Mandatory Spending Option

Function 600 - Income Security

Change the Pension Formula in 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.

In 2016, the federal government spent $91 billion on retirement benefits for most of its civilian employees: $70 billion for Civil Service Retirement System (CSRS) pensions for civilian retirees and their survivors; $13 billion for Federal Employees Retirement System (FERS) pensions for civilian retirees and their survivors; and $8 billion for contributions to the Thrift Savings Plan (TSP). Those expenditures were partially offset by $3 billion in revenues from employees’ contributions to the CSRS and FERS pension plans.

Under current law, the government’s net cash outflows for its federal civilian retirement systems (that is, the systems’ outlays minus their revenues) are projected to grow by an average of about 2.8 percent annually between 2018 and 2027. Over a longer time horizon—75 years—they would decline sharply as a share of gross domestic product (GDP)—from 0.48 percent of GDP in 2016 to 0.13 percent of GDP in 2091, the Congressional Budget Office projects. Also, the composition of that spending would change. By the 2060s, CSRS would be almost completely phased out. Almost all spending would be on the pensions provided through FERS and on contributions to TSP.

CBO analyzed a policy options that would base the retirement benefit on the five years of highest salary.