A budget resolution approved by the House and Senate will allow for a reconciliation bill that many believe will reduce federal employees’ benefits. The resolution requires several committees to submit recommendations for budget cuts by May 9. The House Oversight and Reform Committee is seeking $50 billion in savings. With the federal workforce being by far the primary focus of their spending, it is also expected to be the primary focus of their cuts. A budget document that has been circulating proposes raising the FERS contribution to 4.4% for all employees, eliminating the Retirement Annuity Supplement, and changing the annuity calculation to a “High 5.”
A committee document has provided some additional details. Generally, benefit changes, such as increases to the FERS contribution level, take effect at the beginning of the calendar year. The increase to a “high-5” annuity calculation base would apply to those retiring on or after January 1, 2027. If you’re not sure of the impact this would have on your annuity, it might be a good time to get a comprehensive benefits analysis. This can help you make an informed decision about the best time to retire.
Standardizing the FERS contribution rate to 4.4% across the board would ultimately result in a pay cut for employees hired before 2014. Initial outlines show that for those currently paying 0.8%, the increase would come in two stages: a 1.8 % increase in calendar year 2026, followed by another 1.8% increase in calendar year 2027. Feds who are currently contributing at 3.1% would see a 1.3% increase in 2027. A little over half of the current federal workforce was hired within the last ten years, meaning they already pay into FERS at the proposed 4.4% rate. It is estimated that equalizing the rate will result in savings of $44 billion over the next decade.
According to language in the committee document, elimination of the FERS supplement would apply to anyone becoming eligible for that benefit after “the date of enactment of this act.” Many employees who accepted the deferred resignation offer and agreed to retire at the end of September are scrambling to adjust their retirement date to beat the clock or reviewing the numbers to see how losing this added money will affect them.
As reductions to the federal workforce continue to unfold, civil servants face an unprecedented amount of uncertainty. Retirement-eligible feds may find themselves at a crossroads, unsure which path provides more stability. A Federal Retirement Consultant (FRC®) can give you a clear snapshot of where you stand and an understanding of how your benefits work in retirement. They can also identify any gaps in your retirement plan and offer solutions that best fit your needs and goals.
