Keep an Eye on These Potential Benefits Changes

It should not come as a surprise that when federal employees are surveyed, they say retirement and health benefits had a strong influence on their decision to work in government—and an even greater effect on their interest in staying. It’s important to understand not only how these programs work, but how changes to them could affect you and your family. Here are some modifications and possible future changes that could have an impact on your retirement and insurance benefits.

Cost of Living Adjustments

The Equal COLA Act, which was recently reintroduced in Congress, aims to provide the same annual adjustments for retirees under the Federal Employees Retirement System and the Civil Service Retirement System.

Currently, COLAs for those under FERS are computed less generously than for CSRS retirees. The COLA for CSRS is based on the rate of change of the Consumer Price Index for urban wage earners and clerical workers from the third quarter average of the previous year to the third quarter average for the current year. For FERS benefits, if the increase in the CPI is 2% or less, the COLA is equal to the CPI increase. If the CPI increase is more than 2% but not more than 3% the adjustment is 2% If the CPI increase is more than 3%, the FERS adjustment is 1% less than the increase.

Also, with some exceptions, FERS retirees don’t get any COLAs until they turn 62, if they retire before that age.

Why is there a discrepancy between the two COLAs? According to this history of the creation of FERS in 1986, at that time “certain arguments were used by those trying to reduce the cost of federal employee pensions—that the retirement ages were too low, the cost-of-living adjustments too generous, and the plan greatly underfunded. Articles published for the general public told anecdotes of long-retired employees getting paid more than the active employees who replaced them.”

As a result, the “diet COLA” for FERS emerged as a compromise. Will that change? The idea has wide support from federal employee groups, but this isn’t the first time a proposal like this has been made. And it hasn’t happened yet.

Postal Changes

There’s a new Postal Service Health Benefits program on the horizon, separate from the Federal Employees Health Benefits program. Like FEHB, PSHB is administered by the Office of Personnel Management. It will provide health insurance to eligible Postal Service employees, annuitants, and their eligible family members starting in 2025. Postal Service annuitants and their eligible family members who are entitled to Medicare Part A will need to enroll in Medicare Part B during a six-month special enrollment period. Those who qualify for the special enrollment will be notified by April 1, 2024.

According to a National Active and Retired Federal Employees Association analysis, the only exceptions to the Part B requirement are for the following groups:

• Current postal annuitants as of Jan. 1, 2025, along with any of their family members.
• Postal employees who are at least age 64 as of Jan. 1, 2025, and their family members.
• Postal annuitants or family members who can demonstrate they live outside the United States.
• Annuitants or family members enrolled in health benefits provided by the Department of Veterans Affairs or eligible for health services from the Indian Health Service.

The first opportunity to select a PSHB plan will take place during open season in late 2024. OPM will provide more information as it becomes available.

New Prescription Drug Plans

OPM is encouraging FEHB carriers to offer Medicare Advantage Prescription Drug Employer Group Waiver Plans, which are designed to maximize value to enrolled individuals under FEHB and Medicare. These are special plans more generous than standard Medicare Advantage plans.

In recent years, a growing number of FEHB carriers have offered such plans. They must provide benefits that are at least the same as those offered by other Medicare plans. FEHB participants will learn more about the new option during the 2023 annual FEHB open season, which will run from Nov. 13 through Dec. 11.