Want to Cut Federal Spending? Here Are Proposals to Cut Federal Benefits

How could money be saved in the federal budget? One way is to compute federal retirement annuities based on the highest five years of service instead of the highest three years. Another savings would be eliminating retirement payments for federal workers who retire before 62.

The federal government is taking on debt at an unsustainable pace. The interest alone on the national debt is projected to be getting close to one trillion dollars a year in the near future.

The result is that, sooner or later, Congress will get around to wondering how to cut government spending. (See, also, President Asks Federal Employees to Sacrifice in 2010: Proposes 2% Pay Raise)

Proposals to Cut Federal Benefits Unlikely to Pass

We have previously run articles (See How Safe Are Your Federal Benefits? Don’t Answer Too Fast!) on proposals to save money by changing the federal retirement plan or other benefits. The response of some is along the lines of “Why are you using scare tactics like this to upset your readers? We know this is proposed every year and it never happens.”

If that is your view, please don’t read any further. It may scare you and, if it is your view that proposals to reduce federal benefits (including the retirement program) will never happen, you will consider it to be a waste of time.

For those with an interest in the alternatives that are being proposed, and how it may impact the federal workforce, read on.

These are proposals from the budget savings proposals advanced by in an alternative budget advanced by Republicans. For those who are convinced changes such as these will never happen, you are probably right. Barack Obama is obviously a liberal Democrat and the Congress is controlled by the same party and that makes it much less likely these changes will be implemented.

On the other hand, trillion dollar deficits such as the ones proposed for this year and the next several years will lead to consequences that may be difficult to predict. The federal workforce is paid, on average, considerably more than private sector workers. While there are good arguments for the distinction, keep in mind that the government is pursuing pay caps for many in private sector companies.

Perhaps the federal government will be exempt from the “redistribution of wealth” philosophy but there will be many Americans who think federal employees make too much money and have benefits that are too generous. (See, for example, Federal Workforce is “Elite Island of Secure and High-Paid Workers“) If or when Congress does get serious about cutting spending, cutting federal benefits could be a politically popular option.

So, for what it is worth, here is where there are proposed cuts in the federal budget to save a few billion dollars that would be extracted from the benefits currently provided to the federal workforce.

The summary and the rationale for these proposals are taken largely from the Republican proposals. We are presenting them as they were proposed so that readers will understand the rationale behind the proposals.

Eliminate Retirement Payments For Federal Workers Who Retire Before Age 62

The federal government provides its employees with a benefit more generous than that offered to private sector employees, Federal employees who retire at age 55 or older with at least 30 years of service or at age 60 with at least 20 years of service receive, until they reach 62, a benefit equal to the estimated Social Security benefit for which the worker will become eligible at age 62.

This policy not only encourages Federal employees to retire early, but it comes at a significant cost to taxpayers. Preliminary estimates indicate that the early retirement benefit costs taxpayers $267 million a year.

Change “High Three Retirement Benefits” to “High Five” Calculation

Initial pension benefits for federal civilian employees are calculated based on the average of an employee’s highest earnings over three consecutive years. It is common practice in the private sector to base benefits on a five year average. The Congressional Budget Office has estimated that moving to a five year average would save taxpayers $1.2 billion over five years.

The nonpartisan Congressional Budget Office (CBO) estimates that “the average new Civil Service Retirement System (CSRS)  retiree would receive about $1,250 less in 2008 and $6,530 less over five years than under current law.”

Eliminate Full-time Union Representatives From Federal Payroll

Under current law, federal employees who are part of a collective bargaining unit may be granted “official time” to perform representational duties on behalf of the union. While on official time, the employee is paid by the government but is acting on behalf of the union. (See OPM’s Closely Held Report of Union Official Time Use)

According to the Office of Personnel Management, in fiscal year 2008 the federal government spent $120 million paying employees for their time spent working on union activities.

While some employees only spend minimal time on union activities, others are designated as 100 percent on official time, meaning they are paid to spend all of their time on union activities. In their report, OPM suggests a significant amount of the time spent on general labor-management category (as opposed to dispute resolution or contract negotiations) is spent by those on 100 percent official time. Eliminating 100 percent official time would save taxpayers millions of dollars each year. Savings of just 10% a year would save taxpayers $12 million next year and $60 million over five years.


The National Active and Retired Federal Employees Association (NARFE) is taking the proposals seriously. It is concerned enough to issue a press release denouncing the proposals.

Federal employee benefits have been largely immune from budget cuts. In fact, there is a likelihood that in the current Congress some benefits will be increased. If you are planning on retiring in the near future, my advice would be to follow the events in Congress closely in order to adequately plan your retirement future.

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