Deficit Reduction Commission Proposals Are Still Around: What Will It Mean for Your Pay and Benefits?

The deficit reduction commission made a number of proposals late last year, including some that would impact federal pay and benefits. President Obama has been silent on the recommendations. That may be about to change.

When the election results rolled in last November, the political landscape had changed. Voters were aware of the general nature of the fiscal problems facing the country–even though many in Congress and the administration did not want to emphasize the deficit and, instead, focused on stimulus spending, a national health care plan, and did not even get around to passing a federal budget for fiscal year 2011.

But, since the election and the advent of the new Congress, the focus has definitely shifted.

As we noted in February when the president released his proposed budget for fiscal year 2012:

“No one can predict what, if anything will happen to pay and benefits for federal employees. Last week’s events that raised the possibility of eliminating funding for within-grade increases and federal promotions did not survive the first round of the budget battle and many readers are probably breathing easier.” (See A Perfect Storm for Federal Employee Pay and Benefits)

While the President’s initial budget proposal did not cut spending in the near term, the recent negotiations on the fiscal 2011 federal budget have brought the deficit into focus. Moreover, there are now Republican proposals for cutting federal spending that have been released.

With national elections, including a presidential election, coming up in 2012, there are obviously concerns among anyone running for office about how their decisions will impact their chances to go back to Washington as an elected official.

The “perfect storm” for federal employee pay and benefits is now coming to pass.

According to the Washington Post, President Obama now plans to respond to a Republican blueprint in a speech for tackling the soaring national debt by promoting a bipartisan approach. This approach is the deficit reduction commission he appointed some time ago and which issued recommendations last December.

For federal employees, this could have signifiicant implications on your future career and short term financial situation.

When the deficit reduction commission issued its draft report in November 2010, there were numerous examples of recommendations that would save money and have an impact on the federal workforce.

Here are several examples in the report that would impact the federal workforce in varying degrees:

  • Cut the federal workforce by 10% (2-for-3 replacement rate) ($13.2 billion in savings) 
  • Ask federal workers to contribute 1⁄2 the cost (not 1/14th) of their retirement annuity contribution.
  • 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
  • Achieve nearly $4 trillion in deficit reduction through 2020, more than any effort in the nation’s history.Reduce the deficit to 2.3% of GDP by 2015 (2.4% excluding Social Security reform), exceeding President’s goal of primary balance (about 3% of GDP).
  • Sharply reduce tax rates, abolish the alternative minimum tax, and cut backdoor spending in the tax code.
  • Cap revenue at 21% of the gross domestic product and get spending below 22% and eventually to 21%.
  • Ensure lasting Social Security solvency, prevent the projected 22% cuts to come in 2037, reduce elderly poverty, and distribute the burden fairly.
  • Stabilize debt by 2014 and reduce debt to 60% of GDP by 2023 and 40% by 2035.

Here are recommendations that would impact the federal workforce retirement programs in the report. (See Commission Proposes “High-Three” to “High-Five” for Retirement, Pay Freeze and Changes to FEHB for Federal Employees)


Create a federal workforce entitlement task force to re-evaluate civil service and military health and retirement programs and recommend savings of $70 billion over ten years.

Military and civilian pensions are both out of line with pension benefits available to the average worker in the private sector, and in some cases, out of line with each other across different categories of federal employment. The Commission recommends a federal workforce entitlement review to analyze civil service and military retirement programs in order to 1) Make program rules more consistent across similar programs, and 2) Bring both systems more in line with standard practices from the private sector. The review will have a ten-year savings target of $70 billion; recommendations of the task force would receive fast track consideration in Congress. Examples of program design reforms that the task force should consider include:

  • Use the highest five years of earnings to calculate civil service pension benefits for new retirees (CSRS and FERS), rather than the highest three years prescribed under current law, to bring the benefit calculation in line with the private sector standard.
    (Saves $500 million in 2015, $5 billion through 2020)
  • Defer Cost of Living Adjustment (COLA) for retirees in the current system until age 62, including for civilian and military retirees who retire well before a conventional retirement age. In place of annual increases, provide a one-time catch-up adjustment at age 62 to increase the benefit to the amount that would have been payable had full COLAs been in effect.
    (Saves $5 billion in 2015, $17 billion through 2020)
  • Turning the Federal Employees Health Benefits Program into a defined contribution premium support program that offers federal employees a fixed subsidy that grows by no more than 1 percent over the gross domestic product each year. For federal retirees, the subsidy could pay a portion of the Medicare premium.
    (Saves $2 billion in 2015, $18 billion through 2020)

Keep in mind, this report has not yet been endorsed by President Obama. However, the ideas were those of the Obama deficit commission. While he has been silent on these proposals and, if he does so in an upcoming speech as has been reported, it may be seen as a strange way to endorse the report that has already been out for months. It may be an attempt to regain the initiative as part of an election campaign strategy now that the Republican initiatives have been released, publicized and appear to be setting the tone for negotiations on the debt ceiling and the 2012 fiscal year budget discussions.

