Deficit Commission Recommends Freezing Federal Salaries, Changing Retirement Calculations

View this article online at http://www.fedsmith.com/2010/11/10/deficit-commission-recommends-freezing-federal-salaries/
By • November 10, 2010 Comments

What does the future hold for you in your federal career and in your retirement?

Don’t answer too quickly. You may be in for a surprise.

Deciding how to cut federal spending is going to result in some unhappy people. One person’s “pork barrel project” is another person’s “essential spending to create new jobs.”

The initial draft report for President Barack Obama’s bipartisan deficit commission has been released by the co-chairmen and contains recommendations that, if enacted, would directly impact the federal workforce. Federal employee salaries and benefits have been growing during a recession and there has been an avalanche of articles, and an occasional defense of salaries by federal employees unions and OPM after the OPM director initially cited the need for a more credible analysis of the federal salary structure.

The growth of federal salaries in a period of high unemployment and several reports comparing the average federal salary to a lower private sector wage structure make federal employee pay and benefits an obvious target for reducing spending—and the deficit commission is aiming at the federal workforce in its draft report..

Keep in mind that this is a draft report. There is no indication it will be adopted anytime soon or ever adopted as currently written. Any final decision will be made after a debate in Congress and that is not likely to happen right away.

The timing for releasing the draft report is not accidental. The new proposals were released as the Treasury Department reported that the federal government began the new fiscal year with a deficit in October that is the third highest October shortfall on record. Last month’s federal deficit set the stage for what is expected to be a third consecutive year of $1 trillion-plus deficits which highlights the necessity for cutting spending in ways that will make some segments of our society unhappy. 

Here are several examples of potential savings that may impact the federal workforce in varying degrees:

  • Freeze federal salaries, bonuses, and other compensation at non-Defense agencies for three years ($15.1 billion in savings)
  • Freeze federal salaries, bonuses, and other compensation at the Department of Defense for three years ($5.3 billion in savings)
  • Cut the federal workforce by 10% (2-for-3 replacement rate) ($13.2 billion in savings) 
  • Use highest 5 years to calculate civil service pensions
  • Ask federal workers to contribute 1⁄2 the cost (not 1/14th) of their retirement annuity contribution (See page 38 of the attached report)
  • Reform COLA payments for civilian & military early retirees to adopt a “more accurate measure of savings” to achieve savings
  • Switch to a more accurate measure of inflation (chained CPI) for calculating COLAs
  • Raise the regular Social Security retirement age to 68 in about 2050 and to 69 in 2075

You can download the entire draft report to see the full package of proposed changes to the federal budget structure.

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About the Author (  |   )

Ralph Smith has several decades of experience working with federal human resources issues. He has written extensively on a full range of human resources topics in books and newsletter and a co-founder of two companies and several newsletters concerning federal human resources.

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