CBO Revives Cost-Cutting Proposals Targeting Federal Benefits
The Congressional Budget Office (CBO) regularly publishes reports offering options to reduce the federal deficit, with some proposals aimed at federal employee benefits. While these suggestions are not formal recommendations, they often shape budgetary discussions by estimating potential cost savings.
Standardizing Contributions to FERS
Under the current system, contributions to the Federal Employees Retirement System (FERS) vary by hire date: pre-2013 employees contribute 0.8% of their salaries, those hired in 2013 pay 3.1%, and post-2013 hires contribute 4.4%. The CBO suggests standardizing contributions at 4.4% for all employees. This change could generate an estimated $40 billion for the federal retirement fund over 10 years.
Revising Health Insurance Contributions
A significant proposal involves modifying the Federal Employees Health Benefits (FEHB) and Postal Service Health Benefits (PSHB) plans. Instead of the government covering a percentage of premiums, the CBO recommends introducing a fixed-dollar “voucher” for employees and retirees to apply toward their insurance costs.
Although the voucher amount would increase with general inflation, healthcare costs typically rise faster. As a result, participants would likely pay more out of pocket over time. Depending on the inflation index used, this measure could save the government $14–$20 billion over a decade.
Adjusting Pay Raise Formulas
The CBO also proposes altering the formula that ties annual federal pay raises to private-sector wage growth. Reducing the formula by one additional percentage point could save $77 billion over 10 years. However, the report notes that Congress frequently overrides the statutory pay formula, so actual savings would depend on lawmakers’ adherence to the recommendation.
Implications for Federal Employees and Retirees
While the CBO’s ideas are advisory, they highlight fiscal strategies lawmakers might pursue to address the rising federal deficit. If enacted, these proposals could increase costs for federal employees and retirees, reduce benefits, and create new financial challenges.
These potential changes are likely to face significant political resistance, as restructuring federal benefits to curb spending remains highly contentious. The CBO’s report underscores the ongoing balancing act between managing government costs and upholding commitments to federal workers and retirees.
