If you wonder why federal employees worry, along with everyone else, consider: mini financial crises, a stubbornly bear stock market, no breakthroughs on Social...
If you wonder why federal employees worry, along with everyone else, consider: mini financial crises, a stubbornly bear stock market, no breakthroughs on Social Security solvency, and the debt-ceiling debate dragging out. For one point of view, the Federal Drive with Tom Temin talked with John Hatton, vice president for Policy at the National Association of Active and Retired Federal Employees (NARFE).
Tom Temin People are concerned. I actually had a reader write to me asking, well, our TSP funds insured? Unfortunately, no. And nobody’s investments are insured yet, at least in this country. But I guess people are thinking about the budget now being dissected and pulled apart. Tell us more.
John Hatton Well, the first opening salvo of the budget negotiations began with President Biden putting out his budget and some of the more detailed parts of it. So that’s just kind of a request to Congress for what they want for agency spending. It includes legislative proposals that, of course, would need congressional assent for those. What I think we’re looking at is, what’s the next back and forth going to be with Congress? Do House Republicans and Senate Republicans come back with something that looks to cut spending much more than Biden’s budget does? Does that include cuts to federal benefits? Where do the budget negotiations go from there? That’s kind of what we’ll be monitoring in this process.
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Tom Temin Right. And that pay raise question is, I think, tantamount. I was talking to Senator Van Hollen (D-Md.), who, of course, is behind one of the backers of the Fair Act. But if you dissect it, and this is something else a reader pointed out, that 8.7%, which is equally divided in the Fair Act between base pay and locality pay, actually results in much less than an 8.7% raise, because four and a half percent of it is only your locality pay. So it’s 4% of the locality pay, the other 4.7% of your base pay. And so it doesn’t really come out to 8.7% mathematically.
John Hatton Well, I think it comes out, it depends on whether you get that average locality pay increase or not. And I think it is the 4.7% across the board, and then 4.7 percentage point increase in locality pay. So some people only might actually get more than that and some people may get less. Now, do I think that 8.7% is going to be enacted? No. Biden’s budget included 5.2% for a pay raise. It said on average, I would expect that to be 4.7% across the board and a 0.5% average on locality pay. Now, if Congress does nothing, that will go into effect. The president points out his alternative pay plan in August, he puts an executive order out in December. If Congress is silent in appropriations, whether it’s a [continuing resolution (CR)] or full year appropriations, that presidential pay raise will go through. And so we’ll see if part of those budget negotiations, though, include some negotiation over the pay raise.
Tom Temin And for those that might be thinking of retiring or who are retired and they are still on the federal employee health benefits program plans. There is the call now from [Office of Personnel Management (OPM)] to look at Part D, which was never part of those plans, because the federal plans were better than Medicare Part D in terms of the benefits there. Now, that’s been all sweetened up already by last year’s legislation. And so, what are people thinking there?
John Hatton We’ve seen that call letter from OPM and that encourages plans to integrate a prescription drug plan through Part D, through something called an employer group waiver plan, which is something that private sector employers do for their retirees to provide drug coverage. And so we will have to see in the actual contracts and in the plans that are offered for the 2024 open season, what the actual details look like. But, I think it’s clear that’s going in this direction, I would expect a lot of plans to offer this add on. Now, the way it will work for people is that the guidance says your coverage needs to be equal or better through that Medicare Part D add on to your existing plan. The other thing, it’s not going to have an additional premium. So people think, oh, am I going to have to go out and buy Part D? No, it’ll just be integrated with your [Federal Employees Health Benefits (FEHB)] plan if you are a Medicare eligible retiree. You will also have the option, according to OPM’s guidance, to potentially opt out of that, because some people would face higher premiums due to their income.
Tom Temin Right. So it’s almost as if the supplemental plans long offered by different groups and [American Association of Retired Persons (AARP)] and so forth, which put B and C together, would in effect, just pull in D also.
John Hatton Yes, I think there might be two different ways the plans will go about it. One is that Medicare Advantage, where it combines a B into kind of a C plan and D, or one that just adds on the part D. So it gets very complicated. Again, we need to see the details of it. But with the legislative changes through the Inflation Reduction Act, there’s a lot of benefits that accrue through Part D. One, Medicare is going to be negotiating prescription drug prices. There’s going to be a limit on out-of-pocket expenses to $2,000. There’s going to be limits on insulin costs. There’s going to be limits on co-payments for catastrophic coverage, and there’s going to be limits on increases in premium growth, plus Part D already had manufacturer drug discounts. So there’s a lot of benefits that, by integrating with Part D, can accrue to those FEHB plans and retirees in it. So I think, overall people will benefit from this new development. But again, we need to see the details. People need to be able to pay attention to what their options are, in terms of what their costs may be based on their income too.
