Trump proposes federal pay raise, familiar retirement cuts in 2021 budget

President Donald Trump has recommended a 1% federal pay raise for civilian employees in 2021, according to his proposed budget request.

The White House on Monday released the president’s 2021 budget request to the public.

Trump’s proposed federal pay raise is well below the 3.1% increase employees earned this year for 2020 — and falls short of the 3.5% raise members proposed last month with newly reintroduced legislation.

The 1% federal pay raise is also in stark contrast to the White House’s proposed 3% pay bump for members of the military.

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But the 1% across-the-board federal pay proposal is an attempt by the White House to meet Congress “halfway” on the issue, Margaret Weichert, deputy director for management at the Office of Management and Budget, told reporters Monday afternoon.

Across-the-board pay raises reward longevity over performance, she said, and they don’t incentivize employees to try new things, learn new skills and do their jobs at the very highest levels.

Beyond the 1% across-the-board pay raise for civilian employees, the Trump administration also recommended allowing agencies to spend an additional 1% of their salary budget on awards for high-performing employees or those with critical skillsets.

“This increase in awards spending will allow agencies to effect an awards and recognition program that drives positive behavior, provides opportunities for employees to develop, grow and enhance their careers and recognizes accomplishments in a timely way,” the president’s 2021 budget request reads. “The increase also ensures that agencies have sufficient funding to differentiate among levels of performance and maintain an appropriate distribution between performance awards and individual contribution awards.”

The Trump administration has consistently advocated for a pay system that prioritizes performance for some employees over across-the-board raises for everyone.

This year, however, the president’s 2021 budget requests includes more detailed proposals designed to improve the ability of agencies to reward top-performing employees.

The administration, for example, has instructed agencies to lift the cap on the amount of salary devoted to employee rewards. To date, agencies spend about 1% of their funding for employee salaries on these performance-based awards, according to the 2021 request.

“We recognize that not all agencies have historically gone up to the cap,” Weichert said. “We are going to use administrative means to encourage agencies to go as high as they can to put more of the balance of pay to be aligned with performance and reinforce merit systems principles.”

The president’s 1% federal pay raise proposal, however, isn’t close to a final deal. Trump may, like he did last summer, ultimately change his mind in announcing his official plans for federal pay later this summer. And Congress, as it has for the past two years, may legislate its own federal pay raise for civilian employees in 2021.

Meanwhile, federal employee unions and organizations dismissed the administration’s 2021 budget recommendations.

Everett Kelley, national president of the American Federation of Government Employees, called the proposals “punitive and ridiculous.”

“Why must President Trump start every budget cycle with a slash-and-burn approach to federal government?” Tony Reardon, national president of the National Treasury Employees Union, said Monday in a statement. “Just like the last three years, NTEU will work with our allies on Capitol Hill to defeat these harmful proposals and ensure that federal employees are honored for their public service with fair pay raises and adequate resources for their agencies.”

The Federal Managers Association recognized the administration’s call for a modest across-the-board raise with additional performance-based increases but said it supported a higher bump.

“FMA shares the administration’s goal of modernizing the federal workforce and delivering effective and efficient services,” Renee Johnson, the association’s president, said Monday in a statement. “However, we are frustrated and disappointed that the administration’s budget request again calls for huge cuts to federal employee retirement packages in the name of ‘government efficiency.'”

Trump offers up familiar federal retirement cuts in 2021 budget

Civilian employees will also recognize a series of familiar cuts and changes to their retirement benefits, which the White House has described as an attempt to bring federal benefits more closely in line with the private sector.

The president has proposed the following:

  • An increase in federal employee contributions to the Federal Employee Retirement System of 1% each year, so employees and agencies pay an equal share toward their annuities,
  • An elimination of the cost-of-living adjustment for current and future retirees,
  • A 0.5% cut to the COLA for Civil Service Retirement System participants of what the typical formula currently allows,
  • Basing future retirement benefits on the average of an employee’s highest five years of salary instead of an employee’s highest three years of salary, and,
  • An elimination of the FERS Special Retirement Supplement payments for employees who retire before age 62.

