Several proposals that would directly impact the current and future income of federal employees are still alive and kicking in Congress.
A proposal to require higher retirement contributions by federal employees was directly addressed under the Obama Administration with report of the National Commission on Fiscal Responsibility and Reform. The philosophy and some of the Commission’s recommendations have now made it into the Report on the Committee of the Budget for the House of Representatives.
The House passed the 2018 Concurrent Budget Resolution on Thursday, October 5. The House Report of the Committee on the Budget accompanies this resolution and outlines the proposed changes to federal benefits.
Before reading the proposed changes, keep in mind that this is a report with numerous proposals. They are not the final budget. It is still in the early stages of the budget process. While the proposals are still in play, what is actually contained in the budget that emerges from Congress for fiscal year 2018 is likely to be different.
In effect, the House of Representatives has taken a big step in overhauling the U.S. tax code by approving the fiscal 2018 budget resolution. This resolution is intended to make it easier to pass a tax reform package. It will now be sent to the Senate which is likely to have its own ideas on the budget.
Here are some of the items to watch that would impact the federal workforce.
Reform Civil Service Pensions
The policy proposed by former President Obama’s National Commission on Fiscal Responsibility called for Federal employees to make greater contributions toward their own defined benefit retirement plans.
This proposal would also end the ‘‘special retirement supplement,’’ which pays Federal employees the equivalent of their Social Security benefit at an earlier age.
According to the Committee Report:
This would achieve significant savings while recognizing the need for new Federal employees to transition to a defined contribution retirement system. The vast majority of private sector employees participate in defined contribution retirement plans. These plans put the ownership, flexibility, and portfolio risk on the employee as opposed to the employer.
Similarly, Federal employees would have more control over their own retirement security under this option. President Trump’s fiscal year 2018 budget calls for a phased-in increase to contributions federal employees pay into the Federal Employee Retirement System so that both employees and the government are contributing an equal amount.
Terminate Separate Benefit and Payscales for Financial Regulators
Under current law, employees at the Federal Board of Governors and the Consumer Financial Protection Bureau have a separate retirement benefit arrangement. The fiscal year 2018 budget calls for a uniform system across the Federal Government and recommends these two agencies begin participating in the Federal Employees Retirement System (FERS) and the Thrift Savings Plan (TSP).
The Report also calls for making all financial regulators subject to Congressional oversight rather than setting their own budgets through money these agencies collect from the industries they regulate. These agencies include:
- Federal Deposit Insurance Corporation,
- National Credit Union Administration,
- Federal Reserve Board of Governors [the Fed], and
- the Federal Housing Finance Agency.
Some of these agencies have the highest salary scales among Federal agencies. (See, for example, Top 10 Agencies With Highest Federal Employee Salaries and Individual Awards) The committee report also addresses this issue.
[M]any Federal financial regulators are not subject to the Office of Personnel Management [OPM] General Schedule [GS] payscale. As a result, financial regulators pay employees far more than other federal employees employed at different departments and agencies. The fiscal year 2018 budget recommends Committees look at these sweetheart pay arrangements and move federal financial regulators to the more transparent GS payscale.
Change Rate of Return in the TSP’s G Fund
The Report also targets the interest rate currently being paid to investors by the G fund in the Thrift Savings Plan. The Report notes that the interest rate now being paid by the G fund (the most popular fund in the Thrift Savings Plan) is is a rate more appropriate for a security that is for a longer term. In effect, “those who participate in the G Fund are rewarded with a long-term rate on what is essentially a short-term security.”
The Report proposes to save money by “correctly aligning the rate of return on U.S. Treasury securities within the Federal Employee Retirement System’s Thrift Savings Plan with its investment risk profile. Securities within the G-Fund are not subject to risk of default. Payment of principal and interest is guaranteed by the U.S. Government. Yet the interest rate paid is equivalent to a long-term security.”
The most popular fund in the Thrift Savings Plan is the G fund. According to the latest TSP figures, the rate of return for the G fund in 2017 has been 2.23%. The proposed change would reduce this interest rate so that those investing in the G fund would receive a smaller return. That would probably encourage more TSP investors to put their money into alternative funds. It would, however, certainly reduce the popularity of the G fund which is a unique fund that is not available to the general public. It was created as a unique part of the Thrift Savings Plan as part of changing the Federal retirement program from CSRS to FERS.
Changes to the Federal Employee Health Benefits Program (FEHB)
Under the current system, the government’s contributions to the FEHB grow by the average weighted rate of change in these programs. The budget proposal would restrict the government’s contribution to the cost of health insurance to the rate inflation. It also proposes restricting Federal employees’ retirement benefits based on how long an employee worked for the government in order to “bring Federal benefits in line with the private sector model.”