This bill excludes locality pay adjustments from the calculation of retirement annuities for new federal employees, affecting those who begin their service after the bill's enactment. This change applies specifically to the computation of average pay used to determine retirement benefits, ensuring locality pay does not inflate initial annuity calculations for future retirees.
Bill Cassidy
Senator
LA
This bill amends Title 5 of the United States Code to exclude locality pay adjustments from the calculation of retirement annuities for new federal employees. It defines "revised average pay employee" as someone who is newly employed and covered under this chapter after the enactment date, and has no prior civilian service that counts toward retirement. This change affects the computation of retirement benefits for those who fit this definition.
New Federal Hires Face Retirement Pay Cuts: Locality Pay Excluded from Annuity Calculations
This bill changes the retirement game for new federal employees, and not in a good way. It essentially cuts future retirement benefits for anyone hired after the bill becomes law by excluding "locality pay adjustments" from the calculation of their retirement annuities. Locality pay is extra money federal employees get for working in high-cost-of-living areas – think New York City, San Francisco, or Washington D.C.
Paycheck Pinch: What's Changing?
Currently, when a federal employee's retirement annuity (basically, their pension) is calculated, it's based on their average salary, including any locality pay they received. This bill, if passed, says "no more" to that for new hires. Section 1 of the bill amends Title 5 of the United States Code, Section 8401, to specifically exclude those locality payments when figuring out retirement benefits for what it calls "revised average pay employees."
So, who's a "revised average pay employee"? Basically, anyone who isn't already a federal employee or hasn't already done any civilian service that counts towards retirement before this bill's enactment date (Section 1(A)-(D)). If you get hired after this bill passes, you're in this new group, and your retirement pay will be calculated differently – and likely be lower.
Real-World Ripple Effects
Let's say you're a fresh college grad starting a federal job in D.C. Your base salary might be, say, $50,000, but with the locality adjustment for D.C., you're actually making closer to $65,000. Under the current system, your retirement would be calculated using that $65,000 figure. This bill would use the $50,000 figure instead. Over a 30-year career, that difference adds up big time in terms of your final retirement payout.
Or picture a skilled tradesperson – maybe an electrician – hired to work at a federal facility in a high-cost area. They're getting locality pay to make their salary competitive with the private sector. This bill would mean their years of service won't count as much toward their retirement as they would for someone hired before the bill's enactment.
The Big Picture – and Potential Problems
While the bill might save the government money in the long run (lower pension obligations mean less taxpayer money spent), it raises some serious questions. Will this make it harder to attract and retain talent in expensive cities? Will people choose private sector jobs that offer better retirement benefits, even if the base pay is similar? It also seems to make the same job worth less in retirement, based solely on when someone was hired. It's worth paying close attention to. This bill is setting a new standard for how the government values its employees, and it might not be for the better. The definition of 'revised average pay employee' is also very narrow and could potentially be manipulated in the future.