Federal Pay and Benefits: Tough Choices in Tough Times

The mood in Congress is changing rapidly and lawmakers appear to be serious about finding new ways to cut government spending.

Several weeks ago, FedSmith.com published an article (See High Three to High Five?) about a proposal to cut pension payments to future federal retirees. The cut would come by changing how the annuity is calculated by using an average of an employee’s five highest consecutive earning years instead of the highest three earning years.

Subsequently, we published an article that suggested not losing too much sleep over the proposal as it was not likely to get through Congress. (See Worried About Changes to Your Federal Retirement Program?)

In politics, several weeks is a long time and events and issues can quickly change. This issue is a good example. Here’s why.

Last month, leaders in the House quickly dismissed calls to cut government spending. The sky seemed to be the limit in part due to pending and very large federal expenditures that had not been anticipated as a result of natural disasters. But now, according to an article in the Washington Post (registration required to read the Post article), a group of lawmakers known as the Republican Study Committee has gained an upper hand. The turnabout has come in large part because of the legal and political problems of House Majority Leader Tom DeLay. Tom DeLay was indicted by a grand jury in Texas on September 28–about a week after the article on possible changes to the federal retirement program was published.

Cutting the budget seemed like an exercise in wishful thinking among a few lawmakers who were appalled at the rate of government spending. Now, cutting government spending is back in vogue and it has assumed a front and center position in Congressional debate.

So what does the political wrangling in Congress have to do with spending in your agency and, specifically, with the proposal to alter how the federal retirement annuity is calculated?

The Republican Study Committee published the original recommendations on how to cut government spending. In other words, the proposed cuts may have a more significant impact as a result of the changing political debate in Congress.

  • The items proposed that would directly impact some federal employees on a personal level include changing how much federal retirees pay for their health insurance. The proposal called for federal retirees with relatively short federal careers to pay more for their health insurance after they retired. The potential savings of this change were projected to be $6.3 billion over ten years.
  • Changing the formula for federal retirement pensions from a ‘high three” average to a “high five” average would potentially save $5.2 billion over ten years.
  • Encouraging federal employees to use public transportation and cutting back on federal subsidies for federal employee parking would potentially save $1.5 billion over ten years.
  • Closing the military’s dependent school system in the United States would save $788 million over ten years.

Not surprisingly, these proposals would not save as much as changing or eliminating other federal programs.

For example:

  • Keeping funding for the Federal Aviation Administration level would potentially save $4.6 billion over ten years.
  • Constraining funding for construction and repair of new federal buildings over would potentially save $7.7 billion over ten years.
  • Reducing funding for airport improvements would potentially save $8.5 billion over ten years.
  • And reducing funding for the Centers for Disease Control could save $25 billion over ten years.

The proposals from the Republican Study Committee do not mean that all of the proposals will be enacted–or that any of them will be enacted.

But the federal workforce operates in a political environment and is subject to the political mood, political environment and political decisions made in relatively short time. The budget scenario has changed substantially in the past several weeks. Moreover, it is much more likely that other proposals may not be enacted in the current environment.

For example, earlier this year, it seemed possible–even likely–that a law to allow federal employee retirees to pay for health insurance premiums out of pre-tax dollars would happen this year. There was also a possibility (less likely but still a possibility) that the “offset” rules would change to the benefit of a number of federal employees. (The Government Pension Offset impacts anyone retiring under the Civil Service Retirement System and who is counting on Social Security benefits from a spouse, deceased spouse or former spouse. Click here to read more about the offset and what it may mean to you.)

With a Congressional mood to find ways to cut spending, the chances of Congress passing new benefits or improving benefits that would cut government revenue are less likely.

To review the entire proposal from the Republican Study Committee and how your agency may be impacted, click here.

About the Author

Ralph Smith has several decades of experience working with federal human resources issues. He has written extensively on a full range of human resources topics in books and newsletters and is a co-founder of two companies and several newsletters on federal human resources. Follow Ralph on Twitter: @RalphSmith47