of Activities (With of Comparative Totals for the Years EndedEnded December 31, 2011 and 2010) For theFor Year Ended December 31, 2012December Consolidated Statement Activities the Year 31, 2012 (With Comparative Totals for the Years Ended December 31, 2011 and 2010)

(With Comparative Totals for the Years Ended December 31, 2011 and 2010)

Revenues and Support Revenues and Support Membership Dues Membership Dues Contributions - Calendar and Cards Contributions -- PAC Calendar and Cards Contributions Contributions -- Silver PAC Circle and Other Contributions Contributions -- Protect Silver Circle and Other Contributions America’s Contributions Heartbeat - Protect America’s Heartbeat Advertising Advertising Royalties RoyaltiesConvention Revenue National National Convention Revenue Other Other Net Assets Released from Restrictions Net Assets Released from Restrictions Total Revenues and Support Total Revenues and Support Expenses Expenses Program Services Program Services Communications Communications Rebates to Federations Rebates to Federations New Member Rebates to New Member Rebates to Federations and Chapters Federations and Chapters Legislative Program Legislative Benefits Program Program Retirement Retirement Benefits Program Public Relations Program Public RelationsSeminars ProgramProgram Pre-Retirement Pre-Retirement Seminars Program National Convention National Convention Protect America’s Heartbeat Protect America’s Heartbeat NARFE-PAC NARFE-PAC NARFE Alzheimer’s Fund NARFE Alzheimer’s Life Membership FundFund Life Membership Fund Total Program Services Total Program Services Supporting Services Supporting Services General Administration General Administration Membership Recruitment Membership Services Recruitment Membership Membership Services Fund-Raising Fund-Raising Total Supporting Services Total Supporting Services Total Expenses Total Expenses Increase (Decrease) in Net Assets Increase in Net Assets Assets(Decrease) from Operations Assets from Operations Investment Income (Losses) Investment Income (Losses) Increase (Decrease) in Net Assets Increase (Decrease) in of NetYear Assets Net Assets, Beginning Net Assets, Beginning of Year Net Assets, End of Year Net Assets, End of Year

Operating Operating $ 8,244,524 $ 2,199,732 8,244,524 2,199,7329,8049,804 11,347 11,347 806,279 806,279 161,144 161,144 212,335 212,335 37,766 37,766 800,695 800,695 12,483,626 12,483,626

Unrestricted Unrestricted Board Board Designated Designated $ $

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(52,652) $ 8,191,872 (52,652) $ 2,199,732 8,191,872 2,199,732-359,83935 9,839 11,347 11,347 -806,279 806,279 -161,144 161,144 -212,335 212,335 -37,766 37,766 60,000860,695 60,000 860,695 7,383 12,491,009 7,383 12,491,009

Temporarily Temporarily Restricted Restricted $ $

2012 2012 Total Total

2011 2011 Total Total

2010 2010 Total Total

- $ 8,191,872 8,191,872 -- $ 2,199,732 2,199,732 808,970808,970 808,970 808,970 28,069 37,908 28,069 37,908 11,347 11,347 -806,279 806,279 -161,144 161,144 -212,335 212,335 -37,766 37,766(860,695) (860,695) (23,656) 12,467,353 (23,656) 12,467,353

$ 7,868,888 $ 2,018,075 7,868,888 2,018,075 186,229 186,229 142,693 142,693 876,852 876,852 960,425 960,425 189,232 189,232170,003170,00312,412,397 12,412,397

$ 7,085,183 $ 1,476,202 7,085,183 1,476,202 1,204,154 1,204,154 151,455 151,455 920,758920,758 190,199 190,199 214,555 214,555 83,469 83,46911,325,975 11,325,975

1,877,822 1,877,822 794,748 794,748 201,809 201,809 648,114 648,114 232,015 232,015 469,110 469,110237,726237,726 141,561 141,561 832,625 832,625 28,069 28,0695,463,599 5,463,599

-----------

1,877,822 1,877,822 794,748 794,748 201,809 201,809 648,114 648,114 232,015 232,015 469,110 469,110237,726237,726 141,561 141,561 832,625 832,625 28,069 28,0695,463,599 5,463,599

-----------

1,877,822 1,877,822 794,748 794,748 201,809 201,809 648,114 648,114 232,015 232,015 469,110 469,110237,726237,726 141,561 141,561 832,625 832,625 28,069 28,0695,463,599 5,463,599

2,001,145 2,001,145 832,487 832,487 233,324 233,324 804,954 804,954 233,470 233,470 587,441 587,441 103,590 103,590746,995746,995 237,632 237,632 42,658 42,6585,823,696 5,823,696

