Benefits Cuts Are (Probably Not) Coming!

In 1986, not long before the implementation of the Federal Employees Retirement System, CQ Researcher reported on the Reagan administration’s plans to replace the existing Civil Service Retirement System.

“The president's 1987 budget once again proposes to make the new federal retirement system akin to private pension plans, but with one big difference,” the report stated. “Unlike most private sector workers, federal employees contribute directly to their pensions—currently 7 percent of salary under CSRS, after taxes, which Reagan wants to increase to 9 percent. He objects to federal retirement without penalty as early as age 55, after 30 years of service. The president would raise the retirement age to 62. He also has asked Congress to limit cost-of-living increases in pension benefits, a provision most private-sector plans do not offer.”

Does any of this sound familiar?

Fast-forward to 2018, and President Trump’s new management agenda reiterates a proposal to alter retirement benefits. Office of Personnel Management Director Jeff Pon says requiring feds to wait five years to vest in their pensions “just doesn’t make sense” for the modern workforce. The administration recommends moving away from pensions altogether and toward a defined contribution-only system. This, officials say, would better align federal retirement benefits with those offered by private sector employers.

The National Active and Retired Federal Employees Association has identified nine areas where the president’s fiscal 2019 budget would have a negative impact on federal employee retirement benefits:

• Eliminating COLAs for current and future FERS retirees.
• Reducing COLAs for CSRS retirees by 0.5 percent each year from what they would have been otherwise.
• Increasing FERS employees’ contributions to their annuities by 1 percent each year for the next six years, without any corresponding benefit increase.
• Eliminating the FERS annuity supplement for new retirees.
• Reducing the rate of return on the Thrift Savings Plan’s government securities (G) Fund.
• Basing pensions for new retirees on the average of the highest five years of salary instead of the highest three.
• Freezing federal employee pay in calendar year 2019.
• Reducing total paid time off by combining sick and annual leave into one pool. This proposal could decrease annuities, because unused sick leave is counted towards creditable federal service.
• Cutting working and retirement-age benefits for federal workers disabled through their service.

The Trump administration’s budget also proposes to change how the Office of Personnel Management determines the employer contribution under the Federal Employees Health Benefits Program, replacing the current 72 percent of the weighted average of all plan premiums. “Under this proposal, the government contribution would range between 65-75 percent depending on a plan’s performance,” administration officials wrote in a fact sheet on the budget. “This proposal would encourage enrollment in high-performing health plans.”

These ideas are nothing new to federal employees. The creation of FERS, for example, was held up partially due to a compromise that resulted in a “delayed, diet COLA” for FERS retirement benefits.

So how should federal employees react to the latest proposals? Some have decided to get out before anything changes—although changes to COLAs and to premiums for health benefits also would affect retirees. Others hope these changes can be avoided as they have been in the past through lobbying efforts by groups representing federal workers and retirees.

In the midst of all of the discussion of retirement benefits, it’s important to remember that the Civil Service Retirement and Disability Fund has been deemed solvent and able to pay out benefits for the next 75 years. Based on this projection, there seems to be no need to change current retirement benefits. FERS solved long-term funding problems more than 30 years ago.

Remember, a legislative proposal faces a long journey before becoming law. (And some current proposals actually would boost benefits for certain employees.) I don’t  recommend making a decision to retire solely on policy proposals that are unlikely to be implemented this year, if ever.

Photo: Flickr user Josh Escobedo