The Thrift Savings Plan is planning on re-competing the life annuity contract. The current contract is with MetLife and has been in place for almost four years; it has changed little from the previous contract (also with MetLife). We’ll use this article to describe the choices offered by the current TSP annuity.
The TSP life annuity is designed to provide you (and a joint annuitant in some cases) with monthly payments for exactly as long as you live. With the life annuity option, your monthly payment amount is determined by a formula and will last exactly as long as you (or the joint annuitant) live, no longer. There are three types of TSP life annuities; single life, joint life with spouse, and joint life with someone who has an insurable interest in your life.
In considering whether or not to choose a TSP life annuity, keep in mind that it is an irrevocable choice that cannot be changed, even if your situation changes.
Within the single life and joint life with spouse types, you can elect either level payments or increasing payments. If you choose a joint life annuity with someone who has an insurable interest in your life, you can only choose level payments. With level payments, the amount of your monthly payment will never change; it will be the same in your last payment as it was in your first payment. With increasing payments, your payments start out at a lower level and receive annual increases (of no more than 2%) based on inflation. If you elect level payments, you will lose ground annually to inflation. If you choose increasing payments, the payments that you receive in your earlier (generally higher spending) years of retirement will be smaller, though you will only lose ground to inflation in years when inflation is higher than 2%.
If you elect one of the joint life annuities, you get to choose the amount of the payment that the survivor will receive upon the death of the first joint annuitant. The choices are 50% or 100%. If you choose the 50% survivor annuity, the amount of the TSP life annuity will be cut in half when the first joint annuitant dies. If you choose the 100% survivor annuity, the amount of the TSP life annuity will remain the same after the death of the first joint annuitant. Be aware that, during the period of time both joint annuitants are alive, the monthly payment from the 50% option will be larger than the monthly payment from the 100% option.
There’s another area in which you will have a choice if you elect a TSP life annuity; whether or not you want to elect any type of “money back” feature. If you do not elect one of these features, there will be no money payable to a survivor after your death. If you do elect one of these features, and are fortunate enough to have a long life, there still will be no money payable to a survivor after your death. These features are, however, beneficial for those who don’t live long after starting to receive their TSP life annuity. A “ten-year certain” feature is available only with single life annuities and provides that, if the annuitant dies before ten years are up, a beneficiary will continue to receive payments for the remainder of that ten-year period. A “cash refund” feature is available to both single and joint annuitants and provides that, if the annuitant (and joint annuitant) die(s) before receiving the purchase price of the TSP life annuity back in monthly annuity payments, a beneficiary will receive the balance of the purchase price. These features reduce the monthly payment slightly.
The Thrift Board hinted that they are looking for ways to make the TSP life annuity more appealing to participants. We will see what transpires during the re-competition. Don’t hold your breath.
John Grobe, President of Federal Career Experts, is an expert in the area of federal employee retirement and benefits. This expertise comes from his 26 year federal career in which he managed the retirement program in a 3,500-employee office of a large federal agency.