2,020,926 2,020,926 666,632 666,632 305,197 305,197 680,350 680,350 223,657 223,657 450,897 450,897 134,278 134,278 275,446 275,4461,109,8511,109,851 22,616 22,616 25 25 5,889,875 5,889,875

4,376,043 4,376,043 872,018 872,018 719,108 719,108 722,165 722,165 6,689,334 6,689,334 12,152,933 12,152,933

182,962 182,962--182,962 182,962 182,962 182,962

4,559,005 4,559,005 872,018 872,018 719,108 719,108 722,165 722,165 6,872,296 6,872,296 12,335,895 12,335,895

----

4,559,005 4,559,005 872,018 872,018 719,108 719,108 722,165 722,165 6,872,296 6,872,296 12,335,895 12,335,895

4,631,793 4,631,793 616,209 616,209 745,890 745,890 1,245,547 1,245,547 7,239,439 7,239,439 13,063,135 13,063,135

4,493,521 4,493,521 665,798 665,798 795,952 795,952 767,917 767,917 6,723,188 6,723,188 12,613,063 12,613,063

330,693 330,693 430,549 430,549 761,242 761,242 2,376,996 2,376,996 $ 3,138,238 $ 3,138,238

(175,579) 155,114 (175,579) 155,114 96,151 526,700 96,151 526,700 (79,428) 681,814 (79,428) 681,814 2,403,234 4,780,230 2,403,234 4,780,230 $ 2,323,806 $ 5,462,044 $ 2,323,806 $ 5,462,044

See accompanying Notes to Consolidated Financial Statements. See accompanying Notes to Consolidated Financial Statements.

2012 2012 Total Total Unrestricted Unrestricted

- 2 - 2 -

$ $

(23,656) 131,458 (23,656) 131,458 1,298 527,998 1,298 527,998 (22,358) 659,456 (22,358) 659,456 411,903 5,192,133 411,903 5,192,133 389,545 $ 5,851,589 389,545 $ 5,851,589

(650,738) (1,287,088) (650,738) (1,287,088) (27,497) 522,610 (27,497) 522,610 (678,235) (764,478) (678,235) (764,478) 5,870,368 6,634,846 5,870,368 6,634,846 $ 5,192,133 $ 5,870,368 $ 5,192,133 $ 5,870,368

National Active and Retired Federal Employees Association and Affiliate Consolidated Statement of Activities National Active and Retired Federal Employees Association Affiliate National Active and Retired Employees Association and Affiliate For Federal the Year Ended December 31, 2012 and (Withof Comparative Totals for the the YearsYear Ended December 2011 and 2010)31, 2012 Consolidated Statement Cash Flows For Ended31, December Consolidated Statement Cash Flows 31, 2011 and 2010) (With Comparative Totals for the Years Ended of December

For the Year Ended December 31, 2012 2012 (With Comparative Totals for the Years Ended December 31, 2011 and 2010) Unrestricted Operating

Board Designated

Revenues and Support Membership Dues Operating Activities $ 8,244,524 $ (52,652) Cash Flows from Contributions - Calendar and Cards Increase (Decrease) in Net Assets 2,199,732 Contributions - PAC Adjustments Reconcile Increase 9,804 in Net 35 Contributions -toSilver Circle and Other (Decrease) Assets to Net CashAmerica’s Provided by (Used in) Contributions - Protect Heartbeat Activities 11,347 Operating Advertising Depreciation and Amortization 806,279 161,144 Royalties Net Realized and Unrealized (Gains) Losses National Convention Revenue 212,335 Other on Investments 37,766 Disposal Property and800,695 Equipment 60,000 Net Loss Assetson Released from of Restrictions

(Increase) Decrease in Assets - Net 12,483,626 Prepaid Expenses and Deposits Expenses Increase (Decrease) in Liabilities Program Services Accounts Payable and Accrued Expenses Communications 1,877,822 Rebates to Federations 794,748 Chapter Dues Payable NewDeferred Member Rebates to Revenue Total Revenues and Support Accounts Receivable

7,383

Total Unrestricted

2012

Temporarily Restricted

$ 8,191,872 $ 2,199,732 $ 659,456 $ 808,970 9,839 28,069 11,347 806,279 257,694 161,144 212,335 (355,915) 37,766 53,134 (860,695) 860,695 12,491,009 30,201 (23,656)

64,530

(66,419) 1,877,822 794,748 (39,349)

