Congress Proposes Shift to High-5 Pay Basis for Federal Retirement Benefits Starting 2028
Congress is evaluating a proposal to modify the calculation of retirement benefits for future federal retirees, shifting from the current method based on the highest three consecutive years of average basic pay to the highest five years. This change aims to reduce the government's retirement benefit costs by lowering the salary basis used in annuity calculations for new retirees starting in 2028. The revised calculation excludes federal employees under special retirement provisions, such as law enforcement officers and firefighters, who would continue to use the high-3 salary basis due to their earlier retirement eligibility and different contribution requirements.
The financial impact on retirees is significant, as the average salary over five years is generally lower than over three years, especially when recent salary increases are considered. Illustrative examples show that for a typical employee retiring after 30 years of service and a 3% annual salary increase, the initial annuity could decrease by several hundred dollars per year depending on retirement system membership—Federal Employees Retirement System (FERS) or Civil Service Retirement System (CSRS). These reductions also affect future cost-of-living adjustments, compounding the long-term decrease in retirement income.
The proposal is part of broader efforts to manage federal retirement liabilities amid budgetary pressures. The House reconciliation bill integrates this change alongside other measures intended to increase federal employee retirement contributions and adjust benefits. While some Republican lawmakers have proposed similar adjustments previously without success, this time the change is a priority supported by both GOP leadership and the White House.
This legislation targets newly retiring employees, with current retirees and employees retiring under special provisions unaffected. The high-5 average pay basis aligns the federal system more closely with some private-sector retirement plans and aims to reduce long-term government expenditures on federal employee pensions. However, the modification shifts more retirement income risk onto employees, potentially affecting recruitment and retention in federal service sectors.
Overall, these changes illustrate ongoing fiscal policy adjustments within federal employee retirement systems to address cost containment and sustainability challenges. Stakeholders in federal employment and benefit administration should monitor the legislative progress and model impacts on pension liabilities and workforce planning.