Sticking Point for Federal Budget: Federal Retirement Contributions

A possible increase in federal employee retirement contributions has become a major sticking point in budget negotiations.

As we advised readers some time ago, the amount that federal retirees contribute toward their future retirement is up for negotiation. President Obama, in his budget request, proposed increasing the amount of each employee’s contribution. Also, Congressman Paul Ryan, who is representing Republicans in budget negotiations, has proposed increasing the amount that each employee contributes toward future retirement. (For more information, see The Future of Your Federal Retirement System)

In effect, with both parties proposing to increase the amount of the contribution, federal employees could reasonably anticipate an increase is on the way.

Currently, Congressman Paul Ryan (R-WI) and Senator Patty Murray (D-WA) and working together to try and fashion an agreement on the federal budget. The deadline for completion is December 13th.

Democrats generally want to increase federal spending and Republicans generally want to reduce spending. Democrats want to increase taxes in some way; Republicans want to cut taxes or leave the current tax structure in place. With these diametrically opposed positions, there is plenty of room for conflict.

Reportedly, Ryan and Murray have reached a general agreement on many of the issues. Under this framework, there would be an an increase in government spending, no tax increases but there is a need for greater revenue. That is where the dispute about federal employee retirement contributions comes into focus.

In fact, one of the biggest sticking points in the negotiations is whether there will be an increase in the amount federal employees contribute and, if so, the amount of the increase. Senate and House negotiators see this increase in contributions as a way to save $5 billion to $10 billion in fiscal 2014.

Legislation proposed this week (“Provide for the Common Defense Act,”) would increase a federal employee’s contribution toward retirement from 0.8 percent to 2.0 percent of pay. The increase would be phased in over a three-year period. The bill would also eliminate the Federal Employee Retirement System Annuity Supplement for new employees. The bill would also allegedly reduce the national deficit by $200 billion over ten years by, in part, changing the way cost of living adjustments are calculated for Social Security and other mandatory spending programs. (See The Chained CPI and Your Federal Retirement Package)

On the other side of the political debate, elected representatives from areas with a large number of federal employees are up in arms about the potential hit to the paychecks of their constituents. Senator Barbara Milulski (D-MD) issued a press release that asks for a budget agreement that “recognizes the value of federal employees by canceling sequester for at least two years and rejecting draconian proposals to require federal employees to pay substantially more for their retirement.”

So, with elections coming up again next year, the politics surrounding the federal budget are on full display as elected officials seek the favor of voters in their respective districts. Whether an agreement will be reached, and what any agreement will actually contain and who will be impacted the most, remains up in the air.

Another Continuing Resolution Coming?

There is a possibility of another continuing resolution to fund the government for a short time. The amount of time that the House and Senate will both be in session at the same time is limited and many lawmakers on both sides would prefer not to be facing another government shutdown in January 2014. Pressuring both parties is the threat of another sequester. In January, the $1.058 trillion in discretionary spending set by law in 2011 will drop to $967 billion (a drop of about $109 billion) unless there is a budget agreement.

For federal employees, the threat of another government shutdown—and the accompanying furloughs—do not appear as likely as these events were earlier in 2013 as some representatives from both parties have made declarations that a shutdown is not something they think is a good idea. Of course, with political passions running high and both parties citing underlying philosophical principles as the basis for not reaching agreement, anything can happen.

Stay tuned. Politics and the impact on your personal finances are in full display.

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