The White House on Monday released the president’s 2021 budget request. It includes a proposal for a 1% across-the board pay raise for civilian federal employees in 2021, and reintroduces several reductions in retirement benefits from the 2020 fiscal budget proposal.
Below are highlights of the 2021 budget request document.
Proposed 2021 Federal Pay Raise and Slowing Frequency of Step Increases
The Administration proposes a one percent pay increase for Federal civilian employees for calendar year 2021, while also increasing funds available for on-the-spot and ratings-based performance awards. The Administration has attempted to make pay more flexible and performance-based, since across-the-board pay increases have long-term fixed costs and fail to address existing pay disparities or to target mission-critical recruitment and retention goals. A more targeted approach that rewards the top performers with the most critical skills is needed.
The Administration believes in aligning pay with an employee’s performance where possible. The existing Federal salary structure rewards longevity over performance. This is most evident in the tenure-based “step-increase” promotions that most Federal employees receive on a fixed, periodic schedule without regard to whether they are performing at an exceptional or merely passable level (granted 99.7 percent of the time). The Budget proposes to slow the frequency of these step in- creases, while increasing performance-based pay for workers in mission-critical areas.
Eliminate FERS COLA, Reduce CSRS COLA by 0.5 percent
FERS and CSRS COLAs for annuitants are currently determined based on statutory formulas tied to the Consumer Price Index. However, FERS annuitants are somewhat protected from economic effects, because their retirement packages include Social Security benefits and the Thrift Savings Plan (TSP)—a defined contribution plan for Federal Government employees — in addition to the FERS annuity. Eliminating the FERS COLA and reducing the CSRS COLA payments would reduce both FERS and CSRS annuity benefits, bringing compensation more in line with the private sector.
Eliminate the Special Retirement Supplement
When a FERS employee retires before Social Security eligibility age, and meets certain employment longevity requirements, they currently receive a supplement in addition to the FERS annuity and TSP payouts. This supplement partially replaces the Social Security portion of the retirement package. When private sector employees retire before Social Security eligibility age, no such supplement is provided. This proposal would eliminate this “extra” benefit, which is not typically provided in private sector annuity plans.
Change Retirement Calculation from High-3 years to High-5 years
Currently, Federal retirement annuity calculations are based on the average of the Federal employee’s three highest salary-earning years. Private sector pension companies commonly base employee annuity calculations on the employee’s five highest salary-earning years, a formula more representative of an employee’s career earnings track record. Switching the Federal employee annuity formula from a “High-3” to a “High-5” calculation would create greater alignment with the private sector.
Reduce the G Fund Interest Rate
This proposal includes a change to the G Fund, an investment vehicle available only through the TSP. G Fund investors currently benefit from receiving a medium-term rate of return on what is essentially a short-term security. Basing the yield on a short-term T-bill rate instead of the current rate (an average of medium and long term Treasury bond rates) would reduce both the projected rate of return to investors and the cost of the fund to the Treasury.
Federal Employee Groups Respond to White House Proposals
Several groups representing federal employees and retirees responded to the White House proposals on Monday.
“At a time when the federal government faces ominous recruitment and retention challenges, the president’s FY21 budget continues to shortchange and renege on previous commitments to federal employees and retirees,” said National Active and Retired Federal Employees Association (NARFE) National President Ken Thomas. These contemptible recommendations do nothing more than undermine the strength of our resilient civil service, and I urge Congress to reject it outright.”
“Why must President Trump start every budget cycle with a slash-and-burn approach to federal government?” said NTEU National President Tony Reardon. “Just like the last three years, NTEU will work with our allies on Capitol Hill to defeat these harmful proposals and ensure that federal employees are honored for their public service with fair pay raises and adequate resources for their agencies.”
“Not only does 1 percent do nothing to close the gap between federal employee salaries and their higher-paid private sector counterparts, it won’t keep up with inflation, it won’t keep up with private sector wage increases and it is meaningless if they are forced to simultaneously shave money off their paychecks for higher retirement contributions,” Reardon said.