The purpose of this memorandum is to review proposals and the current status of federal retirement programs. Our legislative team is working to monitor the proposals and urging Congress to protect the current system. The below includes proposals released by both the President and the House of Representatives. The Senate Budget Committee has not yet released their proposal.
On May 23rd, 2017, President Trump announced the Administration’s proposed FY 2018 budget request. In this request are proposals to make significant changes to the Federal Employees Retirement System and the Civil Service Retirement System. Included in the changes are:
- Cost-of-living allowances for current and future FERS retirees eliminated.
- COLAS for CSRS retirees would be reduced by 0.5 percent each year.
- FERS employees would see employee contributions to their annuities increased by one percent each year for the next six years, without any corresponding benefit increase.
- The FERS annuity supplement would be eliminated for new retirees starting in 2018.
- Federal pensions would be based on the average of the highest five years of salary instead of the highest three.
Following the President’s FY 2018 request, the CBO argued that these changes would better align federal practices with those in the private sector through:
- Basing pensions on five-year average earnings.
- Many employers not offering health insurance benefits for retirees.
- Many companies shifting from lifetime annuities to defend contribution plans that require smaller contributions from employers.
However, the CBO also noted that these changes would lessen the attractiveness of the overall compensation package provided by the federal government, potentially affecting the ability to attract and retain a highly-qualified workforce. Additionally, under the President’s proposed changes, positions requiring professional and advanced degrees may become harder to fill, private-sector counterparts already provide a higher compensation to comparable federal government positions.
Under the current budget circumstances and within the current political situation, it will be difficult for the President’s proposed changes to become reality. The President’s budget request is the first step in a long process to actually forming the budget.
On July 19th, 2017, the House Budget Committee approved their FY 2018 Budget 22-14. At this time, the House of Representatives has not yet scheduled floor or full House consideration of their Committee proposal. However, Speaker Ryan has publicly stated that the House will consider the budget in September.
The House FY 2018 budget instructions dictate that the Committee on Oversight and Government Reform to submit changes in laws within its jurisdiction sufficient to reduce the deficit by $32 billion for the period of fiscal years 2018 through 2027. The House FY 2018 budget includes measures affecting changes to federal government retirement practices, including ending the supplement only for future retirees, how much to raise the required contribution, over how long a period, and whether it would apply to all employees, to reach this required $32 billion savings over the next 10 years.
The Budget committee report includes the language, “Reform Civil Service Pensions. The policy describes in the Income Support, Nutrition, and Related Programs section of this report would increase the share of Federal retirement benefits funded by the employee. This policy has the effect of reducing the personnel costs for the employing agency. The budget assumes savings from a reduction in agency appropriations associated with the reduction in payments that agencies make into the Civil Service Retirement and Disability Fund for Federal employee retirement.”
Additionally, the Report includes the following policy statement on the same, “Reform Civil Service Pensions. This budget adopts a policy proposed by former President Obama’s National Commission on Fiscal Responsibility. The policy calls for Federal employees, including members of Congress and staff, to make greater contributions toward their own defined benefit retirement plans. It would also end the ‘‘special retirement supplement,’’ which pays Federal employees the equivalent of their Social Security benefit at an earlier age. This would achieve significant savings while recognizing the need for new Federal employees to transition to a defined contribution retirement system. The vast majority of private sector employees participate in defined contribution retirement plans. These plans put the ownership, flexibility, and portfolio risk on the employee as opposed to the employer. Similarly, Federal employees would have more control over their own retirement security under this option. President Trump’s fiscal year 2018 budget calls for a phased-in increase to contributions federal employees pay into the Federal Employee Retirement System so that both employees and the government are contributing an equal amount.”
And finally, the Report encourages limiting Federal Health Coverage Funding for federal employees. It states, “currently, Federal contributions to the Federal Employee Health Benefits Program grow by the average weighted rate of change in these programs. This budget supports restricting the growth in these plans to inflation. It also proposes restricting Federal employees’ retirement benefits based on length of service, which would bring Federal benefits in line with the private sector model.”