Cuts Proposed to Fed Retirement Intend to ‘Align with Private Sector’

Trump administration’s FY 2021 budget proposal includes mitigations to benefits paid out to beneficiaries, higher contributions.

In its fiscal year 2021 budget proposal released Monday, the Trump administration proposed a host of changes to the current state of operations in the Federal Employees Retirement System (FERS).

The changes include an increase in employee contributions to FERS, so that the employee and employer would each pay half the normal cost, as well as an elimination of the FERS cost-of-living adjustment (COLA) and a reduction to the Civil Service Retirement System COLA.

Trump’s proposal also includes a castaway of the Special Retirement Supplement, a tool made eligible to federal beneficiaries to help buoy their financial independence between the age they retire and age 62, when they first become eligible for a Social Security benefit. The tool was designed primarily for individuals working in law enforcement jobs that require them to retire at age 59.

In citing the administration’s rationale for the changes, the budget report said the Congressional Budget Office (CBO) concluded in a series of recent reports that federal employees are compensated with combined pay and benefits well above the private sector.

“CBO found a 17% disparity on average, in total compensation, between Federal employees and their private sector peers,” the report said. “The disparity–which varies significantly by education level–is overwhelmingly attributable to benefits.”

The propositions were brought on board “to align federal compensation with leading private sector practices.”

The changes are expected to bring increasingly higher mitigations to the country’s projected deficits, saving $1 billion in 2021, and increasing to $15 billion in 2030. Between 2021 and 2025, the propositions are expected to reduce the deficit by $24 billion, and for the entire decade spanning 2021 to 2030, reduce the deficit by an aggregate $89 billion.

Retirement and disability benefits under FERS are fully funded by employee and employer contributions and interest earned by the bonds in which the contributions are invested.

“FERS and CSRS [cost of living adjustments] for annuitants are currently determined based on statutory formulas tied to the Consumer Price Index,” the budget stated. “However, FERS annuitants are somewhat protected from economic effects, because their retirement packages include Social Security benefits and the Thrift Savings Plan … in addition to the FERS annuity. Eliminating the FERS COLA and reducing the CSRS COLA payments would reduce both FERS and CSRS annuity benefits, bringing compensation more in line with the private sector.”

The budget also proposed reducing the mandated interest rate on the Thrift Savings Plan’s G fund, a pool of government securities intended to match the yield on either the three-month or four-week Treasury bill.

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