Report Recommends Federal Workforce Cuts for Deficit Reduction

By on November 25, 2014 in Pay & Benefits with 46 Comments

The Congressional Budget Office recently issued a report outlining ways to reduce the growing federal deficit. The report, Options for Reducing the Deficit: 2015 to 2024, contains some suggestions that would impact the federal workforce (both directly and indirectly) if they were to be implemented.

Some of the items from the report likely to be of most interest to federal employees are included in their entirety below. Many of these will have a familiar ring to them as they have been floated in various cost cutting proposals over the last several years. (A quick search on the FedSmith.com site for some of these topics will yield numerous past articles)

The full report includes other cost saving suggestions as well, such as various tax increases and cuts to programs in specific federal agencies.

Change the high three to high five

In fiscal year 2013, the federal government paid pension benefits of about $75 billion to civilian retirees and their survivors and roughly $55 billion to military retirees and their survivors. For civilian retirees, the size of an individual’s annuity is based on the average of his or her earnings over the three consecutive years with the highest earnings. Similarly, the size of a military retiree’s annuity is based on the average of his or her basic pay (not including special types of pay and allowances) over the 36 months of his or her career with the highest pay.

This option would use a five-year average for civilian retirees and a 60-month average for military retirees – instead of the three-year and 36-month averages used under current law – to compute benefits for federal workers who retire beginning in January 2016.

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

Under the Federal Employees Pay Comparability Act of 1990, most federal civilian employees receive a pay adjustment each January. As specified by that law, the size of the adjustment is set at the annual rate of increase of the employment cost index (ECI) for wages and salaries in private industry minus 0.5 percentage points. Under this option, the annual across-the-board increase would be reduced by 0.5 percentage points each year from fiscal year 2016 through 2024.

Reduce the size of the federal workforce through attrition

In fiscal year 2013, the federal government employed about 2.1 million civilian workers, excluding Postal Service employees. The largest costs the federal government incurred for those employees were for salaries, health insurance, and pension benefits.

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 under certain conditions. 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.)

Reduce the annual contribution limit to the Thrift Savings Plan

In 2014, contributions to individual retirement accounts (IRAs) are limited to $5,500 for taxpayers under the age of 50 and $6,500 for those ages 50 and above. Individuals under the age of 50 may contribute up to $17,500 to 401(k) and similar employment-based defined contribution plans in 2014 (this figure applies to the Thrift Savings Plan as well); participants ages 50 and above are also allowed to make “catch-up” contributions of up to $5,500.

Under this option, individuals’ maximum allowable contributions, regardless of a taxpayer’s age, would be reduced to about 85 percent of the current-law amount that applies to individuals under the age of 50. For 2015, the limits would be $5,000 per year for IRAs and $15,500 per year for 401(k)–type plans. The option would also require that all contributions to employment- based plans—including 457(b) plans—be subject to a single combined limit. Total allowable employer and employee contributions to a defined contribution plan would be reduced from $52,000 per year to $47,000. Annual contribution limits after 2015 would continue to be adjusted for inflation.

Use chained CPI for Social Security

Cost-of-living adjustments (COLAs) for Social Security and many other parameters of federal programs are currently indexed to increases in the consumer price index (CPI), a measure of overall inflation calculated by the Bureau of Labor Statistics. That agency computes another measure of inflation—the chained CPI—that is designed to account fully for changes in spending patterns and that effectively eliminates a statistical bias that exists in the traditional CPI.

This option would use the chained CPI for indexing COLAs for Social Security and parameters of other programs beginning in calendar year 2016. The chained CPI has grown an average of about 0.25 percentage points more slowly per year over the past decade than the traditional CPI has, and the Congressional Budget Office expects that gap to persist. Therefore, the option would reduce federal spending, and savings would grow each year as the effects of the change compounded.

Raise the full retirement age for Social Security

Under this option, the full retirement age would increase to 67 more quickly and would then increase further. Specifically, the full retirement age would increase in two-month increments for six years, rising to 66 years and 2 months for workers born in 1954 (who turn 62 in 2016) and reaching 67 for workers born in 1959 (who turn 62 in 2021). Thereafter, it would continue to increase by two months per year until reaching 70 for workers born in 1977 or later (who turn 62 in 2039 or later). The benefits for workers who qualify for disability insurance would not be reduced under this option.

Reduce Social Security benefits for new beneficiaries by 15%

The Social Security benefits that people receive in the year they are first entitled to benefits—at age 62 for retired workers and five months after the onset of disability for disabled workers—depend on a formula set in law. This option would adjust the benefit formula to reduce Social Security benefits for people who become eligible in calendar year 2016 or later. Benefits would be permanently reduced by 3 percent for people newly eligible in 2016, 6 percent for people newly eligible in 2017, and so on, up to 15 percent for people newly eligible in 2020 or later. Only future beneficiaries would be affected, so the option would not affect payments to people who turned 62 or became entitled to disability benefits before January 2016.

Cap increases in basic pay for military service members

Starting in January 2016, this option would cap basic pay, which accounts for about 70 percent of cash compensation for active duty military personnel, to increases of 0.5 percentage points below the percentage increase in the employment cost index (ECI). Use of the ECI is the default for military pay raises under current law.

Replace some military personnel with civilian employees

According to data from the Department of Defense (DoD), thousands of members of the military work in support roles or in “commercial” jobs that could be performed by civilians. Under this option, over four years, DoD would replace 80,000 of the more than 500,000 uniformed military personnel in commercial jobs with 53,000 civilian employees and, as a result, decrease military end strength (the number of military personnel on the rolls as of the final day of a fiscal year) by 80,000. Those changes would reduce the need for appropriations primarily because fewer civilians would replace a given number of military personnel. (Civilians have fewer collateral duties and do not generally rotate among positions as rapidly as military personnel do.)

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

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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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