A bill to exclude locality adjustments from average pay for purposes of computing the amount of retirement annuities of new employees.
- Bill Number
- S. 26
- Origin Chamber
- Senate
- Congress
- 119th Congress, Session 1
- Policy Area
- Government Operations and Politics
- Status
- Introduced
- Latest Action
- 2025-01-07: Read twice and referred to the Committee on Homeland Security and Governmental Affairs.
- Last Updated
- 2025-04-14T14:01:36Z
AI-Generated Summary
Purpose
This bill (S. 26) aims to modify the Federal Employees Retirement System (FERS) by excluding locality-based pay adjustments—extra pay given to federal workers in high-cost living areas—from the calculation of "average pay" used to determine retirement annuity amounts. The change applies only to new federal employees hired after the bill's enactment, ensuring their retirement benefits are based solely on base pay rates.
Key Provisions
- Amendment to Definition of Average Pay: Updates Section 8401(3) of Title 5, U.S. Code, to specify that for certain new employees, average pay excludes locality-based comparability payments under sections 5304 or 5304a (these are adjustments to make federal salaries competitive with local private-sector wages).
- New Term: "Revised Average Pay Employee": Adds a definition in Section 8401(40) for employees who:
- On the date of enactment, are not current federal employees or Members of Congress covered by FERS, are not performing creditable civilian service, and have no prior creditable service.
- After enactment, become new hires or Members performing creditable service under FERS (Section 8411).
- Technical Adjustments: Makes minor grammatical changes to existing paragraphs (38) and (39) to accommodate the new definition.
Significant Changes to Existing Law
- Under current law, locality pay is included in the "average pay" calculation for FERS retirement annuities, which boosts benefits for employees in expensive regions.
- This bill removes locality pay from that calculation for new employees only, creating a two-tier system: existing employees retain the inclusion, while future hires do not. This narrows the scope of average pay to basic pay rates alone for affected individuals.
Potential Impacts
- On Government Agencies: Federal agencies may see reduced long-term pension liabilities, as lower average pay calculations could decrease overall retirement payout costs. This might simplify budgeting for human resources and payroll but could complicate administration of mixed employee cohorts (old vs. new hires).
- On Citizens (Federal Employees): New federal hires, particularly in high-cost areas like Washington, D.C., or San Francisco, would receive lower retirement annuities than under current rules, potentially reducing their post-retirement income by 10-20% (depending on locality adjustments). This does not affect current employees or retirees.
- On International Relations: No direct impacts, as the bill focuses on domestic federal workforce compensation.
Main Stakeholders Affected
- New Federal Employees and Future Members of Congress: Directly impacted through reduced retirement benefits; they may need to save more personally for retirement.
- Federal Agencies and the Office of Personnel Management (OPM): Responsible for implementing changes, including updating payroll and retirement systems.
- U.S. Taxpayers: Indirectly benefit from potential cost savings on federal pensions, estimated in the billions over decades.
- Federal Employee Unions (e.g., AFGE, NTEU): Likely to oppose the bill, advocating for fair compensation.
Notable Legal, Constitutional, or Political Implications
- Legal: The bill targets only Title 5 definitions without broader FERS reforms, minimizing legal challenges. It creates a prospective change (applying to post-enactment hires), avoiding retroactivity issues that could violate due process under the Fifth Amendment.
- Constitutional: No apparent conflicts; it aligns with Congress's authority to regulate federal employee benefits (Article I, Section 8). However, it could face equal protection scrutiny if viewed as discriminatory against new hires, though such claims are rare for prospective benefit changes.
- Political: Introduces a generational divide in federal benefits, potentially fueling debates on fiscal responsibility vs. worker retention. As a cost-saving measure, it may appeal to deficit hawks but risk alienating potential federal job applicants in competitive markets. Referred to the Senate Committee on Homeland Security and Governmental Affairs, it reflects ongoing efforts to control federal spending.
This summary was generated by AI and may contain inaccuracies. Refer to the official source document for the authoritative text.
Sponsor
Recent Actions
- 2025-01-07: Read twice and referred to the Committee on Homeland Security and Governmental Affairs.
- 2025-01-07: Introduced in Senate
Bill Versions
- To exclude locality adjustments from average pay for purposes of computing the amount of retirement annuities of new employees. — issued 2025-01-07 — PDF (2 pages)