Congress has proposed significant changes to federal employee retirement benefits in the latest reconciliation bill. The bill aims to cut $2 trillion in federal spending over the next decade, with $50 billion targeting federal retirement and healthcare programs. One of the most notable changes is the proposed elimination of the FERS annuity supplement for future retirees starting January 1, 2028.
The supplement provides Social Security-like income for eligible federal employees retiring before age 62. Current FERS Supplement recipients will be grandfathered in. New hires will face a choice between paying a higher 9.4% FERS contribution or a lower 4.4% contribution with “at-will” employment status.
This election will be permanent, meaning employees cannot switch from at-will employment to increased FERS contributions later to gain job security.
Changes impacting FERS annuity supplement
The Office of Personnel Management will develop a process to verify family member eligibility for the Federal Employee Health Benefit (FEHB) program.
Audits will be conducted to ensure enrolled family members remain eligible. A $350 fee will be introduced for filing appeals with the Merit Systems Protection Board, reimbursable if a claim or appeal is successful. Several proposals have been shelved for now, including the reduction or elimination of Cost-of-Living Adjustments for FERS retirees, increased FERS contributions for current employees, changing the annuity calculation from High-3 to High-5, replacing FEHB with a voucher system, and reforming the G Fund.
Federal employees and retirees should monitor legislative developments, run retirement scenarios, and re-evaluate their investment strategies to navigate these potential changes effectively. Final reconciliation votes are expected in the coming months. While the proposed changes can be overwhelming, staying informed and proactive can help federal employees and retirees better prepare for their financial futures.
