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President’s Budget FY2019 – Reductions and Eliminations

Posted By Susan Lukas, Wednesday, February 14, 2018

The President’s Budget included a document titled: AN AMERICAN BUDGET OF THE U.S. GOVERNMENT OFFICE OF MANAGEMENT AND BUDGET | OMB.GOV FISCAL YEAR 2019 MAJOR SAVINGS AND REFORMS. An extract of the document recommendations that outline reductions or elimination of government programs is provided for those items that would most likely affect National Guard and Reserve members.



Change Retirement Calculation from High-3 years to High-5 years—Currently, Federal retirement annuity calculations are based on the average of the Federal employee's three highest salary-earning years. Private sector pension companies commonly base employee annuity calculations on the employee's five highest salary-earning years, a formula more representative of an employee's career earnings track record. Switching the Federal employee annuity formula from a "High-3" to a "High-5" calculation would create greater alignment with the private sector.


Eliminate FERS COLA, Reduce CSRS COLA by 0.5 percent—FERS and CSRS COLAs for annuitants are currently determined based on statutory formulas tied to the Consumer Price Index. However, FERS annuitants are somewhat protected from economic effects, because their retirement packages include Social Security benefits and TSP, in addition to the FERS annuity. Eliminating the FERS COLA and reducing the CSRS COLA payments would reduce both FERS and CSRS annuity benefits, bringing compensation more in line with the private sector.



Reduce the G Fund Interest Rate—This proposal includes a change to the "G" fund, an investment vehicle available only through the Thrift Savings Plan (TSP), a defined contribution plan for Federal Government employees. G Fund investors currently benefit from receiving a medium-term rate of return on what is essentially a short-term security. Basing the yield on a short-term T-bill rate instead of the current rate (an average of medium and long-term Treasury bond rates) would reduce both the projected rate of return to investors and the cost of the fund to the Treasury.



USPS must also have the flexibility to raise the revenue necessary to support their operations. (i.e. increase postal rates)



Under this proposal, the Government contribution would range between 65-75 percent (currently 72%) depending on a plan's performance. This proposal would encourage enrollment in high-performing health plans. Under the current structure, enrollees have few incentives to choose less expensive, higher value plans. This proposal would incentivize enrollees to select high-performing, high-value plans by making them more affordable. The proposal would also provide carriers with greater incentive to compete on price and quality, help driving down overall program costs.



Increase employee contributions to 50 percent of cost, phased in at 1 percent per year. By increasing the employee share, the Federal Government's costs would be reduced. To mitigate the impact on employees, this provision would be phased in over several years, with individuals contributing an additional one percent of their salary each year.


Veteran Affairs

Each year, veterans in receipt of certain disability benefits receive a yearly COLA increase to ensure that the purchasing power of VA benefits is not eroded by inflation. For nearly 15 years, until 2013, VA rounded down payment rates to all disability compensation beneficiaries. This proposal would reinstate that round-down, which has only a minimal impact, estimated at no more than $12 per year on individual veterans. The savings from this proposal are designated to partially offset the costs of unifying the veterans community care program.


Post 9/11 GI Bill

The Post-9/11 GI Bill provides eligible veterans with full tuition and fees at public universities, and tuition and fees at private universities up to a cap of about $22,800 per year. Over the past several years, certain public schools have been offering flight training, often through contracts with private institutions at a cost significantly higher than other courses of study. Capping the benefit at the maximum benefit provided for private schools would maintain a robust benefit but would reduce the likelihood that VA would pay excessive amounts for these programs. The savings from this proposal are designated to partially offset the costs of unifying the veterans community care program.


Student Loans

To simplify student loan repayment, the Budget proposes a single IDR plan that provides a pathway to debt relief for struggling borrowers. All new borrowers would pay 12.5 percent of their discretionary income. For borrowers with undergraduate student debt only, any balance remaining after 15 years of repayment would be forgiven. For borrowers with any graduate debt, any balance remaining after 30 years of repayment would be forgiven.


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