President Trump’s proposed federal retirement budget could lead to big changes for federal employees.

Under the new budget proposal, federal employees will see a major shift in their retirement policies, ultimately limiting their retirement benefits and reducing their annual take-home income due to increased costs.

The budget impacts both Federal Employees Retirement System (FERS) and Civil Service Retirement System (CSRS employees). FERS covers all employees hired after 1986. They receive Social Security, a program that is already adjusted for inflation, and have so far also received Cost of Living Adjustments (COLA).

However, under the proposed federal retirement budget cuts, current and future FERS employees will no longer receive COLA. CSRS employees, however, do not receive Social Security and are therefore more vulnerable to inflation. They will keep COLA, taking off 0.5% from the indicated adjustment.

Additional benefits may also be cut. President Trump’s proposed plan would change the current calculation of benefits from an employee’s highest three salary years to the highest five consecutive salary years, greatly reducing the benefits for some employees.

This plan would eliminate the “special retirement supplement” paid to FERS employees who retire early. This supplement is meant to increase their benefits until they are old enough to receive Social Security, in the event that they retire before age 62.

In a positive note for federal employees, the budget also comes with a 1.9% salary increase for civilian workers beginning January 2018. However, this is coupled with higher costs for some of the workers while employed.

CSRS employees will not see a change in their costs, as they already contribute equal amounts towards their retirement as the government. However, FERS employees will see an increase in costs by 1% every year until the employee and employer shares are equal.

This increase in costs will continue for about 5-6 years, resulting in a 5-6% increase in costs. Out-of-pocket payments for FERS employees will increase by the same amount during this time.

Should this budget be approved in its current form, federal employees can expect to begin seeing changes to their retirement packages as early as October 1, 2017. However, given the government’s frequent delay in finalizing budgets, it is very likely that any changes will occur past that deadline.

Want to learn more about how the government’s budget can impact your retirement? Contact MyFEDBenefits today to speak with a federal benefits specialist near you.

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