The ‘Fiscal Cliff’ and the Federal Workforce

By • December 18, 2012 Comments

Some of the latest news in the “fiscal cliff” debates taking place in Washington have made mention of the federal workforce. What exactly are they and what do they mean for federal employees?

Social Security

The first item is indirectly related in that it covers Social Security. Many federal workers are nearing retirement, so they have or will be eligible to collect Social Security soon.

President Obama floated the idea of using a “chained CPI” amidst bargaining with Republicans recently.

According to an article by Ed O’Keefe in the Washington Post, the chained Consumer Price Index impacts Social Security in that it equates to paying out less in benefits over time.

Says O’Keefe, “Imagine, for example, a person born in 1935 who retired to full benefits at age 65 in 2000. People in that position had an average initial monthly benefit of $1,435, or $17,220 a year, according to the Social Security Administration. Under the cost-of-living-adjustment formula and 2012 inflation, that benefit would be up to $1,986 a month in 2013, or $23,832 a year. But if payouts were adjusted using chained CPI, the sum would be around $1,880 a month, or $22,560 a year — a cut of more than 5 percent and more as the years go by.”

The National Active and Retired Federal Employees Association was quick to pounce on the chained CPI proposal. In a letter to Congress, NARFE National President Joseph A. Beaudoin denounced the idea, saying it would be too great a hit to retirees’ income.

“In 30 years, when many current beneficiaries will still be alive, retirement income from these sources will be 9.2 percent lower.  For example, the average 65-year-old retiree, receiving about $15,000 in Social Security benefits after earning an average income of about $43,000, would need to have saved an additional $28,000 to account for the lost future income,” said Beaudoin.

Pension Cuts

According to a recent AP story, President Obama proposed $600 billion in cuts over a decade in the negotiations from sources “including $350 billion from federal health care programs and $250 billion from other cuts to domestic programs like farm subsidies and the pension program for federal workers, and through sales of used federal property.”

This statement is vague, so while it’s not clear what these pension cuts mentioned are, one can make assumptions based on past proposals. Specifically, the 2013 budget proposal from the White House released earlier this year proposed increasing the contribution federal employees make towards retirement by 1.2% over three years beginning in 2013, so it’s quite likely this could be the pension changes referenced in the AP story.

Job Cuts

If the “fiscal cliff” were to end up taking place, the possibility of job cuts exists in both the private and public sectors.

Some reports have put the number of federal workforce jobs that would potentially be in jeopardy at around 277,000. That number includes 48,000 within DoD and the other 229,000 are from non-defense agencies.

Is any of this a certainty? At this point, no; it’s too soon to tell what cuts or changes federal employees can expect, if any. Congress is still negotiating and may reach an agreement. If and until that happens, it’s best to wait and see how the situation unfolds.

© 2014 FedSmith Inc. All rights reserved. This copyrighted article may not be reproduced without express written consent of FedSmith Inc.

Tags: ,

About the Author (  |   )

Ian Smith is one of the co-founders of FedSmith.com. He enjoys writing about current topics that affect the federal workforce. Ian has worked in the web development field since 1998 and does the development and programming for the FedSmith.com web site and its sibling sites (FedsDataCenter.com and TSPDataCenter.com).

Comments

Free Email Updates

Sign up for our free email updates to get our latest news sent directly to your inbox
  • Our top stories sent each business day
  • More news from your FedSmith.com authors
  • The day's closing prices for the TSP funds
  • Videos for the federal workforce