[VIDEO] White House Revives Federal Employee Retirement Cuts in 2020 Budget Proposal

So, the White House has revived a series of cuts in its 2020 Budget Proposal, which would ultimately affect pay, retirement and health benefits of federal workers. With 2.1 million civilian employees, the US government is the largest employer in the country, so it’s no wonder why these benefits are constantly on the chopping block.

Within the proposal is a laundry list of cuts that would adversely change or adjust federal employees’ benefits, with a strong focus on retirement benefits. Most of the proposals were recommended by the administration during the 2018 and 2019 budget cycles, but they couldn’t gain traction and were rejected by congressional appropriators. While I don’t believe these cuts will happen, it’s always prudent to stay on top of the news, since you really never know.

So let’s take a quick look at some of the top items in the crosshairs in the 2020 proposal. First is a plan to require FERS federal workers to contribute 1% more towards their retirement annuity each year until those payments reach 50 percent of cost – which means until the employee and government share are equal. That means it would cost FERS employees a little bit more out of their check to fund their retirement, taking some additional burden of the Government.

Also under the proposal, the budget would eliminate cost of living adjustments for FERS retirees, and would reduce COLAs for CSRS participants by ½%. The COLA adjustments are an extremely important benefit so the federal pensions can keep up with inflation. Without COLA adjustments, the purchasing power of the federal annuity would go down over time throughout retirement. 

Another really big proposed cut would do away with the FERS special retirement supplement for federal workers who retire before age 62. The FERS SRS is paid by OPM and is intended to bridge the gap between full retirement eligibility and age 62, when Social Security benefits kick in. While I feel this has no chance of getting approved, if it did, it would have a devastating effect on qualifying FERS employees.

Also under the proposal, the Trump administration proposed reducing pension payments to retirees by computing their retirement annuity based on the average of workers’ Hi-5 years of salary, rather than the current Hi-3 years. This means that instead of basing your Federal pension on the highest 3 consecutive years, it would be based on the highest 3 consecutive years, which would ultimately bring down your federal annuity.

The budget plan also renews a proposal to cut the interest rate of the Thrift Savings Plan’s G fund. With these proposed changes, the G Fund interest rate would be reduced and be based on the yield on 3-month US Treasury bills instead of the current rate (which is an average rate of medium and long term Treasury bonds). Under the new proposal, the G Fund interest rate would have an annual yield of 0.84 percent – based on current rates. The TSP, which receives no appropriations from Congress, has consistently opposed any changes to the G Fund’s rate of return, and in 2017 said such a move would make the portfolio virtually worthless.

Finally, a last big proposed budget cut would modify the government’s contribution towards the Federal Employees Health Benefits Program premiums. Last year, the White House suggested shifting away from the Office of Personnel Management’s current policy to fund 72 percent of the weighted average of all plan premiums with a 75 percent cap and instead contribute between 65 and 75 percent, depending on a plan’s performance.

I know these changes might have your head spinning and may cause you some concern, but the good news is, these are just proposals, and for the proposals to become reality, they must first be approved by Congress — something that I feel is quite unlikely with a Democratic House. Either way, It’s just prudent to pay attention and keep a watchful eye on news surrounding these proposals so you aren’t caught off guard if something does come out of them.