Federations and Chapters 201,809 Legislative Program 648,114 Net Benefits Cash Provided in) Retirement Program by (Used 232,015 Operating Activities Public Relations Program 469,110 Pre-Retirement Seminars Program Convention Cash National Flows from Investing Activities 237,726 Protect America’s Heartbeat 141,561 Purchases of Investments NARFE-PAC 832,625 Sales and Maturities of Investments 28,069 NARFE Alzheimer’s Fund Purchases of Property Life Membership Fund and Equipment -

201,809 648,114 232,015 438,683 469,110 237,726 141,561 (327,169) 832,625 641,615 28,069 (282,559) -

Services NetTotal CashProgram Provided by (Used in) 5,463,599 Investing Activities

(164,649)

Total Supporting Services

6,689,334

182,962

Supplementary Disclosure of Cash Flow Information 12,152,933 182,962 Total Expenses Cash Paid during the Year for Income Taxes

31,887

1,739,659

6,872,296

12,335,895

455

2011

$ $

$ 8,191,872 2,199,732 (678,235) 808,970 37,908

$ 7,868,888 $ 7,085,183 $ 2,018,075 (764,478)1,476,202 186,229 1,204,154 142,693 151,455

11,347

876,852 960,425 264,693 920,758 189,232 190,199 214,555 (329,970) 83,469 170,003 -

806,279 242,169

161,144 212,335 180,953 37,766 - 12,467,353 (24,285) 7,684

12,412,397 (39,742)11,325,975

3,240 1,877,822 794,748 (12,677) 249,436

138,837 2,020,926 2,001,145 832,487 23,000 666,632

18,933

(177,152)

233,324 305,197 804,954 680,350 233,470 223,657 (865,879) 450,897 587,441 103,590 134,278 275,446 746,995 (1,617,392) 237,632 1,109,851 2,297,468 42,658 22,616 (20,160) 25

5,463,599

5,823,696

659,916

4,559,005

(95,946) 872,018 719,108 1,365,035 722,165

1,269,089

6,872,296

12,335,895

755

$ $

1,365,035

7,239,439 13,063,135

330,693

(175,579)

155,114

(23,656)

131,458

(650,738)

Investment Income (Losses)

430,549

96,151

526,700

1,298

527,998

(27,497)

659,456 5,192,133

(678,235) 5,870,368

Net Assets, End of Year

761,242 2,376,996 $ 3,138,238

(79,428) 2,403,234 $ 2,323,806

See accompanying Notes to Consolidated Financial Statements.

681,814 4,780,230 $ 5,462,044

(22,358) 411,903 $

389,545

5,889,875

4,631,793 4,493,521 (205,963) 665,798 616,209 745,890 1,570,998 795,952 1,245,547 767,917

Increase (Decrease) in Net Assets Assets from Operations

Increase (Decrease) in Net Assets Net Assets, Beginning of Year

2010 Total

2010

(64,231)

4,559,005 470,570 872,018 719,108 1,269,089 722,165

2011 Total

201,809 648,114 232,015 (31,715) 469,110 237,726 141,561 (4,066,203) 832,625 - 4,155,480 28,069 - (153,508) -

5,463,599

Supporting Services General Administration 4,376,043 182,962 Net Increase (Decrease) in Cash and Cash Equivalents Membership Recruitment 872,018 719,108 Membership Services Cash and Cash Equivalents, Beginning of Year Fund-Raising 722,165 -

Cash and Cash Equivalents, End of Year

2012 Total

$ 5,851,589

$ 5,192,133

6,723,188

12,613,063

(1,287,088) 522,610 (764,478) 6,634,846 $ 5,870,368

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See accompanying Notes to Consolidated Financial Statements. - 3 -

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National Active and Retired Federal Employees Association and Affiliate Notes to Consolidated Financial Statements December 31, 2012 1. ORGANIZATION National Active and Retired Federal Employees Association (the “Association”) was established to advance the general welfare of its members and to aid them in securing their rights under federal retirement laws. Fiftyfour (54) federations, located in the United States, Panama, Puerto Rico, and the Philippines, are affiliated with the Association and conduct local independent programs. Ten percent of all eligible member national dues collected are rebated to these federations to facilitate local association activities. In addition, there are 1,348 chapters affiliated with the Association that are located in the United States and some international locations. The chapters are established by members to increase the scope and effectiveness of the Association. Chapter dues, which are not reported as revenues and expenses of the Association in the accompanying consolidated statement of activities, are established by the chapters and are billed and collected by the Association with the national dues. However, the Association rebates to the chapters one-third of the national fee charged for all new members. The consolidated financial statements include the assets, liabilities, net assets, activities, and cash flows of the Association and its political action committee (NARFE-PAC or Affiliate), which was authorized by the executive board of the Association. All significant interorganization balances and transactions were eliminated in consolidation. The financial information of the 54 federations and the 1,348 chapters is not included in the Association and Affiliate’s consolidated financial statements.