We will advise readers on the proposals impacting the federal workforce and appear to be gaining traction in Congress and the administration.

© 2016 Ralph R. Smith. All rights reserved. This article may not be reproduced without express written consent from Ralph R. Smith.


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 newsletters and is a co-founder of two companies and several newsletters on federal human resources.

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  1. Guest 1 says:

    For those of you who voted for him (I did not), can you now understand that you can’t spend money you don’t have? He went into office with a credit card in hand thinking he was going to save the world and create 5 million jobs by spending money to stimulate the economy. People in my office actually believed he would create 5 million jobs! I truly have never been so disgusted in politics as I am now.

  2. Low paid federal worker says:

    As a single person on a GS-9 salary, I believe the defined contribution premium support for FEHB would be more fair than the current situation. In the past, when there was a COLA, the increase in premium would eat up nearly all of the COLA I received. Unlike a single GS-13, who might have some COLA left over after the premium increase. Also, people on family plans get a bigger subsidy from the government than I do. That is an increased benefit for non-merit reasons. Under a voucher, we hopefully would be given the subsidy, single or family.

  3. Seen It All! says:

    Every time I pick up a newspaper or watch the evening news, I hear more about how either our current administration or the Republicans want to decrease the deficit. From raising taxes to decreasing Medicare/Medicaid benefits, both sides think they can do it better and mention timelines of 10-12 years. Well, as a federal employee nearing retirement, I believe it can be done much faster. Every federal employee, who has access to the annual budget for the agency where they currently work, can find items in that budget that are there to satisfy the latest whim of the person who is in charge at that particular time. At the agency where I am presently working, that current whim happens to be “human capital.” A new office with that name was set up two years ago to establish policies on how to recruit, train, retain, and take care of our employees. The office was initially staffed with one employee and had a relatively small budget. Today, that staff has several employees, including contractors and reemployed annuitants, and has an annual budget of well over a million dollars. This federal agency is no different from any other. At my last agency, the Executive suite of offices was remodeled every three years when the administration changed, costing tens of thousands each time. Several years ago, that Executive Office had two secretaries. Today, there are five, because every Executive staff member must have one to serve them personally, and they are no longer called secretaries, but are now higher paid administrative assistants. Bottom line–if the President would utilize qualified federal retirees, who could work as volunteers or low paid consultants, if necessary, to review the annual budgets of every single government activity, large or small, and recommend cuts from those budgets, and work with Medicare/Medicaid offices to uncover fraud and abuse, he would probably find enough wasted money and abuse of funds to reduce the drastically reduce the deficit immediately. It wouldn’t take long for all the government agencies to get the message that wasteful spending is no longer an acceptable practice.

  4. looking beyond the blog says:

    The fact of the matter is this spending spree started in the 70’s, and has grown worse every year. Abandon the blogs and read outside of the box, you will find the economic inequality has been growing by the year. It only became grossly obvious, when we entered into 2 unfunded wars, tax incentives for the wealthiest 1% were passed and extended, the government bailed out the private sector (Wall Street) and no one paid attention to the debt being built up. This is not liberal or right wing, these are facts supported by DOL, OMB, IRS, congressional records, etc. Both parties own the fact that they have sold out to the special interest groups (lobbiests) whose annual expediture for last year was 3.1 Billion. As long as the economic elite can keep the middle class arguing over who owns they blame, buy or rent congressional votes, they can continue to make billions in the shadow. The only real fear they have is the vote and a united middle class. Political Party membership is not a factor. Address the spending cuts at face value. They are aimed at you and I, which unless your in the wealthiest 1% of the nation, makes you and I the sucker.

  5. jdj says:

    I have followed the budget talks and it is inevitable to feel a sense of repugnance towards these politicians. Don’t they realize they are the ones who have orchestrated this debacle. I support the troops overseas in every conflict they are fighting, but the truth is there is no legitimate reason to be fighting. Mr. George W. Bush is responsible for this budget deficit and now they are looking for a scapegoat. You want a scapegoat shift your aim towards Wall Street and Capitol Hill. WE, THE FEDERAL EMPLOYEES ARE NOT RESPONSIBLE FOR YOUR FIASCO.

