2018 Budget Proposes Eliminating COLAs, Increasing Retirement Contributions

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By on May 23, 2017 in Pay & Benefits, Retirement with 0 Comments

The White House unveiled its 2018 budget proposal today, which contains a number of proposed cuts to federal employees’ retirement programs.

The White House has made it clear with its budget proposal that it intends to shift the philosophy of compensating the federal workforce to be more closely aligned with how it is done in the private sector. This is the underlying principle guiding many of the changes put forth in the budget.

The following is a summary of some of the proposals that will be of most interest to federal workers.

Cost of Living Adjustments

The budget proposes eliminating COLAs for current and future federal retirees under the Federal Employees Retirement System (FERS). For retired federal employees under the Civil Service Retirement System (CSRS), COLAs would be reduced by 0.5%.

The elimination of COLAs is expected to save $524 million in FY 2018.

Regarding the proposal, the White House said:

The employee retirement landscape continues to evolve as private companies are providing less compensation in the form of retirement benefits. The shift away from defined benefit programs and cost of living adjustments for annuitants is part of that evolution. By comparison, the Federal Government continues to offer a very generous package of retirement benefits. Consistent with the goal to bring Federal retirement benefits more in line with the private sector, adjustments to reduce the long-term costs associated with these benefits are included in this proposal.

Annuities

The amount FERS employees contribute to their annuities would increase by 1% each year for six years at which point the government and employee contributions would be equal. It also adds this information regarding employees in certain occupations:

For some specific occupations, such as law enforcement officers and firefighters, the cost of their retirement package necessitates a higher normal cost percentage. For those specific occupations this proposal would increase, but not equalize, employee contributions.

The budget also proposes moving from a high-3 to a high-5 system for computation of retirement benefits and eliminating the supplement for FERS employees who retire before they reach Social Security eligibility at 62. The current supplement is roughly equal to the value of Social Security benefits for those retiring before turning 62.

As justification for increasing federal employees’ retirement contributions, the White House stated:

According to an April 25, 2017 Congressional Budget Office Report, Federal employees are compensated with combined pay and benefits 17 percent higher than the private sector, much of which is provided in the form of benefits costs. As the CBO study shows, in comparison to the private sector, the Federal Government continues to offer a very generous package of retirement benefits even when controlling for certain characteristics of workers. At large private sector firms, only approximately 35 percent of workers at these large firms had access to a combination of defined benefit and defined contribution programs.

2018 Pay Raise

The budget reaffirms the Trump administration’s intent to give federal employees a 2018 pay raise of 1.9%. Congress could ultimately override the pay raise, however, in recent years this has not happened.

Paid Parental Leave

One proposal from the budget is to mandate a nationwide paid parental leave program. It would provide six weeks of paid family leave to mothers and fathers for the birth or adoption of a new child.

The budget describes the proposal as follows:

Using the Unemployment Insurance (UI) system as a base, the proposal will allow States to establish paid parental leave programs in a way that is most appropriate for their workforce and economy. States would be required to provide six weeks of parental leave and the proposal gives States broad latitude to design and finance the program. The proposal is fully offset by a package of sensible reforms to the UI system—including reforms to reduce improper payments, help unemployed workers find jobs more quickly, and encourage States to maintain reserves in their unemployment Trust Fund accounts.

Efforts to institute a similar program for the federal workforce have thus far proven unsuccessful. The most recent push came earlier this year when Congresswoman Carolyn Maloney (D-NY) introduced paid parental leave legislation in the House.

Strong Reactions

Federal employee advocacy groups were quick to denounce the proposed changes from the budget.

National Active and Retired Federal Employees Association (NARFE) president Richard G. Thissen said, “While the president purports to defend government annuities, such as Social Security, he singles out federal annuitants by limiting and even eliminating cost-of-living adjustments (COLAs) for those already retired and living on fixed incomes. This is nothing more than punishment for those who have served their country through federal service and a broken campaign promise to protect retirement security.”

AFGE national president J. David Cox, Sr. said, “This budget rips away any sense of financial security that federal workers currently have and shows how little regard this administration has for the everyday Americans who keep our government running.”

However, Office of Management and Budget director Mick Mulvaney echoed in a press conference about the budget what the administration stated as justification for the proposed changes, namely that the intent is to transition federal benefits to function more like they do in the private sector.

“Simply put, we try and make federal retirement close to the private sector,” Mulvaney said. “So we increased the contribution that they [federal employees] make to their 401K programs.”

The budget proposal is an initial guideline to lay out the administration’s priorities. Ultimately, however, Congress must approve the final spending plan for the government.

© 2017 Ian Smith. All rights reserved. This article may not be reproduced without express written consent from Ian Smith.

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Ian Smith is one of the co-founders of FedSmith.com. He enjoys writing about current topics that affect the federal workforce.

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