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting The consolidated financial statements have been prepared on the accrual basis of accounting. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents Cash and cash equivalents consist of cash deposits in checking accounts, certificates of deposit with original maturities of less than 90 days, money market accounts, and overnight investment accounts. Investments Investments in debt and equity securities are stated at fair value as determined from published sources. Accounts Receivable and Allowance for Doubtful Accounts Accounts receivable consist primarily of amounts due to the Association for advertising in the December 2012 issue of NARFE magazine, royalties, and seminars. Accounts receivable are reported at their outstanding balances. The Association provides an allowance for doubtful accounts, as needed, for accounts deemed uncollectible. The allowance for doubtful accounts as of December 31, 2012, was $2,000. Management periodically

evaluates the adequacy of the allowance for doubtful accounts by considering the Association’s past receivables loss experience, known and inherent risks in the accounts receivable population, adverse situations that may affect an obligor’s ability to pay, and current economic conditions. The allowance for doubtful accounts is increased by charges to bad debts expense and decreased by charge-offs of the accounts receivable balances. Accounts receivable are considered past due when no payments have been received for 30 days. Accounts receivable are charged off based on management’s case-by-case determination that they are uncollectible. Property and Equipment Property and equipment are stated at cost and are depreciated and amortized on the straight-line method over the useful lives of the assets, ranging from 3 to 40 years. The Association capitalizes items of property and equipment costing $1,500 or more. Depreciation and amortization expense for the year ended December 31, 2012, was $257,694. Net Assets The Association and Affiliate classify net assets into two categories, unrestricted and temporarily restricted. All contributions are considered to be available for unrestricted use unless specifically restricted by the donors. Temporarily restricted net assets are contributed with donor-imposed purpose or time restrictions and are to be used for the restricted purposes or time periods as requested by the donors. The Association and Affiliate had no permanently restricted net assets at December 31, 2012. Included in unrestricted net assets as of December 31, 2012, is $2,000,000 that is designated by the Association’s executive board

to pay operating expenses should the Association’s operations be disrupted by an unforeseen event. Also included in board-designated net assets are amounts for the life membership fund and building fund. Membership Dues Annual membership dues are deferred when received and are recognized as revenue over the periods covered by the memberships. Life membership dues are recognized as revenue over the duration of the life membership based on the collective average life expectancy for life members, according to the “United States Life Tables,” 2003, published in the National Vital Statistics Reports, Volume 54, Number 14, April 2006. Contributions The Association and Affiliate report contributions as support when they are received. The Association and Affiliate report contributions as temporarily restricted support if restricted for use for specific programs or time periods. When donor restrictions expire, that is, when purpose or time restrictions are accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and are reported in the consolidated statement of activities as net assets released from restrictions. Royalties Royalties are earned by the Association for granting the use of its name to third parties that market services to Association members. Revenues from these activities are recorded when earned. Rebates to Federations and Chapter Dues and Rebates Rebates to federations and chapter dues payable for renewing members are disbursed to federations and chapters after their receipt in the Association’s headquarters. Rebates due to the federations on life members are

deferred for the duration of the life membership and disbursed to federations monthly, when earned. New member rebates disbursed to federations and chapters were approximately $48,100 and $153,700, respectively. Income Taxes The Association is exempt from federal income taxes under Section 501(c)(5) of the Internal Revenue Code and applicable state law. The accounting standard on accounting for uncertainty in income taxes addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the consolidated financial statements. Under that guidance, the Association may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities based on the technical merits of the position. Examples of tax positions include the tax-exempt status of the Association and various positions related to the potential sources of unrelated business taxable income (UBIT). The tax benefits recognized in the consolidated financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. There were no unrecognized tax benefits identified or recorded as liabilities for 2012. The Association’s policy would be to recognize interest and penalties, if any, on tax positions related to its unrecognized tax benefits in income tax expense in the consolidated financial statements. No interest and penalties were assessed or recorded during 2012. The Association’s Forms 990, Return of Organization Exempt from Income Tax, that have been filed as of December 31, 2012, for 2011, 2010, and 2009 are subject

