Mandatory Spending

Function 600 - Income Security

Reduce Pension Benefits for New Federal Retirees

CBO periodically issues a compendium of policy options (called Options for Reducing the Deficit) covering a broad range of issues, as well as separate reports that include options for changing federal tax and spending policies in particular areas. This option appears in one of those publications. The options are derived from many sources and reflect a range of possibilities. For each option, CBO presents an estimate of its effects on the budget but makes no recommendations. Inclusion or exclusion of any particular option does not imply an endorsement or rejection by CBO.

This option would reduce spending on the Federal Employees Retirement System by decreasing the pensions of most federal workers who retired in January 2019 or later. For those retirees, the formula for calculating the basic annuity would be changed so that the annuity was based on the average of employees' earnings over the five consecutive years when they earned the most. (Currently, the annuity is based on the average of the three consecutive years when employees earned the most.) That change would save the federal government $2.9 billion from 2019 through 2028, CBO estimates. Those savings are uncertain and depend on a number of factors, including CBO's projections of salary growth and of when employees choose to retire.