Federal Employees: Don't Panic About Changes
From a hiring freeze to possibly shrinking retirement and health care benefits, the future holds some uncertainty. However, most of these changes are manageable.
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It didn’t take long for President Trump to follow through on his promise to take on government bureaucracy.
On Jan. 23, just three days into his administration, he ordered a hiring freeze for the federal government, halting hiring for all new and existing positions except those in national security, public safety and the military.
Federal employees are no doubt wondering what’s next — and some concern is legitimate. Trump was critical of the federal workforce during his presidential campaign; now that he’s in charge, and with a Republican-led Congress, there could be some more upheaval.
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But it’s time to take a breath. Knee-jerk reactions often lead to bad decisions. And many of the changes proposed so far won’t have much of an effect on current federal employees.
Here’s a look at three issues you’re likely to hear a lot about this year:
A shrinking federal workforce
No agency likes the idea of someone dictating who they can or cannot employ, but the reality is that the government wasn’t exactly hiring at a quick clip before the freeze. Because of budget cuts and sequestration, there have been controls on hiring for several years.
For now, the freeze is limited. It makes a good headline, but day to day, the hiring freeze probably won’t affect the average federal worker (outside of their workload!) very much. And although Trump’s proposed budget, unveiled in March, calls for large cuts in several federal agencies, it can be a lengthy and complex process to lay off federal workers.
Retirement benefits
Members of Congress already have been pushing for changes to federal employees’ retirement benefits. One proposal would have federal employees take on a larger share of contributions into their retirement system.
For federal employees who still have 20-plus years to work, this will make it harder to save more money in the Thrift Savings Plan — so it’s understandably a plan that’s unpopular with federal workers. But ultimately, the pension is a cost-of-living-adjusted benefit that a retiree can’t outlive — something that really doesn’t exist in the private sector. It remains a valuable benefit. And those who are nearing retirement shouldn’t see much impact.
Another idea that has been introduced a few times in the last couple of years is changing the way the return on the Thrift Savings Plan’s Government Securities fund, or G Fund, is calculated.
There have been a lot of estimates as to what this would save the federal government in terms of the interest it pays, because the G Fund has the highest participation rate of any fund within the Thrift Savings Plan. But if that interest rate drops, my guess is most participants would simply move their money to another allocation. The G Fund is attractive because it pays a nice rate of return for a safe investment. Take that away, and it’s not so appealing. And employees have several other options, such as the F Fund for Investment Grade Bonds and the C, S and I Funds for equities.
Health care benefits
Besides their pension, health care coverage is the most expensive benefit federal employees receive. Currently, the Office of Personnel Management is paying to cover about 8.1 million federal employees, retirees, family members and their survivors. The government pays roughly 70% of the premiums, and the employee/retiree pays about 30%. Lawmakers are looking at ways to put more of that cost on the insured.
Today, if the premium on a Blue Cross and Blue Shield policy goes up by $100, the Office of Personnel Management picks up $70 of that, and the federal employee picks up $30. One proposal is to take whatever the Department of Labor says is the cost of living on health care and pay 70% of that, not what the actual premium increase is. It’s projected that over 10 years, the federal employee would be paying roughly 50% of their premiums instead of 30%.
This proposal would result in a dramatic price increase — especially for someone who is already retired and vulnerable to inflation. It warrants watching and, if you’re so inclined, a letter to your representative.
Focus on the big picture
Bottom line: It may feel as though they’re rewriting the rules in the middle of the game, but you still have some control.
Employees who have been with the government for 30 years have seen their benefits under attack before. And they survived it. They still have a pension, and they’ll have a good income in retirement.
But if you aren’t already, it’s time to become more engaged with your benefits. Pay attention to the updates. Talk to a financial professional with some expertise in federal benefits so you understand your options and maximize their value.
And stay calm. The wheels of government move slowly. You’ll have time to react — wisely and without panicking — to the changes that come along.
Kim Franke-Folstad contributed to this article.
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