to examination by the Internal Revenue Service, generally for three years after they were filed. NARFE-PAC is generally exempt from federal income tax under Section 527 of the Internal Revenue Code. However, interest revenue earned on NARFE-PAC investments is subject to federal and state income taxes. The taxes on that interest for the year ended December 31, 2012, were not significant. As of December 31, 2012, NARFE-PAC’s tax returns filed with the IRS for the years ended December 31, 2011, 2010, and 2009 remain open for examination. Reclassifications Certain reclassifications have been made to the 2011 and 2010 comparative totals presentation to correspond to the current year’s format. Net assets and changes in net assets are unchanged due to these reclassifications. Prior Years Comparative Totals The consolidated financial statements include certain prior years’ summarized comparative information in total but not by net asset class. Such information does not include sufficient detail to constitute a presentation in conformity with accounting principles generally accepted in the United States of America. Accordingly, such information should be read in conjunction with the Association and Affiliate’s consolidated financial statements for the years ended December 31, 2011 and 2010, from which the summarized information was derived. 3. CONCENTRATION OF CREDIT RISK For purposes of Federal Deposit Insurance Corporation (FDIC) coverage, cash accounts are maintained in several different banks. As of December 31, 2012, bank deposits exceeded the $250,000 FDIC-insured limit by approximately $1,171,000.

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CONCENTRATION OF CREDIT RISK For purposes of Federal Deposit Insurance Corporation (FDIC) coverage, cash accounts are maintained in several different banks. As of December 31, 2012, bank deposits exceeded the $250,000 FDIC-insured limit by approximately $1,171,000.

INVESTMENTS FAIR VALUE NVESTMENTS AND FAIR VAND ALUE M EASUREMENTS I4.

MEASUREMENTS As of December 31, 2012, the Association and Affiliate’s only assets or As of December 31, 2012, the Association Affiliate’s onlyconsisted assets or liabilities liabilities measured at fair value on aand recurring basis of the folmeasured at fair value on a recurring basis consisted of the following investments: lowing investments: Level 1 Inputs

Fair Value Corporate Stocks and Equity Mutual Funds Corporate Bonds and Fixed Income Mutual Funds Government Backed Securities Certificate of Deposit Total Investments

2,163,391

2,460,657 161,233 107,809 $

4,893,090

2,163,391

Level 2 Inputs $

2,460,657 161,233 $

4,785,281

107,809

Financial assets valued using Level 1 inputs are based on unadjusted quoted market prices Financial assets valued using Level 1 inputs are based on unadjusted within active markets.

quoted market prices within active markets.

4. 4. 4.

5. 5. 5.

