As we’ve discussed in previous Washington Reports, congressional Republicans are crafting budget reconciliation legislation on defense, energy, and the border, in addition to lifting the debt limit and renewing the 2017 tax cuts that are scheduled to expire at the end of 2025.
House Republicans are nearing the final draft package, which Speaker Mike Johnson (R-LA) said could be marked up in the House Budget Committee as soon as Tuesday, February 11. Contemporaneously, the Senate Budget Committee is expected to meet next week to mark up its own FY2025 budget resolution, in preparation for a two-bill reconciliation strategy.
In order to pay for these priorities, Congress is considering a host of spending cuts, including several proposals that would directly impact federal employee retirement and health benefits.
The House Budget Committee released lists of potential cuts, along with the expected savings. Many of these cuts have been proposed before, and FMA has been successful in preventing them in the past. However, it will be an uphill fight if these proposals are included in a reconciliation package, as it cannot be filibustered. We are particularly concerned about increases to pension contributions, elimination of the FERS annuity supplement, and the shift from the High-3 to the High-5. We do not yet know if or which of these proposals will be included in the final budget reconciliation bill, but we want to share what is being considered:
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Proposal
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Savings
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Description
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Raise FERS Contribution Rate to 4.4 Percent
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$44 Billion over 10 years
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In the Federal Employees Retirement System (FERS), employee contribution rates are tiered by year hired: 0.8 percent if hired in 2012 and earlier, 3.1 percent if hired in 2013, and 4.4 percent if hired in 2014 and after. This option would raise the contribution rate across-the-board to 4.4 percent.
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Eliminate FERS Supplemental Retirement Payments
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$5 -13 Billion over 10 years
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This option would eliminate the supplement to FERS employees who retire before they are eligible for Social Security. Under current law, if an employee retires before 62, a supplemental FERS payment is made to bridge the employee until they are eligible for Social Security. This change will align federal retirement policies more closely with the private sector and encourage longer service.
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Base FERS Retiree Benefit on High-5 Instead of High-3 Salary
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$4 Billion over 10 years
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This policy option would change the FERS retirement formula to use the average of employees' earnings over the five consecutive highest earning years as opposed to the currently used calculation of the highest three consecutive years. This shift, which would reflect employees’ career earnings more accurately and be more in line with private sector plans, would reduce FERS spending to ensure the system’s long-term sustainability.
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Enact Federal Employee Health Benefits Protection Act (H.R. 7868)
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$2.1 Billion over 10 years
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Under this Act, OPM must conduct a comprehensive audit of employee family members currently enrolled in the FEHB program and disenroll or remove from enrollment any ineligible individual found to be receiving FEHB benefits.
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Convert New Federal Workers to At-Will Employment Unless They Accept Higher FERS Contribution
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Unknown
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This option would require future federal employees to elect between two classification systems: the current system with merit-based civil service protections or a new at-will classification. If an employee elects to be classified in the at-will classification, they will maintain a lower FERS annuity contribution rate (4.4 percent or lower). However, for employees that elect to be classified under the current merit-based civil service system, their annuity employee contribution would be increased to a higher rate. Since a significant percentage of future civil service employees would elect to take advantage of the job protections of the current merit-based civil service system, this reform should yield mandatory savings due to the reduction in federal agencies’ FERS annuity contribution share.
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Eliminate Official Time Unless Unions Compensate the Federal Government
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Unknown
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This reform would charge federal labor organizations for their use of agency resources as well as any official time.
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Charge a Fee for Federal Employee MSPB Appeals
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Unknown
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Federal employees subject to adverse action by their agency, including dismissal, can appeal their case to the Merit Systems Protection Board (MSPB). In the majority of cases, MSPB upholds the ruling of the agency. This policy option would charge a fee for federal employee MSPB appeals, raising revenue while reducing the cost of frivolous MSPB filings
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Adjustment to Limit of Federal Employee Buyouts
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Unknown
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This policy option would increase the federal employee buy-out threshold from the existing $25,000 maximum allowance for civilian employees to $40,000 (in parity with DOD’s current authority) and would establish a $2 billion Voluntary Separation Incentive Payment Fund within the U.S. Treasury to fund these buyouts. It would also lower the 20-year Voluntary Early Retirement (VER) option to 15 years of service.
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Move FEHB from a Premium-share Model to a Voucher Model
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$16-18 Billion over 10 years
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The FEHB program provides the federal workforce and annuitants (and their dependents and survivors) with health insurance coverage. The FEHB program also covers postal workers but beginning in 2025, those benefits will be provided through the Postal Service Health Benefits (PSHB) program. Under this option, the FEHB and PSHB programs would be reformed by replacing the current premium-sharing structure with a voucher, which would not be subject to income and payroll taxes. CBO classifies the federal share of premiums for most federal employees as discretionary but federal spending on premiums for annuitants and postal workers is classified as mandatory.
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