Details continue to emerge about the proposed cuts to federal employees’ retirement benefits under a budget proposal passed by the House Committee on Oversight and Government Reform.
The Congressional Research Service (CRS) published a document outlining the proposed changes that passed the Committee’s markup session held on April 30 as part of the 2025 budget reconciliation process. The document spells out some important additional details on how these proposals would work should they ultimately be passed into law as written.
The following is a summary of the proposals and how they would be implemented as spelled out in the CRS document.
Elimination of the FERS Annuity Supplement
Under the Federal Employees Retirement System (FERS), some federal employees may be eligible for an annuity supplement (a.k.a. the special retirement supplement, or SRS). Regarding this supplement, OPM states:
The retiree annuity supplement is a benefit paid until age 62 to certain FERS employees who retire before age 62 and who are entitled to an immediate annuity. The supplement approximates the value of FERS service in a Social Security benefit. The general purpose of the supplement is to provide a portion of income before age 62 similar to what the retiree would have received in a Social Security benefit had the retiree attained age 62 and applied for Social Security benefits.
Under the House Committee’s proposal, this supplement would be eliminated for new retirees not yet entitled to it prior to enactment of the legislation but would preserve it for anyone separated from service under mandatory retirement provisions (e.g., generally age 57 for law enforcement officers, age 56 for air traffic controllers).
Increased Employee Contributions to FERS
Under the Committee’s proposal, all federal employees would have to contribute 4.4% of their salaries to FERS to be eligible for the pension benefit. Currently, federal employees who were hired before certain dates contribute less than this.
The standard contribution rate to FERS for federal employees hired before 2013 is 0.8%. For federal employees hired on or after January 1, 2013, or rehired with less than 5 years of civilian service, the contribution rate is 3.1%, and for those hired on or after January 1, 2014, the contribution rate is 4.4%.
In other words, the Committee’s proposal is to set the contribution rate to 4.4% for all federal employees, including those hired before and during 2013. However, the increase would be staggered over a two-year period. Law enforcement officers (LEOs) and related groups would be exempt from these increases.
For federal employees hired before 2013, the FERS contribution rate would increase from 0.8% to 4.4% over two years beginning January 2026. It would be 2.6% of their salaries in 2026 and increase to 4.4% in 2027.
For federal employees hired in 2013, the increase would happen over two years also, but as follows: it would go from 3.1% to 3.75% in 2026 and to 4.4% in 2027.
The increase also would apply to Members of Congress and Congressional staff. For those elected or hired before 2013, the increase would follow the same schedule as for federal employees, but it would also include an additional 0.5 percentage points, so it would go to 3.1% in 2026 and 4.9% in 2027. For those first hired in 2013, the increase would be the same as for federal employees hired in 2013 (3.75% in 2026 and to 4.4% in 2027).
Switch From High-3 to High-5
Another provision would modify the calculation method for FERS (and CSRS) benefits by replacing the average of the highest three consecutive years of basic pay (high-3 pay) with the average of the highest five consecutive years of basic pay (high-5 pay). This change will take effect for new federal retirees starting in January 2027. Notably, law enforcement officers and related personnel will not be affected by this change, as they will continue to be paid based on the average of the highest three consecutive years of basic pay.
The high-3 average pay is the highest average basic pay earned during any three consecutive years of service, usually the final three. The FERS basic annuity is computed based on length of service and this high-3 average salary, but this proposal changes the high-3 calculation to one based on the highest five years of average basic pay for calculating the annuity payments. The change would, in effect, reduce the retirement annuity payments for most federal employees.
Option for New Hires to Elect At-Will Employment
Another provision would increase the 4.4% FERS contribution rate by 5.0 percentage points to 9.4% of pay (or 9.9% for groups covered by enhanced retirement benefits), unless these employees elect to be employed on an at-will basis.
Federal employees who make this irrevocable election could face adverse actions, including removal, without notice or the right to appeal the action. The section allows the heads of the employing agencies to take action “for good cause, bad cause, or no cause at all.” Notably, employees who may not currently have the right to appeal their removals to the MSPB, such as political appointees, would appear to be excluded from the section.
MSPB Filing Fee
The Merit Systems Protection Board (MSPB) would be directed to establish a $350 filing fee for federal employees filing claims or appeals. It would be refunded in the event that the appeal is successful.
This provision also provides exceptions for actions brought by the Office of Special Counsel (OSC) to the MSPB and claims alleging retaliation against whistleblowers.
FEHB Eligibility Audits
The final provision applies to the Federal Employee Health Benefits (FEHB) program. This proposal requires the Office of Personnel Management (OPM) to establish processes to verify family member eligibility when an enrollee attempts to add an individual to the FEHB for coverage. OPM would be required to:
- Verify the accuracy of a qualifying life event when an enrollee adds a family member for coverage
- Remove ineligible family members enrolled in FEHB and notify the OPM inspector general of such disenrollment
- Conduct a comprehensive audit in collaboration with employing offices of family members enrolled in FEHB by reviewing documents supporting their eligibility and refer ineligible individuals to the OPM inspector general
- Maintain family member FEHB eligibility records for specified time periods and to include an assessment of non-eligible FEHB-enrolled family members in any fraud risk assessment
Conclusion
Whether any of these proposed cuts become reality will be determined by what makes it into the final budget legislation if and when it becomes law. During remarks he made during the House Oversight Committee’s markup hearing, Congressman Mike Turner (R-OH) said he thinks it was wrong to make changes to pension benefits for federal employees while they were still working and that they would ultimately not make it into the final budget legislation.
Keep in mind that these are legislative proposals and they may never become law, or they could be changed as they go through the legislative process on the way to eventually becoming law. FedSmith will continue to provide updates on these proposals as new information becomes available.
