Federal retirement changes outlined in the most recent FERS proposals: Breaking down the impact on your retirement benefits

The latest version of a bill moving through Congress proposes changes to the Federal Employees Retirement System (FERS) annuity supplement, a component of the FERS basic annuity benefit.

The FERS annuity supplement is payable to employees who retire before age 62 and are not yet eligible for Social Security retirement benefits. The supplement is calculated as if the employee were eligible to receive Social Security benefits on the day they retire, and is based on the Social Security benefit only using the retiree's civilian service covered under FERS.

According to the Congressional Budget Office (CBO), in fiscal year 2025, the average annual supplement for affected annuitants would be about $18,000 or $1,500 per month. Those annuitants begin to receive the supplement, on average, at age 59 and would therefore receive the supplement for about three years.

The CBO estimates that eliminating the supplement for new annuitants would reduce direct spending by $10.0 billion over the 2025-2034 period. However, federal workers already entitled to retire with the supplement on January 1, 2028, will retain their eligibility, and certain groups will be excluded from the elimination of the supplement.

Employees who retire before reaching age 62 with at least 20 years of service will not be affected by the proposed changes. Federal employees who are subject to mandatory retirement, such as federal law enforcement officers or firefighters who are subject to mandatory retirement at age 57 or air traffic controllers at age 56, will also continue to receive the FERS supplement upon retirement, even if they retire before the mandatory age.

Rep. Mike Turner, R-Ohio, has opposed the proposal's application to current employees, stating that changing the rules for current employees in the middle of their employment is wrong.

The proposal to change the basis of the FERS retirement benefit from the "high-three average salary" to the "high-five" has been removed. However, the elimination of the FERS supplement remains in the proposed legislation, but has been made less onerous.

Employees who receive a deferred benefit, a disability benefit, or an immediate MRA+10 benefit are not eligible for the annuity supplement. Most employees who retire voluntarily before age 62 and are not subject to an age reduction are entitled to receive the supplement. Eligibility for the FERS annuity supplement continues until the earlier of the last day of the month before the first month for which the employee would be entitled to Social Security benefits, or the last day of the month on which the employee reaches age 62.

The bill, which was passed by the House of Representatives, has shifted the effective date for the elimination of the FERS annuity supplement to January 1, 2028. The impact of these proposed changes on federal employees and retirees will be closely watched as the bill moves through the legislative process.