The Congressional Research Service (CRS) issued an outline of the proposed cuts to federal employees’ retirement benefits under a budget proposal recently passed by the House Committee on Oversight and Government Reform.
Below are some highlights of the proposals. It is unknown at this time if they will become part of the final budget legislation and become law, however, federal employees and retirees should be aware of what is being proposed.
Increase in FERS Employee Contribution Requirements
Under current law, employees covered by FERS and first hired before 2013 must contribute 0.8% of their pay, employees first hired (or rehired with less than five years of service) in 2013 contribute 3.1% of pay, and employees first hired (or rehired with less than five years of service) after 2013 contribute 4.4% of pay.
Under the committee’s proposal, the contribution rate for all FERS employees would be increased to 4.4%, including those hired before and during 2013. The increase would start in January 2026 and be stair-stepped to the full 4.4% over a two-year period. Law enforcement officers (LEOs) “and related groups” would be exempt from the pension contribution increases.
Elimination of the FERS Annuity Supplement
Under current law, some employees under FERS may be eligible for the FERS annuity supplement, which is paid to certain workers eligible to retire prior to age 62 (e.g., workers who retire at 55 or older with at least 30 years of service; at the age of 60—or, in some circumstances, at earlier ages—with at least 20 years of service; or federal employees who retire under special provisions for LEOs and related personnel). This annuity supplement is equal to the estimated Social Security benefit that the individual earned while employed by the federal government and is paid only until the age of 62 (regardless of whether the retiree chooses to apply for Social Security retired worker benefits at 62 years old).
The committee is proposing to eliminate the FERS annuity supplement for new retirees not yet entitled to it prior to enactment but would preserve it for anyone separated from service under mandatory retirement provisions (e.g., generally age 57 for LEOs, age 56 for air traffic controllers).
High-5 Average Pay for Calculating CSRS and FERS Pension
Under current law, the FERS basic annuity is calculated by multiplying the average of the highest three consecutive years of basic pay (high-3 pay) by the benefit accrual rate and by the number of years of service. This is the same formula used to calculate the annuity benefit for the older, now-closed Civil Service Retirement System (CSRS).
Under FERS, workers accrue retirement benefits at the rate of 1% per year, or, if a FERS employee has at least 20 years of service and works until at least age 62, then the FERS accrual rate is 1.1% for each year of service. (The two categories of employees covered by enhanced retirement benefits have a benefit accrual rate of 1.7% for the first 20 years of service and 1.0% for subsequent years.)
The proposal would change the measure of pay used to calculate FERS (and CSRS) benefits to be the average of the highest five consecutive years of basic pay (high-5 pay), effective for new retirees beginning in January 2027. LEOs and related personnel would not be subject to this change from high-3 to high-5 pay.
Federal Employee Health Benefits Program (FEHB) Eligibility Audits
The proposal would require the Office of Personnel Management (OPM) to develop processes to verify family member eligibility when an enrollee tries to add the individual for coverage, to verify the veracity of a qualifying life event when an enrollee tries to add a family member for coverage, and to remove ineligible FEHB-enrolled family members and notify the OPM inspector general of such disenrollment.
It would also require OPM, in nwith employing offices, to conduct a comprehensive audit regarding family members enrolled in FEHB by reviewing documents supporting family member eligibility, and OPM would be responsible for referring ineligible individuals to the OPM inspector general.
Additionally, the proposal would require OPM to keep family member FEHB eligibility records for specified time periods and to include an assessment of non-eligible FEHB-enrolled family members in any fraud risk assessment.
To read the full outline from the RSC, go here.