What Can Federal Employees Do to Prepare for Proposed Retirement Cuts?

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By on June 25, 2017 in Retirement with 0 Comments

Scissors cutting a $100 dollar bill in half

It seems that uncertainty has become a constant in federal employment. Over the last decade we have seen threats of changes to our retirement and benefits from such sources as the Simpson-Bowles Report, the annual House of Representatives budget, and the Congressional Budget Office. Most of the threats did not come to fruition; a few did.

Federal employees were subjected to a three year salary freeze. This recommendation of Simpson-Bowles was enacted as proposed.

Adjusting the ratio of employee and agency retirement contributions so that both the employee and the agency are contributing an equal amount was another Simpson-Bowles recommendation that was partially enacted. The amount that newly hired employees contribute for their FERS pension was not made equal between the employee and the government; however, it was increased twice; once in 2013 and again in 2014.

Some threats came close to being enacted, but were beaten back.

A bipartisan attempt was made to change the COLA calculation so that it used the “chained” consumer price index, rather than the current, more generous, CPI. This was only abandoned after our elected representatives realized that it would affect 64 million Social Security recipients – all of whom are old enough to vote.

Today’s threats, emanating from the White House’s 2018 proposed budget are, in part, a reprise of earlier threats, but a few new items have been added. Many federal employees are concerned that “this time it’s different” due to the fact that the Republican Party controls the White House and both Houses of Congress.

So what should a federal employee do to be prepared? The remainder of this article will look at things we can do to be prepared, and a future article will look at the pros and cons of leaving federal service if the changes seem imminent.

Retirement Income

Many of the proposed changes will cut our future retirement income (e.g., elimination of FERS COLAs, ending the FERS supplement for regular FERS employees, etc.). If income is going to be cut from our pension, we should attempt to make up the difference from other sources.

TSP

If you’re not now putting as much as you can in your TSP, throw more money in. If this means you have to cut back on some other areas, consider doing so before you say that you cannot afford to save any more for your retirement.

IRA

If you are maxing out in your TSP (good for you), open an Individual Retirement Arrangement (IRA). Regardless of your income level, there is an IRA to which you can contribute. You can contribute $5,500 to an IRA, and an additional $1,000 beginning in the year in which you turn 50.

If you are fully funding an IRA as well, you can invest money in taxable accounts.

FERS Pension

If you take the above actions (at least as many of them as you can afford), you’ll have more money available if the threats to your FERS pension actually come to pass. If they are not enacted, you’ll have that much more set aside to enjoy in your retirement.

Other threats will result in our having to pay more money towards our retirement (i.e., higher contributions for your FERS pension). This will affect our current budget and hamper us in setting money aside for that future retirement. If we find ourselves having to pay more money today for the same, or reduced, future benefits, we should look for areas to trim our current expenses that won’t unduly restrict our retirement savings.

Might we have to work longer for the same level of retirement? Possibly.

Proactively Dealing with Changes

If the changes are introduced but grandfather all current employees (at least up to the date of the change), might we want to pull the plug on our federal career earlier that we had planned? Maybe. If you’re currently eligible to retire, consider having a completed 2801 (CSRS) or 3107 (FERS) in your desk drawer; it’ll make you feel better.

But, the changes might not happen – just like they haven’t happened in the past. There are Senators and Representatives on both sides of the aisle that support federal employees (usually because they have a lot of federal employees in their districts/states).

Reach out to those who represent you and tell them that you oppose these assaults on our benefits.

If you’re a NARFE member, use their legislative action center to follow the progress of legislation that affects you.

If you’re not a NARFE member, join them.

Support your union in its fight to preserve your benefits.

Let others know of these threats and of the future danger to the earned benefits of other Americans. If the FERS COLA is eliminated, can an assault on the Social Security be far behind?

An upcoming article will look at the items you should consider in deciding whether or not to stay with the federal government if changes occur.

Agencies can request to have John Grobe, or another of Federal Career Experts' qualified instructors, deliver a retirement or transition seminar to their employees. FCE instructors are not financial advisers and will not sell or recommend financial products to class participants. Agency Benefits Officers can contact John Grobe at [email protected] to discuss schedules and costs.

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

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About the Author

John Grobe is President of Federal Career Experts, a consulting firm that specializes in federal retirement and career transition issues. He is also affiliated with TSP Safety Net. John retired from federal service after 25 years of progressively more responsible human resources positions. He is the author of Understanding the Federal Retirement Systems and Career Transition: A Guide for Federal Employees, both published by the Federal Management Institute. Federal Career Experts provides pre-retirement seminars for a wide variety of federal agencies.

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