Office of Personnel Management Director Jeff Pon requested that Congress pass legislation to reduce benefits under the Federal Employee Retirement System and require employees to pay more for certain benefits, according to a May 4, 2018, letter Pon sent to House Speaker Paul Ryan, R-Wis.
“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 generous package of retirement benefits,” Pon wrote in the letter.
The legislative proposals include four changes to the employee benefits system:
Elimination of FERS annuity supplements – An annuity supplement is used to cover the gap between retirement and Social Security eligibility for those federal employees that have to retire before they become Social security eligible, such as law enforcement officers. The OPM legislative proposal would eliminate supplements for new retirees and for survivor annuitants, which are living family members of deceased federal employees.
Use of high-five rather than high-three pay years to calculate annuity – Under current U.S. code, a retired employee’s annuity is calculated using the three years that employee earned their highest salary. Under the new proposal, the government would use an employee’s five highest-paid years, potentially reducing the annuity a retiree receives.
Increase in employee retirement contributions – Currently, most federal employees pay 0.8 percent of their basic pay to retirement deductions, though those hired after 2012 may pay 3.1 or 4.4 percent depending on the year of hire. Under the new OPM proposal employee contributions would increase by one percent every year until they reach a rate of 7.25 percent of their basic pay. This change would mean that employees would be paying half of the normal cost rate of their benefits, or how much of their pay per year it would cost to provide them with an annuity after retirement. If the normal cost increases, the proposal would also require employee contributions to increase to keep them paying half of that cost.
Reduction or elimination of retirement cost-of-living adjustments – Cost-of-living adjustments are used to increase pay for employees living in expensive parts of the country. The OPM proposal would reduce COLAs under the Civil Service Retirement System by 0.5 percent and eliminate FERS COLAs for current and future retirees.
According to Pon, the proposed changes would save more than $143 billion over the course of 10 years.
However, American Federation of Government Employees National President J. David Cox Sr. said that federal employees have already footed the bill for $246 billion in budget cuts on the back of their wages and benefits.
“These proposed cuts come at a time when federal employees lag further and further behind their private sector counterparts in comparative compensation. Federal employees today bring home five percent less than they did at the start of the decade, when adjusted for inflation, and they earn roughly one-third less than they would make doing comparable work in the private sector,” said Cox.
“The Trump administration wants to force current federal workers to pay substantially more into their retirement accounts while cutting the size of those benefits for current and future retirees. Plus, the administration would eliminate retirement payments that go to law enforcement officers and other workers who retire before Social Security kicks in.”
The letter proposing these retirement changes came just days before the start of Public Service Recognition Week, which recognizes the important work government employees do throughout the U.S.
“As we kick off Public Service Recognition Week, a time to honor federal employees who serve and protect our country day in and out without applause or fanfare, it’s especially disappointing to see the Office of Personnel Management pursue $143.5 billion in cuts to earned federal retirement benefits,” said National Active and Retired Federal Employees Association president Richard G. Thissen.
“There are certainly federal government operations, such as hiring times and information technology, that will benefit from modernization and reforms. But these proposed cuts are being proposed absent a discussion around a comprehensive civil service modernization package that the OPM director has said is forthcoming. These are benefit cuts for the sake of benefit cuts. They are nothing less than a direct attack on our nation’s public servants, particularly troubling because they come at a time when the Trump administration touts a strong economy and rising private sector growth.”
The proposed retirement cuts also come on the heels of a proposed employee pay freeze for FY19.
Some experts have also argued that the more reliable benefits offered by government service work as compensation for the lower pay government jobs offer in comparison to the private sector. Cutting benefits may make it more difficult to attract new talent to federal service.
In response to a request for comment by Federal Times, an OPM spokesperson reiterated Director Pon’s statement that benefits offered by the federal government do not match the direction taken by the private sector.
“Consistent with the goal of making federal retirement benefits more competitive, adjustments to reduce the long term costs associated with these benefits are included in the proposals highlighted in the letter OPM transmitted to House Speaker Paul Ryan,” the spokesperson said.
Jessie Bur covers federal IT and management.