Congress is proposing some major changes to your federal benefits, which could impact your short and long-term financial situation.
A recent House Budget Committee report suggested hiking your pension contribution. If passed, this would immediately impact your bottom line, in effect, resulting in an estimate pay cut of 2 to 5 percent for federal workers.
The proposal, which proponents claim will save the federal government $127 billion over 10 years, would also phase out federal workers’ basic annuity (a defined benefit pension plan) and replace it with a defined contribution system similar to what is often offered in the private sector.
Whether this proposal has any chance of passing Congress is unclear, as well as the finer points of the proposal, such as who, if anyone, would be grandfathered in.
In previous budget proposals, the Obama Administration has declined to cut federal worker pay and benefits, or agree to major restructuring, especially at the extent proposed by the Republican-controlled House.
House Republicans also suggested limiting the return on investment rate for one investment option in the government-sponsored Thrift Savings Plan, a 401(k)-like financial product that federal workers are automatically enrolled in.
Proponents claim that changing the interest rate calculation on the G-Fund would save the federal government $32 billion over 10 years, according to Government Executive. However, opponents say it would make the G-Fund unprofitable to federal workers — turning it into a rather useless investment option.
Hedge against Unknowns: Plan Ahead
This is a critical time for your federal pay and benefits. It’s also time for you to begin thinking about what these changes — among many others that have been proposed — could mean to your current financial situation, as well as how it may impact your retirement.
The ruckus in Washington over pay and benefits is just another reminder that your pay and benefits are not set in stone. You need to develop a retirement plan that takes into account many variables, some of which are unknown because of potential modifications to your government-sponsored retirement investments that are being proposed by Congress.
And your retirement plan might need to consider other investments not offered by the federal government.
Please contact one of our benefits specialists for a no-cost consultation. We’ll help you get a plan together by closely examining your federal benefits and what they will mean to you in terms of earnings come retirement.
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