Last month, the White House unveiled its budget proposals for 2018. And while the proposals are certainly far from finalized, federal employees are already wondering how the budget could affect them. Here’s what we know so far, keeping in mind that budget proposals often change a bit as they move through Congress.
No more Cost of Living Adjustments? The budget proposal would eliminate cost of living adjustments (COLA) for FERS employees, and reduce COLA for CSRS employees by 5 percent. The White House released the following statement as explanation for the move:
“The employee retirement landscape continues to evolve as private companies are providing less compensation in the form of retirement benefits. The shift away from defined benefit programs and cost of living adjustments for annuitants is part of that evolution. By comparison, the Federal Government continues to offer a very generous package of retirement benefits. Consistent with the goal to bring Federal retirement benefits more in line with the private sector, adjustments to reduce the long-term costs associated with these benefits are included in this proposal.”
Increasing annuity contributions. The budget also proposes to increase annuity contributions by employees, by one percent each year for six years. At this point, government and employee contributions would be equalized. The proposal would also eliminate the supplement for FERS employees who retire before age 62. The White House explained this idea with the following statement:
“According to an April 25, 2017 Congressional Budget Office Report, Federal employees are compensated with combined pay and benefits 17 percent higher than the private sector, much of which is provided in the form of benefits costs. As the CBO study shows, in comparison to the private sector, the Federal Government continues to offer a very generous package of retirement benefits even when controlling for certain characteristics of workers. At large private sector firms, only approximately 35 percent of workers at these large firms had access to a combination of defined benefit and defined contribution programs.”
A pay raise. The budget also includes a 1.8 percent pay raise for federal employees. While Congress could override this provision, it would prove to be unpopular, and in recent years has not happened.
So, there’s your “good news and bad news”. You might appreciate parts of the proposed budget, while opposing others, but the bottom line is to remember that “proposed” does not equal “finalized”. We will keep you up to date as the budget moves through Congress, particularly with regard to any changes that will affect federal employees. Until then, remember to continue regular consultations with us, so we can help you plan for a secure retirement.