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How The Trump Budget’s Attack On Federal Retirement Benefits Could Hurt You

How the Trump Budget’s Attack on Federal Retirement Benefits Could Hurt You

Last month, President Trump presented his proposed budget for the 2018 fiscal year, and as expected, the proposal drew plenty of controversy. Much of the attention went to cuts in entitlement programs like Social Security, which are meant to make up for tax cuts and increased defense spending.

Yet what many missed in the Trump budget were proposals that would affect the retirement benefits of federal workers. Although many Americans consider federal benefits to be quite generous, the budget would affect not only retirement savers in the public sector, but also the tens of millions of private-sector workers who are counting on some assistance to get by in retirement.

White House.
Image source: Getty Images.

What the budget does to federal workers

The Trump budget includes two key provisions with respect to federal workers. First, the budget requires federal employees who are part of the Federal Employees Retirement System to make larger employee contributions toward their defined-benefit program than they currently do. Depending on when workers were hired, they currently contribute 0.8% to 4.4% toward the Civil Service Retirement and Disability Fund. That leaves the federal government to contribute up to 13% in order to provide enough funding to make future pension payments.

The budget seeks to equalize the amounts that workers and the government pay toward federal pensions. The method the budget uses is to increase the federal worker contribution percentage by a single percentage point each year, gradually phasing in the increase until contributions are split about 50-50 between the federal government and employees. The Office of Management and Budget estimates that those moves will save the federal government $72 billion over the next 10 years.

The other major change that the budget proposes is on the benefit side. Currently, federal workers have pension benefits that are indexed for inflation. For retirees in the Federal Employees Retirement System, the budget would eliminate cost-of-living adjustments entirely. For those in the Civil Service Retirement System, reductions in COLAs would amount to half a percentage point annually. In…

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