Things have rarely been worse for members of the federal family, according to benefits expert John Grobe, of Federal Career Experts. The white-collar federal pay freeze is in its third year. The White House and GOP-led House of Representatives are seeing eye-to-eye on a number of changes in the federal benefits package that, if they become law, could cost you big bucks in the future. He’s particularly concerned about what he calls the “kiss of death trifecta” for feds.
So what are the threats? And how real are they?
Here’s the way Grobe sees it:
Today there are more threats to federal employees and their benefits than ever. Federal employees (and to a lesser extent, federal retirees) have reasons to be concerned about what may happen to their benefits over the next several years. This article will be a brief overview of some of the threats that we are facing.
Changing to a High-Five for Retirement Computations. This threat has been around ever since I was a young letter carrier in the 1970s and it hasn’t happened yet. While it is true that many other defined-benefit pensions use a high-five, rather than a high-three, this change has been suggested by the House Republican Budget and by the Simpson-Bowles report — but not by the White House and the bulk of the Democratic Party. I believe that to have a chance of being enacted, any change needs to have the support of all three; kind of a “kiss of death trifecta”. Even if a high-five came about, Congress would almost certainly grandfather all current employees (and, therefore, themselves).
Continuation of the Pay Freeze. Looking at how quickly the White House threw over the 0.5 percent pay increase they proposed for federal employees for 2013, I would not be surprised to see them renege on the proposed 1 percent pay increase for 2014. A four-year pay freeze is unprecedented and will hurt future retirement calculations more than a change to the high-five would.
Change in the Amount of Retirement Contributions by Current Federal Employees. This one has the “kiss of death trifecta”. Simpson-Bowles called for equalizing retirement contributions between the government and the employee. This would result in a significant increase (about seven times) for FERS and CSRS Offset employees, but would not affect straight CSRS employees. The House Republican Budget calls for increasing retirement contributions for all employees, but does not specify by how much. The White House calls for a 1.2 percent increase in employee contributions, regardless of the retirement system. The White House proposal would not affect employees who were hired in 2013 (and in the future), who, due to legislation passed last year, are required to contribute 3.1 percent of their salary for retirement benefits.
Eliminating the FERS Supplement. This has not been supported by the majority of lawmakers. It is unlikely to happen for current employees. It’s a little scary that the White House budget calls for eliminating the supplement for new hires.
Switching to the “Chained CPI” for Computing Cost-of-Living Increases. Although this has the support of all three groups, the change is being opposed by many powerful lobbies such as AARP and various veteran’s groups. The reason for this opposition is that a switch to the less generous “chained CPI” will affect most inflation-indexed federal benefits and will harm far more than just federal employees. It will be interesting to see how this plays out.
Make Changes to FEHB. Simpson-Bowles and the House Republican Budget call for changing FEHB to a voucher system. The White House is silent on that matter, but the proposed 2014 budget calls for adding a “self plus one” option. In addition, a bill introduced in the House would force federal employees to use the Obamacare Health Exchanges. None of these proposals seem to have the support needed to happen.
Confusing all of the above is the fact that members of Congress share many benefits with federal employees and, if they were to change the benefits for us, they would have to change the benefits for themselves. Last year’s change to the retirement contributions of newly hired FERS employees gives us some insight as to how changes to benefits might be addressed, should they actually occur. Last summer, Congress passed (and the president signed) a law increasing the retirement contributions of newly hired FERS employees from 0.8 percent to 3.1 percent. This law also lowered the contribution rate of congressional employees while concomitantly reducing their future benefits. All who were members of Congress or federal employees at the time of the change, or who would be hired up to the end of 2012, were grandfathered in to the current system. I believe that many of the proposed changes will be treated the same way — there will be extensive grandfathering.
If you’ve been reading this article closely, you realize that (other than outlining the actual threats to our benefits), it is mainly speculation and opinion by the author. Federal employees are still justifiably paranoid. Actually, they are not paranoid. If you think someone is out to get you, and they really are, then you’re not paranoid, you’re realistic.
Federal employees are likely to think more about retiring or leaving before retirement if their status (and the status of their benefits) is uncertain. Expect agencies to continue to offer early-outs (VERAs) and buy-outs (VSIPs). You may want to spend some time thinking about how you will respond if your agency offers you either or both.”
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