  6. John Hopping says:

    1) Change minimum military retirement age from 20 to 25 and increase other steps appropriately. No reason a GI should not make an entire career in the military instead of having to start a new second career. If you are tired of military or just want to start a new career, then you can still retire at 25 or 30 or even 35 and have time for another 20 years in a civilian career if you choose. Like all changes, this could be phased in over 5 years on a sliding scale and would save money without a significant impact to service members.

    2) Allow Medicare eligible civilian retirees the OPTION to continue with their normal FHBP after retirement in lieu of mandatory Medicare at age 65. This would provide the member with much better choices for preferred provider care or special care not covered by Medicare, and prescription coverage. This would reduce Medicare costs to some extent while allowing the member more choices to better fit their situation.

  7. Fed up says:

    With no step increases, there is no incentive for people to do much more than necessary to not get fired. That isn’t much, because of how difficult the firing process in the fed is.

    If congress really wants to fix our budget problems, why don’t we attack this from the source…. Entitlements, fraud, waste, abuse, and out of control wars. Why are we send aide to other contries when they have a natural disaster, but want to make cuts on people that are being paid to do a job??? We are NOT leaches on the system, many of us are professionals. Accountants, Lawyers, Natural scientists…… As a young federal worker, how does anyone expect that I am going to stay federal with lower than average pay, soon to be bad benefits, and no real future growth?

    • Guest says:

      A ha! Now you’ve hit upon it! They don’t _want_ you to remain a federal worker – they just want to get rid of us! They think we’re just all a bunch of paper shuffling bureaucrats with no real duties – the wast, fraud, and abuse is US!.

    • really amused says:

      Wow, did you really come into the govt thinking all you had to do was just enough so you wouldn’t get fired? What kind of worker are you? Oh excuse me, you’re the kind that thinks once they sign their name on the dotted line that now the “government owes me.” What a sad excuse of an employee. Why don’t you try a little harder, develop some self-worth, and show your agency what an asset you are. Then, when performance time and RIF comes along you won’t hear those whispers, “He’s not worth keeping…..”

  8. John says:

    Ahh what are you complaining about today is tax freedom day you get to start working to put the money in your pocket now. What a joke one of the things that really erks me is the earned income credit. Wouldn’t mind it too much if they just got back what they paid in but getting thousands more than you paid in is just welfare.

    • Guest says:

      You might be surprised to learn that a very large percentage of the populace regards your federal pay and benefits as welfare too!

      • Phoebek8 says:

        If that’s true, there are more idiots in the populace than we would have guessed. You would have to be naive, misinformed, or just stupid to believe that federal pay and benefits are the same as welfare. Perhaps you base your opinion on your own work habits–or lack thereof. I know very few slackers among the people I’ve worked with for years. Most are very hard workers and deserve every penny they make and more.

  9. Psexton says:

    If we go to the High 5 will that start in October or January. Do I need to retire on September 30 or December 31

  10. Pissfirwilly says:

    It seems that rich are getting richer and the poor are getting poorer – when are Americans going to wake up and get rid of the two party system and go to one party. We should all have a max tax of 25% no excuses that way everyone gets taxed evenly. No spending over our take in, make other countries import as much as they export to America, no more one way deal. Make all the legistrators be a vountary posision with a mandatory first job, and no way to take graff from anyone. No more lobbiest, there i know there should be more oh ya, no more speculating on oil, the price is the price no mater what… Maybe then we will start to become a productive nation again and not ship out our jobs to other nations.

  11. Fed_Manager_in_DC says:

    For the life of me I can’t figure out why people want to act like Fed employees don’t pay taxes too! It’s not like we are living it up off of the American public’s dime. We are part of the tax-paying American public, so leave our benefits alone!

    • Guest says:

      Apparently, it’s because we have not yet sunk to the same economic level as the “average” citizen – the vast majority of which are in retail sales, fast food, selling shoes for Sears, high school dropouts, and the like. Maybe the solution is in Federal recruitment, so that when a vacancy is to be filled the primary qualifications should be ” . . . and must be “average” in every way.” Thus, the politicians and political pundits would get exactly what they feel we should already be for federal employees — average!

  12. guest says:

    the only folks making out in this economy are the illegal immigrants – their children are being educated on my tax dollars, their newborns are considered US citizens and I’m paying their health care costs. It appears their parents can’t be returned because their babies are citizens???? what is wrong with this picture. Where is Homeland Security? What is Homeland Security’s budget – where is the value added? History has repeated itself, fear breeds another bureaucratic agency with no value added. Just keep pouring in those dollars to support the nonsense (pet projects, give aways to other countries, etc.). Why hasn’t the US filed for, bankruptcy – reallll businesses do?

