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Last week, the Senate Homeland Security and Governmental Affairs Committee published its draft of the budget reconciliation bill, One Big Beautiful Bill, which cuts several provisions that would have reduced federal workers’ retirement benefits, however, all new federal hires may have to pay more than double toward Federal Employees Retirement System (FERS), in a new provision.
FERS is a three-part retirement plan, which includes a pension, a Thrift Savings Plan similar to a 401(k) and — like most American workers — Social Security benefits.However, FERS “provides retirement benefits way beyond what the private sector typically offers, lacks solvency and costs more to administer than what federal employees are required to contribute,” according to Chairman Rand Paul, M.D. of the Senate Committee on Homeland Security and Governmental Affairs.
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The Senate’s new provision requires that every new hire must choose either to serve “at-will” or remain as an employee with current Title 5 civil service protections. If they choose Title 5 protections, they are “subject to a 10-percentage point increase in their FERS contribution rates, whereas a new hire that chooses to serve at will …would only be subject to a 5-percentage point increase in FERS contributions” – yielding a 9.4% contribution rate.
If they opt to keep their civil service protections, they would incur a 10% increase to their current FERS contribution rate — resulting in a 14.4% contribution rate.
This new provision “solves two problems at once …,” according to the Senate Committee. “This provision will generate over $20 billion over the next 10 years and yield a more productive and accountable federal workforce.”
The Senate eliminated the House-passed provisions that would require all federal workers to contribute 4.4% of their basic pay toward FERS, reduce their FERS benefit calculation from the average highest three years of salary to the highest five years, and eliminate the current FERS supplement for employees who retire before Social Security kicks in at age 62.
This additional FERS retirement annuity payment applied to those eligible to retire before age 62 but who are unable to yet collect Social Security benefits, according to the House proposal (except those in federal occupations subject to mandatory early separation).
This special FERS retirement supplement provides a portion of income before age 62, similar to what retirees would have received in a Social Security benefit had they attained age 62 and applied for Social Security benefits.
However, the legislation approved by the House Budget Committee modified this proposal by grandfathering in current recipients of the annuity supplement and eliminating those who are younger than 57, but the Senate draft eliminated the FERS annuity altogether.
Related: Lawmakers, CEOs support $1,000 401(k) ‘Trump Accounts’ for babies, in Big Beautiful Bill
According to House Speaker Mike Johnson, July 4 is a realistic target for passing the One Big Beautiful Bill, as Republicans in the Senate continue to weigh changes to the package that cleared the House in May.
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Lynn Cavanaugh
Lynn Varacalli Cavanaugh is Senior Editor, Retirement at BenefitsPRO. Prior, she was editor-in-chief of the What's New in Benefits & Compensation newsletter. She has worked for major firms in the employee benefits space, Vanguard and Willis Towers Watson, as well as top media companies, including Condé Nast and American Media.