Weichert emphasized these changes would only apply to future federal employees, not the existing workforce.

Specifically, the Trump administration wants employees and agencies to each pay half the cost of their retirement annuities. This proposal would save government about $2.2 billion in 2022 — and a total of $87.4 billion over the next 10 years.

“To mitigate the impact on employees, this provision would be phased in over several years, with individuals contributing an additional 1% of their salary each year,” the 2021 budget request reads. “Another benefit of this proposal is that it would generally equalize the percentage of salary that civilian workers pay toward their pension benefit. At present, newer cohorts of employees pay a higher percentage than do those with general seniority.”

Employees hired before 2013 currently contribute 0.8% of their pay toward their annuities, while federal workers hired during 2013 pay 3.1%. Those hired after 2013 contribute 4.4% of their pay.

The administration’s 2021 proposal doesn’t specify how, but it suggests employees would all eventually contribute at the same rate toward their pensions, regardless of their hire date.

In addition, cutting the COLA, changing pension calculations to account for the highest five years of salary and eliminating the special retirement supplement for certain federal employees would save government, in total, $2 billion in 2022 and $92 billion over the next 10 years.

These retirement proposals have, in some sense, become old hat for the federal workforce. Trump has made nearly identical recommendations in the past four budget requests, and Congress has offered up similar proposals of its own during this administration and the previous one.

To date, these retirement proposals, however, have simply remained proposals.

In addition, the administration again this year argued the current federal retirement system doesn’t serve the 70,000 term employees who are hired to serve their agencies for a period of up to four years.

“The existing system discourages term hires, because their terms will fall short of the five years necessary to become vested in the defined benefit program,” the budget request reads. “Term hiring is attractive to individuals who may not want to make a career of government service, but who still want to serve in specific areas of interest for a limited time.”

Instead, the president proposed a change to retirement benefits for these term and temporary employees. Though the proposal doesn’t offer many details, the White House has recommended expanding defined contribution benefits through the Thrift Savings Plan for term employees instead of a defined benefit annuity.

In addition, the administration is reviving another familiar recommendation: Reducing the interest rate for the Thrift Savings Plan’s G Fund.

“G fund investors currently benefit from receiving a medium-term rate of return on what is essentially a short-term security,” the 2021 budget proposal reads. “Basing the yield on a short-term T-bill rate instead of the current rate (an average of medium and long term Treasury bond rates) would reduce both the projected rate of return to investors and the cost of the fund to the Treasury.”

Federal employees asked to contribute more toward health benefits

The president’s 2021 budget request also suggested revising the contribution rate for participants in the Federal Employees Health Benefits Program (FEHBP). The government would contribute more toward plans with higher scores on the FEHBP performance assessment.

“Under this proposal, the base government contribution would be the lesser of 71% of the weighted average of all health plans or 75% of that plan option’s individual premium,” the 2021 proposal reads. “Higher performing plans would receive a five percent increase to the government contribution, while all others would receive the base rate.”

The current structure, the administration said, doesn’t encourage federal employees to choose cheaper FEHB plans.

“This proposal would incentivize enrollees to select high-performing, high-value plans by making them more affordable,” the proposal reads. “The proposal would also provide carriers with greater incentive to compete on price and quality, help driving down overall program costs.”

The FEHB proposal would eventually save government $3.2 billion over 10 years.

“The core, unifying factor is not a reduction in pay or benefits, but rather a realignment to a more incentive-driven performance tool,” Weichert said. “[On] health care benefits, we look to find ways to keep our employees healthier and lower the amount for their components in it. But obviously we are dealing with a market environment where overall health care costs are going up.”

Notably, the president’s budget request tasks the General Services Administration, not the Office of Personnel Management, with the implementation of these changes to federal health and retirement benefits.

As Federal News Network reported last week, the president has once again proposed transferring certain OPM functions to GSA, despite recent language included in the 2020 defense authorization bill.

Those transfers, according to the White House request, are “contingent upon enactment of authorizing legislation.” They’re also likely to be dead on arrival, given the NDAA language prohibiting the transfer of OPM functions to GSA, the Office of Management and Budget or the another agency.