    • Freddy the Fed says:


  13. Ev says:

    I am sick to death of all this crap. I’ve been working for the Federal Gov’t for almost 25 years. Most of the people I work with that are my age are baby boomers. I figure, if I’m lucky, between Gov’t Retirement, SSN and TSP, maybe I will have $40,000 a year to live on and that’s before taxes and my health payments. Geez, the way things are going, we should all start applying for Section 8 assistance, because that’s going to be the only way we will be able to have a roof over our heads. There are going to be millions of us in the poor house. What is wrong with our Representatives? If our pensions are so much better than civilian personnel, this country is in huge trouble.

    • Freddy the Fed says:


  14. Amund1767 says:

    I say we get together and march on Washington.

    • Guest says:

      I used to say (jokingly) that if the unwashed general public ever discovers what really goes on in Washington, D.C., then they will march on it with torches and pitchforks. Guess what — they have now!

  15. Malcolm says:

    “Ask federal workers to contribute 1⁄2 the cost (not 1/14th) of their retirement annuity contribution.”

    This is what is most important to watch if you are FERS. Look on your LES and multiply what you pay for RETIREMENT. Now multiply what you pay by 7. That is the amount of money you will lose if this gets passed. Hopefully they will phase it in if it passes, so hundreds of dollars won’t be taken out at once for each paycheck …

    The next item with most impact is health care coverage.Expect that to change where we all pay more for health coverage …

  16. HRBTUR says:

    One thing he will not do is sharply reduce taxes.

    • FAA says:

      Nor should he, part of the reason we are in this mess is the Bush tax cuts that were unfunded, as well as unfunded wars

  17. upset citizen says:

    Where is the foreign aide reduction? They would rather kill the people in the US then not give more money to other countries like China, Isreal, Egypt, England, etc. What about giving the aid to the people who live in the US. He should also cut welfare and aide to illegal aliens.

  18. Kcraw47 says:

    No mention is made of when these types of changes would occur. People need that timeline info to plan on their retirements. Please post when the anticipated changes would happen.

  19. Alemmo says:

    Hmm so my retirement will consist of 5% to TSP, 6-7% to FICA and Medicare, 6% to FERS. Then another 20-30% in state and federal taxes. Pretty soon I’ll be working for free…..

  20. Fed-up! says:

    Ok.. so let me see if I understand this. They’ve already frozen our pay for three years, now they’re talking about extending it to five years. Will inflation stop during that 5-year period? They want to change the current ‘high-3’ to ‘high-5’ for computing retirement income. Will inflation stop during that 5-year period. While freezing our pay they want to increase taxes (does anyone think they won’t be affected?). Gas prices are on the rise to record numbers.. while we’re not getting a pay increase. Now I read where there may not be a COLA for retired military and civilian workers, while inflation will continue to raise the cost of living.

    And during all this the left side of the aisle wants to ‘spend more money to save money’… Huh?

    I hope those who voted for this guy are happy… I’m certainly not.

    • Guest says:

      “They’ve already frozen our pay for three years, now they’re talking about extending it to five years.”

      With all due respect, you appear to be confusing Obama’s upcoming high-three to high-five proposal with the pay freeze. Our pay has already been frozen for two years, and Obama’s proposal (based on the Simpson-Bowles recommendation) will be to extend the pay freeze to three years.

      In any event, a pay freeze extension will be the least of our worries compared to the retirement contribution increases and the FEHB change to a voucher system, should those proposals actually be enacted.

      • KiloWhiskey says:

        “…retirement contribution increases…” Too true. Let’s see we already kick in for the TSP, now we should fund half our own pension…. maybe we should fund our own salaries too…..

      • fed worker says:

        Your comment on the FEHB change is what frightens me the most. As it is I am spending so much out of pocket even with insurance. I pray that no one approves this change. This is getting really bad and cruel.

    • More Fed Up with BS says:

      Yes – pay has been frozen for 3 years – but not step increases, promotions & awards / bonuses. Changing to a 5 year versus 3 year calculation has nothing to do with inflation. Your taxes would only go up if you are making > $ 250,000 and COLA calculations have nothing to do with Congress or the President. Here’s your choices : Compare what you make at your current job and if you can do better on the outside, go for it.
      And stop confusing proposals made the president with others in Congress. Your bias toward the President is all too obvious.

      • JimInAtlanta says:

        When did pointing out the facts and disagreeing with policy become a bias? And anything passed will be signed by the president. Including current recommendations in congress to also freeze step increases and bonuses. The president is proving to be the worst president since Jimmy Carter and this statement will be borne out by his actions and results, not bias.

