For Federal Employees: What Will Happen to Federal Employee’s Benefits?

The discussions in Washington surrounding a reduction of benefits for federal employees are gathering strength. On April 5th the Washington Post reported that president Obama would propose $35 billion in savings for his 2014 budget by increasing the amount federal workers would be required to contribute toward their pensions. Currently employees hired this year and beyond, except those with five years of previous service, will pay 3.1 percent of their salaries toward their pensions. This compares to the 0.8% employees currently contribute. There are other considerations as well. The following are some of the proposals:

• It has been proposed that over time current employees cover one quarter of the cost of their pension and new employees pay for half.
• Changing the measure of inflation used to calculate cost of living adjustments to retiree’s pensions. Using what’s called the Chained-CPI in place of the standard CPI, Consumer Price Index, could lower annual increases by 0.25 – 0.30%.
• Reducing cost of living adjustments for those who retire prior to age 62.
• Regarding health coverage in the FEHBP, Federal Employee Health Benefits Program, they could move to a fixed amount for employees who would shop for coverage among a variety of offerings.

These items are just those included in a report released Friday by a commission appointed to propose solutions and do not include ongoing discussions regarding social security adjustments, and of course sequestration. So what can federal employees do individually to counteract the uncertainty that encompasses their benefit packages?

1. Build reserves – Sequestration’s top of mind concern for federal workers is the scenario where one’s job is lost entirely. Other scenarios may play out in its place but this causes the most hesitation for decision making. Wealth management and planning is all about accounting for these scenarios. Necessary steps can be inventoried should a worst case scenario occur, like how health coverage will be continued, what other group benefits will be lost or kept, and one’s job prospects in the private sector or another federal agency. By the term build reserves we mean a level of savings that can be used to cover expenses while out of work. Perhaps money that is being directed toward other goals like retirement or college savings is put on hold until there is further news, or assets currently invested in taxable accounts is adjusted to a more conservative stance.

2. Plan accordingly – Forecasts for a lower pension or one that does not keep pace with expected cost of living is part of the retirement planning process. Thankfully if you plan ahead a variety of scenarios can be calculated to assess one’s viability. Work with a professional who can use modeling software to input the pension as 20-30% lower than anticipated, or doesn’t increase at all over time. Then view the results along with your other sources of income and expected retirement plans to make observations accordingly.

3. Get involved – two organizations in particular are at the forefront of the public debate on federal employee benefits. They are listed below. NARFE & AFGE work tirelessly for their members and assure members of the congress are aware of what’s at stake for workers and the overall economy.

www.narfe.org National Association of Retired Federal Employees
www.afge.org American Federation of Government Employees

www.psgclarity.com

Securities offered through Triad Advisors, Member FINRA / SIPC.  Advisory Services offered through Planning Solutions Group, LLC.  Planning Solutions Group, LLC is not affiliated with Triad Advisors.  PSG Clarity is a division of Planning Solutions Group, LLC.