AFSA Notice of Feb. 21: Threats to Employee Pay and Retiree Benefits

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    Ven Suresh
    Keymaster

    President Trump’s FY19 Budget Request released on February 12 resubmits several proposed cuts to pay and benefits that Congress rejected last year. It also requests several new cuts. Below is a summary of the proposed cuts along with information on what AFSA is doing and what you can do.

    -Cuts Impacting Employees

    >Pay: Freeze employee pay in FY19 (federal pay was last frozen in 2011, 2012, and 2013 under President Obama). Slow the frequency of annual step increases in pay.

    >Leave: Combine annual leave and sick leave into one category with a lower total accrual rate.

    >TSP: Reduce the annual yield of the Thrift Savings Plan’s G Fund from approximately 2.75 percent to around 1.46 percent, significantly reducing the benefit of investing in the G Fund. This would also impact retirees.

    >Deductions: Require employees to contribute more into the trust fund from which their retirement pensions will be drawn. Employee contributions would increase by 1 percent of basic pay a year for six years. Currently, most Foreign Service members contribute 1.35 percent of their basic pay. Under changes enacted during the Obama presidency, Foreign Service members hired in 2013 contribute 3.65 percent and those hired since 2014 contribute 4.95 percent.

    -Cuts Impacting Retirees

    >High Five: Change the calculation for federal pensions to be based on the average of the highest five years of salary instead of the highest three years. For employees who receive step increases or a promotion during their final years of service, this would add two lower-income years into the calculation—reducing the pension by 1 to 5 percent depending on the specific pay history. This change would apply to employees retiring after the legislation takes effect.

    >Annuity Supplement: Eliminate the Annuity Supplement paid to federal employees hired in the post-1983 “new” retirement systems who retire prior to age 62. That monthly supplement approximates the Social Security benefit they can draw on at age 62. The payment is subject to reduction if the retiree goes back to work elsewhere earning more than $16,920 per year. This change would apply to employees retiring after the legislation takes effect.

    >COLAs: Eliminate cost-of-living adjustments for retirees in the “new” retirement systems and reduce the COLA for retirees in the pre-1984 “old” systems by 0.5 percent. This would freeze the dollar amount of your pension even as future inflation erodes its purchasing power. For example, 20 years of inflation averaging 2 percent a year would reduce a pension’s purchasing power by 33 percent.

    -Prospects for Passage

    Congress rejected the proposed pay and benefits cuts that the President requested last year. By doubling-down this year by proposing even further cuts, the President would appear to have even less chance to secure the bi-partisan support needed to enact legislation—especially in the Senate where 60 votes are required to advance most legislation. Also, most of the cuts would apply to Members of Congress and their staffs.

    While eliminating retirement COLAs seems highly unlikely, the passage of one or more of the other proposed cuts cannot be ruled out. The exact magnitudes, effective dates, and potential grand-fathering of any changes are yet to be decided.

    -AFSA’s Advocacy

    With proposed deep cuts (32 percent) to the foreign affairs budget, AFSA’s advocacy on Capitol Hill is of necessity focused on consolidating bipartisan support for adequate funding to maintain the effectiveness of the Foreign Service as a vital national security institution, including appropriate Foreign Service staffing levels. But AFSA also works to defend pay and benefits.

    Because benefits cuts would impact all federal employees and retirees, AFSA’s advocacy is primarily through the Federal-Postal Coalition made up of 30 organizations including the National Active and Retired Federal Employees Association (NARFE), the large civil service unions, and the Senior Executives Association. Combined, those organizations represent 5 million federal employees and retirees with members living in every Congressional district. The Fed-Postal Coalition has sent several letters to Congress, with AFSA as co-signer, opposing cuts to federal pay and retiree benefits—most recently on February 6. The Coalition holds monthly meetings, with AFSA participation, to plan advocacy efforts. NARFE and the large civil service unions meet frequently with members of Congress to argue against benefits cuts.

    -What You Can Do

    Foreign Service members and retirees who are concerned about these proposed cuts may express their views to their members of Congress. Active duty employees who contact their members of Congress may not use government resources or time and must speak in their personal capacity.

    Employees who are eligible for retirement should closely monitor developments. The impact and timing of a specific provision will only be known if and when it passes. AFSA will keep members informed of significant developments.

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