CBO Considers Significant Changes to Federal Retirement System

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The Congressional Budget Office (CBO) is looking at a number of different options for the federal retirement system, changes that could have serious implications for federal retirees in the 2018 budget and going forward.

Both the Trump administration and Republican lawmakers have said they are determined to implement major changes to federal pay and benefits in an effort to cut federal retirement benefits. This includes asking federal employees to contribute more toward their defined benefit plans.

President Trump’s budget request for 2018 features four specific changes to the current federal retirement system that would help to save more than $4.1 billion in 2018 and about $200.0 billion over the next 10 years.

Meanwhile, the House Budget Committee’s 2018 request included similar recommendations, including ways to save $32.0 billion over the next decade through changes to the federal retirement system.

In the summary of the report, the CBO stated, “Lawmakers have expressed interest in examining the current structure of retirement benefits to ensure that the government provides adequate compensation to attract and retain skilled employees while not paying more than needed to accomplish that goal.”

The CBO looked at five potential changes to the federal system and reviewed how much the government would spend or save in both the short and long term.

Three of the options suggested changes to federal employees’ current existing plan, while two options would replace the pension plan with larger employee contributions to the Thrift Savings Plan.

Option One: Increase employee contribution rate for current Federal Employee Retirement System participants to 4.4%. Current federal employees hired before 2013 contribute 0.8% toward their pensions. Those hired in 2013 contribute 3.1%, while employees hired after 2013 contribute 4.4%. Future workers would also contribute 4.4%. Between 2018 and 2027, this would save the government around $47.0 billion in cash. Over the next 75 years, the government would spend about three percent less on pensions and TSP contributions.

Option Two: Lower pension contributions for employees hired in 2013 or after. Have all employees contribute 0.8 percent to their pensions. Over the next 10 years, the government would spend $32.0 billion on retirement costs. Over the next 75 years, the government’s net costs would increase by 13% over current law.

Option Three: Change the method for calculating the pension formula. Use an average of an employees’ highest five years of earnings rather than the current highest three years. By 2027, the government would spend $3.0 billion less on retirement costs. Spending on TSP and pension contributions would fall by three percent over the next 75 years.

Option Four: Eliminate the pension plan. Increase the government’s automatic TSP contribution to eight percent of an employee’s salary, with a seven-percent government match.

Option Five: Eliminate the pension plan. Increase the government’s automatic TSP contribution to 10% of an employee’s salary. Eliminate the employer’s match.

The last two options would have a similar impact on government revenue and savings. The government would spend more on retirement under these options compared to current law over the next 10 years. Workers would also bear more risk without a pension.

 

Source

Options for Changing the Retirement System for Federal Civilian Workers,” Congress of the United States Congressional Budget Office, August 27, 2017.

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