Pension reform proposal for federal employees increases employee contributions, eliminates COLAs
The Office of Personnel Management submitted legislative proposals to Congress that would have federal employees pay a greater share toward their retirement benefits and eliminate cost-of-living adjustments and supplemental annuities.
OPM estimated in the May 4 proposals that the package of changes affecting retirees and current employees would save $143.5 billion over the next 10 years. The Office of Management Budget had no objections, "and their enactment would be in accord with the program of the president," OPM Director Jeff Pon said in a letter to House Speaker Paul Ryan, R-Wis.
Mr. Pon said the proposed changes would bring the federal government more in line with the private sector. "The employee retirement landscape continues to evolve as private companies are providing less compensation in the form of retirement benefits. The shift away from defined benefit programs and cost-of-living adjustments for annuitants is part of that evolution," Mr. Pon wrote.
Most federal employees currently pay 0.8% of salary into the Federal Employees Retirement System, while those hired after 2012 pay 3.1% or 4.4% depending on when they were hired. Some employees, including members of Congress and their staff, contribute 1.3% of their salaries.
OPM is now proposing to increase employee contributions by 1 percentage point each year until they reach 7.25%, which represents half the current normal cost of 14.5%.
The proposal also calls for increasing the pay period that is used to determine benefit levels, to the last five years instead of the current practice of three years, and to eliminate an annuity supplement for new retirees and survivors.
Cost-of-living increases would be eliminated for current and future retirees, while people participating in FERS' predecessor, the Civil Service Retirement System, would see those adjustments reduced by 50 basis points. Retirement payments for law enforcement officers and other workers retiring before they are eligible for Social Security would also be reduced.
J. David Cox Sr., national president of the American Federation of Government Employees, warned that the proposed changes, combined with planned salary freezes next year, could hurt efforts to recruit and retain federal workers because federal wages and benefits are falling further behind the private sector.
"These proposed cuts come at a time when federal employees lag further and further behind their private-sector counterparts in comparative compensation. Federal employees today bring home 5% less than they did at the start of the decade, when adjusted for inflation, and they earn roughly one-third less than they would make doing comparable work in the private sector," Mr. Cox said in a statement. He also criticized the administration's plan to attach the proposals to the Department of Defense's fiscal 2019 authorization bill.