CBO Outlines Potential Changes to Federal Retirement Benefits

Taxpayers spend more than $90 billion annually on retirement benefits for civilian workers, a figure that has made those benefits a prime target for Congressional budget cutters. A report released Tuesday by the Congressional Budget Office outlines some options lawmakers are considering as they seek to rein in costs.

Under pressure to reduce the federal budget deficit by $32 billion between fiscal 2017 and 2027, the House Oversight and Government Reform Committee earlier this summer asked CBO to evaluate the potential savings associated with changing the retirement system for most federal workers.

CBO explored five specific options for changing the Federal Employees Retirement System, the pension plan in which the vast majority of current workers participate. (The Civil Service Retirement System is being phased out, and has been closed to new participants since 1983.) Two of the options include eliminating the FERS pension plan altogether, but would increase the government’s contribution to the Thrift Savings Plan, the 401(k)-style retirement savings plan for federal employees.

The five options include:

1. Increase the pension contributions to 4.4 percent of salary for all employees. Currently, the rate is 0.8 percent for those hired before 2013; 3.1 percent for those hired in 2013; and 4.4 percent for those hired after 2013. This option would reduce the government’s net costs by 14 percent on a cash basis over the next 10 years.
2. Decrease the pension contribution rate to 0.8 percent of salary for all employees. While this option would likely help recruiting and retention efforts, it would increase government’s net retirement costs by 10 percent on a cash basis over the next 10 years.
3. Change the pension formula. Instead of basing retirement benefits on an employee’s three years of highest salary, benefits would be based on an employee’s five years of highest salary. This would reduce the government’s net costs by 1 percent on a cash basis over the next 10 years.
4. Eliminate the pension, but increase the government’s TSP contribution to 15 percent. This would increase the government’s net costs by 24 percent on a cash basis over the next 10 years.
5. Eliminate the pension, but increase the government’s TSP contribution to 10 percent. This would increase the government’s net costs by 17 percent on a cash basis over the next 10 years.

CBO also assessed how these changes would affect government outlays over a much longer timeframe—75 years—and the impact they could have on agencies' ability to attract and retain skilled workers. The full analysis is available here.

There's no guarantee lawmakers will pursue any of the options outlined by CBO, but the White House and some Republicans support cutting federal retirement benefits. It won't happen without a fight though: Democrats and federal employee unions have been sharply critical of efforts to cut federal benefits.

J. David Cox Sr., national president of the American Federation of Government Employees, said in July the House budget resolution stipulating $32 billion in federal spending cuts is “a slap in the face to all of the workers who care for our veterans, guard our borders, support our military, and keep our air and water clean.”

Correction: This story originally stated that options 4 and 5 would decrease the government's net costs over the next 10 years, when they would in fact increase net costs.