The latest draft to legislation approved by the House Budget Committee on Monday makes some significant changes to the original proposal of federal retirement benefits cuts.
Below is a highlight of the updates.
Increase in FERS Employee Contribution Requirements
The original House proposal would have raised the amount that federal employees must contribute to the Federal Employees Retirement System (FERS) to 4.4% for all federal employees regardless of when they were hired — exempting law enforcement officers (LEOs) and related groups.
- The new draft of the proposal abandoned this FERS pension increase for those hired prior to 2014.
Elimination of the FERS Annuity Supplement
Under current law, some employees under FERS may be eligible for the FERS annuity supplement, which is paid to certain workers eligible to retire prior to age 62 (e.g., workers who retire at 55 or older with at least 30 years of service; at the age of 60—or, in some circumstances, at earlier ages—with at least 20 years of service; or federal employees who retire under special provisions for LEOs and related personnel). This annuity supplement is equal to the estimated Social Security benefit that the individual earned while employed by the federal government and is paid only until the age of 62 (regardless of whether the retiree chooses to apply for Social Security retired worker benefits at 62 years old).
The original proposal eliminated the FERS annuity supplement for new retirees not yet entitled to it, but would have preserved it for anyone separated from service under mandatory retirement provisions (e.g., generally age 57 for LEOs, age 56 for air traffic controllers).
- The new draft proposal lawmakers broadened an exemption for federal employees who are required to retire early (such as federal law enforcement personnel and air traffic controllers) to cover all federal employees. The implementation date was also delayed to Jan. 1, 2028, and would not apply to any individuals entitled to the FERS annuity supplement under law prior to that date.
High-5 Average Pay for Calculating CSRS and FERS Pension
Under current law, the FERS basic annuity is calculated by multiplying the average of the highest three consecutive years of basic pay (high-3 pay) by the benefit accrual rate and by the number of years of service. This is the same formula used to calculate the annuity benefit for the older, now-closed Civil Service Retirement System (CSRS).
The original proposal would have changed the measure of pay used to calculate FERS (and CSRS) benefits to be the average of the highest five consecutive years of basic pay (high-5 pay), effective for new retirees beginning in January 2027. LEOs and related personnel would not be subject to this change.
- The latest draft of the proposal delays the change from the high-3 to high-5 average salary calculation by one year, to Jan. 1, 2028.
To read the full text of the latest draft of the House proposals, go here. (PDF)