Why Focus on Federal Employee Benefits?
With the U.S. national debt surpassing $34 trillion and budget deficits persisting, federal policymakers are scrutinizing every corner of government spending. One recurring target: the compensation package for over 2 million federal civilian employees. Salaries, health insurance, paid leave, and retirement benefits, often seen as more generous than private-sector equivalents, have sparked proposals to trim costs. Critics argue these perks create a compensation premium (sometimes pegged at 17% or higher when benefits are included), making federal workers a logical focus for savings in a strained budget.
What’s Under Consideration?
- Increasing Retirement Contributions
Federal employees under FERS contribute varying percentages of their salary to their pensions — 0.8% for pre-2013 hires, 3.1% for 2013 hires, and 4.4% for those hired in 2014 or later — all for identical benefits. A common proposal would standardize contributions at 4.4% for all, shifting more costs to workers. Another version suggests a gradual move to a 50-50 employee-employer split, akin to some private-sector 401(k) setups, to ease the government’s burden. - Adjusting Retirement Calculations
FERS pensions currently use an employee’s highest three consecutive years of salary (the “High-3”) to calculate annuities. Switching to a “High-5” formula—averaging the top five years—would reduce payouts, particularly for those with late-career raises. Another idea is to eliminate the FERS annuity supplement, which supports retirees under 62 until Social Security kicks in. - Reforming Health Benefits
The Federal Employees Health Benefits (FEHB) program, serving over 8 million employees, retirees, and dependents, sees the government covering 70-75% of premiums. Proposals include shifting to a voucher system with a fixed contribution, forcing employees to absorb more of rising costs. Alternatively, barring new retirees from FEHB eligibility, a rarity in the private sector, could trim long-term expenses. - Scaling Back Leave and Raises
Federal workers earn 13-26 days of annual leave (depending on service length) and 13 days of sick leave yearly, often outpacing private-sector norms. Aligning these with market averages is one suggestion. Another is replacing automatic annual pay raises with merit-based increases, though defining “merit” remains a sticking point. - Workforce Reduction Incentives
Beyond direct cuts, some propose boosting voluntary separation incentives – raising buyout caps from $25,000 to $40,000 or easing eligibility – to shrink headcount. Fewer employees mean lower benefit costs over time, though initial payouts could offset early savings.
These proposals aim to curb spending, but how much could they save, and at what cost? Tomorrow, we’ll explore the potential fiscal impact, the trade-offs for employees and agencies, and the political and practical challenges ahead.