Financial assets valued using Level 2 inputs are based primarily on Affiliate quoted prices on for Financial assets using Level 2 inputs are based primarily National Active andvalued Retired Federal Employees Association and similar assets in active or inactive markets. National Active Retiredassets FederalinEmployees and Affiliate quoted prices forand similar active orAssociation inactive markets. Notes to Consolidated Financial Statements Financial assets valued using Level 3 inputs, if any, are valued using to Consolidated Financial National ActiveNotes and Retired Federal Employees Association and Affiliate December 31, 2012 Statements unobservable inputs to measure fair value to the extent that observable December 31, 2012 Notes to Consolidated Financial Statements inputs are not available, thereby allowing for situations in which there is 2012 NVESTMENTS FAIR Vactivity ALUE December MEASUREMENTS (CONTINUED ) at the measurement Ilittle, if any,AND market for the31,asset or liability INVESTMENTS AND FAIR VALUE MEASUREMENTS (CONTINUED) - 8 date. The fairvalued valueusing measurement to determine an exitinputs price Financial assets Level 3 inputs,objective if any, are is valued using unobservable the perspective ofLevel aM market participant that holdsunobservable the asset or owes Financial assets valued 3 inputs, if any, valued using inputs to measure fair value to using the extent that observable inputs are not )available, thereby allowing Ifrom NVESTMENTS AND FAIR VALUE EASUREMENTS (Care ONTINUED to measure fairinvalue to there the extent thatifobservable inputs are not thereby allowing for situations which is little, any, market activity for available, the asset or liability at the the liability. for situations in which isLevel little, any, market the asset or exit liability atfrom the Financial assets valued using 3ifinputs, if objective any,activity are valued using unobservable measurement The there fair value measurement is tofordetermine an priceinputs None of date. the Association and Affiliate’s financial assets are valued using measurement value measurement isorto determine anthereby exit price from to measure fairdate. value to fair the participant extent that that observable inputs not available, allowing the perspective of aThe market holdsobjective the assetare owes the liability. Level 3 inputs. the a market holds the asset or owes theasset liability. for perspective situations inofwhich thereparticipant is little, ifthat any, market activity for the or liability at the None of the Association andvalue Affiliate’s financialobjective assets areisvalued using Level 3 inputs. measurement date. The fair measurement to determine an exit price from None of the Association andparticipant Affiliate’s financial assets areor valued Level 3consisted inputs. theInvestment perspective of aincome market that holds the asset owes using the for the year ended December 31,liability. 2012, of Investment income for the year ended December 31, 2012, consisted of the following: the following: Investment for the year ended December 2012, of the following: None of theincome Association and Affiliate’s financial 31, assets are consisted valued using Level 3 inputs. Temporarily Investment income for the year ended December 31, 2012,Temporarily consisted of the following: Unrestricted Restricted Total Unrestricted Restricted Total Dividends and Interest $ 170,785 $ Temporarily 1,298 $ 172,083 Dividends andand Interest $ Unrestricted 170,785 $ Restricted 1,298$ Total 172,083 Net Realized Unrealized 355,915 355,915 Net Realized and Unrealized 355,915 355,915 Dividends and Interest 170,785 1,298 172,083 Total Investment Income $$ 526,700 $$ 1,298 $$ 527,998 Net Realized and Unrealized 355,915 355,915 Total Investment Income $ 526,700 $ 1,298$ 527,998 TEMPORARILY RESTRICTED NET ASSETS Total Investment IncomeRESTRICTED $ 526,700 $ 1,298 $ 527,998 5. TEMPORARILY NET ASSETS TEMPORARILY RESTRICTED NET ASSETS Temporarily restricted net assets are available for the following purposes as of Temporarily restricted net assets are available for the following purTemporarily net Nassets are available for the following purposes as of December 31, restricted 2012: T EMPORARILY RESTRICTED ET ASSETS poses as of December 31, 2012: December 31, 2012: Temporarily as of NARFE-PACrestricted net assets are available for the following $purposes 353,690 NARFE-PAC $ 353,690 December 31, 2012: Fund NARFE Alzheimer’s 35,855 NARFE Alzheimer’s Fund 35,855 NARFE-PAC 353,690 Total Temporarily Restricted Net Assets $$ 389,545 NARFE Alzheimer’sRestricted Fund 35,855 Total Temporarily Net Assets $ 389,545 Net assets were released from donor restrictions by incurring expenses or otherwise Total Temporarily Restricted Assets Net assets were released fromNet donor restrictions by incurring expenses or 389,545 otherwise satisfying the restricted purposes for the year ended December 31, 2012, as$follows: Net assets were purposes released donor by incurring satisfying the restricted forfrom the year ended restrictions December 31, 2012, as follows: expenses or otherwise thedonor restricted purposes for the year DecemNet assets were satisfying released from restrictions by incurring expenses or 832,626 otherwise NARFE-PAC $ ended NARFE-PAC 832,626 satisfying the restricted purposes for the year ended December 31, 2012, as$follows: NARFE Fund 28,069 ber 31, Alzheimer’s 2012, as follows: NARFE Alzheimer’s Fund 28,069 NARFE-PAC $ 832,626 Total Net Assets Released from Restrictions NARFE Alzheimer’s Fund 28,069 Total Assets Released from Restrictions DueNet to Satisfaction of Program Restrictions $ 860,695 Due to Satisfaction of Program Restrictions $ 860,695 Total Net Assets Released from Restrictions Due to Satisfaction of Program Restrictions $ 860,695

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- 9 - 9 - 9 -

6. RETIREMENT PLAN The Association contributes 2 percent of each eligible employee’s annual compensation to a retirement savings plan and also matches 60 percent of each employee’s voluntary contribution (up to 6 percent of annual compensation). For employees to be eligible, they must have been employed by the Association for at least six months. Total contributions made by the Association were $151,431 for the year ended December 31, 2012. 7. SUBSEQUENT EVENTS The Association and Affiliate have evaluated subsequent events through April 2, 2013, the date on which the consolidated financial statements were available to be issued.

Additional NARFE Financial Data The salaries of the National Executive Board, as of December 31, 2012, are as follows: President: $113,298 Vice President: $105,747 Secretary: $101,442 Treasurer: $101,442 Regional Vice Presidents: $24,738 In 2012, NARFE’s investments were held with these firms: • Operating Fund: Morgan Stanley Smith Barney; The Vanguard Group • Life Membership Trust Fund: Morgan Stanley Smith Barney • Contingency Fund: Wells Fargo; Morgan Stanley Smith Barney

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Member Perks

NARFE Member Perks

are designed to provide NARFE members with a quality option in their search for commonly used products and services. NARFE makes no guarantee on any products and services listed, and encourages its members to shop and compare before making a decision on any financial matter.

