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Home | Articles | RSC 2014 Budget Proposes Changes in Federal Employee Retirement Contributions, FEHB

RSC 2014 Budget Proposes Changes in Federal Employee Retirement Contributions, FEHB
March 19, 2013
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The Republican Study Committee (RSC) released its 2014 budget blueprint yesterday which includes a variety of measures that would affect federal employees and retirees. 

The blueprint -- called "Back to Basics" -- is offered to the House of Representatives for consideration as the House develops its 2014 budget.  According to the RSC, the blueprint cuts discretionary spending to $950 billion (just below the 2008 levels) and freezes it until the budget balances in 2017.  Defense spending is set at the same level as the House Budget Committee proposal.  Non-defense shrinks from $398 billion in 2014 to $392 billion in 2023. The RSC budget also proposes repealing Obamacare, reforming Medicaid, and enacting tax reforms.

Some specifics in the budget proposal directly affecting federal employee benefits are below:

Equalize Contributions to Federal Employees' Pension Plans

A recent CBO report found that, on average, federal civilian employees receive 48 percent more in benefits than the average private-sector employee with similar characteristics. Part of this excessive benefit structure is the retirement benefit system. Federal employees hired since 1984 are entitled to a hybrid pension, which includes a 401(k)- style plan that the government matches up to five percent in addition to a defined- benefit plan.

Private workers typically only get a 401(k) with a three percent match. The defined- benefit portion of the federal employee plan allows workers to retire at 62 and draw an annual income equal to 1.1 percent of the average of their three highest-salary years times the number of years they worked. For the average federal worker who earns $80,000 and retires after 30 years, this works out to $26,400 a year in guaranteed pension benefits.

Considering that federal workers contribute only 0.8 percent of their pay to the Federal Employees Retirement System, this is a recipe for a shortfall. Taxpayers now chip in 11.7 percent of employees' salaries to keep the system solvent. The Middle Class Tax Relief and Job Creation Act of 2012 requires new federal employees to contribute more towards their retirement annuity. However, no changes were made for current federal employees. The RSC budget would require all federal employees to pay more towards their retirement. This saves $123 billion over ten years.

Adopt Accurate Inflation Measurement

Federal retirees currently receive inflation protection for their federal pensions based on the CPI-W (the consumer price index for urban wage earners and clerical workers) instead of chained CPI-U (the consumer price index for urban consumers). The CPI- W, according to most analysts, overstates the actual level of inflation in the economy, at a higher cost to taxpayers. The RSC budget would more accurately measure inflation for federal retirees by basing it on the chained CPI-U, resulting in a savings of $9.2 billion over ten years.

Adopt a Defined Contribution Plan and Slow the Growth of Federal Contributions for the Federal Employees Health Benefits Program

The Federal Employees Health Benefits Program (FEHB) provides health insurance coverage to approximately eight million people, including federal workers, Members of Congress, and their dependents. This is a consumer-driven program of competing private health plans. The federal government can pay up to 75 percent of the premiums, and participants pay, on average, 30 percent of the premium payment.

This budget would offer a premium support for the FEHB program that would cover the first $5,000 of an individual premium or the first $11,000 of a family premium beginning January 1, 2015. Since employees who select plans that cost more than the federal contribution would pay the additional cost in full, this policy would incentivize consumers to choose lower-priced plans. As a result, price competition among healthcare plans would be strengthened. This plan achieves $29.6 billion in savings over ten years.

To read the full RSC budget blueprint, go to:

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