House Speaker John Boehner, President Barack Obama, Senate Majority Leader Harry Reid and Senate Minority Leader Mitch McConnell meet on July 14 at the White House discuss a debt-ceiling deal. Federal retirement benefits and paychecks will likely take a serious blow as part of a deficit reduction deal now being finalized. (Chip Somodevilla / Getty Images)
Federal retirement benefits and paychecks are nearly certain to take a serious blow as part of any deficit reduction deal.
Details remain in flux and are hard to pin down — especially since House Speaker John Boehner pulled out of negotiations with the White House July 22 — but the gist of what's to come is clear.
"I've abandoned all hope," John Gage, national president of the American Federation of Government Employees, said last week. "I know we're gonna get crushed. It doesn't seem we can do anything about it."
Among the likely hits to federal employees:
• Increasing paycheck contributions to pension programs, which would feel like a pay cut. For current employees, the increase would likely be phased in over time, but details are still being hammered out on the size of the increased contribution and the speed at which it is phased in.
• Basing pension calculations on an employee's highest five salaries, instead of their high three, which would reduce pensions.
• Using a so-called chained Consumer Price Index to calculate cost-of-living adjustments to federal and military pensions and Social Security. The effect would be COLAs that are about 0.25 of a percentage point lower than those calculated by the price index now used.
Colleen Kelley, president of the National Treasury Employees Union, said most negotiations have focused on mandatory spending, which is why proposed changes have been focused on federal pensions.
Discretionary spending is also likely to be cut severely as part of any deal, but Congress will decide those details later. Discussions include a third year of federal pay freezes — one more than the two years of freezes already approved by Congress, Kelley said.
Higher contributions to pensions
Gage said July 20 that under a plan that was forming in the House last week, new federal employees would pay vastly more for their Federal Employees Retirement System defined-benefit pensions: about 6 percent of their salaries, as opposed to the 0.8 percent that FERS employees pay now.
Current employees, under both FERS and the Civil Service Retirement System, would see their contributions rise gradually — an additional 0.5 percent of salary each year for three years once the current pay-scale freeze expires, Gage said.
This would bring FERS contributions to 2.3 percent of salary, and CSRS employees — who now contribute 7 percent to their pensions — would pay 8.5 percent.
Kelley said other phase-in options are being floated on Capitol Hill. For example, lawmakers are also considering requiring new employees to contribute 5.5 percent to their FERS pensions, and increasing current employees' contributions by 0.4 percent per year for three years.
"Nothing is firm," Kelley said.
NTEU spokeswoman Dina Long said another proposal to change the Federal Employees Health Benefits Program (FEHBP) to a "premium support" system also is on the table.
Under this plan, federal employees would get a fixed subsidy that they could use like a voucher to pay their health care premiums. The government would increase the amount of the subsidy each year by the percentage change in Gross Domestic Product plus 1 percentage point.
Critics say this would quickly shift health care costs to federal employees.
The White House deficit reduction commission, headed by former Sen. Alan Simpson and former White House Chief of Staff Erskine Bowles, last December proposed testing premium support on FEHBP, and possibly later expanding it to Medicare.
After negotiations collapsed, House and Senate leaders scrambled to find another way to raise the debt ceiling in exchange for at least $1 trillion in cuts. This means measures affecting federal employees are still in play, and will likely be part of whatever final deal is struck to avoid the nation's first default.
The Senate's bipartisan Gang of Six last week released its own $3.7 trillion deficit reduction proposal. It calls for holding all federal health care spending — which would include Medicare and FEHBP — to GDP plus 1 percentage point beginning in 2020.
President Obama said the plan appeared to present a balanced approach between revenue increases and spending cuts and called it good news, though he stopped short of endorsing it.
The Gang of Six's plan renewed some lawmakers' hopes that Congress could strike a deal raising the debt ceiling before the Aug. 2 deadline.
Others, however, reacted coolly and said it didn't come close to adding up to $3.7 trillion in cuts.
Sen. Tom Coburn, R-Okla., offered up his own sweeping $9 trillion deficit-reduction proposal a day before rejoining the Gang of Six. His plan would cut both the federal and contractor workforces by 15 percent, freeze pay and bonuses for a third year, freeze locality pay for five years, and switch to the chained CPI.
Coburn also proposes prohibiting federal employees from carrying over unused sick leave and vacation time into the next year. He would cap sick leave at 13 days a year and vacation time at 30 days a year.
He also proposes eliminating the so-called "double dip" that allows some retirees to be rehired by the government and be paid their full salary and full pension.
Aside from the chained CPI, there is no indication Coburn's proposals will be part of a final deal.