Will New Legislation Cut Your Federal Retirement Benefits? Here’s What You Need to Know

New Legislation Targets Federal Retirement Benefits  Could Your Pension Be Affected?

As of June 2025, federal employees are once again in the spotlight as lawmakers introduce proposals that could lead to significant changes to federal retirement. A new wave of federal benefits cuts is being floated in Congress, and it could mean less generous pensions, reduced cost-of-living adjustments (COLAs), and increased employee contributions. If passed, the proposed changes to federal retirement benefits may dramatically alter how future retirees calculate their pensions and plan their post-service lives.

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Let’s break down the proposals, what they mean for the Federal Employees Retirement System (FERS), and what you can do right now to prepare.

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Key Highlights of the Proposed Federal Retirement Changes

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1. High-3 to High-5 Pension Calculation

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One of the most debated proposals involves changing the formula used to calculate your pension. Currently, FERS pensions are based on the highest average salary over three consecutive years (High-3). The new legislation would switch this to the highest five years (High-5).

Impact: This change could reduce overall pension payouts by lowering the average used in your annuity calculation, especially if your last few years were your highest paid.

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2. Elimination of COLAs for FERS Non-Disability Retirees

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Another provision proposes eliminating Cost-of-Living Adjustments (COLAs) entirely for most FERS retirees, excluding those with disabilities and survivor benefits.

Impact: Without COLAs, retirees would lose purchasing power over time, especially during inflationary periods.

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3. Increased Employee Contributions to Retirement

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The legislation would also require current federal employees to contribute more toward their retirement benefits.

Impact: This would mean smaller paychecks now, with no guarantee of increased payouts later. Over time, this could act as a disincentive for long-term federal service. You should check out the fers calculator, The FERS Annuity Supplement Calculator is a tool that helps federal employees estimate their potential Special Retirement Supplement (SRS).

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4. Elimination of the FERS Annuity Supplement

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The FERS annuity supplement, designed to bridge the gap between retirement and Social Security eligibility at age 62, could be eliminated.

Impact: Younger retirees would be hit hardest, potentially needing to dip into personal savings or delay retirement.

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Check out the FERS Calculator

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What Lawmakers Are Saying?: The Fiscal Reform Act of 2025

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These changes are part of the broader Fiscal Reform Act of 2025, passed by the House in May and now under Senate review. The bill is supported by lawmakers aiming to reduce the federal deficit. According to the bill summary:

“These adjustments are necessary to ensure long-term solvency of federal programs and restore budgetary discipline.” — Rep. James Wells (R-TX)

However, unions like NTEU and AFGE argue the proposals are an unfair attack on public service:

“This is balancing the budget on the backs of federal workers.” — Tony Reardon, NTEU President

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Why These Changes Matter More Than Ever?

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These proposals come as inflation remains elevated and the federal workforce struggles with recruitment and retention challenges. Federal jobs, once seen as a secure path to retirement, may now offer less certainty.

Many employees close to retirement are left wondering: Should I retire before these changes take effect?

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What Federal Employees Can Do Now?

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Here are a few strategic actions to consider:

• Consult a federal retirement specialist to estimate your pension under both the current and proposed rules.
• Review your Thrift Savings Plan (TSP) and consider increasing contributions if your FERS pension is at risk.
• Track Congressional progress on the Fiscal Reform Act via reliable sources like FedWeek and Federal News Network.
• Consider early retirement if you’re close to eligibility and concerned about changes impacting your benefits.

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Conclusion: Stay Informed, Stay Prepared

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The proposed changes to federal retirement benefits are not yet law, but they are progressing rapidly through Congress. With provisions that would cut COLAs, change pension formulas, and increase contributions, the landscape for federal employees’ retirement planning could soon look very different.

Whether you’re early in your federal career or preparing to retire, staying informed and proactive is your best defence.

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