In early May of 2018, House Speaker, Paul Ryan received a letter from Jeff Pon, the director of the Office of Personnel Management (OPM), proposing changes to federal employee retirement benefits to align with the White House’s 2018 Fiscal Budget.
These proposals include reductions of retirement benefits under the Federal Employees Retirement System (FERS) and the Civil Service Retirement System (CSRS) in an effort to reduce budget deficits.
The OPM calculates their proposed cuts would total a savings of over $143 billion over 10 years for the federal government.
However, many opponents point out that federal employees have already experienced pay freezes and compensation adjustments that continue to lag behind the private sector.
In fact, experts estimate, when adjusted for inflation, today’s federal employees bring home 5% less than they did at the start of the decade.
Add to this it’s estimated they earn approximately one-third less than they would make doing comparable work in the private sector.
Here are the four major benefit-cutting proposals that lawmakers on Capitol Hill have been asked to consider.
Larger Federal Employee Contributions Toward Benefits
Employees under FERS would see their contribution percentages rise by 1 percentage point per year until they reached 7.25% of pay.
This is half of the total cost of the pension program which matches up with how Social Security payroll taxes are allocated 50/50 between employee and employer.
However, over time, some federal workers may end up paying an additional 6.45% which would result in a yearly pay cut of thousands of dollars while leaving their actual retirement benefit unchanged.
Longer Calculation Period For Determining Federal Pension Benefits
Currently, pension benefits for FERS and CSRS employees are determined by taking the highest average annual amount of earned pay over a consecutive three-year period.
This three-year period is usually toward the end of their careers when earnings are highest.
The new proposal would lengthen the calculation period to five consecutive years which effectively reduces the overall average and lowers an employee’s benefit throughout their retirement.
Cutting Cost Of Living Adjustments For Pensions
Like cost of living adjustments (COLA) for retirees receiving only Social Security, federal retirement benefits are currently increased along with the rate of inflation.
This helps to ensure that federal benefits keep pace with rising living expenses during the retirement years.
The OPM proposal would reduce cost of living adjustments under CSRS by 0.5% while completely eliminating the cost of living adjustment for current and future FERS retirees.
Elimination Of FERS Supplemental Annuities
FERS provides some federal employees with supplemental annuity benefits to cover the gap between earlier retirement and Social Security eligibility.
This was designed for those federal employees, like law enforcement officers, who often retire years before they become eligible for Social Security.
This OPM proposal would not only eliminate supplemental annuities for new retirees but also for survivors of deceased federal employees.
Bi-Partisan Opposition To OPM Cuts Heats Up
The OPM’s ambitious plan is to get their proposals through Congress by the midterm elections in November, 2018.
However, in June, 26 senators from both sides of the aisle sent a letter to OPM Director, Jeff Pon, calling for him to withdraw all proposals to cut federal worker benefits:
“We fear that these cuts are motivated by an ongoing effort to balance the budget on the backs of federal workers rather than an effort to provide a comprehensive approach to modernizing federal employee compensation.”*
Add to this a growing number of House Representatives are adding their voices to the opposition.
You can expect a heated debate before these federal benefit cuts come up for a vote in Congress.