Increase Federal Civilian Employees’ Contributions to the Federal Employees Retirement System

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.

Billions of Dollars 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2021–
Change in Revenues 1.4 2.7 4.0 5.3 5.2 5.1 5.0 4.9 4.7 4.5 18.6 42.8

This option would take effect in January 2021.

The federal government provides most of its civilian employees with a defined benefit retirement plan through the Federal Employees Retirement System (FERS). The plan provides retirees with a monthly benefit in the form of an annuity. Those annuities are jointly funded by the employees and the federal agencies that hire them. Employees’ contributions are counted as federal revenues. Over 95 percent of federal employees participate in FERS, and most of them contribute 0.8 percent of their salary toward their future annuity. However, the contribution rates for employees hired in 2013 or later generally are higher: Most employees hired in 2013 contribute 3.1 percent, and most hired in 2014 or later contribute 4.4 percent.

Under this option, most employees enrolled in FERS would contribute 4.4 percent of their salary toward their retirement annuity. The increase in the contribution rates (of 3.6 percentage points for employees who enrolled in FERS before 2013 and 1.3 percentage points for those who enrolled in 2013) would be phased in over four years. The dollar amount of future annuities would not change under the option, and the option would not affect employees hired in 2014 or later who already contribute 4.4 percent. Agencies’ contributions would remain the same under the option.