OPM’s Proposed Cuts to Federal Employees’ Retirement, Explained

After giving the wealthiest Americans and corporations massive tax cuts that they immediately used to enrich themselves, the Trump administration turned its attention to federal employees, not to give them a tax cut but to cut their pay and retirement. 

The Office of Personnel Management May 4 submitted legislative proposals to Congress that would cut retirement income for retired federal workers, including law enforcement officers. Specifically, the proposals would cut $143.5 billion in wages and benefits from current and retired workers over the next 10 years. That’s on top of the $246 billion in cuts to wages and benefits that have been made this decade, including next year’s proposed pay freeze. 

Federal offices across the country are struggling to recruit and retain workers because federal wages and benefits are falling further behind the private sector. Yet the Administration wants to cut employees’ wages, freeze hiring next year and now is proposing to take away the retirement benefits they’ve worked a lifetime to earn. It is wrong, and everybody should be up in arms. 

Here's a primer on what the administration is trying to do, who would lose their earned compensation and by how much:  

Who would lose their retirement income? 

Current retirees, future retirees, current retirees with disabilities, future retirees with disabilities, surviving dependents, law enforcement officers, employees who take an agency offer to retire early due to an agency reorganization or a reduction in force, surviving dependents of deceased employees who’ve paid into the retirement system.  

How is the administration taking away this earned retirement income and by how much?

1. Reduce retirement income by increasing pay period for annuity calculation to 5 years  

The administration wants to reduce pensions for current and future retirees by averaging their highest five years of salary instead of the highest three years.  

Under the current formula, an employee who earns $55,000 in year one, $57,000 in year two, and $59,000 in year three before retirement would have a high-three salary of $57,000. If they retired at age 62 with 20 years of service, their annual annuity would be $12,540. By switching to a high-five formula, their average would be dragged down by two additional years of salary. If we add one year at $51,000 and another at $53,000 to the example above, their high-five salary would drop from $57,000 to $55,000. That would cut their annual annuity to $12,100. Over 20 years, that would add up to nearly $9,000 in lost income.  

2. Eliminate annuity supplements for those retiring early  

Most federal employees are covered under the Federal Employees’ Retirement System (FERS), which became effective Jan.1, 1987. FERS retirement eligibility is based on years of service and minimum retirement age. Those who retire early, whether it’s because of a disability, agency reorganization, reduction in force, or they are required to retire early like law enforcement officers, may be eligible for an annuity supplement to close the gap between the age when they retire and age 62 when their Social Security kicks in.  

The administration wants to eliminate this supplement for new retirees and surviving dependents. The elimination would surely create hardship for these seniors and their families. An employee with 20 years of service would lose $670 a month based on an average monthly Social Security payment of $1,341.  

3. Shift cost from government to employees’ pensions  

The administration wants to cut the government’s contributions to the employees’ pensions by increasing current workers’ out-of-pocket money toward their pensions. Most workers currently pay 0.8% towards their pensions. Under this proposal, their contribution would go up by 1% every year until they reach 7.25%, matching the government’s contribution.  

Suppose they currently earn $50,000 a year, are covered by FERS, and were hired before 2013. They would go from paying $400 a year toward your pension to $3,625 a year, almost eight times they currently pay.  

4. Reduce or eliminate COLAs  

Eliminate annual cost-of-living adjustments (COLAs) for current and future retirees under FERS, and cut the COLA for retirees under the older Civil Service Retirement System by 0.5% from the current formula. Because COLAs, which are used to calculate disability payments, would be reduced or eliminated, a retiree who has a disability would be affected as their FERS disability annuity would be cut.  

By scrapping cost-of-living adjustments, their annuity would remain frozen in time – even as the cost for groceries, medicine, and everyday essentials continues to rise. Assuming 2% annual inflation, their annuity would lose almost half of its value in just 20 years – amounting to thousands more in lost income each year. 

A race to the bottom 

These proposals are just the latest example of the administration’s disdain for the public service and its workforce. Instead of leading by example and being a model employer, OPM chooses to emulate the practices of low-wage, little-if-any benefit private sector employers who only care about fattening their own pockets and not workers’.  

According to a report from the Economic Policy Institute, CEOs make $15.6 million on average. That’s 271 times the nearly $58,000 annual average pay of the typical American worker. And these companies just received a massive permanent tax cut.  

These shameful proposals must be rejected outright. The women and men who keep our government running every day should be able to earn a decent living while they’re working and be able to retire with dignity and with the benefits they earned and were promised. 

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