The Congressional Budget Office (CBO) recently issued a report on the proposed cuts to federal employees retirement benefits proposed by the House Oversight Committee.
The report primarily looked at what the cost savings of the proposals would be to the federal government but also included some important details about how federal employees’ benefits would be impacted and how the proposals would be enacted as currently written.
Update: The latest version of the bill that passed the House Budget Committee on May 18 contains some important changes.
CBO Analysis of Proposed Benefits Cuts
The package of proposed cuts would reduce the federal deficit by $51 billion over a 10-year period per CBO estimates.
Elimination of FERS Annuity Supplement
One of the cuts put forth by the House Oversight Committee would eliminate the FERS annuity supplement for most new federal retirees under the Federal Employees Retirement System (FERS).
As to which federal employees would be impacted, CBO states, “Employees who retire under a mandatory authority would continue to receive the supplement as under current law. Current FERS annuitants and those who retire before enactment also would continue to receive the supplement.”
CBO estimates in its report that approximately 21,000 new FERS retirees who do not retire under a mandatory authority are added to the annuity supplement rolls annually. In fiscal year 2025, the CBO projects that the average annual supplement for affected annuitants would be around $18,000. These annuitants typically begin receiving the supplement at age 59 and would receive it for approximately three years.
Consequently, it is estimated that eliminating the FERS annuity supplement would result in a reduction of direct spending of $10.0 billion over the 2025-2034 period.
Increased Pension Contributions to FERS
One of the proposed changes would increase the amount some federal employees have to contribute to FERS regardless of when they were hired, however, law enforcement officers (LEOs) and related groups would be exempt.
Federal employees who were hired before 2013 contribute 0.8% of their salaries to FERS, and those hired in 2013 or were rehired with less than 5 years of civilian service contribute 3.1%. Those hired January 1, 2014 or later contribute 4.4%.
The proposal would impact individuals hired before 2014, specifically, most federal employees, Members of Congress, and Congressional staff. Members of Congress and Congressional staff who entered FERS before 2013 would also have a larger increase than federal employees.
The increased contributions would be phased in over a two-year period. The table below from the CBO report illustrates how each group would be impacted.
| 2025 | 2026 | 2027 | ||
| FERS, Entered FERS Before 2013 | ||||
| Regular Federal Employees | 0.8% | 2.6% | 4.4% | |
| Members of Congress, Congressional Staff | 1.3% | 3.1% | 4.9% | |
| Enhanced-Benefit Recipients Subject to Mandatory Retirement | 1.3% | 1.3% | 1.3% | |
| FERS RAE, Entered FERS In 2013 | ||||
| Regular Federal Employees, Members of Congress, Congressional Staff | 3.1% | 3.75% | 4.4% | |
| Enhanced-Benefit Recipients Subject to Mandatory Retirement | 3.6% | 3.6% | 3.6% | |
| FERS FRAE, Entered FERS After 2013 | ||||
| Regular Federal Employees, Members of Congress, Congressional Staff | 4.4% | 4.4% | 4.4% | |
| FERS = Federal Employees’ Retirement System; FRAE = Further Revised Annuity Employees; RAE = Revised Annuity Employees | ||||
CBO estimates in its report that the proposed increases in pension contributions would increase revenues by $34.5 billion over the 2025-2034 period. This one change accounts for the majority of the House Oversight Committee’s savings goal with the package of proposed benefits cuts.
Election of At-Will Employment and Lower FERS Contributions
Another proposal would allow newly hired federal employees to opt for at-will employment in exchange for lower FERS contributions. Deciding against this option would require an additional 5% contribution towards retirement.
The change would apply to employees hired or appointed after enactment. However, it would not apply to employees who cannot appeal adverse actions to the Merit Systems Protection Board (MSPB), such as most USPS employees. Additionally, certain other employees, including those in positions exempted from the competitive service due to the confidential and policy-focused nature of their work, would be excluded.
At-will employees can have their employment terminated at any time without cause. However, these employees retain protection under antidiscrimination laws, including laws that prohibit termination based on race, sex, or religion.
Under this provision, new hires who choose not to become at-will employees would retain civil service protections in exchange for the higher contribution rate to FERS (9.4% total for most employees). These protections require employers to show cause for any adverse personnel action and provide employees with the right to appeal employment termination.
CBO estimated in its report that roughly 124,000 newly hired federal employees impacted by this proposal will enter FERS in fiscal year 2026 with an annual salary of about $71,000, on average, and that roughly one quarter of affected federal hires would choose to contribute an additional 5% of their salary toward retirement rather than enter into at-will employment.
On that basis, CBO estimates that the larger retirement contributions of those who reject at-will employment would increase revenues by $4.7 billion over the 2025-2034 period.
Change from High-3 to High-5
CBO estimated in its report that this change would result in a reduction of about 3% in a federal employee’s annuity payment. This was based on data from the Office of Personnel Management which indicated that approximately 90,000 federal employees who are not subject to mandatory retirement are added to the CSRS and FERS retirement rolls annually.
Using data from the Office of Personnel Management (OPM), CBO estimated in its report that approximately 90,000 federal employees who are not subject to mandatory retirement are added to the CSRS and FERS retirement rolls annually. Currently, the average monthly benefit for CSRS annuitants was around $5,700 in fiscal year 2024, while for FERS, it was approximately $2,300.
CBO estimated that this proposal would lead to a reduction in direct spending of $3.1 billion over the 2025-2034 period.
$350 Filing Fee for MSPB Appeals
This provision would require federal employees to pay a $350 fee when filing claims or appeals with the Merit Systems Protection Board (MSPB). The fee would be refunded if the employee won his or her appeal. Exceptions would be provided for actions brought by the Office of Special Counsel (OSC) to the MSPB and claims alleging retaliation against whistleblowers.
The main goal of this proposal is to reduce frivolous appeals to the MSPB.
The CBO report estimated this provision would result in fewer claims to be filed than the 4,000 currently filed on average annually under current law and that it would increase revenues by $3 million over the 2025‑2034 period.
