Federal Budget Plan Includes Major Reductions in Pensions

Retirement Plan

Federal Workers to See Their Pensions Cut

While some federal workers will benefit from the proposed budget plan, many stand to see cuts in their pensions and other services.

While the budget looks favorably on some worker on the federal payroll, like military members, many others stand to see reductions in their retirement plans, as well as more demanding costs.

One of the measures included in the bill that would hurt retirement plans is to extend the basis of the retirement benefits from the average of the highest three years of salary to the average of the highest five, which can only reduce the amount the workers will receive when they retire.

Cost of living adjustments will also be eliminated, although this only applies to workers hired after 1986 who qualify for Social Security benefits, which are already inflation-adjusted. Workers hired before do not qualify for Social Security benefits.

Supplement payments, which approximate the value of Social Security benefits for those who retire before age 62, will also be eliminated under the proposed budget.

A final move that will hurt federal employees’ pensions is to increase contributions from workers by one percentage point each year until they are equal to the government’s contribution. This would take five to six years and increase the out-of-pocket payment by roughly six percent over that time.

Meanwhile, military employees are slated to receive a 2.1% pay raise in the budget, while civilian workers will get a 1.9% bump.

In pursuit of cutting costs, federal employees will also likely be let go as a result of the proposed budget.

Officials maintain that the benefits and wages will still be favorably compared to the private sector, citing a Congressional Budget Office report that compared the private and public sectors in terms of wages and benefits.

The proposed budget has yet to be reviewed and approved by Congress, a process which usually sees at least several large changes made to the proposal. For the first time in years, however, the sitting president’s party now has control of both houses, meaning that pushing through the proposed budget as currently constructed will be easier than it has been in years.

Sources:

Trump’s budget calls for hits on federal employee retirement programs,” The Washington Post, May 18, 2017.

Comparing the Compensation of Federal and Private-Sector Employees, 2011 to 2015,” Congressional Budget Office, April 2017.

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