Could a Retirement Plan Surprise be Coming Soon?

Quite a number of federal and postal workers and retirees are worried by proposals that are aimed at “reforming” their basic retirement plans. Over the past couple of years, Congress and the White House have made suggestions that could change the Federal Employees Retirement System. As a result, the employees will receive more benefits while they’re still working and lose all inflation protection on their annuities after they retire.

The retirees from the Civil Service Retirement System would continue getting cost-of-living adjustments, but the amount will be 0.5% lower than the actual increase in the cost-of-living per year. Talks are underway, to change the so-called High 3 formula so that annuities will now be based on the length of one’s service and their highest five-year average salary. There are proposals to set up a voucher system for Federal Employees Health Benefits Program to motivate the employees and retiree to shop for lower-premium plans.

At the moment, Uncle Sam pays about 70% of the total premium for most employees and retirees.

There is also an idea of a new retirement plan meant only for Social Security and employee­government contributions to the TSP.
Many people are making assumptions and think that if the changes are made, they will take effect immediately and cover everybody working for the government as well as those who have already retired. Each year, many FERS employees watch the progress of the “retirement reform” bills to see if it’s possible for them to retire before their expected date.

At the beginning of the year, Jeff Pon, OPM Director told Nicole Ogrysko of Federal New Radio that for decades, various administrations have been nibbling around the edges of civil service reform. The only major action was taken 40 years ago by the Carter administration. Jeff said that a remake that will last another 40 to 50 years is in order and on its way. The reform will most likely cover a new overall pay system and pay programs that are tailored to specific agencies and occupations.

While some reforms require congressional approval, others can either be done by executive order or by using agency-specific authority or directives from OPM. A source who has known Jeff for years commented that he is a pro and knows how to get things done. He also said that it would be so much easier for changes to get through Congress if they covered future hires rather than immediate.

The likelihood of getting any significant changes approved is very slim. Some obvious distractions are the midterm elections and the Mueller investigation that blew out of proportion last week.

It would make sense to get some of the reforms enacted into law by 2019 as long as they’re not applied to any of the 5-million-plus active and retired feds who are satisfied with their retirement package just as is. It would be easier to apply the new reforms to new employees and retirees so that there is no breach of contract. This would leave the reform opponents no other argument to make in court.