A 401(k)-style defined contribution system for some federal workers is part of “A Budget for a Better America,” the President’s spending proposal for fiscal year 2020 that was released last week.
While details were vague, it nonetheless raised alarm among federal employee unions and advocates.
“With this budget proposal, President Trump is showing once again that his administration has nothing but contempt for the health, education, safety, and security of our nation – and a savage disregard for the federal workforce that keeps our country running,” said David J. Cox, President of the American Federation of Government Employees, the largest federal union representing over 700,000 workers.
The 401(k) proposal was part of a number of changes to the federal retirement system, all of which were previously proposed and rejected by Congressional appropriators. The defined contribution portion, however, is new.
While the changes are meant to slash retirement spending overall, the “defined contribution system for term employees” is one area of increased outlays of $913 million over 10 years, according to Government Executive.
What’s proposed?
“Overall, the changes to federal workers’ non-salary benefits would reduce spending by $102.5 billion over the next decade,” the site notes, and lists the following retirement-centric proposals included by the president:
- Require federal workers to contribute 1 percent more toward the Federal Employees Retirement System defined benefit annuity each year until those payments reach “50 percent of cost.”
- Eliminate cost of living adjustments for FERS retirees, and it would reduce COLAs for participants in the Civil Service Retirement System by 0.5 percent. It also would eliminate the FERS supplement for workers forced to retire before age 62, when Social Security kicks in.
- Reduced payments to retirees by basing annuities on the average of workers’ highest five years of salary, rather than the current highest three years.
- The plan also revives a proposal to cut the interest rate of the Thrift Savings Plan’s government securities (G) fund, which “is statutorily set on a weighted average of all outstanding Treasury investments and last year increased by 2.91 percent.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
