House-Passed Budget Bill Puts Federal Employee Retirement Benefits in Grave Danger
On February 25, the House of Representatives voted to advance “one, big beautiful bill,” President Trump’s preferred method to advance his agenda. It sets the stage for congressional Republicans to extend Trump’s 2017 tax cuts, as well as enhanced border security, defense spending, and “energy dominance.” The measure passed by a vote of 217-215.
During debate on the budget, Ways and Means Committee Chairman Jason Smith (R-MO) urged his colleagues to support the measure. “Protecting and building on President Trump’s signature tax cuts will deliver an America First economy to usher in a new golden age of prosperity,” Smith said.
The resolution includes reconciliation instructions that direct 11 House committees to submit legislation that will increase or decrease the deficit over FY2025-FY2034 and increase the statutory debt limit by specified amounts. Pursuant to the bill, the Oversight and Accountability Committee must submit $50 billion in cuts to over 10 years to the House Budget Committee by March 27, 2025.
Earlier this year, the House Budget Committee released lists of potential cuts, along with the expected savings. As we have noted many times, the only way the Oversight and Accountability Committee can come close to meeting the $50 billion threshold is by increasing pension contribution requirements for all federal employees and several other cuts to retirement and health benefits. Below is a table of likely cuts to expect:
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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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