OPM Proposes Changes to Bring Federal Benefits Closer to Private Sector

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By on May 7, 2018 in Pay & Benefits with 0 Comments

Cartoon illustration of a businessperson's hand holding up a scale with employees on one side and a stack of money on another depicting cost controls for employee benefits and human resources

There have been a number of proposals to alter benefit programs for Federal employees. Now, the Office of Personnel Management has weighed in on this subject with a letter to the Speaker of the House, Paul Ryan (R-WI), dated May 4, 2018.

The  letter from OPM is consistent with previous proposals to alter Federal employee benefits in several significant ways.

OPM’s Proposal to Reduce or Change Federal Employee Benefits

OPM Director Dr. Jeff Pon wrote in his letter:

I have enclosed legislative proposals for consideration of the Congress. OPM is responsible for administering the Civil Service Retirement System (CSRS) and the Federal Employees Retirement System (FERS)…. These programs serve nearly 2.6 million Federal retirees and survivors who receive monthly annuity payments. These legislative proposals would amend chapters 83 and 84 of title 5, United States Code, to bring Federal benefits more in line with the private sector.

Here are the main proposals in his letter to Congressman Ryan:

  • Eliminating Federal Employees’ Retirement System Annuity Supplements
  • Modifying Annuity Supplements From a High 3 Average to High 5 Average Salary
  • Increasing Contributions to Federal Employees Retirement System
  • Reducing or Eliminating Retirement Cost-of-Living Adjustments

Eliminating FERS Annuity Supplements

This OPM proposal would eliminate the Federal Employees’ Retirement System (FERS) annuity supplement for new retirees and the supplementary annuity for survivor annuitants.

The proposal also retains the requirement that OPM apportion a FERS annuity supplement to a former spouse when a court order expressly divides a FERS annuity for purposes of annuitants who retain a FERS annuity supplement.

Also, the legislative proposal retains a requirement that OPM reduce or eliminate an annuitant’s FERS annuity supplement based on earnings for those who retain FERS annuity supplements under prior provisions.

Change Annuity From a High 3 Average to High 5 Average Salary

The second proposal would change the time used to compute an annuitant’s average salary under the Civil Service Retirement System and Federal Employees’ Retirement System. Instead of averaging an employee’s basic pay over a three-year consecutive pay period, it would change this to a five-year consecutive pay period.

In effect, for many future Federal employee retirees, their annuities would likely be reduced by using a high 5 calculation instead of a high 3 calculation.

Increase Contributions to Federal Employees Retirement System (FERS)

The third proposal is to increase the employee deduction rates for the Federal Employees’ Retirement System (FERS). The rate increase would be 1% per year until the employee is contributing half of the current regular FERS employee normal cost percentage. In effect, they would increase until employee deduction rates reach 7.25 percent of basic pay.

Reducing or Eliminating Retirement Cost-of-Living Adjustments (COLAs)

This proposal reduces the cost-of-living adjustments (COLAs) under the Civil Service Retirement System (CSRS) by one half of one percent and proposes to eliminate COLAs under the Federal Employees’ Retirement System (PERS) for both current and future retirees.

This proposal would retain provisions requiring OPM to update a disability annuitant’s average salary by all COLAs payable for the period during which the annuitant was receiving a disability annuity when the annuity is redetermined at age 62. CSRS COLAs would be used in lieu of the FERS COLAs after those COLAs are eliminated.

Basis for OPM’s Proposals

The OPM letter states that private companies are providing less compensation in retirement benefits. In effect, the goal is to have the Federal government cut its expenses by following a similar path.

Shifting from defined-benefit programs and cost-of-living adjustments for annuitants has been occurring in America’s private sector. The Federal Government, however, continues to offer a generous package of retirement benefits according to the OPM director.

Consistent with the goal of bringing Federal retirement benefits more inline with the private sector, adjustments to reduce the long term costs associated with these benefits are included in these proposals. OPM estimates these proposals would save about $143,509,000,000 over ten years.

These proposals are consistent with the president’s management agenda.

Keep in mind, before panicking, that a proposal such as this is a long way from being enacted by Congress. It is unlikely these proposals will pass as written and also very unlikely all of them will become law.

It is worth keeping an eye on changes though as these and similar proposals come under consideration in Congress. Frequently, changes that do become law “grandfather” current employees in some ways rather than applying the changes across the board to all Federal employees, and that could happen here as well.

Opm Legislative Proposal: CSRS and FERS Updates by FedSmith Inc. on Scribd

© 2018 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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