If you’re a federal employee considering retirement in the next year or two, now is the time to pay attention. The latest federal budget proposal includes several significant changes to the FERS retirement system—some of which could reduce your lifetime benefits if you’re still working when the law is enacted.
In this article, we’ll walk through the proposed changes, who they would affect, and what steps you may want to consider if you’re planning to retire soon.
📅 Update as of June 13th, 2025:
Senate Budget Reconciliation Update
In the most recent move, the Senate has removed several House-proposed benefits cuts impacting current federal employees—such as increased FERS contributions, FERS supplement eliminations, and pension formula adjustments. But it has left intact a new set of rules targeting new hires.
Proposed Changes to FERS and What They Could Mean for You
The budget proposal outlines five key changes that could impact retirement income, job protections, and appeal rights for federal employees.
1. Increased Employee Contributions to FERS
This provision has been removed from the most recent version of the bill.
Who this affects: No one currently. The proposed increase to 4.4% for all employees, including those hired before 2014, was eliminated due to opposition from lawmakers.
Grandfathering: No longer applicable.
2. Elimination of the FERS Annuity Supplement
This change would remove the annuity supplement for most employees who retire before age 62. The supplement currently helps bridge the gap between retirement and eligibility for Social Security.
Who this affects: This provision has been removed from the most recent version of the bill.
Who is not affected: No longer applicable.
Grandfathering: No longer applicable.
3. Change from High-3 to High-5 for Annuity Calculation
FERS annuities would be based on the average of your highest five years of salary instead of the highest three. This provision has been removed from the most recent version of the bill.
Who this affects: No one. This provision is no longer included in the current legislation.
Grandfathering: No longer applicable.
4. At-Will Employment for New Hires
Future employees would choose between a 4.4% FERS contribution with at-will employment or a 9.4% contribution with civil service protections.
Who this affects: New hires after the law is enacted.
Who is not affected: All current employees and retirees.
Grandfathering: Yes. Current employees retain their existing employment protections.
5. $350 Fee for Filing an MSPB Appeal
A $350 fee would be required to file an appeal with the Merit Systems Protection Board (MSPB).
Who this affects: Employees who file MSPB appeals after the law is enacted.
Who is not affected: Retirees and employees not involved in appeals.
Grandfathering: No. The fee would apply to all new cases after the law is in place.
What Is the MSPB Appeal Process?
The MSPB is an independent agency that hears appeals from federal employees who have been demoted, suspended, or removed from federal service. The appeals process helps ensure personnel actions are fair and free from political or discriminatory influence.
When Could These Changes Be Passed?
These proposals are part of a broader budget reconciliation bill, which could pass with a simple majority in Congress. Lawmakers are targeting early July 2025 for a final vote, especially with debt ceiling deadlines approaching. Further revisions are possible as the bill moves through the House and Senate. We’ll continue monitoring and will post updates as new information becomes available.
What You Can Do Now
At this stage, these are still just proposals. However, given the potential financial impact, it’s worth evaluating whether retiring before the law takes effect would be beneficial for your situation.
In some cases, locking in your current benefits by retiring early could preserve the annuity supplement or the more favorable high-3 calculation. In other cases, retiring early may not be advantageous depending on your goals and overall plan.
Final Thoughts
These proposed changes may or may not pass—but if you’re approaching retirement, now is the time to model different scenarios and make sure you’re prepared either way.
If you’d like help reviewing your retirement options or creating a retirement timeline, feel free to schedule a consultation. We’re happy to walk you through your numbers and help you decide on the best course of action.
Last updated: May 22, 2025 (10:30 am PST)
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