CBO Deficit Reduction Proposals Would Impact Federal Employees

By on November 14, 2013 in Current Events, Pay & Benefits with 127 Comments

As spending by the federal government continues to remain high and the federal debt remains at record levels (it is now listed at just over $17 trillion), more attention continues to be put on spending and ways to reduce the deficit. A recent report from the Congressional Budget Office makes a myriad of proposals designed to help put a dent in the growing federal debt. Some of these would have a direct impact on the federal workforce.

The following is a summary of some of the proposals likely to be most relevant to federal workers taken directly from the CBO report.

Change “high three” to “high five”

In order to reduce the amount of federal pensions, CBO suggests using a five year average retirement calculation for civilian retirees beginning in 2015 instead of the current three year average. (See also: Which Has More Impact on Retirement Income: High Five or Chained CPI?)

That change would reduce annuities by about 3 percent, on average, for new retirees, saving the federal government $6 billion from 2015 through 2023, the Congressional Budget Office estimates. Because annuities are typically larger for civilian retirees in CSRS and military retirees than for civilian retirees in FERS, the former groups of retirees would tend to see the largest reductions in benefits. In 2015, this option would affect new retirees in roughly these numbers: 67,000 in FERS, 28,000 in CSRS, and 60,000 in the military’s system.

One rationale for using the longer period for determining average earnings is that doing so would better align federal practices with practices in the private sector, where pensions are commonly based on a five-year average of earnings. More broadly, this option would shift the ratio of deferred compensation to current compensation in the federal government toward the ratio in the private sector. Although a substantial number of private-sector employers no longer provide health insurance benefits for retirees and have shifted from defined benefit pension plans to defined contribution plans that require smaller contributions from employers, the federal government has not substantially reduced the retirement benefits it provides. As a result, federal employees receive a much larger portion of their compensation in retirement benefits than private-sector workers do, on average. Consequently, reducing pensions might be less harmful to the federal government’s ability to compete with the private sector in attracting and retaining highly qualified personnel than a reduction in current compensation would be.

Reduce the annual across-the-board adjustment for federal employees’ pay

Under this option, the annual across-the-board increase that would be expected to occur under the Federal Employees Pay Comparability Act of 1990 would be reduced by 0.5 percentage points each year from 2015 through 2023. Under the assumption that appropriations were reduced by a commensurate amount, federal outlays would be reduced by $53 billion from 2015 through 2023, the Congressional Budget Office estimates.

One rationale for this option is that it would significantly decrease the costs of operating government agencies without diminishing the services they provide. Moreover, compensation for federal civilian employees makes up roughly 15 percent of federal discretionary spending, and it is difficult to attain a significant reduction in that category of spending without constraining personnel costs. In addition, such a change would signal that the federal government and its workers were sharing in the sacrifices that many beneficiaries of federal programs have made or will have to make to help reduce the deficit.

Reduce the size of the federal workforce through attrition

This option would reduce the number of federal civilian employees at certain agencies by 10 percent by allowing those agencies to hire no more than one employee for every three workers who left. The President would be allowed to exempt an agency from the requirement under certain conditions—because of a national security concern or an extraordinary emergency, for instance, or if the performance of a critical mission required doing so. About two-thirds of the federal civilian workforce would be exempt, the Congressional Budget Office estimates, thus limiting the workforce reduction to about 70,000 employees. (Agencies would not be allowed to hire contractors to offset the reduction in the federal workforce.) Provided that appropriations were reduced concomitantly, discretionary outlays would be reduced by $43 billion from 2015 through 2023.

Social Security

The report proposes numerous changes to Social Security. Among them are linking initial benefits to average prices instead of average earnings, raising the full retirement age to 67, lengthening the computation period for benefits by three years (this would generally reduce benefits by requiring that additional years of lower earnings be factored into the benefit computation), and reducing benefits for new beneficiaries by 15%.

If some of these proposals sound familiar, it’s because they have been mentioned numerous times over the last several years. The 2014 budget blueprint released by the House earlier this year proposed cutting the federal workforce through attrition. Past House budget proposals contained the change to the “high five” calculation.

Even the president’s budget proposal for 2014 recommended using a chained CPI and increasing federal employees’ retirement contributions and eliminating the FERS annuity supplement for new federal workers.

Whether or not any of these proposals will come to fruition is anybody’s guess at this point. But with a growing number of proposals repeating some of the same suggestions, it could make some a more likely possibility in the near future.

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

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 also has a background in web development and does the technical work for the FedSmith.com web site and its sibling sites.

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