Changes in federal retirement policies included in President Trump’s budget proposal would impose substantial new costs to active employees to fund their future benefits while reducing the value of benefits for both current and future retirees.
However, the proposal released Tuesday is only the White House’s opening bid in what often is a long and contentious process, and federal employee organizations and some members of Congress already are decrying the proposals. Similar ideas have been raised numerous times in the past only to die in the process of setting a budget for the next fiscal year.
As earlier indicated, the budget would seek to increase required contributions by FERS employees to retirement by 1 percentage point in 2018 and by an additional 1 point each year over five to six years, until the employee and employer contributions are equal. Since the government contribution would go down proportionately, the budget shows a saving to the government—and thus a cost to employees—of $1.7 billion in the first year, $24.1 billion over five years and $72.1 billion over ten years.
More than nine-tenths of current federal employees are under FERS. For those under CSRS, required contributions would remain the same, apparently on the theory—and in a departure from similar prior proposals—that CSRS employer and employee contributions already are equal.
The budget also would hit both current and future retirees by denying COLAs to those retired under FERS while shaving 0.5 percentage points off the COLA for CSRS retirees. The theory behind the different treatment—again a departure from past proposals to cut COLAs that would have targeted the two systems equally—apparently is that FERS retirees would continue to benefit from full inflation protection on their Social Security benefits.
About two-thirds of current retirees are drawing benefits under CSRS, although among new retirees two-thirds are under FERS. The budget projects a saving to the government—and thus a cost to current and future retirees—of $9.7 billion over five years and $41.8 billion over 10 years.
COLAs are based on an inflation index and in recent years have been mostly in the 1-2 percent range, although within the last decade there have been three years when no increase was paid since the count finished in negative territory. In two of those years, 2012 and 2009, COLAs were notably higher: 3.6 and 5.8 percent, respectively, for CSRS retirees, a percentage point lower for FERS retirees due to a reduction that applies under FERS if the base figure exceeds 3 percent.
The budget also projects changing benefit calculations of future retirees to base them on the highest five consecutive salary years rather than the current “high-3”; and eliminating for future retirees the “special retirement supplement” paid to those under FERS who retire before age 62 until they reach that age and Social Security begins.