Pension Cuts and Tax Cuts: The Battle for Federal Employees' Retirement Security
Industry ExpressSaturday, May 17, 2025 2:30 pm ET
4min readOn May 16, 2025, the House Budget Committee voted 21-16 against advancing a bill that would provide $4.5 trillion in tax cuts primarily benefiting the ultra-wealthy, at the expense of the working class. This rejection is likely to delay the legislative process, but the fight to change the bill before it gets another vote is far from over. The proposed tax cuts, if passed, would necessitate significant reductions in government expenses, including pensions for federal employees. This has sparked a heated debate about the future of retirement security for millions of public servants.
The proposed bill includes several direct attacks on the Federal Employees Retirement System (FERS), which could have devastating consequences for federal employees, particularly those nearing retirement age. The key changes include:
1. Replacing the High-3 FERS annuity calculation with a High-5 calculation:
- This change would result in a reduction in annuity payments. The High-3 calculation uses the highest three years of salary to determine the annuity, while the High-5 calculation uses the highest five years. For many federal employees, the latter would likely include years with lower salaries, reducing the overall annuity amount.
2. Eliminating the FERS Social Security supplement:
- This supplement is designed to bridge the gap between retirement and the start of Social Security benefits at age 62. Eliminating it would deny workers who are eligible to retire the supplemental payments they rely on during this period. Federal workers who have accepted the deferred resignation program (DRP) are particularly affected, as they based their retirement decisions on the expectation of receiving this supplement. The elimination of the supplement could reduce their retirement income by 32%.
3. Increasing the mandatory FERS annuity contribution rate for all active employees to 4.4%:
- This increase would require active employees to contribute more of their salary towards their pension, reducing their take-home pay and potentially impacting their ability to save for retirement through other means.
Members of Congress, on both sides of the aisle, have spoken out against cuts to our pensions. However, many senior leaders in Congress, and the White House, are actively working to convince members to reconsider their opposition to the bill, and to pass it through the House of Representatives before Memorial Day. The stakes are high, and the outcome of this battle will have far-reaching implications for the retirement security of federal employees.
The proposed legislation would also increase the mandatory FERS annuity contribution rate for all active employees to 4.4%. This increase would further reduce the take-home pay of federal employees, potentially leading to a decrease in consumer spending and a slowdown in economic growth. The Congressional Budget Office (CBO) estimates that the Social Security Trust Fund will be exhausted by 2034, and at that point, one funding source would disappear because the trust fund would no longer earn interest. The remaining tax revenues would cover only 77% of scheduled payments in 2035, meaning benefits could be cut 23% in 10 years unless lawmakers find a solution. Ending taxes on Social Security means benefit cuts would happen sooner. The CBO estimates Social Security will run a $3.3 trillion deficit over the next decade. Taxes on benefits will contribute $1.1 trillion to revenue during that period. So, eliminating that income would make an already-substantial deficit much larger. In turn, the trust fund would be exhausted sooner than CBO anticipates under current law, meaning Congress would have less time to avoid substantial benefit cuts.
In summary, reducing government expenses, including pensions, to fund tax cuts for the ultra-wealthy could have significant long-term economic implications, including a decrease in retirement benefits for federal employees, a potential slowdown in economic growth, and a hastening of the depletion of the Social Security Trust Fund. Now is the time to act! We encourage APWU members and supporters to call our Legislative Hotline at 844-402-1001 and urge your House representative to OPPOSE any cuts to federal and postal pensions!
The proposed bill includes several direct attacks on the Federal Employees Retirement System (FERS), which could have devastating consequences for federal employees, particularly those nearing retirement age. The key changes include:
1. Replacing the High-3 FERS annuity calculation with a High-5 calculation:
- This change would result in a reduction in annuity payments. The High-3 calculation uses the highest three years of salary to determine the annuity, while the High-5 calculation uses the highest five years. For many federal employees, the latter would likely include years with lower salaries, reducing the overall annuity amount.
2. Eliminating the FERS Social Security supplement:
- This supplement is designed to bridge the gap between retirement and the start of Social Security benefits at age 62. Eliminating it would deny workers who are eligible to retire the supplemental payments they rely on during this period. Federal workers who have accepted the deferred resignation program (DRP) are particularly affected, as they based their retirement decisions on the expectation of receiving this supplement. The elimination of the supplement could reduce their retirement income by 32%.
3. Increasing the mandatory FERS annuity contribution rate for all active employees to 4.4%:
- This increase would require active employees to contribute more of their salary towards their pension, reducing their take-home pay and potentially impacting their ability to save for retirement through other means.
Members of Congress, on both sides of the aisle, have spoken out against cuts to our pensions. However, many senior leaders in Congress, and the White House, are actively working to convince members to reconsider their opposition to the bill, and to pass it through the House of Representatives before Memorial Day. The stakes are high, and the outcome of this battle will have far-reaching implications for the retirement security of federal employees.
The proposed legislation would also increase the mandatory FERS annuity contribution rate for all active employees to 4.4%. This increase would further reduce the take-home pay of federal employees, potentially leading to a decrease in consumer spending and a slowdown in economic growth. The Congressional Budget Office (CBO) estimates that the Social Security Trust Fund will be exhausted by 2034, and at that point, one funding source would disappear because the trust fund would no longer earn interest. The remaining tax revenues would cover only 77% of scheduled payments in 2035, meaning benefits could be cut 23% in 10 years unless lawmakers find a solution. Ending taxes on Social Security means benefit cuts would happen sooner. The CBO estimates Social Security will run a $3.3 trillion deficit over the next decade. Taxes on benefits will contribute $1.1 trillion to revenue during that period. So, eliminating that income would make an already-substantial deficit much larger. In turn, the trust fund would be exhausted sooner than CBO anticipates under current law, meaning Congress would have less time to avoid substantial benefit cuts.
In summary, reducing government expenses, including pensions, to fund tax cuts for the ultra-wealthy could have significant long-term economic implications, including a decrease in retirement benefits for federal employees, a potential slowdown in economic growth, and a hastening of the depletion of the Social Security Trust Fund. Now is the time to act! We encourage APWU members and supporters to call our Legislative Hotline at 844-402-1001 and urge your House representative to OPPOSE any cuts to federal and postal pensions!
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