Proposed Budget for 2020 Features Revived Retirement Cuts

federal workers - Aubrey Lovegrove

The proposed budget for 2020 once again features several of Trump’s previously suggested cuts to federal employee’s retirement fund.

As of early last week, the administration released the first section of their proposed budget, which included many possible alterations to federal worker benefits, especially in regards to their pensions. This is the third year in a row these proposals have come up, with Congress rejecting it each time prior.

The exact terms of each proposal haven’t been detailed yet, but what is known is that there is a 1 percent increase in mandatory worker contributions to the Federal Employees Retirement System’s annuity fund until the fund total reaches 50 percent solvent. This plan is expected to take six years until completion and was proposed by the administration last year as well.
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Those retiring under FERS would also have their cost of living adjustments cut under this new proposal, and lower it to .5 percent for people in the Civil Service Retirement System. It would cut the supplemental pay that workers who retire before Social Security age would get.

Annuities that used to be based off the average highest three years of salary would now be based off the highest five, making payouts to retirees lower.

And the administration also is planning on cutting the Thrift Savings Plan’s government securities fund’s interest rate, which is based off of all of the average of all investments in which the TSP is diversified, and grew by 2.91 percent last year alone.

For the 2019 budget, the Trump administration proposed that the G Fund’s interest rate should be based off the 1.03 percent three-month return on last year’s Treasury bill. It is anticipated that this budget would double the savings of that, and the new interest rate G Fund is proposed to be based off a one month Treasury bill, which returns annually at .84 percent.

Kim Weaver, a spokeswoman for the TSP, claims that any change to return rate on the G Fund would make the portfolio “virtually worthless” and from an investment standpoint, such a change would render the G Fund no longer effective.

There is also a proposal in the new budget that would change the matching contributions to the Federal Employees Health Benefits Program by the government. Currently, the fund pays 72 percent on the average of all premiums in the plan, capping off at 75 percent. The administration’s new plan would be based on the plan’s performance, and contribute between 65 and 75 percent.

The total of these proposed changes, if passed, could reduce the benefits of federal employees by 102.5 billion over the next ten years.

2020 proposed budget cuts

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