President’s Deficit Proposal to Target Federal Employee Pensions

The President has released a proposal outlining his ideas for ways to cut the growing federal deficit. The plan aims to make as much as $3 trillion in cuts, some of which would directly affect federal employees if they were to be enacted.

The President has released his proposal today outlining ways in which to get a handle on the growing federal deficit. The plan calls for comprehensive tax reform, increased taxes on the wealthy, suggests numerous ways to save money, and has an overall aim to make around $3 trillion in total cuts.

Out of the numerous recommendations for cuts in the report, there are some that are of direct relevance to the federal workforce of which you should be aware in the event they were to be enacted.

According to the report released today by OMB, the Administration has proposed the following:

  • The employee contribution toward accruing retirement costs would increase by a total of 1.2 percent (0.4 percent a year over three years beginning in 2013), but the employee’s total pension would remain unchanged
  • Eliminate the FERS Annuity Supplement for new employees

As to the reasoning for these changes, the report states, “While Federal agency contributions for currently accruing costs of employee pensions would decline, these employers would pay an additional amount toward unfunded liabilities of the retirement system that would leave total agency contributions unchanged over the 10-year budget window. The Administration does not anticipate this policy change will negatively affect its human capital planning and management, nor inhibit the Government’s ability to serve the American people.”

Total estimated savings from these proposals as outlined: $21 billion over 10 years.

The proposed changes don’t stop there, however. The report notes that broader changes are needed and cites the antiquated federal pay and performance system which was first established in 1949. It notes that federal employee surveys routinely show that the current system fails to reward innovation and doesn’t effectively deal with poor performers and suggests that a more modernized personnel system be established to bring the system into the 21st century.

To this end, the Administration recommends that Congress establish a Commission on Federal Public Service Reform consisting of members of Congress, representatives from the President’s Labor-Management Council, private sector members, and academic experts. The Commission would “develop recommendations on reforms to modernize Federal personnel policies and practices within fiscal constraints. Such reforms could include but would not be limited to compensation, staff development and mobility, and personnel performance and motivation.”

The Postal Service is another target for the proposed cuts in the report. With the dire financial state the Postal Service is currently facing, it has garnered attention as a target for reform. As such, the President is proposing the following:

  • Restructure Retiree Health Benefit pre-funding in order to accelerate moving these Postal payments to an accruing cost basis and reduce near-year Postal payments
  • Provide USPS with a refund over two years of the $6.9 billion surplus in Postal contributions to the FERS program
  • Reduce USPS operating costs by giving USPS authority, which it has said it will exercise, to reduce mail delivery from six days to five days
  • Allow USPS to offer non-postal products and increase collaboration with State and local governments
  • Give USPS the ability to better align the costs of postage with the costs of mail delivery while still operating within the current price cap, and permit USPS to seek the modest one-time increase in postage rates it proposed a year ago

Total estimated savings from these reforms: $20 billion over the next several years and reducing the deficit by $19 billion over 10 years.

The report contains many other cost cutting recommendations, but these are the ones likely to be of most interest to federal employees.

About the Author

Ian Smith is one of the co-founders of He has over 20 years of combined experience in media and government services, having worked at two government contracting firms and an online news and web development company prior to his current role at FedSmith.