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Is Forcing Federal Employees to Pay More Toward Retirement Good for America?

by Jeremy Holcombe

A new two-year budget agreement will not require current federal employees to pay more into their retirement plans. However, the plan heading to the House and Senate will require new federal employees to pay more.

According to blog.AL, House Budget Chairman Paul Ryan, R-WI, and Senate Budget Chairwoman Patty Murray, D-WA, announced the deal Tuesday night. The proposal sets a $1.012 trillion discretionary spending level for 2014, and $1.014 trillion for 2015. In fiscal 2014, defense spending would be set at $520.5 billion, and non-defense discretionary spending would be set at $491.8 billion.

The $85 billion savings package would fund the government past January 15, 2014, averting another shutdown and avoiding another short-term Continuing Resolution. It will also reduce much of the impacts of sequestration.

This is what the new agreement plan looks like once all hammered out:

The budget agreement would require federal workers hired on or after January 1, 2014 with less than five years of service to pay 4.4% towards their retirement benefits. That’s 1.3% more than employees hired after 2012 contribute.

The new agreement has been praised as well as chided, as new federal employees do not want to pay that extra 1.3% of their pay toward retirement benefits. The plan will allow for new federal employees to build a stronger pension, but some of them are feeling the squeeze from losing that extra money right now.

Drop in COLA for Military Retirees Also Expected

Military retirees under age 62 would see a decrease in how their annual cost-of-living adjustment is calculated, equal to inflation minus 1%. The change would be phased in over the next two years, but wouldn’t impact service members who retired because of injury or disability.

“This change would be gradually phased in, with no change for the current year, a 0.25% decrease in December 2014, and a 0.5% decrease in December 2015,” according to a summary of the deal by the Washington Post.

These two changes are expected to save around $12 billion over the next two years.

Article Sources: blog.AL | Washington Post

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