Proposed retirement cuts cast renewed pall over deferred resignations
The advancement of a series of proposals to cut federal workers’ retirement benefits in the House this week has revived long-simmering worries about the Trump administration’s deferred resignation program among employees who have accepted or are still considering the so-called ‘fork in the road.’
The House Oversight and Government Reform Committee voted mostly along party lines Wednesday to advance its portion of Republicans’ budget reconciliation legislation, a broad effort to reduce spending to help pay for tax cuts for the wealthy and expanded defense and immigration enforcement.
Included in the panel’s proposal are plans to reverse Congress’ decision in the 2010s not to require employees hired prior to 2014 to contribute more to their defined benefit annuities, known as the Federal Employees Retirement System. All FERS enrollees would be required to contribute 4.4% of their basic pay each paycheck toward their pension, and new hires would be required to elect between paying an additional 5% of their salaries toward their retirement benefits or waiving their civil service protections and serving at-will.
The measure also changes the formula used to calculate federal retirees’ annuities from an average of the highest three years of salary to an average of the highest five years of salary, for participants in both FERS and the older Civil Service Retirement System, beginning with those who retire in January 2027. And it eliminates the FERS supplement for federal workers who retire before Social Security kicks in at age 62, albeit with exceptions for employees in jobs that are subject to mandatory retirement ages, like law enforcement officers and air traffic controllers.
The elimination of the FERS supplement, which is set to take effect immediately upon the bill’s enactment into law, has caused panic among federal workers who have accepted their agency’s deferred resignation program, which offered employees the chance to be placed on paid administrative leave provided they agree to resign or retire by the end of the fiscal year in September. Several federal workers told Government Executive that they are scrambling to adjust their retirement date in an effort to protect their benefits.
“If it’s signed before I retire under the DRP in September, I will not receive the [FERS] supplement,” one federal employee said. “I based my decision to retire on a forecast that included this entitlement. Eliminating it reduces my retirement by 32%! Those of us who signed up to retire early under DRP feel this is a bait and switch. Essentially, we were given a choice to retire or risk being fired, and then they pull the rug out from under our financial strategy.”
John Hatton, staff vice president for policy and programs at the National Active and Retired Federal Employees Association, said that since the FERS supplement is designed to replicate what a federal retiree would receive from Social Security once they turn 62, its elimination would amount to a significant decrease in a retiree’s post-employment income.
“It could come out to $100,000 or more over the five-year period [from age 57 to 62], so its particularly substantial for those with larger retirement,” Hatton said. “So if you’re fully retiring, it’s going to have a real impact on you, though if you’re going back to work it’s not as much, because your FERS supplement would be decreased by how much you earn in your next job. It’s one thing to apply this to, you know, new hires, but it’s a much different question for someone who has already earned this, relied on this and made financial retirement plans around it. It’s just the wrong thing to do.”