How the budget deal will impact current and future feds

Wednesday - 12/11/2013, 4:08am EST

Newly hired federal workers will be required to contribute more toward their pensions and some military retirees will see smaller cost-of-living adjustments under a budget deal announced by Rep. Paul Ryan (R-Wis.) and Sen. Patty Murray (D-Wash.) Tuesday evening.

The budget deal, which sets funding levels for the next two years, eases some of the bite of the automatic spending cuts, known as sequestration. The pact restores $63 billion to agency spending through the end of fiscal 2015, split about evenly between Defense and civilian agencies.

Retirement contributions to increase for new hires

The proposal increases the amount newly hired employees must contribute to their pensions by 1.3 percent, according to a summary posted on the House Budget Committee website. Overall, employees hired after Dec. 31, 2013, will be required to contribute 4.4 percent of their salary toward their pensions.

It's the second time Congress has made changes to federal retirements for new hires.

As as part of the payroll tax extension approved by Congress last February, lawmakers approved legislation requiring federal employees hired in 2013 to contribute a total of 3.1 percent of their salaries to their defined-benefit pensions.

Federal workers who were on the job prior to the start of this year contribute 0.8 percent toward their pensions under the Federal Employees Retirement Systems (FERS).

Will federal employees be forced to accept deal?

During the month or so that the House-Senate budget committee negotiated, changes to federal retirement were rumored to be part of a budget deal — much to the chagrin of federal-employee groups and unions. Thanks to a three-year pay freeze and those earlier changes to federal retirement contributions, federal employees have already sacrificed more than $113 billion to deficit reduction, the groups contended.

However, absent from the deal — according to the House summary — are any changes affecting current employees' retirement benefits.

"This is not a deal federal employees are happy with, but it may be one they are forced to accept," said Joseph Beaudoin, president of the National Active and Retired Federal Employees (NARFE) Association in a statement released late Tuesday evening.

Beaudoin said the deal would offer a "reprieve" from the sequestration-related stresses employees faced this year, such as forced furlough days and staffing reductions.

But it continues a troubling trend, he said.

"In two years, when this funding runs out, will future federal employees have to worry about paying more in the next budget deal?" Beaudoin said in the statement.

Reduced military COLAs and 'self plus one' FEHBP option also included

The proposal would also reduce cost-of-living adjustments for some military retirees.

COLAs for military retirees under age 62 would be equal to inflation minus 1 percent, which would be phased in gradually, according to the bill summary. There would be no change this year, followed by a 0.25 percent decrease at the end of 2014 and a 0.5 percent decrease at the end of 2015. However, it would not affect service members who retired because of injury of disability, the summary stated.

The deal also includes a provision allowing the Office of Personnel Management to offer a "self plus one" insurance option in the Federal Employees Health Benefits Program.

President Barack Obama included a similar recommendation in his 2014 budget proposal as a way to "modernize" the FEHBP, which currently limits participants to "self" or "family" options.

Deal limits contractor compensation

The Ryan-Murray deal also limits the amount contractors can charge the government in order to pay their top executives. Under the cap established in the deal, the allowable maximum limit for contractor compensation would be set at $487,000 — almost half of what it is now — and would rise slightly each year based on inflation.

Last week, the Office of Federal Procurement Policy announced the contractor compensation cap would increase to about $952,000 this year under a formula set by current law.

Scaling back limits on government-reimbursed contractor pay has long been a goal of the White House.

In May, OFPP sent proposed legislation to Capitol Hill to strike the current formula for setting contractor pay and replacing it with a hard cap of $400,000 — the same salary earned by the President.

Under current law, which the budget deal would repeal, the limits for government- reimbursed contractor pay rise each year to align with the compensation levels of top private-sector CEOs.

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