December 2019

Congressional negotiators agreed to use language advocated by Democrats to Provide an across-the-board 2.6% Pay increase to Federal Civilian Employees, along with an average 0.5% boost in Locality Pay.

Congress is set to provide federal civilian employees with an average pay raise of 3.1% next year as part of a spending deal that must pass before Friday’s deadline to avert a government shutdown.

According to a House Democratic aide, language in the spending legislation, which lawmakers still were finalizing Monday afternoon, would provide feds with a 2.6% across-the-board raise, along with an average 0.5% increase in locality pay.

The provision mirrors language passed by the Democrat-controlled House as part of its fiscal 2020 Financial Services and General Government appropriations bill earlier this year. The Senate’s version of the bill contained no language on employee compensation, effectively endorsing President Trump’s plan to provide federal workers with a 2.6% across-the-board raise but no increase in locality pay.

The agreement also marks the return of pay parity, as members of the military are also slated to receive an average 3.1% pay raise. Last year, although service members received a 2.6% pay increase, civilian feds only saw a 1.9% raise, as part of a deal to end the 35-day partial government shutdown.

The House and Senate must both vote to approve the spending deal, which will be split into two bills, by Friday, in order to avoid another government shutdown.

The agency responsible for administering the federal government’s 401(k)-style retirement savings program announced Tuesday that it plans to change how it calculates annual cost of living adjustments associated with some of its offerings for retirees.

When “401k” Federal Savings Plan participants take a post-separation withdrawal, they have the option to receive the money over time in the form of an annuity with an increasing payment option, which is based on an annual cost-of-living adjustment calculation. Currently, these annual adjustments are tied to inflation, as measured by the annual change in the consumer price index, with a cap of 3% per year.

Since the “401k” Federal Savings Plan contracts out annuity services to a vendor, that vendor charges fees based on an annual increase of 3% per year, even when the actual annual adjustment is less than that.

According to a proposed rule published Tuesday in the Federal Register, the “401k” Federal Savings Plan would cease tying annual cost of living increases to inflation, and instead provide an annual fixed increase of 2% per year. Officials noted that the Federal Open Market Committee has stated its aim is to keep inflation at that rate each year “over the medium term,” and that the average annual rate of inflation over the last 20 years has been 1.95%.

The change, according to the “401k” Federal Savings Plan , would allow participants who take an annuity to receive, on average, a 10% to 15% higher initial monthly payment, due to reduced fees to the annuity vendor.

“Although this increase comes at the expense of a smaller amount of inflation protection (i.e., protection only up to 2% per year as opposed to 3%), using a fixed rate makes it less likely that participants will pay for more inflation protection than they need,” the “401k” Federal Savings Plan wrote.

And with a fixed COLA adjustment each year, participants will have more certainty regarding how much money they will receive on a monthly and yearly basis.

In the wake of the surprise news that President Trump will grant federal employees the day off on Christmas Eve next week, the Office of Personnel Management has issued guidance clarifying how that decision will affect federal workers’ pay and benefits.

On the pay front, full-time federal employees will receive their usual basic pay despite federal agencies being closed. And those who had been scheduled to take leave will not be charged for the day off. But if an employee has scheduled “use or lose” annual leave and cannot reschedule it before the end of the leave year, which falls on Jan. 4 for most workers, it will not be refunded to their leave bank.

The holiday’s impact on part-time and alternative work schedule workers varies, but OPM issued a fact sheet to go over a variety of possible scenarios

We’re not even 12 months removed from the most recent government shutdown and already there are fears that another shutdown is possible later this month. The latest continuing resolution Congress passed to sustain government operations while lawmakers negotiate a budget deal runs out on Dec. 20, and while most lawmakers seem to believe an agreement is within reach, it is not certain that President Trump would approve it. That possibility should get every federal employee’s attention.

LifeCents survey data suggests that many of the 800,000 workers impacted by the previous shutdown suffered significant hardships: 22% percent of respondents claimed to have missed a significant payment, while 24% reported that the shutdown took a physical and emotional toll.

One career government employee told us: “The long shutdown was the fifth time I have experienced being shut out from my job, with the associated worries of how long it will last, when will we get back pay, and how long will my emergency fund last.” After more than 30 years of federal service, he finally decided to leave his job at the IRS as a direct result of the shutdown.

While this employee had an emergency fund that could sustain him until the government reopened, many people do not. Studies show that 78% of American citizens live paycheck to paycheck, while 40% do not have enough in savings to cover a $400 emergency. For such individuals, the prospect of missing one or more paychecks could be catastrophic.

Where to Begin

Agencies can help protect employees from potential financial hardship by encouraging workers to establish emergency savings funds, and then help them acquire the knowledge and build the habits to regularly contribute to that fund.

Many will find the prospect of building a savings account with enough money to cover three to six months of living expenses daunting, so employers should advise people to start small. A base amount of a few hundred dollars can still cover a small emergency and may even be enough to see employees through an abbreviated shutdown. Maintaining a small emergency fund can also limit the amount of debt someone takes on when they’re not receiving an income. Instead of using credit cards to cover expenses, employees can rely on their emergency funds, allowing them to avoid accruing new debt.

There are programs available to educate government employees on savings strategies. For example, the Office of Personnel Management provides retirement and financial literacy training that can help employees better manage their finances.

Inspiration From the Private Sector

Although the public sector is more limited than the private sector in its ability to incentivize employees, there are aspects of some private sector savings programs that government agencies may wish to consider emulating.

For instance, many companies have implemented “helping hands” or “hardship” funds. Employees contribute a small amount of money on a regular basis into a specialized savings account as a gesture of goodwill to their colleagues. These funds accumulate and can be disbursed in case of an emergency—such as a government shutdown.

Some companies have established community savings programs that reward or recognize participants when they achieve specific goals. For example, an organization may set a savings goal of $400 per person and reward employees with a celebratory event once everyone hits that goal. Initiatives like this show that a small incentive tied to a specific goal can help people develop long-term savings habits.

Benefits of Financial Security 

Shutdowns sow tremendous confusion and uncertainty among employees. By helping employees understand the importance of creating emergency funds, managers can proactively provide workers with the underpinnings of a financial safety net that may help soften the blow.

Investing in employees’ financial literacy and wellness can also help improve job satisfaction and reduce attrition. A 2019 PwC survey found that employees value having a financial wellness benefit and access to unbiased counselors. Organizations that provide such benefits are more likely to be seen as good places to work.

While managers cannot control shutdowns, they can help employees understand what tools, benefits, programs, and resources they have at their disposal to protect themselves during economic hardship

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