The House Oversight and Government Reform Committee is considering cuts of about $50 billion from mandatory spending. Much of this could affect federal employee and retiree benefits. Lawmakers on the committee passed a framework of proposals in a vote of 216-214 on April 10.
The proposals circulating are not set in stone. However, the National Active and Retired Federal Employees Association (NARFE) expressed its concerns in a letter to Congress. “Given the only major mandatory spending under the committee’s jurisdiction is federal retirement and health benefits, cuts of such a magnitude would necessarily come from cuts to federal retirement and health benefits,” NARFE wrote.
The House and Senate Republicans will likely not get to a final version of the budget until later this spring or early summer. While many of these proposals have been rumored in previous years, only a simple majority vote is likely needed to pass the final bill after reconciliation. Filibuster rules could not be used to block the bill.
One proposal would reduce the government contribution towards Federal Employees Health Benefits (FEHB) plan premiums. This would be done by switching to a flat-rate voucher model. Currently, the government contribution is set at 72 percent of the weighted average of all FEHB plan premiums.
It increases as health costs and premiums increase. The voucher would likely be indexed to consumer price increases. When health care prices increase faster than other consumer prices, this would result in the government contribution towards premiums decreasing as a percentage of the overall premium.
This would shift substantial costs to federal employees and retirees. Applying the averages, the voucher model could force employees and retirees to pay more than 50 percent of premium costs over 10 years. This would cost them more than $21,000 for self-only coverage, and over $52,000 for self and family coverage.
Another proposal would shift retirement savings for federal employees, retirees, and uniformed servicemembers from the current G Fund investment into an investment product with a substandard rate of return.
Committee proposes federal benefits changes
If enacted, Thrift Savings Plan (TSP) participants would likely divest from the G Fund to invest their money in an alternative fund.
This would eliminate any suggested budget savings from this proposal. There is also a proposed increase in the Federal Employees Retirement System (FERS) contribution rate. This is perceived as an across-the-board pay cut.
According to the Federal Salary Council, federal employees are already paid nearly 25 percent less than their private-sector counterparts. This would exacerbate recruitment and retention issues. NARFE opposes increasing the employee contribution to the FERS and converting new employees to at-will employment.
The merit-based civil service exists to protect against cronyism and corruption and to fill government ranks with qualified individuals. Charging a fee for federal employee Merit Systems Protection Board (MSPB) appeals would make it more difficult for individuals to challenge potentially illegal and politically motivated actions. Another proposal could apply to already vested employees, including those near retirement.
It would reduce the value of their FERS annuity by basing it on their high-5 instead of high-3 salary. This breaks promises to retirees by reducing the value of their vested benefits. The FERS supplement is provided to retirees who retire before they are eligible for Social Security.
Eliminating this could cost a federal employee over $105,000 in the five years before becoming eligible for Social Security at age 62. NARFE’s letter emphasizes that these proposed changes would undermine the viability of federal benefits programs. It would also break promises made to federal employees and retirees.
As the budget process continues, updated information will be provided. The 2025 budget proposals, if enacted, would significantly alter the financial landscape for federal employees. Critics contend it will harm their financial security and hinder the government’s ability to deliver essential services.