Pay Attention: Sounding The Alarm On The Major Changes To The Federal Retirement System That Would Have A Major Impact On Current Retirees and Employees.

Yet that could change next year. Federal financial experts are sounding the alarm bells on the major changes to the federal retirement system included in President Donald Trump’s fiscal 2018 budget — proposals that they say would leave a significant impact on both current retirees and employees and future workers.
The full budget proposal, outlines $3.6 trillion in cost reductions over the next 10 years, including changes to the federal retirement system that would save the government more than $4.1 billion in 2018 and at least $149 billion over the next 10 years.

Office of Management and Budget Director Mick Mulvaney said Monday it was one of the largest areas of cost savings outlined in the president’s budget proposal. Assumed savings from the repeal and replacement of the Affordable Care Act, plus savings realized from changes to the Supplemental Nutrition Assistance Program (SNAP) and student loan programs were among the top areas of cost reductions.
Specifically, the budget calls for:
  • An increase in employee contributions by 1 percent each year for the next six years,
  • An elimination of the cost-of-living adjustment (COLA) for current and future Federal Employee Retirement System (FERS) participants,
  • Cutting the COLA by 0.5 percent for Civil Service Retirement System (CSRS) participants of what the typical formula currently allows.

Federal financial experts are most worried by two specific proposals: increasing employee contributions and eliminating the COLA for FERS participants.
These changes, they say, may force current employees to delay their retirements in order to put more money in the Thrift Savings Plan (TSP), and they would certainly decrease an employee’s monthly take-home pay with higher annuity contributions. Combined, these proposals have the potential to cause real hardship, said Art Stein, a financial planner and investment manager.
“It means that the purchasing power of the FERS annuity is going to decrease every year,” he said.  I really worry about people who are already retired, because retirement planning has been based upon the promises and guarantees from the federal government about their retirement annuity, and all of the sudden they’re going to see a big decrease in future benefits.”

On average, Silvey predicts the president’s budget proposals would force current FERS employees to pay about $2,500-$2,600 more toward their annuities a year over the first five or six years, and then $3,500 more annually after the initial phase-in period.
Eliminating the COLA will likely prompt FERS retirees to use their savings more quickly.

“For someone who has a long retirement, this is a big, big decrease in the purchasing power of their annuity,” said Stein. “It means that things like gas and food and rent and travel are going to be less and less affordable for people in the future.”
Flanagan said she feared what impact these changes would have on the young talent waiting to enter the federal workforce if current workers delay their retirements.
And Silvey wondered how agencies would recruit and retain the next generation, who have long heard their predecessors tout the federal government’s compensation package.
“Historically, people who maybe were on the fence one way or the other as to who to go work for when they got out of college, the ones who leaned toward government were because of benefits like this,” he said. “How are they going to attract them in the future? What are they going to use? That was the one big selling point that government always had; they had great benefits.”