President's 2014 budget includes pay increase, but retirement changes loom large

Wednesday - 4/10/2013, 1:43pm EDT

Federal employees would see a slight pay bump next year under President Barack Obama's proposed budget for 2014. But at the same time, the White House budget outline proposes sweeping changes to federal employees' retirement benefits, including reductions to annual cost-of-living increases for retirees.

Obama has proposed a 1 percent pay increase for federal civilian and military workers, coming on the heels of a three-year pay freeze for civilian workers.


WHAT'S IN THE PROPOSAL?
  • Proposes 1 percent pay raise for civilian employees. Pay freeze on senior political officials would continue

  • Switches to "chained CPI" to measure inflation, effectively cutting cost-of-living adjustments

  • Calls for feds to increase retirement contributions by 1.2 percent, phased in over three years

  • Seeks to end FERS supplement for new federal employees

  • Proposes adding "self plus one" option to Federal Employees Health Benefits Program (FEHBP)

The budget continues to call for a pay freeze on senior political officials.

"However, a permanent pay freeze for the remaining civilian employees is neither sustainable nor desirable," the budget stated.

Obama recommended an even smaller pay increase — 0.5 percent — in his 2013 budget. But feds never saw the pay bump. Obama initially agreed to delay implementing the increase until Congress passed a 2013 budget. But when Congress finally approved a massive 2013 appropriations bill last month, lawmakers voted to do away with the pay increase altogether.

White House seeks COLA cuts, pension increases

Obama also proposed sweeping changes to the way retirees' annual cost-of-living adjustments (COLAs) are calculated and mandatory increases in the amount federal employees must contribute to their retirement accounts.

The President's budget proposal calls for the Labor Department to adopt a "chained Consumer Price Index," which is expected to reduce annual COLA increases by 0.3 percentage points a year. The chained CPI assumes that as prices on household goods and services increase, people opt for lower-cost solutions — hamburger instead of steak, for example.

But federal-employee groups have argued the new formula fails to take into account the skyrocketing costs of heath care and would result in severe reductions over the long haul.

The change in the inflation formula would save about $130 billion over 10 years, according to the White House.

Obama's budget proposal also called for federal employees to increase their retirement contributions by 1.2 percent of their salaries, to be phased in over three years beginning in 2014. The White House estimated that would save $20 billion over 10 years.

In addition, Obama proposed eliminating a supplemental payment for employees in the Federal Employee Retirement System who retire before age 62 — but that provision would only apply to newly hired federal employees, not current ones.

"These changes are expected to neither negatively impact on the administration's ability to manage its human resources, nor inhibit the government's ability to serve the American people," the budget stated.

However, federal-employee groups lambasted both of the White House's retirement proposals.

"For the third year in a row, the President's budget blueprint disproportionately takes aim at federal employees in an effort to balance the budget," said Joseph Beaudoin, president of the National Active and Retired Federal Employees Association (NARFE).

Last year, Obama called for a similar increase in retirement contributions. However, it was never taken up by Congress. However, Congress did approve a measure upping new federal employees' mandatory retirement contributions by 3.1 percent.

White House wants new federal health-plan options

The White House plan aims to "modernize" the Federal Employees Health Benefits Program (FEHBP), proposing to allow feds to enroll in a "self plus one" coverage plan, rather than being limited to only "self" or "family" options.

In addition, the Office of Personnel Management would be authorized to contract separately for pharmacy benefit-management services and would be allowed to adjust premiums based on members' tobacco use and participation in a wellness program.

The White House said these reforms would save an estimated $8.4 billion over 10 years.

The House Oversight and Government Reform Committee has scheduled a hearing on the effectiveness of the federal health-benefits program this week.

Competing plans in Congress

The White House proposal — coming two months late — follows proposed budgets from the Republican-controlled House and the Democratic-controlled Senate, which varied widely in terms of federal pay and benefits.

The House budget, as in years past, called for aligning federal pay with the private sector, requiring federal workers to contribute more toward their pensions and reducing the size of the workforce by 10 percent over the next two years through attrition.

The Senate's plan, on the other hand, said federal employees have "borne the brunt of recent deficit reduction efforts," and recommended savings elsewhere.