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White House Revives Controversial Retirement Cut Proposals

The Trump administration’s fiscal 2021 budget proposal would require federal workers to contribute more to their retirement benefit programs and reduce annual cost of living adjustments.

President Trump on Monday revived a series of controversial proposals to cut federal employees’ retirement and health benefits, according to the White House’s fiscal 2021 budget proposal.

Nearly all of the proposed changes to retirement benefits for federal workers were part of the Trump administration’s first three budget proposals, and each year Congress declined to include them in spending packages.

Trump’s fiscal 2021 budget would require employees enrolled in the Federal Employees Retirement System to contribute 1% more per year to their retirement accounts, until the government and employees each contribute 50%. It also proposes eliminating annual cost of living adjustments for future FERS retirees and reducing COLAs for retirees in the Civil Service Retirement System by 0.5%.

The budget also calls for the elimination of the FERS special retirement supplement, designed for employees who retire before they reach the age of 62, when they become eligible for Social Security. The supplement is primarily aimed at helping workers in federal law enforcement jobs that require them to retire at age 59. And when employees retire, their defined benefit annuity would be calculated as an average of their highest five salary years, rather than the current “High-3” model.

The budget request says that most of these changes are aimed at bringing federal compensation in line with the private sector, which has largely moved away from offering workers defined-benefit pensions.

“FERS and CSRS [cost of living adjustments] for annuitants are currently determined based on statutory formulas tied to the Consumer Price Index,” the budget stated. “However, FERS annuitants are somewhat protected from economic effects, because their retirement packages include Social Security benefits and the Thrift Savings Plan . . . 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.”

The White House also proposed reducing the statutorily mandated interest rate on the Thrift Savings Plan’s G Fund, which is made up of government securities, to match the yield on either the three-month or four-week Treasury bill. That proposal has been decried by both federal employee groups and officials at the agency that administers the TSP.

“As we have in the past, we oppose a change to the G Fund interest rate, as it would make the G Fund inadequate and ineffective for TSP investors, and would meaningfully impact the retirement savings of millions of Thrift Savings Plan participants,” TSP spokeswoman Kim Weaver said on Monday.

Despite the budget’s language citing the various changes as reductions in benefits for employees, Office of Management and Budget Deputy Director Margaret Weichert said the aim of the proposals is to realign compensation to be more performance-based. She noted that the budget also calls for allowing term employees to have access to the Thrift Savings Plan, although not FERS.

“[The changes] are not reductions in benefits to anyone currently receiving retirement payments, but they do reflect leading practices in terms of contributions,” Weichert said. “As it relates to other compensation issues, the core unifying factor is not a reduction in pay or benefits, but rather a realignment to more incentive-driven performance pools.”

The budget also proposes a reduction in how much the government will contribute to insurance premiums in the Federal Employees Health Benefits Program. Currently, the government pays 72% of a weighted average of all plan premiums or 75% of a given plan’s premiums, whichever is lower. The budget proposes reducing the government contribution to 71% of the weighted average.

Federal managers and labor groups blasted the revival of proposed benefits cuts Monday.

“For an administration that has added $3 trillion to the federal debt, gouging federal employee pay and benefits in the name of deficit reduction is ridiculous,” said Tony Reardon, national president of the National Treasury Employees Union. “NTEU will fight these regressive proposals on retirement while supporting existing legislation calling for a 3.5% pay increase in 2021.”

American Federation of Government Employees National Secretary Treasurer Everett Kelley said the proposals are “punitive and ridiculous.”

“The federal workforce vehemently opposes losing up to half of their retirement benefits and AFGE members will be fighting this proposal at every turn,” Kelley said. “The administration’s rhetoric about affordability is laughable; the federal retirement system is modest, fully funded, and is the only aspect of federal employee compensation that meets private sector comparability.”

Federal Managers Association President Renee Johnson said these proposals would significantly hurt the federal government’s ability to recruit and retain workers if implemented.

“Like last year’s proposed cuts, in addition to hurting current and even retired feds, these proposals would only increase the ongoing challenges of recruitment and retention,” Johnson said. “Only 6% of the federal workforce is under the age of 30. In comparison, that age group makes up nearly 25% of the private sector. Continual budget uncertainty and even more cutting of benefits will certainly make the task of attracting the best and the brightest that much more difficult.”