Federal Employee Pay and Benefits for 2018

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By on May 24, 2017 in Pay & Benefits with 0 Comments

Man appearing to be in deep thought about money

We know that the administration has proposed a 1.9% pay raise for 2018. We do not know if that will be the final figure. We also do not know if the 1.9% will be the average pay raise including locality pay or if locality pay would be in addition to the 1.9%.

Prognostications on Pay and Benefits for 2018

While we do not know the final amount of the pay raise for 2018, it is likely that the 1.9% will be the average pay raise including locality pay.

That is similar to what occurred in 2017 with the average pay raise of 2.1%. In 2017, there was an across the board 1% pay raise for federal employees. An additional amount was added for locality pay rates. The  total raise for federal employees under the General Schedule averaged 2.1%.

The 2017 figure was an increase over the 1.6 percent raise in 2016. It is also larger than the 1 percent increase civilian federal workers received in 2015 and 2014. Prior to that, a partial three-year pay freeze had been in effect. (See President Issues Memo Explaining Pay Freeze)

Mindset on 2018 Pay Raise

To understand the proposal for a federal employee pay raise for 2018, it is helpful to understand the philosophy underlying the proposal. These two statements provide insight into the philosophy underlying the 2018 pay raise proposal.

The administration’s proposed budget for 2018 cites a recent Congressional Budget Office report on federal pay. The budget proposal states:

…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.

Here is a statement from the budget regarding the 1.9% pay raise proposal:

The Administration has lessened the impact of the proposal to increase employee contribution to FERS, by phasing in the implementation with a one-percent increase in contributions each year. Thus, for 2018, the proposed 1.9 percent pay increase would offset the increase in employee retirement contributions. In the context of the broader labor environment, the Administration believes the implementation and phasing in of retirement benefit changes will not impact the Federal Government’s recruiting and retention efforts.

Pay Raise To Offset Increased Pension Contributions

In effect, the proposal for a 1.9% raise is, in part, an offset to increasing the amount federal employees will contribute to their future pension payments under the FERS retirement system. Rather than imposing an increased contribution to FERS all in one year, the increase would be phased in over a period of six years. At that point, the government and employee contributions would be equal. (See 2018 Budget Proposes Eliminating COLAs, Increasing Retirement Contributions)

Role of Congress

In the last several years, Congress has deferred to the president in determining the amount of an annual pay raise. Many in Congress do not want to go on record voting in favor of a federal employee raise. Deferring to the president eliminates the need to vote on a subject unpopular in some Congressional districts.

Congress has the power and responsibility to determine how the federal government spends money. In many years, Congress exercises its authority to weigh in on the amount of any annual federal pay increase.

This year, the process will be more complex. There are numerous bills already pending that would impact federal employee benefits in different ways. New legislation will be forthcoming that will reflect the proposals to reduce federal benefits.

There is a good chance that, during the budget negotiations, Congress will look at the total package of salary and benefits. As an offset, the actual pay raise could go higher if proposals to increase contributions and reduce COLAs for retirees are passed into law.

Most of the administration’s proposals have a better chance of passing in the House. It will be harder to obtain approval of these proposals in the Senate.

As negotiations progress (or reach a stalemate), President Trump may issue an alternative pay plan for 2018, as President Obama has done in recent years, that ends up determining the amount of a 2018 raise.

In short, this is not a year to expect increases in salary and benefits. It appears more likely there will be reductions of some kind in the employee benefits package.

Democrats are already threatening a government shutdown in the Fall because of disagreement over federal spending. It is also possible the pay system will change to introduce higher pay for high performing employees with smaller amounts (or no increase) for those who receive lower performance ratings.

No doubt, the political atmosphere will be tense as the new administration searches to find ways to reduce spending by the federal government and to create a path to reducing the huge national debt.

Comparison to Creating New Federal Retirement System

The Federal Employee Retirement System (FERS) passed in 1986. It was a multi-year effort.

The biggest obstacle to agreement on the new federal retirement system was the cost. The Reagan Administration insisted on limiting the cost to that of the average retirement plan in private industry. The CSRS retirement system was estimated to cost approximately 30 percent more than large employers’ private plans so federal unions and other employee organizations wanted to keep the CSRS system. The plan passed by the Senate was estimated to cost around 15 percent less.

A report from the Employee Benefit Research Institute in 2011 made this observation regarding passage of the FERS system:

Despite initial opposition from labor groups and veto threats from the Reagan administration, Congress ultimately enacted a plan that reduced federal spending and eventually won strong support from federal workers, particularly because of the Thrift Savings Plan (TSP). Lawmakers deliberately and carefully insulated the TSP from political manipulation and minimized the impact of the federal workers’ investments in the financial markets.

Federal employee unions were not invited to the signing ceremony. They had opposed the change from CSRS to FERS. As a result, no Democrats attended the signing ceremony either.

It would appear that not much has changed in the political line-up or some of the major concerns since the 1980’s on the issue of federal employee benefits.

While no one can predict what changes, if any, will be made to the federal benefits package in coming months, it is likely the most drastic changes will go by the wayside and be modified or offset in other ways.

It will be an interesting year for the federal workforce. We look forward to keeping readers informed of the changes working their way through our political system.

© 2017 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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