Credit Union

NARFE Premier Federal Credit Union 800-328-1500 www.NARFEpremierfcu.org As a member of NARFE, you have the privilege of joining NARFE Premier Federal Credit Union, which has been serving members since 1935. We offer extensive services at competitive rates to members nationwide. Your savings are federally insured to at least $250,000 and backed by the full faith and credit of the United States Government. For more information, call the number above, email jparish@narfepremierfcu.org or visit the website.

insurance

NARFE Insurance Services 800-233-5764 www.narfeinsurance.com Designed and administered by Marsh U.S. Consumer, a service of Seabury & Smith, Inc., exclusively for NARFE members: Senior Whole Life, Term Life, Medicare Supplements, Hospital Income Plan, Short Term Recovery Insurance, Pet Insurance, Accidental Death & Dismemberment, Cancer Care, Enhanced Dental Insurance and Long Term Care. Go to the website for more information on these programs.

GEICO 800-368-2734 NARFE members with good driving records may be eligible for quality automobile insurance from GEICO. Ask about the NARFE discount available to members in many states. Call today for your free, no-obligation rate quote. Be sure to mention that you’re a NARFE member! • Discount amount varies in 62

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some states • Discount not available in all states or in all GEICO companies • One group discount applicable per policy.

Federal Long Term Care Insurance Program 800-LTC FEDS www.LTCFEDS.com Long-term care is expensive, and it’s not covered by traditional types of insurance plans. With benefits designed specifically for the federal family, the Federal Long Term Care Insurance Program offers a smart way to help protect your savings and assets, and remain independent should you need long-term care services someday. Visit LTCFEDS.com today.

Wyndham Hotel Group 877-670-7088 As a member of NARFE, you will receive up to 20% off the “Best Available Rate” at participating locations. Call and give the agent your special discount ID number, 8000002694, at time of booking to receive discount. Whether you are looking for an upscale hotel, an all-inclusive resort or something more cost-effective, we have the right hotel for you... and at the right price. So start saving now. Call our special member-benefits hotline 877-670-7088 and reserve your room today at one of these fine hotels: Wyndham Hotels and Resorts®, Days Inn®, Ramada Worldwide®, Super 8®, Wingate By Wyndham®, Baymont Inns and Suites®, Hawthorn Suites® By Wyndham, Microtel Inns and Suites®, Howard Johnson®, Travelodge® and Knights Inn®.

Vacation rentals

Government Employees Travel Opportunities® 877-867-3639 www.getravelop.com/narfe Offers government employees, retirees and their families 7-night stays for only $349 on accommodations worldwide. Book online and save on your next vacation stay.

hotels

Choice Hotels International 800-258-2847 www.choicehotels.com With 6,000 hotels in the United States and throughout the world, Choice Hotels® offers something for everyone. Join the Choice Privileges® rewards program and earn points with every qualifying stay toward free nights, Airline Rewards, gift cards and more. As a NARFE member, receive 20% off your next stay at participating hotels when you use Special Rate ID 00801967. This offer is subject to availability and cannot be combined with any other offer. Advance reservations required.

car rentals

Alamo Drive Happy® with Alamo® where NARFE members receive year-round discounts. Call 1-800-462-5266 and reference Contract ID 262544.

National You Drive A Hard Bargain. Receive up to 20% off rentals at National Car Rental. To make a reservation call National Car Rental at 1-800-CARRENT® and reference Contract ID 5282909.

Avis The employees/owners of Avis offer guaranteed low rates and quality services to members of NARFE. Call 800-331-1441 and mention ID# A991900.

narfe merchandise

NARFE General Store 855-99NARFE (855-996-2733) www.narfegeneralstore.com Official NARFE name badges, customizable logo products and plaques.

emergency services

MASA 800-423-3226 Medical Air Services Association has been the industry leader in prepaid emergency assistance services for more than 30 years. NARFE members have experienced MASA’s “peace of mind” services since 2001. Now NARFE members are entitled to even more: air ambulance transportation, helicopter transportation, ground ambulance, vehicle return, mortal remains transport, and much more! Call MASA Today. It Could Save Your Life!

