The Congressional Budget Office (CBO) routinely publishes reports outlining options to reduce the federal deficit, some of which could significantly impact federal employee benefits. These proposals, while not formal recommendations, are influential in budget discussions as they provide estimates of potential cost savings.
Standardizing FERS Contributions
Currently, employee contributions to the Federal Employees Retirement System (FERS) depend on hire date: 0.8 percent of salary for pre-2013 hires, 3.1 percent for those hired in 2013, and 4.4 percent for post-2013 hires. The proposal calls for standardizing contributions at 4.4 percent across the board, generating an estimated $40 billion in additional revenue for the federal retirement fund over 10 years.
Modifying Health Insurance Contributions
One notable proposal focuses on the Federal Employees Health Benefits (FEHB) and Postal Service Health Benefits (PSHB) plans. The CBO suggests replacing the current system, where the government pays a percentage of premiums, with a fixed-dollar “voucher.” Employees and retirees would use this voucher toward their insurance premiums, covering any shortfall out of pocket.
While the voucher amount would rise with general inflation, healthcare costs typically grow faster, meaning enrollees would shoulder more of the expense over time. Over a decade, this approach could save the government between $14 billion and $20 billion, depending on the inflation metric used.
Adjusting Pay Raise Formulas
The CBO recommends adjusting the formula that links annual raises to private-sector wage growth. Reducing the current formula by an additional percentage point could save $77 billion over the next decade. However, the report acknowledges that Congress frequently overrides the statutory formula when determining pay increases, so the savings potential may depend on how closely lawmakers adhere to the proposal.
While the CBO’s proposals are not mandates, they underscore the types of fiscal policies lawmakers might explore to address the growing federal deficit. For federal employees and retirees, these changes could lead to higher costs, reduced benefits, and new financial challenges. As these ideas circulate in policy debates, they are likely to draw both scrutiny and resistance from affected stakeholders.
Restructuring federal benefits to close the budget gap remains a contentious issue, and any serious attempt to enact these measures would face significant political hurdles. However, the CBO’s report highlights the ongoing tension between managing government costs and maintaining commitments to the federal workforce and retirees.
