Budget Proposal for Federal Retirees

[Leon44]

The following budget proposal is a concern for all Federal retirees. FERS and CSRS:

[B]Cost of Living Adjustments

The budget proposes eliminating COLAs for current and future federal employees under the Federal Employees Retirement System (FERS). For retired federal employees under the Civil Service Retirement System (CSRS), COLAs would be reduced by 0.5%. (Fedsmith.com)

[Amethyst]

We'll see what Congress thinks about that.

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.

Here is the full text of an article in Federal News Radio.com.

Quote:

Trump’s proposed retirement changes would have major impacts on current feds and retirees By Nicole Ogrysko | @nogryskoWFED May 23, 2017 4:38 am 6 min read It’s happened before; lawmakers and think tanks have offered their own proposals to change the federal retirement system. Despite a few initial worries, current federal employees and retirees have remained relatively unscathed. 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. https://federalnewsradio.com/retirem...-and-retirees/

mod edit to avoid copyright infringement

[Amethyst]

Thanks to michael b. for merging posts - also I tried to respond to your post, but had to delete it as my inbox was full. Sorry about posting full article; won't do that again.

Amethyst

[samclem]

I don't think there's much chance this will survive as proposed. Still, I wish there was a general consensus (among the public and those who represent them) that there's a fundamental difference between changing the "deal" going forward and retroactively changing the "deal" for assets that have already been contributed to a pension plan. FRS and CSRS promises were made to employees, and the promised payouts were part of the compensation in the past. It is "owed pay" for work they have already done. Now, if the government wants to change the rules going forward for new contributions/work credit, that would be fine and would not be a breach of any trusts or agreements. ("We're fencing off your previous contributions and they'll continue to pay out exactly as we'd agreed. You worked for that already and it is owed to you. Going forward, there's a different deal. Make your decision to stay in this job based on the new rules.")

[W2R]

Quote:

Originally Posted by samclem I don't think there's much chance this will survive as proposed. Still, I wish there was a general consensus (among the public and those who represent them) that there's a fundamental difference between changing the "deal" going forward and retroactively changing the "deal" for assets that have already been contributed to a pension plan. FRS and CSRS promises were made to employees, and the promised payouts were part of the compensation in the past. It is "owed pay" for work they have already done. Now, if the government wants to change the rules going forward for new contributions/work credit, that would be fine and would not be a breach of any trusts or agreements. ("We're fencing off your previous contributions and they'll continue to pay out exactly as we'd agreed. You worked for that already and it is owed to you. Going forward, there's a different deal. Make your decision to stay in this job based on the new rules.")

My (somewhat cynical) observations are that most of the general public thinks that federal retirees just sort of accidently got their pension and retiree health care. You know, pensions and health care kind of magically floated out of the sky upon us for no reason due to an amazing stroke of good luck, along with fairies and unicorns. They seem to think that compensation packages are exclusively salary.

I tend to think, "I made my deal, you made yours. Live with it."

Changing that deal in retrospect is or should be genuinely criminal. It's analogous to hiring someone, and then when he shows up for his first month's paycheck, thumbing your nose at him. I agree with you that there isn't much chance of all this passing in its current form. It's probably just meant to placate those who think we got our benefits by magic as I described above.

[stepford]

Kinda like changing the deal on Social Security we all earned would be criminal?

FWIW I am not in favor of any retroactive rules change, but think perspective can change a bit depending on who's personal ox is being gored.

[W2R]

Quote:

Originally Posted by stepford Kinda like changing the deal on Social Security we all earned would be criminal.

No, because SS applies to everyone, and federal retiree benefits apply only to a very small subset of people that the majority seem to have a grudge against due to the above mentioned unicorns and rainbows and because they want to have their cake and eat it too. BIG difference.

Tell you what. Let's go back and take away half your salary, and the earnings on it, for your entire career, for everyone but federal retirees. Then it would be "kinda like that".


I do feel like SS should not be changed for anyone who has already worked for most of his career.

[Sojourner]

Quote:

Originally Posted by W2R Changing that deal in retrospect is or should be genuinely criminal. It's analogous to hiring someone, and then when he shows up for his first month's paycheck, thumbing your nose at him.

But isn't that essentially the same as what's been happening with a lot of megacorp pensions and retiree healthcare plans? Companies often find that benefits promised to employees (and relied upon by those employees for retirement planning purposes) are simply not sustainable. Isn't there a direct analogy here between huge private companies reneging on their pension & HC promises and the federal government cutting back on theirs?

[ivinsfan]

Quote:

Originally Posted by Sojourner But isn't that essentially the same as what's been happening with a lot of megacorp pensions and retiree healthcare plans? Companies often find that benefits promised to employees (and relied upon by those employees for retirement planning purposes) are simply not sustainable. Isn't there a direct analogy here between huge private companies reneging on their pension & HC promises and the federal government cutting back on theirs?

Yes it is, I think some government retires would say they choose the government because they thought or hoped they would immune to this type of action. Time will tell if they were correct.

[W2R]

Quote:

Originally Posted by Sojourner But isn't that essentially the same as what's been happening with a lot of megacorp pensions and retiree healthcare plans? Companies often find that benefits promised to employees (and relied upon by those employees for retirement planning purposes) are simply not sustainable. Isn't there a direct analogy here between huge private companies reneging on their pension & HC promises and the federal government cutting back on theirs?

Yeah, it is awful what has happened with private pensions despite the protections of the taxpayer funded PBGC. I'd probably be furious and want to join a class action lawsuit.

