A budget resolution approved by the House and Senate will allow for a reconciliation bill that many believe will reduce federal employees’ benefits. The resolution requires several committees to submit recommendations for budget cuts by May 9. The House Oversight and Reform Committee is seeking $50 billion in savings. With the federal workforce being by far the primary focus of their spending, it is also expected to be the primary focus of their cuts.
A budget document that has been circulating proposes raising the FERS contribution to 4.4% for all employees, eliminating the Retirement Annuity Supplement, changing the annuity calculation to a “High 5,” and restructuring the premium sharing for FEHB.
While the budget document identifies which benefits may be impacted, it doesn’t specify an effective date. Generally, benefit changes, such as increases to the FERS contribution level, take effect at the beginning of the calendar year. However, since these changes would yield immediate savings, there may be a desire to fast-track implementation. If that scenario plays out, it could leave retirees who are planning to retire at the end of the year facing a reduced annuity based on their “High-5” as opposed to the “High-3” they’ve likely been using in their retirement calculation.
Standardizing the FERS contribution rate to 4.4% across the board would ultimately result in a pay cut for employees hired before 2014. With a pay freeze already expected for the next fiscal year, there would be no increase to offset the loss. A little over half of the current federal workforce was hired within the last ten years, meaning they currently pay into FERS at the proposed 4.4% rate. It is estimated that equalizing the rate will result in savings of $44 billion over the next decade.
As reductions to the federal workforce continue to unfold, civil servants face an unprecedented amount of uncertainty. Those who are retirement-eligible may find themselves at a crossroads, unsure which path provides more stability. A Federal Retirement Consultant (FRC®) can give you a clear snapshot of where you stand and an understanding of how your benefits work in retirement. They can also identify any gaps in your retirement plan and offer solutions that best fit your needs and goals.
