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House budget funding 2018 - federal retirement cuts and changes for 2018

House Passes Budget Plan that Would Cut Federal Retirement Benefits

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Federal Retirement Cuts for 2018

The House’s fiscal 2018 budget resolution passed Thursday includes $32 billion in cuts to  federal employees’ retirement and benefits programs over 10 years under the jurisdiction of the House Committee on Oversight and Government Reform (OGR) .

While the legislation does not specifically outline how the OGR would cut spending, earlier this year the Trump administration proposed changes in federal retirement benefits including:

  • An increase of 1 percent in retirement contributions for those in the Federal Employee Retirement System (FERS) — phased over a period of several years.
  • Replace the current high three average salary to calculate retirement annuities with a five year salary baseline.
  • Eliminate the cost-of-living adjustments (COLA) to current and future FERS employees
  • Reduce the COLA for CSRS employees by 0.5 percent.
  • Eliminate the FERS annuity supplement for eligible employees.

The House budget report does, however, specifically propose reducing the rate of return to the “401k” Federal Savings Plan ‘s G fund.  The  resolution  “assumes  savings  by  correctly  aligning  the rate  of  return  on  U.S.  Treasury  securities  within  the  Federal  Employee  Retirement  System’s  Thrift  Savings  Plan  with  its  investment  risk  profile.  Securities  within  the  G-Fund  are  not  subject  to risk  of  default.  Payment  of  principal  and  interest  is  guaranteed  by the  U.S.  Government.  Yet  the  interest  rate  paid  is  equivalent  to  a long-term  security.  As  a  result,  those  who  participate  in  the  G Fund  are  rewarded  with  a  long-term  rate  on  what  is  essentially  a short-term security.”

“Such a change would make the G Fund virtually worthless from an investment standpoint for “401k” Federal Savings Plan participants who are saving for retirement,” the Federal Retirement Thrift Investment Board reported in July.

The budget resolution also proposes gradually decreasing the government’s share of paying for employee and retiree health premiums. Currently, agencies pay an average of 72 percent of the total premium in the Federal Employees Health Benefit (FEHB) plan. Under the new budget proposal, government contributions would be linked to the cost of living, gradually lowering them while forcing workers and retirees to pay a larger portion of the total premium.

Groups representing federal employees and retirees have expressed concerns of the House’s budget resolution.

“The 2018 budget resolution passed by the House today threatens the economic security of thousands of federal employees around the country and is yet another unfair attempt to make the nation’s middle class civil servants suffer the brunt of deep spending and tax cuts, said National Treasury Employees Union (NTEU) National President Tony Reardon on Thursday.

In a letter sent to every House member before Thursday’s vote, Reardon said federal employees have already lost roughly $200 billion in the name of deficit reduction in recent years with multi-year pay freezes and reduced raises and two increases in the amount they pay toward their retirement.

“The House passed a budget resolution that targets the hard-earned retirement and health benefits of federal and postal workers and retirees for at least $32 billion in cuts,” said National Active and Retired Federal Employees Association (NARFE) President Richard G. Thissen. “The policies required to meet that target range from bad to worse – from imposing a ‘retirement tax’ on these workers by raising payroll contributions toward retirement without any benefit increase, to dramatically reducing the value of federal pensions for those nearing, or even in, retirement. These federal retirement cuts would break promises to employees and retirees who have based career and retirement planning on long-standing, promised benefit calculations. Federal retirement benefits were earned through years of hard work – they are not gifts to rescind.”

House Approves Budget Plan to Cut Federal Employee Benefits

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House lawmakers voted 219-206 Thursday to approve a resolution outlining the body’s fiscal 2018 budget priorities, which include a number of controversial cuts to federal employees’ retirement and benefits programs.

The House’s budget resolution (H. Con. Res. 71) asks 11 committees to come up with a total of $1.5 trillion in spending cuts through budget reconciliation, setting the stage for Republicans’ tax reform initiative. Within that, the legislation mandates that the House Oversight and Government Reform Committee, which oversees federal compensation and retirement programs, cut $32 billion over the next 10 years.

The resolution does not specify how the oversight committee should achieve savings, but the Trump administration last spring proposed a number of changes to federal retirement: a 6 percentage point increase in employee contributions to the Federal Employees Retirement System, phased in over six years; the elimination of cost of living adjustments for FERS employees and a 0.5 percent reduction in COLAs for Civil Service Retirement System enrollees; elimination of the FERS supplement for employees who retire before Social Security kicks in at age 62; and basing the value of retirement benefits on the highest five years of employees’ earnings instead of the current highest three years.

The House budget report also offers two new avenues for cutting federal workers’ compensation. It proposes reducing the rate of return for the “401k” Federal Savings Plan ’s G Fund, which is made up of government securities, to make it more indicative of its low “investment risk profile.”

And lawmakers proposed changing how the government calculates its contribution to Federal Employees Health Benefits Program premiums. Instead of basing the maximum calculation on the weighted average of the cost of all plans within FEHBP, the federal contribution would increase at the rate of inflation.

“This sets the stage for the federal community to pay for tax reform,” she said. “You’re paying for middle class tax cuts on the backs of middle class federal employees and retirees. It goes against the fundamental premise of this tax reform package.”

Rep. Gerry Connolly, D-Va., the vice ranking member of the House Oversight and Government Reform Committee, called the budget resolution “ruinous,” and said that while his committee would be responsible for $32 billion in cuts, the cost of the overall budget to federal workers and retirees could reach as high as $163 billion over the next decade.

“Federal employee pay and benefits are not the cause of this country’s deficit and debt,” Connolly said. “The federal workforce has already contributed nearly $200 billion toward reducing the country’s deficits in the form of pay freezes, pay raises insufficient to keep pace with inflation, furloughs and increased retirement contributions. We should honor and revere the service of our federal workforce, not denigrate it with the attacks included in this ugly budget.”

National Treasury Employees Union National President Tony Reardon decried the proposal, which he said would unfairly punish government employees.

“On paper, it may look like a way to save money but in the real world, cutting the paychecks and retirements of federal employees, just to help pay for tax cuts for the wealthy, is a mean-spirited way to build a national budget,” Reardon said. “Since when is it acceptable to attack the very people who are providing hurricane relief, protecting clean air and water, conducting cutting-edge scientific research, enforcing the tax laws, securing the border, maintaining the national parks and guarding our financial system?”

On Thursday, the Senate Budget Committee marked up its own fiscal 2018 budget proposal. Ahead of the meeting, it only provided reconciliation instructions to its Finance and Energy and Natural Resources committees. Once passed by the full Senate, lawmakers will need to iron out the differences between their budgets before committees can begin work to find savings.