Election Results 2012: What are the Implications for Federal Employees?
by Ralph Smith |
Since the 2010 elections, billions of dollars have been spent on winning national elections in 2012. Before the election yesterday, the White House was occupied by a Democrat, the Democrats controlled the Senate and the Republicans controlled the House. Americans were divided by race, gender, class, religion and geography (in no particular order).
After the election, the broad line-up is still the same with Democrats controlling the White House and the Senate and the Republicans in control of the House and the divisions appear to be as intact as they were before the votes were counted. As noted by the National Journal, “Thanks in part to his own small-bore and brutish campaign, victory guarantees the president nothing more than the headache of building consensus in a gridlocked capital on behalf of a polarized public.” That is a pessimistic observation but probably a short, accurate analysis.
So, while the power struggle remains unchanged in many respects, the problems facing the country, and argued ad nauseum during election campaigns, are still with us. There was little chance of an agreement before the elections held this week as very few wanted to take controversial action without knowing what the political structure would look like in 2013.
What the election has changed is that elected leaders may try to come to some type of agreement because of the pressure created by political and economic necessity. The national debt is still too big and growing rapidly, entitlement programs are growing fast and the government will not have the money to pay out expected benefits without some changes, unemployment is still very high and the “fiscal cliff” is still looming largely over Congress and the White House.
With many of the same players still in place and the power structure largely unchanged, will political gridlock continue? No one knows, of course, but the pressure to reach some agreement will now build quickly on all parties as the alternatives may be worse than most possible solutions.
Some federal employees will see the election results as a relief and there is some basis for that feeling. There is a possibility of a 0.5% average pay raise as early as April 2013. And, if Republicans had taken over control of the Senate and the White House, the federal government would likely have seen a relatively quick reduction in staffing and, perhaps, a reduction in employee benefits. (See Will Federal Employees Get a Pay Raise in 2013?)
But the election has not changed the underlying financial problems that need to be resolved. One of the first items looming on the political agenda that will have a large impact on the federal community is sequestration. Significant budget cuts for federal agencies totaling about $110 billion starting in January are set to take effect unless a political deal is reached. If a deal is not reached, there will be large furloughs and disruption throughout the government. If a deal is reached, chances are any agreement will involve some change in federal government staffing and spending and, possibly, changes to future benefits for federal employees. (See How Can You Plan for a Secure Retirement With These Issues Threatening Your Future?)
Earlier this year, President Obama signed a bill increasing the contribution rate for new federal employees hired after December from 0.8% of each paycheck to 3.1%. He has also proposed as part of a deficit-reduction plan eliminating a supplemental payment to retirees covered under the Federal Employees Retirement System who are not yet eligible for Social Security. (See Two Significant Changes to FERS) Keep in mind that Congressman Paul Ryan (R-WI) sponsored a House-passed bill to increase the basic FERS employee contribution rate from 0.8% of salary to 5.8% over five years. The Senate has not approved that bill and may not ever do so. On the other hand, a provision like this that would decrease future government costs could end up being part of a larger deal to cut spending, even if federal employees do see a small salary increase in 2013.
Proposals such as modifying retirement annuities based on a “high five” instead of a “high three” calculation were supported by the Federal Deficit Commission and may be revived as part of any negotiation on cutting costs. (See High Five vs. High Three: Is There a Difference In Your Retirement Annuity?; also see Commission Proposes “High-Three” to “High-Five” for Retirement, Pay Freeze and Changes to FEHB for Federal Employees)
There may also be a change in the Federal Employees Health Benefit Program. Under one proposal, federal employees would receive a fixed subsidy to cover their health insurance premiums. The subsidy would be limited so that it would not grow any faster than the gross domestic product, plus one percentage point, each year. As described by financial planner Carol Schmidlin: “ Participants would cover the remaining premium cost if their plans cost more than the subsidies provide. FEHB premiums have increased an average by 7.5% since 2003. During that same period, our Gross Domestic Product (GDP) has increased on average of 3.9%. Do you see a problem here?” (See How Congressional Budget Cuts May Cut Into Your Retirement Income)
A long time phrase popular in American English is “The more things change, the more they stay the same.” Perhaps that applies to the current state of the federal workforce.
The election could have yielded results with relatively quick cuts in federal spending, federal benefits and staffing in agencies that were fairly predictable. To that extent, some will read the election results as providing a sense of relief. What will happen in coming weeks and months for the current federal workforce and future federal retirees is likely to contain at least some bad news but, on the bright side, some will conclude that “it could have been worse.”
We will, of course, provide our readers with information on events that may impact the federal community as they unfold. Without a doubt, 2013 should be an interesting year.
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by Ralph Smith |