Scrutinizing Federal Employee Benefits

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By on May 21, 2017 in Pay & Benefits with 0 Comments

Set of icons depicting typical employee benefits

It is still relatively early in the year, as least as far as the federal budget is concerned. Any new budget that is approved will not go into effect until fiscal year 2018 which would be in October 2017.

Based on recent experience, there will not be a final budget by the end of the current fiscal year. The actual budget, if and when one is approved by Congress, will probably take effect at a later time.

The budget negotiations are about to get underway in Congress. The budget proposal from the administration is to be released later this week. No doubt, there will be an ample supply of news stories outlining possible scenarios, including some designed to scare the public in preparation for Congressional elections in 2018.

The reality is negotiations in Congress will lead to many of the more dramatic proposals being changed considerably before any agreement is reached. Keep in mind, early proposals reflect the wishful thinking of those preparing the document. The Congressional buzzsaw will take into account the political considerations of those up for election in the next year as well as the concerns of influential interest groups spending time and money to influence the final outcome.

Early Budget Proposal Leaked

The Washington Post has apparently seen or has a copy of the budget proposal. Also, an organization called the Third Way writes that it has “received a spreadsheet with numbers from the President’s FY2018 proposed federal discretionary budget. The budget document is dated May 8, 2017. With the interest of the American public in mind — and as nothing in this document would be deemed classified material — we are releasing this document for all to see.”

There has not been any official confirmation that the spreadsheet is accurate.

Under the Obama administration, our national debt ballooned to about $20 trillion dollars. That is an amount difficult to imagine, but we know it is a huge amount of money.

With Republicans now occupying the White House and having a majority in Congress, we can expect new priorities in government policy and spending.

Federal Benefits Package, the Budget and the National Debt

Federal employees are subject to change brought about by politics. In most years, the actual changes are considerably less drastic than advocates outlined during election campaigns.

With the rapidly expanding debt, and a new administration with a different philosophy than that espoused under President Obama, fiscal year 2018 could see more changes than usual. There are likely to be significant changes proposed to the federal employee benefits package currently in place.

Based on the documents referenced above, proposals to change benefits that have been floated in the last few years will have a renewed emphasis. Proposals to reduce the federal employee benefits package and the national debt are likely to receive closer consideration than in recent years.

Proposed Changes to Federal Employee Benefits

Based on the analysis in the Washington Post, here is a quick summary of the most relevant changes likely to come under consideration in the upcoming budget negotiations:

  • Increase retirement contributions from employees under the FERS system by 1% each year until equaling the amount contributed by Uncle Sam. The increase in employee contributions would be about 6 percent over a period of about five years. Payments by federal law enforcement officers would increase, but would not equal the greater contributions from law enforcement agencies.
  • Calculating retirement benefits on an average of the high five highest years of salary received instead of an average of the three highest years of salary.
  • Eliminate cost of living adjustments (COLA) for current and future FERS employees.
  • Cut the COLA for Civil Service Retirement System (CSRS) employees by 0.5 percent.
  • Eliminate retiree supplement payments for FERS employees who retire. The current supplement is roughly equal to the value of Social Security benefits for those retiring before turning 62.

Many of these proposals have been made before. The deficit commission, for example, proposed some of these changes in federal employee benefits as a way to reduce the federal deficit. While the commission was appointed by the president, little actual consideration was given to the actual recommendations during the remainder of the Obama administration. (See Commission Proposes ‘High-Three’ to ‘High-Five’ for Retirement, Pay Freeze and Changes to FEHB for Federal Employees)

Impact of House Hearing on Federal Employee Compensation

An obvious example of a change in the political climate is a recent hearing held in the House to review federal employee compensation. The “takeaways” from the hearing were:

  • An April Congressional Budget Office (CBO) report found federal employees earn 17 percent more than comparable private sector employees.
  • Most federal employees receive compensation through the outdated General Schedule compensation system that inhibits the government’s ability to reward performance over tenure.
  • The pay schedule also prevents the federal government from attracting top talent in high-demand areas, such as cybersecurity.
  • Small adjustments to federal employee’s defined benefit compensation plans could save taxpayers $207 billion over ten years. (emphasis supplied)

Conclusion

Some of the most far reaching proposals are unlikely to occur. Modifying the COLA adjustment for those receiving Social Security is one major change that would impact a large number of voters, especially if applied to all Social Security recipients. This would be a prime candidate for elimination during budget negotiations.

There is likely to be at least a minor reduction in federal employee benefits.

The primary difference between federal and private sector pay and benefits is the more expensive benefits package provided by the federal government. On average, federal benefits are 52 percent higher for federal employees than private sector employees according to the Congressional Budget Office (CBO). That statistic from the CBO is likely to come up during negotiations and could lead to some changes although probably less drastic changes than the initial proposals outlined above.

Our Advice

Pay attention to the changes that are discussed in coming months and plan accordingly. Those contemplating retirement in the near future would be well advised to pay particular attention. Many of the proposed changes, even if enacted, may occur for future retirees and not those who are already retired.

© 2019 Ralph R. Smith. All rights reserved. This article may not be reproduced without express written consent from Ralph R. Smith.

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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

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