[euro]

Quote:

Originally Posted by Sojourner But isn't that essentially the same as what's been happening with a lot of megacorp pensions and retiree healthcare plans? Companies often find that benefits promised to employees (and relied upon by those employees for retirement planning purposes) are simply not sustainable. Isn't there a direct analogy here between huge private companies reneging on their pension & HC promises and the federal government cutting back on theirs?

Indeed, plenty of examples of people getting screwed that way. Doesn't make it right to do same to government employees but I can certainly see it coming

[stepford]

I've always felt that when it comes to any kind of retirement benefits we swim together or sink together. Thinking of government retirees as a privileged class (or one that is particularly discriminated against) vs. the wider class of private pension recipients or the still larger class of Social Security recipients is just a way to divide us into small enough groups so that our specific benefits can be more easily denied.

[rodi]

Quote:

Originally Posted by Sojourner But isn't that essentially the same as what's been happening with a lot of megacorp pensions and retiree healthcare plans? Companies often find that benefits promised to employees (and relied upon by those employees for retirement planning purposes) are simply not sustainable. Isn't there a direct analogy here between huge private companies reneging on their pension & HC promises and the federal government cutting back on theirs?

Yes and no.... I had 2 pensions through private employers. The first was a traditional pension - defined benefit... When my mega corp (fortune 500) was acquired by mega-mega corp (fortune 100) - that defined benefit was frozen. If you had 5+ years of service... you would still qualify for whatever years you worked. I started collecting it 6 months ago at age 55 - and get a whoppin' $136/month. No COLA. It was not retroactively changed - just frozen with no increases due to tenure or age from the date we were acquired.

The second pension was the crappier form - defined contribution... They tauted it was better because it was portable (could be rolled as a lump sum into an IRA once you separated.) I say crappier because it never was going to pay out much... That pension was frozen in 2009 because of the market decline. I collect a whoppin' $330/month from that one.

Neither pension was retroactively reduced... just frozen in time with small benefits - no opportunity to grow the benefit.

Retiree healthcare is a different thing... Since there were no ERISA rules - companies reduced, eliminated, and generally trashed the retiree healthcare.

[Walt34]

Quote:

Originally Posted by stepford I've always felt that when it comes to any kind of retirement benefits we swim together or sink together. Thinking of government retirees as a privileged class (or one that is particularly discriminated against) vs. the wider class of private pension recipients or the still larger class of Social Security recipients is just a way to divide us into small enough groups so that our specific benefits can be more easily denied.

I have to disagree. Part of the "deal" with government employment is also that they (generally) accept a smaller income than private industry in exchange for employment stability and the pension.

People have planned out their lives relying on that pension and especially for those already retired and are no longer in a position to adapt to changing circumstances it is simply wrong to change the rules.

[Fedup]

I agree with Samclem that they should not change retroactively. But I'm glad my husband has a really tiny pension, we're not counting on it much, except to pay for health insurance. But I think this is most likely political. It will never pass.

[ABQ2015]

Other proposed changes are change the high 3 year pension formula to a high 5 year pension formula. And to eliminate the FERS Supplement which provides a payment of about 3/4 SS to retirees from the Minimum Retirement Age (MRA) (e.g., 56 or 57) to age 62. Both would go into effect for those who retire starting in FY 2018 (or whatever date the proposal gets finalized). I think those two proposed changes have a reasonable chance of being passed. Neither would affect me retiring in FY 2017 at age 62 but the high 5 would have reduced my pension $1500 a year. Of course I am most worried about eliminating the COLA and we already have a diet COLA.

Getting rid of the FERS Supplement might prompt a lot eligible feds to retire in FY 2017. But in the long term, it seems like this would encourage people to work to at least age 62 when they could collect SS. Maybe not the best strategy if you want to significantly reduce the federal workforce.

FERS went into effect for those hired Jan 1, 1984 and beyond and in my estimation was a significant downgrade from the CSRS pension. So for the typical fed who requires at least 30 years to be eligible for retirement, FERS pensions have been paid out since 2014. And only three years later, there is a proposal to eliminate the COLA significantly reducing the pension in old age!

[Amethyst]

Way back in the 90's, our HR folks warned us mid-career folks not to depend totally on future pensions, since Congress can do what it likes to them. They even held seminars that emphasized saving and conservative investing (mainly DCA into no-load index funds).

[Fedup]

They also are going to cut the workforce. So if people who stay around for the pension may quit early too. Possible.

[timo2]

Quote:

Originally Posted by ABQ2015 Other proposed changes are change the high 3 year pension formula to a high 5 year pension formula. And to eliminate the FERS Supplement which provides a payment of about 3/4 SS to retirees from the Minimum Retirement Age (MRA) (e.g., 56 or 57) to age 62. Both would go into effect for those who retire starting in FY 2018 (or whatever date the proposal gets finalized). I think those two proposed changes have a reasonable chance of being passed.

The FERS supplement is the low hanging fruit and IMO will go through. It was put in place in the change from CSRS to FERS to make the FERS look comparable to CSRS, but I always expected it to be just a transitional element of the retirement package.

That cutting COLA's for people that can't react financially (like retirees) is obscene and seemingly gratuitous given the plethora of tax loopholes that
still exist in the tax system. In my case, I would have set up my portfolio differently years ago, instead of having to do a rear-guard action now.

[Out of Steam]

I sure hope any benefit cuts come with an early retirement opportunity to get out under the old rules. Though maybe what America really needs is a few hundred thousand disgruntled Baby Boomers blocking access to jobs for younger people for another decade or more.