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Obama to propose cuts in retirement benefits

Apr. 5, 2013 - 11:03AM   |  
By STEPHEN LOSEY   |   Comments
The White House next week is expected to propose $35 billion in cuts to federal retirement benefits and reductions in retirees' future pension increases as part of the fiscal 2014 budget.
The White House next week is expected to propose $35 billion in cuts to federal retirement benefits and reductions in retirees' future pension increases as part of the fiscal 2014 budget. (AFP)

The White House on Wednesday will propose $35 billion in cuts to federal retirement benefits and reductions in retirees’ future pension increases as part of the fiscal 2014 budget.

In a written statement to Federal Times, a senior administration official said that its budget will include proposed savings from a deficit reduction plan the White House released last month. That plan calls for the government to “reform federal retirement programs” and projects it would save $35 billion.

The Obama administration did not post details about how it would reform federal retirements. But in the administration’s proposed fiscal 2013 budget, released last year, it called for increasing federal employees’ retirement contributions by 1.2 percentage points, phased in over three years. The administration said that would help cut the federal pension plans’ unfunded liabilities, which in 2011 hit $761.5 billion.

If approved, the White House proposal would increase the contributions of employees covered by the Federal Employees Retirement System (FERS) and who were hired before 2013 from 0.8 percent to 2 percent. Employees covered by the Civil Service Retirement System (CSRS) would see their pension contributions go up from 7 percent to 8.2 percent. The government has already hiked the contributions of FERS employees hired beginning in 2013 to 3.1 percent, and it is unclear whether their contributions would be further increased.

The administration official said that President Obama also will propose switching to a less generous measure of inflation known as the chained Consumer Price Index. This would translate into lower cost-of-living adjustments for federal retirees’ pensions, and also reduce the growth in Social Security benefits.

The chained CPI is usually 0.25 to 0.30 percentage points lower each year, on average, than the standard CPI measurements that are used to determine COLAs. Switching to a lower CPI at first would mean a few hundred dollars less per year for federal retirees. But its effect would compound over the years until, eventually, some retirees would likely earn tens of thousands of dollars less than they would under the current method of setting COLAs.

Obama last year flirted with the chained CPI as part of a deal to avert the so-called fiscal cliff, but it was eventually taken off the table. Federal employee groups blasted the idea, calling it a faulty measure of inflation that does not account for seniors’ health care costs.

But critics of the government’s current method of setting inflationary rates say it does not account for changes in consumers’ buying habits as prices increase. For example, if apples become more expensive, most consumers will adjust by buying fewer apples or switching to a cheaper fruit. The chained CPI attempts to take those changes into account.

The White House said that Obama included the chained CPI proposal as part of an effort to compromise with Republicans.

Chained CPI and other unnamed proposals in the budget “were key Republican requests and not the president’s preferred approach,” the administration official said. “This is a compromise proposal built on common ground, and the president felt it was important to make it clear that the offer still stands.”

But federal employee groups such as the National Active and Retired Federal Employees Association are dismayed by the White House’s decision to adopt the chained CPI.

“We are disappointed to learn that the president’s first proposed budget since his re-election will embrace a policy designed to balance the budget by cutting the earned benefits of America’s seniors, veterans and those with disabilities,” NARFE National President Joseph Beaudoin said Friday. “If President Obama endorses the chained CPI inflation formula to calculate the cost-of-living adjustments for Americans, as has been reported, he will be turning his back on the populations most in need of assistance.”

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