If it’s the last thing we ever do
We gotta get out of this place
‘Cause girl there’s a better life
For me and you
~ The Animals
At a recent retirement class, a group of federal employees (don’t ask me to name names) got up and actually sang this as their theme song. Which got me thinking…with all the noise around shrinking government and making federal employees out to be the “bad” guys, what would the real effects of some of the current proposals be?
Take for example the High-5 (not the football celebratory version) vs. the High-3. For a CSRS employee at a GS 12/10 level who plans to retire at the end of 2011 with 30 years of service, a High-5 would mean $1,768/year less than the same annuity calculated at the current High-3 level ($52,514 vs. $50,746). This would result in nearly $150 a month less using the High-5 formula.
For a FERS employee at the same grade and pay, the impact is something less dramatic. The High-5 calculation would be $943/year less than the High-3 computation or about $80/month.
Then there’s the proposal for a continued pay freeze through 2015. This affects those planning to retire a few years down the road more than those retiring at the end of 2011 or 2012. One of the benefits of working longer is that the annuity is computed not only on a higher percentage for your years of service but also on an increased High-3 (assuming there are COLA’s). If the High-3 isn’t increasing, the benefits of working longer are reduced.
Going back to our previous example, if that same CSRS employee was retiring in 2012 with 30 years of service, their High-3 would still be higher than the previous year (2010, 2011 and 2012 salaries would all be the same without step increases) and the annuity would be about $1,486/year higher than in 2011. For FERS, the difference is only $793/year.
For those who won’t hit their 30-year target until 2013 or beyond, a pay freeze through 2015 would freeze their annuity as well. Of course, those who work longer than 30 years still get the benefit of the higher percentage formula used to calculate their annuity. For FERS retirees under the age of 62, this would amount to an additional 1% of their High-3 for each additional year they work. For CSRS, the additional formula increase would be 2% of their High-3.
What about the health voucher proposal? As currently being discussed, this would have OPM providing a flat amount toward health insurance premiums rather than the current ~72% they pay toward all premiums. When you look at the current premiums, this actually works in favor of the federal employee. The proposal has the voucher worth $5,000 for self only or $11,000 for family coverage.
OPM currently picks up a maximum annual amount of $10,503 for family coverage in five of the six national federal employee health benefit programs offered to all employees (only APWU participants receive less). This would actually provide participants in these plans greater OPM participation allowing the federal employee to pay slightly less than they’re paying today.
However…considering past health care premium increases, FEHB participants would soon be picking up a larger share if the voucher system did not take inflation into account.
What can you do to help insulate your retirement from future benefit reductions? It’s not all about just “getting out of this place.” Keep in mind that everything that’s discussed here is merely in the proposal stage. Take an active approach in monitoring the discussions around federal benefits. Some of the benefit reductions have been introduced as legislation while others are recommendations from organizations like the Congressional Budget Office and the National Commission on Fiscal Responsibility and Reform.
Write your congressman and senators with your views on the proposals and ask them to protect your benefits and represent you.
Join and support NARFE, the National Active and Retired Federal Employees Association (www.narfe.org). They are your lobbying voice in Washington, DC to not only protect your benefits but work to expand them, as well.
Save more toward your retirement so you have more control over future retirement income.
Remember that, like the ‘60’s, this too shall pass.