â€œFor the third year in a row, the presidentâ€™s budget blueprint disproportionately takes aim at federal employees in an effort to balance the budget,â€ National Active and Retired Federal Employees Association President Joseph Beaudoin said. â€œFederal employees who are currently enduring a three-year pay freeze have already sacrificed $114 billion from their pocketbooks for US budget savings over the next decade. Enough is enough.â€
This statement is in response to President Obamaâ€™s budget plan for 2014 released last week, which proposes increasing the retirement contributions for federal employees hired before 2013 by 1.2 percentage points, phased in over three years, as part of his fiscal 2014 budget.Â This would bring the contributions of Federal Employees Retirement System (FERS) workers up from 0.8 percent to 2.0 percent, and Civil Service Retirement System (CSRS) employeesâ€™ contributions up from 7 percent to 8.2 percent. Obama proposed the same increase last year, as part of his fiscal 2013 budget request.
Last year, Congress hiked the pension contributions of federal employees who are newly hired or rehired with less than five years of service beginning in 2013 to 3.1 percent of each paycheck, which is expected to save $15 billion over a decade. Obamaâ€™s 2014 budget would not further increase those employeesâ€™ contributions.
The budget said a 1.2 percentage point increase in previously hired employeesâ€™ contributions would save $20 billion over a decade. However, that is less than the $27 billion in savings predicted in last yearâ€™s budget. Part of that reduction may come from the fact that newly hired federal employees, whose pensions have already been increased, are not included in this change.
The budget proposal calls for the pension contribution increases to begin in 2014. They would help the government reduce the unfunded liability of the Civil Service Retirement and Disability Fund, which hit $761.5 billion in fiscal 2011, the latest year for which statistics are available. Critics of the federal pension system say that deficit â€” which is primarily due to a severe flaw in the design of the older CSRS system â€” is a serious problem that must be addressed.
One bit of good news is that the budget also proposes a 1 percent increase in federal pay in 2014, which would break the current three-year pay scale freeze.Â â€œA permanent pay freeze â€¦ is neither sustainable nor desirable,â€ the budget said.
The budget proposal also calls for switching to a less-generous measure of inflation known as the chained Consumer Price Index. This would translate into lower cost-of-living adjustments for federal retireesâ€™ pensions, and also reduce the growth in Social Security benefits. Federal employee groups and unions strongly oppose the chained CPI.
The chained CPI is usually 0.25 to 0.30 percentage points lower each year, on average, than the standard CPI measurements that are used to determine COLAs. Switching to a lower CPI at first would mean a few hundred dollars less per year for federal retirees. But its effect would compound over the years until, eventually, some retirees would likely earn tens of thousands of dollars less than they would under the current method of setting COLAs.