        • JoeNY says:

          I will answer your questions, Jim :
          “I hope those who voted for this guy are happy… I’m certainly not” Pointing out ‘facts’ ? This is clearly blaming Obama (‘this guy’) for things that 1 : haven’t happened ( like spend more money to save money ) or 2 : that are not in his control ( think inflation, COLAs and gas prices )
          And let’s be honest here – If Fed-Up is worried about tax increases he is either making > $ 250,000 or simply ignorant about the potential tax rate plan.
          Either way, he is just another of the many forum posters who blame Obama for everything. It’s getting old.
          And you really think that Obama is proving to be the worse president since Jimmy Carter ? Were you sleeping through 2000 – 2008 ??? I think you and Fed-Up are two of a kind.

          • Guest 1 says:

            If the shoe fits, then wear it. He went into the white house spending like a fiend when he KNEW we didn’t have the money. It was a chance he took and it failed. He has to accept respponsibility for his actions just as well as the rest of us do. The gas prices are up – yes – why don’t we drill here and not be so dependent on the middle east for our oil? If you think he is pro-federal employee, you are wrong.

          • guest says:

            Cutting spending in the teeth of a recession is a macro-economic suicide move. Yes, it would have been possible for the recession to have gotten worse than it was with the wrong moves.  If you don’t like the deficit then put the blame where it belongs — on the Repulicans who spent 8 years cutting revenue without cutting spending to match. Republicans – the party of borrow and spend. Now they want Democrats to cut spending but won’t say what.  And when they have a chance to cut out giving away taxpayer money to mutil-billion profit oil companies and thus make a dent in the deficit they refuse — don’t want to hurt their precious rich buddies or their own oil stocks no doubt. Also don’t see the Republicans lining up behind cutting their own salaries, benefits and pensions. Drilling for local oil?  — no real solution there, the reserves wouldn’t even make a dent in our dependance on mid-east oil and the little that would be gained would not come on line for years. Sorry to spoil your day with annoying facts instead of Republican obfuscation boilerplate.
            Republicans are the party of the wealthy, by the wealthy and for the wealthy – the rest of us can ‘eat cake’.

        • Tiredofthebs says:

          Again, go somewhere else with the President Bashing, specifically the Obama bashing, I have more confidence in him that he will not sign off on these anti federal employee initiative proposed by the Republicans. If he does…I will eat my hat….!!!???

      • Guest says:

        Bias? Maybe just common sense!

    • Guest says:

      Obama’s initial profligate spending spree brought this overreaction – while there is plenty of blame to go around, these proposed changes (made by his commission) are fundamentally his fault. Now the opposition has a green light to push back – way back! Any federal employee or retiree that votes for him in the next election will deserve what he/she gets.

    • DOS says:

      This is just dumb. In the first place, the impetus for all these pay freezes are coming from the GOP side of the aisle. Obama is a major disappointment because he capitulates to these guys every time, so in that sense, no I’m not happy I voted for him. But the alternative would’ve been worse…much worse.

      And yes, putting more money in the hands of people who SPEND it does save us money in the long run, because consumers drive this economy. Tax cuts for the wealthy will not help the economy, because they save and invest their money–it does not drive demand. Furthermore, most investment now is overseas in emerging markets. China, Vietnam and India are reaping the benefits of these tax cuts to the wealthy, not our economy.

  21. Dodguy says:

    Yea, cut the military benefits and entitlements at a time when we have 3 wars going on at once. Makes perfect sense to me, you really do not want to have to cut back on federal funding for the cowboy poets in Nevada.

    • Sick of War says:

      The real solution is to stop all 3 wars. Americans feel we need to be the policeman for the entire world – even when we are BROKE. The US Defense budget is greater than the next 6 Countries COMBINED. We could cut hundreds of BILLIONS out of the military budget and still far outspend any other country. So the real solution is to stop the wars, bring the troops home to protect the borders and use the massive savings to reduce the deficit.

    • OldRet says:

      They won’t get any volunteers. It’ll be back to the draft in several years.

    • Samuel says:

      I guess if we must look at entitlement programs something could be said about military retirements versus federal employee ( GS ) retirements. After 20 years military retirement pays you 50 % of your pay … That means one can retire at age 38. GS workers generally have to wait until 56 or 57. So I agree with ‘Sick of War’ -Support the troops the best way we can – bring them home and apply the savings to the badly needed recovery of the US economy. Thank you.

  22. Fed Peasant says:

    The Herritage Foundation probably has a list, of endorsed contractors, who would replace the entire federal work force. Let’s out source the White House, & Congress, to India too!!