There has been a lot of buzz about President Trump’s proposed fiscal 2018 budget. The proposed budget would save the government trillions of dollars but many government programs would be impacted by the budget cuts as a result. If you are a federal employee, the proposed budget cuts may deeply impact something very important to your financial future – the federal retirement system. The proposed budget would cut spending on federal retirement programs by $3.3 billion over a 10 year period.
President Trump’s proposed budget would seek to cut contributions to federal employee’s retirement programs. Though the proposed budget will not necessarily be implemented as is – congress ultimately has to vote on the budget – if you are a federal employee, it may directly impact your retirement savings. Should President Trump’s proposed budget get enacted, it would be important to revisit your retirement plans as soon as possible and make necessary changes to give you the highest probability of meeting your goals.
There are various increases and decreases in President Trump’s budget so determining what it all means can be confusing. For example, though President Trump proposed a pay increase, the cut to federal retirement spending. The Washington Post elaborates on the five main takeaways for federal employees if President Trump’s budget is enacted as is:
- Increase Federal Employee Retirement System (FERS) contributions from workers by 1 percentage point each year until they equal the government’s contribution. This would take five to six years and would result in increased out-of-pocket payments of about 6 percent over that period. Out-of-pocket payments by federal law enforcement officers would increase by the same amount, but would not equal the greater contributions from law enforcement agencies.
- Base future retirement benefits on the average of the high five years of salary instead of the current high three
- Eliminate cost of living adjustments (COLA) for current and future FERS employees
- Cut the COLA for Civil Service Retirement System (CSRS) employees by 0.5 percent from what the formula would allowed
- Eliminate the special retirement supplement payments for FERS employees. The supplement approximates the value of Social Security benefits for those who retire before age 62.