Late last week, the House of Representatives passed a massive spending bill for fiscal year 2025. The legislation, now known as the Big Beautiful Bill Act (H.R. 1), now heads to the Senate for consideration. This is the legislation that contains cuts to federal employees’ retirement benefits, and some important changes were made to the version that passed in the House.
Changes in Legislation that Passed the House
Originally, there were six proposals put forth by the House Committee on Oversight and Government Reform. However, only four of those six proposals remain in the version that was passed by the House on May 22.
The most noteworthy change in the new version is that the proposal to change the high-3 to the high-5 has been eliminated.
The proposal to increase retirement contributions to FERS was struck from a previous version of the bill, and that change remained in place in the version that passed the House.
The following four proposals are the ones that remain in the legislation.
Elimination of the FERS Annuity Supplement
The FERS annuity supplement is an additional benefit paid until age 62 to certain federal employees under the Federal Employees Retirement System (FERS) who retire before age 62 and who are entitled to an immediate annuity. It approximates the value of FERS service in a Social Security benefit.
This provision of the legislation would eliminate the annuity supplement effective January 1, 2028.
However, as currently written, it would not apply to federal employees who were already entitled to an annuity supplement under Title 5 Section 8421 of the US law code before the enactment date of this legislation.
Additionally, it would be preserved for federal employees subject to mandatory early retirement, (e.g., generally age 57 for law enforcement officers, age 56 for air traffic controllers).
Election for At-Will Employment
The provision for new hires to elect at-will employment remains in the legislation as well. Newly hired federal employees could opt to become at-will employees in exchange for a lower contribution rate to FERS (the standard 4.4%). This would be an irrevocable decision per the language of the legislation as currently written.
However, if employees were to choose to keep their civil service protections, they would pay an additional 5% contribution rate to FERS (9.4% total for most federal employees).
Federal employees who opt to become at-will employees could face adverse actions, including removal, without notice or the right to appeal the action. Per the language of the bill as currently written, they “may be subject to an adverse action up to and including removal, without notice or right to appeal, by the head of the agency at which the individual is employed for good cause, bad cause, or no cause at all.”
MSPB Filing Fee
This provision would require the Merit Systems Protection Board (MSPB) 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.
The intent of the provision is to reduce frivolous employee appeals to the MSPB.
FEHB Protection Audits
Lastly, the provision to audit the Federal Employees Health Benefits (FEHB) program remains in the version of the bill passed by the House. This provision would require the Office of Personnel Management (OPM) to establish processes to verify family member eligibility for FEHB coverage and remove ineligible members.
Conclusion
The original six proposals to cut federal employees’ retirement benefits have been significantly reduced and modified since they were first passed by the House Oversight Committee. It is possible that more changes will be made as the legislation is considered by the Senate.
The most significant proposal, at least in terms of projected cost savings to the federal government, was the proposed increase in retirement contributions, however, it was also one of the most objectionable proposals among lawmakers which is why it did not survive in the House version of the bill. This proposal would have resulted in $34.5 billion in savings of the $51 billion per CBO estimates.
Comments from our readers indicate that the change to a high-5 for retirement benefits calculations was among the least popular proposals. According to the Congressional Budget Office (CBO), enacting this provision would result in an average reduction of about 3% in a federal employee’s annuity payment. The pushback on this proposal from both lawmakers and federal employees likely ultimately caused it to be eliminated from the bill.
As the legislation continues to progress in Congress, FedSmith will continue to keep you apprised of updates as they happen.
