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Federal Eye
Posted at 06:00 AM ET, 03/28/2012

New GOP budget proposal would change federal retirement, health contributions

A budget proposal released Tuesday by the Republican Study Committee, a caucus of conservative members of the House, suggests making fundamental changes to the federal retirement and health benefit systems to curtail government spending.

The RSC budget proposal hopes to trim $110 billion in federal spending over 10 years by requiring federal employees to contribute more to their retirement plans. The RSC proposes to equalize contributions, which would mean about a 6 percentage point increase in the employee share. A recently enacted law already requires contributions of 2.3 percent of salary more for employees hired into government after this year who have less than five years of prior service.

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The proposal also suggests changing the cost-of-living adjustment peg for federal retirees. Currently, retirement cost-of-living adjustments are linked to the consumer price index for urban wage earners (CPI-W), which has a higher rate of growth than the alternate consumer price index for urban consumers (CPI-U). The RSC proposes linking cost-of-living adjustments to the urban consumer index, which could save $26 billion over 10 years, according to the RSC budget and a Congressional Budget Office report. The CBO analysis, however, said medical expenses outpace the CPI-U rate, which could cause federal retirees to fall behind due to increasing health care and other costs

The RSC proposal would pay the first $5,000 in health premiums for single federal workers and $11,000 for families, rather than continue the current arrangement in which the government pays a percentage, typically around 70 percent, of the total premium. Employees would have to cover premium amounts above those caps. The RSC hopes the caps will offer an incentive for federal employees to choose cheaper insurance policies. The program would save the government $27.6 billion. CBO has projected that over time, such a system would shift more of the costs of health insurance from the government to enrollees.

By and Timothy R. Smith  |  06:00 AM ET, 03/28/2012

 
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