Federal Retirees Need To Tighten Belts While Current Employees Expect To See Pay Increases

A series of actions are resulting in probable declines in the take-home pay of federal retirees in 2017 even as Congress is considering a 1.6 percent increase for federal employees and an arbitrator has awarded current American Postal Workers Union members a 3.8 percent contract pay raise.

Retirees hoping for an increase in their cost-of-living adjustment to offset higher living costs will most likely be disappointed on Friday when the June Consumer Price Index is reported, even if the CPI-W shows a small increase.

For the 12 months ending in May, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which is the basis of determining the annual COLA for federal retirees and Social Security recipients, rose 0.7 percent. If the CPI stays at this level, the resulting small COLA increase will likely be eaten up by higher Medicare Part B premiums resulting in little or no net increase in take-home pay for retirees, especially those covered by the Civil Service Retirement System (CSRS).

A small increase in the CPI-W would cause Social Security recipients’ Part B premiums to rise only in an amount equal to their COLA. Premiums for non-Social Security beneficiaries would be raised substantially to offset smaller-than-needed premiums paid by Social Security recipients, plus absorbing any additional surcharges.

“The best case scenario for CSRS annuitants would be no COLA,” explained National Active and Retired Federal Employees Association Legislative Director Jessica Klement.

Meanwhile, Congress and the Administration are considering a number of actions that will result in higher costs to groups of retirees despite the best efforts of the National Active and Retired Federal Employees Association to minimize the impact.

This week, the House Oversight and Government Reform Committee approved the 2016 Postal Service Reform Act that would require postal retirees to enroll in Medicare Parts A and B in order to stay eligible for health insurance under the Federal Employees Health Benefits Program. While the current legislation relates only to postal workers, there are fears that success in requiring Medicare coverage for postal retirees might be extended to make Medicare mandatory for all federal retirees in the future.

On Wednesday, the House Committee on Ways and Means pulled from consideration an amended version of H.R. 711, the Equal Treatment for Public Servants Act, that would reduce Windfall Elimination Provision (WEP) penalty by a mere 14 percent, for an average of $40 month, through 2026. The original bill would have provided current WEP-affected individuals with a rebate of 50 percent of the WEP penalty. The committee will now need to reconsider the provisions and determine what relief, if any, should be given to those affected by WEP, which NARFE estimates affects 1.6 million beneficiaries.

Next week, the Federal Long Term Care Insurance Program (FLTCIP) will announce new premiums for 2017, which are expected to jump for the 200,000-300,000 people covered in this program. OPM Press Secretary Sam Schumach has been quoted as saying that “while details about the rates for current enrollees are still being finalized, it is expected that rates will increase as is occurring across the industry” for reasons such as longer lifespans and low returns on investments of the program’s trust fund.

Later this fall, the Federal Employees Health Benefit Program (FEHBP) will announce health insurance premium increases for 2017. It is expected that premiums could jump due to medical inflation, which is currently triple the overall inflation rate. Total health care spending growth is expected to average 5.8 percent annually over 2015-2025, according to a report just published by the Centers for Medicare & Medicaid Services’ (CMS) Office of the Actuary (OACT).

All of these issues, including Medicare Part B premium increases and the federal employee pay raise, most likely will be considered in the fall either in September, after Congress returns from its seven-week recess, or more likely during the so-called lame duck session after the November elections.

After receiving no COLA in 2016 while employees saw raises of one percent or more, retirees will be watching Congress and the President closely to see how they are being treated in comparison to their former co-workers who are still employed in federal agencies.

“It is likely that this year’s session after the November elections will be the busiest that we have seen for some time,” said Klement.

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

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About the Author

Michael Wald is an independent economics analyst and writer based in the Atlanta area. He specializes in topics related to business, labor, and human resources. Prior to his retirement from the U.S. Department of Labor, he served as the agency’s Southeast Regional Director of Public Affairs and Southeast Regional Economist.

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