preventive health screenings, will conduct the following screenings using state-of-the-art ultrasound technology in your neighborhood: 1. Stroke/Carotid Artery 2. Abdominal Aortic Aneurysm 3. Atrial Fibrillation 4. Peripheral Arterial Disease. You will receive a confidential written report within 21 days. Life Line Screening and NARFE encourage you to share these test results with your doctor. All four screenings cost just $135. To schedule an appointment, please call the number above and give the operator code number BKHN075 or visit the website. Coverage may vary and may not be available in all states.

hearing benefits Moving services

NARFE Member HomeBenefits 800-666-9203 http://narfe. myhomebenefits.com • Earn thousands in cash-back rewards when you buy or sell a home* • Shop competitive mortgage rates, receive discounts on closing costs, plus take advantage of your VA Loan Benefits • Receive preferred pricing on interstate moving services with the nation’s most trusted moving company – Allied Van Lines! *State restrictions apply. Call or visit website for details.

Bekins Van Lines 800-248-4810 www. narfe@bekins.com All NARFE members will receive discounted pricing for all interstate shipments. Discount will apply to packing and moving services and valuation protection. All intrastate shipments, local moves and international moves will be competitive based on your geographical location. Please mention you are a NARFE member and ask for Traci.

TruHearing 877-360-2442 Two discount programs to choose from: ValueAdd® or MemberPlus®. Similar to a warehouse membership, MemberPlus saves hundreds more for a $108 yearly membership. MemberPlus also includes: • 45-day, money-back guarantee on membership fee and all purchases • 48 batteries, 3-year warranty, and one-time loss and damage for 3 years (small manufacturer deductible applies) on each purchased hearing aid • Guest membership for up to four extended family members (siblings, parents, etc.) for only $79 each • Combine with an existing health plan hearing benefit to maximize savings.

education

Ivy Bridge College 877-615-9246 http://ivybridge.tiffin.edu/ narfe Want to earn your associate’s degree before you transfer to a four-year school? Ivy Bridge College offers a variety of degree programs that will help put you on the right track. No matter which program you choose, an education with Ivy Bridge will provide you with a solid foundation for a rewarding future. NARFE members and their families can enjoy an exclusive 5 percent savings on tuition at Ivy Bridge, a unique online institution that provides a highly supported pathway to a bachelor’s degree. To learn more, call or visit the website.

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The Way We Worked

guardians of our forests

This photo of John W. Parker was taken in 1938 when he was a forest ranger in the Payette National Forest in Idaho. Parker started his career with the U.S. Forest Service in 1927 as a 16-yearold trail crew member and, in 1948, starred in the title role of Forest Smokechaser, a Forest Service training film. A NARFE member, Parker retired in 1970 and recently celebrated his 102nd birthday. Photo courtesy of the U.S. Forest Service; Richa Wilson, regional architectural historian, U.S. Forest Service, Intermountain Region; in collaboration with the Society for History in the Federal Government (SHFG), bringing together government professionals, academics, consultants, students and citizens interested in understanding federal history work and the historical development of the federal government. Website: http://shfg.org/shfg/.

Did you know? In 1905, Congress established the U.S. Forest Service, transferring control of the nation’s forest reserves from the Interior Department to the Department of Agriculture. Today, the Forest Service manages America’s “great outdoors,” covering 92 million acres, and has a workforce of approximately 30,000 employees.

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IMPORTANT CONSUMER INFORMATION: Jitterbug is owned by GreatCall, Inc. Your invoices will come from GreatCall. All rate plans and services require the purchase of a Jitterbug phone and a one-time set up fee of $35. Coverage and service is not available everywhere. Other charges and restrictions may apply. Screen images simulated. There are no additional fees to call Jitterbug’s 24-hour U.S. Based Customer Service. However, for calls to an Operator in which a service is completed, minutes will be deducted from your monthly balance equal to the length of the call and any call connected by the Operator, plus an additional 5 minutes. Monthly rate plans do not include government taxes or assessment surcharges. Prices and fees subject to change. 1We will refund the full price of the Jitterbug phone if it is returned within 30 days of purchase in like-new condition. We will also refund your first monthly service charge if you have less than 30 minutes of usage. If you have more than 30 minutes of usage, a per minute charge of 35 cents will apply for each minute over 30 minutes. The activation fee and shipping charges are not refundable. Jitterbug and GreatCall are registered trademarks of GreatCall, Inc. Samsung is a registered trademark of Samsung Electronics Co., Ltd. Copyright ©2013 Samsung Telecommunications America, LLC. Copyright ©2013 GreatCall, Inc. Copyright ©2013 by firstSTREET for Boomers and Beyond, Inc. All rights reserved.

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