Section 90002 would eliminate the annuity supplement for most newly retired people under FERS. Employees who retire under a mandatory authority would continue to receive the Social Security supplement as under current law. Current FERS annuitants and those who retire before enactment also would continue to receive the supplement. Image: Olesia Bech/Shutterstock.com
By: FEDweek StaffFollowing are key sections of a Congressional Budget Office analysis and projection of budgetary impacts of federal retirement-related proposals in the House budget reconciliation bill.
Following are key sections of a Congressional Budget Office analysis and projection of budgetary impacts of federal retirement-related proposals in the House budget reconciliation bill. Note: Since this analysis was done, the bill has been changed to drop earlier language that would have required all FERS employees to pay 4.4 percent of salary toward their retirement, which would have meant an increase for the nearly half of FERS employees currently paying less.
The bill also was changed to make the elimination of the annuity supplement effective for those newly retiring in 2028 and later, rather than on enactment. The change to a high-five salary base was similarly pushed back to 2028, a one-year delay in that case.
Those falling under special retirement provisions—which include mandatory retirement—for law enforcement officers, firefighters and air traffic controllers would be exempt from each of these provisions.
Elimination of FERS Annuity Supplement
Under current law, certain FERS employees who retire before age 62 receive a supplement to their annuity that is intended to equal the amount they would receive from the Social Security Administration if they were eligible for Social Security benefits at the time of retirement. The annuity supplement ends when the retiree turns 62 or becomes eligible to receive Social Security benefits.
Section 90002 would eliminate the annuity supplement for most newly retired people under FERS. Employees who retire under a mandatory authority would continue to receive the supplement as under current law. Current FERS annuitants and those who retire before enactment also would continue to receive the supplement.
Using data from the Office of Personnel Management (OPM), CBO estimates that about 21,000 new FERS retirees who do not retire under a mandatory authority are added to the annuity supplement rolls each year. In fiscal year 2025, the average annual supplement for affected annuitants would be about $18,000, CBO estimates. Those annuitants begin to receive the supplement, on average, at age 59 and would therefore receive the supplement for about three years. On that basis, CBO estimates that eliminating the supplement for new annuitants would reduce direct spending by $10.0 billion over the 2025-2034 period.
High-5 Average Pay for Calculating CSRS and FERS Pension
Most federal employees hired before 1987 are part of the Civil Service Retirement System (CSRS), the defined benefit pension plan that was replaced by FERS. Under current law, retirement annuities under both systems are based on a participant’s average salary over the three consecutive years with their highest earnings.
Section 90003 would change the annuity calculation to use a five-year average for most CSRS and FERS employees who retire on or after January 1, 2027. The annuity calculation for employees who are subject to mandatory retirement would remain at the three-year average, as under current law.
Using data from OPM, CBO estimates that about 90,000 employees who are not subject to mandatory retirement are added to the CSRS and FERS retirement rolls each year. Under current law, the average monthly benefit for CSRS annuitants was about $5,700 in fiscal year 2024; for FERS the average was about $2,300. Using the five-year average, rather than the three-year average, would reduce an affected retiree’s annuity by about 3 percent. CBO estimates that enacting section 90003 would reduce direct spending by $3.1 billion over the 2025-2034 period.
Election for At-Will Employment and Lower FERS Contributions for New Federal Civil Service Hires
Section 90004 would require most new federal civilian hires to choose either to serve as at will employees or to contribute an additional five percent of their salary toward their retirement. The change would apply to employees hired or appointed after enactment. It would not apply to employees who cannot appeal adverse actions to the Merit Systems Protection Board, including most USPS employees. It also would exclude certain other employees, including positions excepted from the competitive service due to the confidential, policy focused nature of their work.
At-will employees can have their employment terminated at any time without cause. Those employees retain protection under antidiscrimination laws, however, including laws that prohibit termination on the basis of race, sex, or religion. Under this provision, new hires who choose not to become at-will employees would retain civil service protections that require employers to show cause for any adverse personnel action and would retain the right to appeal employment termination.
Based on data from OPM, CBO estimates that roughly 124,000 affected federal hires will enter FERS in fiscal year 2026 with an annual salary of about $71,000, on average. Using data about employees’ perceptions of job security and willingness to forgo current compensation for future benefits, CBO estimates that roughly one quarter of affected federal hires would choose to contribute an additional 5 percent of their salary toward retirement rather than enter into at-will employment. On that basis, CBO estimates that the larger retirement contributions of those who reject at-will employment would increase revenues by $4.7 billion over the 2025-2034 period.
Federal agencies also are required to contribute toward employees’ retirement. Under section 90004, agencies’ contributions would decrease by the same percentage that employees’ contributions rise. CBO estimates that reduced employer contributions for FERS employees in agencies other than USPS would decrease spending subject to appropriation by $4.5 billion over the 2025-2034 period.
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