Tom Temin Right. And you need that calculator on the desk to really do your homework. I was going to say slide rule, but I don’t think anyone still uses those anymore.
John Hatton Yeah, I think there would be a lot of confusion and a lot of decisions and a lot of personalization on this, too.
Tom Temin So the best thing is never get sick and don’t need drugs. We’re speaking with John Hatton. He’s vice president of Policy and Programs at the National Association of Active and Retired Federal Employees, Joining me here in studio. And there is a lot of plus up called for in the 2024 budget for OPM, itself. And OPM has been seen as a little bit of a backwater, in terms of cleaning up the process of figuring out annuities so that you get it when you retire and not three or five or six months later and so on. What’s your feeling about what OPM needs to do if they get all this money?
John Hatton Well, they’ve included, in the budget and in their budget justification to Congress, that they want to do an online retirement application that they piloted, and start to move towards a digital case management system. I think both of those things are really good ideas, right now. A lot of cases come to OPM with errors, and so you can say, well, that’s the agency’s fault. They should have given the right information. But when you or I may go online and fill out an application, usually there’s that little red asterisk, Oh, you’re missing this documentation or you need to upload this file. So some basic processes that happen that we’re used to, don’t really happen in the retirement process that make it slower and make it more difficult for OPM to process your cases. So it’s not always their fault at that time. But if you make the entire process better, I think you can cut down on some of those delays.
Tom Temin So in other words, the delays don’t necessarily originate with OPM, because if someone worked for six different agencies, and it’s common for people to work several places over their careers or they left government and came back. There’s a lot of nitty gritty, picky calculation you have to do down to pennies, times periods of time, according to the calculator for annuities.
John Hatton Yeah, so it’s one, having the documentation from those different agencies. Sometimes, if they weren’t carried over from one agency to the next they might be at the National Archives in St. Louis, and so they have to get that. OPM may have payroll data, but they don’t have all the personnel file data, so they need to get that. And sometimes it is OPM’s processes are very paper based, so they can improve that too through the digital case management. So there are a lot of things, the one of the common errors that happens is there’s not enough showing that you had five years of continuous coverage for FEHB, and you need that to have it in retirement. So there’s a gap there. OPM can’t process your retirement, because it doesn’t know if you have health benefits.
Tom Temin Then also, with respect to OPM, and again, talking with Senator Van Hollen the other day. Will OPM, and what’s your sense, if it should, or what do people want OPM to say about some definitive policy on returning to the office? Or could the policy say, it’s up to individual agencies and then they could go about deciding what they want to do in D.C. and anywhere else in the country?
John Hatton Yeah, a lot of it has been agency by agency. And there was just a congressional oversight hearing on OPM, where there was a lot of consternation about bringing employees back to work from the Republican side of the aisle. And so, I think there’ll be a lot of pressure from Republicans on that, at least in the House side, even as there are clear benefits to some telework with cost savings on space and some productivity. But I do think it needs to be a case by case basis, and I think it’s been approached that way for the most part by the agency.
Tom Temin It seems like [General Services Administrations (GSA)] needs to be a part of any of those discussions, because if you’re going to consolidate leased space, that’s a GSA thing. Going to turn some of it over back to the landlords or whatever.
John Hatton I mean, if you’re going to, say we’re going to do telework and accrue cost savings from space, you certainly need to incorporate GSA into that strategy.
Tom Temin Or give everyone a really big cubicle for when they do what they need to share. You get the left when you’re in, you get the right hand side when you’re in. And I wanted to ask you about the Default Prevention Act.
John Hatton Yeah.
Tom Temin And this is something that there’s a bill by that name, goes back many, many years.
John Hatton Yeah. Obviously, right now we’ve hit the debt limit. And the Treasury is employing extraordinary measures to make sure the U.S. Government doesn’t default on payments, on bonds, on Social Security benefits. The House Ways and Means Committee recently passed this Default Prevention Act, which would tier the priorities for payment in the case that those extraordinary measures are exhausted. So Tier one is bond payments, Social Security, Medicare. Tier two is [Department of Defense (DoD)] payments and Veteran’s Affairs payments. Tier three is everything else. So if you’re a federal retiree hoping for your federal retirement benefits, well, you’re third in line behind a lot of other things, including DoD contractors. So we’ll see if that gets a vote on the House floor, I don’t expect it to pass Congress. But that’s the type of thing you need to look at, If we actually hit default. Who’s actually getting paid? And I think it would be a disaster to have so many people that are owed money from the government not getting payment. That to me is default, is not just not paying bondholders.
Tom Temin Right. Under that system then, if the bondholders are first and DoD and VA second, then basically, your annuity, your retirement benefit, your pay becomes the equivalent of a subordinated debenture.
John Hatton Yeah. And so that’s not an approach that we support. So hopefully, there’ll be a deal on the budget and the debt limit to prevent that.
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