MIL-OSI USA: Reconciliation Recommendations of the House Committee on Oversight and Government Reform

The rate for most federal employees, Members of Congress, and Congressional staff who entered the system in 2013 would increase from 3.1 percent to 4.4 percent over the phase-in period. Contributions would remain constant at 3.6 percent for employees who entered in 2013 who are eligible for enhanced benefits and also subject to mandatory retirement. The contributions for FERS Further Revised Annuity Employees (those who entered after 2013) would remain constant at 4.4 percent of their annual salary over the phase-in period for most federal employees, Members of Congress, and Congressional staff and at 4.9 percent for employees who are eligible to receive enhanced benefits.

Contributions paid by federal employees toward their retirement are recorded as revenues in the federal budget. CBO estimates that the proposed increases in employee contributions would increase revenues by $34.5 billion over the 2025-2034 period.

Federal agencies also contribute to their employees’ retirement. For each increase proposed for employees, there would be a corresponding reduction for employing agencies. Reducing employers’ contributions for FERS employees (other than employees of the Postal Service, USPS) would reduce spending subject to appropriation by $31.8 billion over the 2025‑2034 period, CBO estimates. That, in turn, would reduce the intragovernmental offsetting receipts paid into the Civil Service Retirement and Disability Fund (CSRDF) by an equal amount. Because that budgetary action is contingent on future appropriations, the increase in the deficit from the decline in estimated offsetting receipts is not attributed to this legislation.

By contrast, outlays by USPS are classified as off-budget direct spending. Reducing that agency’s contributions to employee retirement would result in smaller intragovernmental offsetting receipts being paid into the CSRDF, therefore increasing on-budget direct spending by that same amount.

Under section 90001, the total amount of retirement contributions (employee plus agency shares) paid into the CSRDF would remain the same as under current law. That is, the legislation would replace some of the payments by agencies with payments by federal employees. CBO attributes budgetary savings to the proposal because employees’ contributions are classified in the budget as revenues, whereas agency payments are classified as intragovernmental transfers that are subject to future appropriation. If the reduction in intragovernmental transfers makes possible an offsetting increase in other appropriations, the net effect would be an increase in outlays—because an intragovernmental payment would be replaced by spending that goes outside the government.

CBO estimates that reducing the USPS contribution rate for affected employees would reduce that agency’s required payments to the CSRDF by nearly $2.7 billion over the 
2025-2034 period. That reduction of receipts into the fund would result in a nearly $2.7 billion increase in on-budget direct spending over the period. Because CBO projects that USPS will exhaust both its borrowing authority and its reserve funds in 2027, any savings to the Postal Service Fund from lower retirement contributions would be fully offset beginning in that year. As a result, CBO estimates that enacting the provision would result in a reduction in off-budget outlays in 2026 that would be offset by increased off-budget direct spending beginning in 2027 as USPS would spend the amount it saved from lower accrual payments to fund its operations.

Elimination of FERS Annuity Supplement

Under current law, certain FERS employees who retire before age 62 receive a supplement to their annuity that is intended to equal the amount they would receive from the Social Security Administration if they were eligible for Social Security benefits at the time of retirement.The annuity supplement ends when the retiree turns 62 or becomes eligible to receive Social Security benefits.

Section 90002 would eliminate the annuity supplement for most newly retired people under FERS. Employees who retire under a mandatory authority would continue to receive the supplement as under current law. Current FERS annuitants and those who retire before enactment also would continue to receive the supplement.

Using data from the Office of Personnel Management (OPM), CBO estimates that about 21,000 new FERS retirees who do not retire under a mandatory authority are added to the annuity supplement rolls each year. In fiscal year 2025, the average annual supplement for affected annuitants would be about $18,000, CBO estimates. Those annuitants begin to receive the supplement, on average, at age 59 and would therefore receive the supplement for about three years. On that basis, CBO estimates that eliminating the supplement for new annuitants would reduce direct spending by $10.0 billion over the 2025-2034 period.

High-5 Average Pay for Calculating CSRS and FERS Pension

Most federal employees hired before 1987 are part of the Civil Service Retirement System (CSRS), the defined benefit pension plan that was replaced by FERS. Under current law, retirement annuities under both systems are based on a participant’s average salary over the three consecutive years with their highest earnings.

Section 90003 would change the annuity calculation to use a five-year average for most CSRS and FERS employees who retire on or after January 1, 2027. The annuity calculation for employees who are subject to mandatory retirement would remain at the three-year average, as under current law.

Using data from OPM, CBO estimates that about 90,000 employees who are not subject to mandatory retirement are added to the CSRS and FERS retirement rolls each year. Under current law, the average monthly benefit for CSRS annuitants was about $5,700 in fiscal year 2024; for FERS the average was about $2,300. Using the five-year average, rather than the three-year average, would reduce an affected retiree’s annuity by about 3 percent. CBO estimates that enacting section 90003 would reduce direct spending by $3.1 billion over the 2025-2034 period.

Election for At-Will Employment and Lower FERS Contributions for New Federal Civil Service Hires

Section 90004 would require most new federal civilian hires to choose either to serve as at-will employees or to contribute an additional five percent of their salary toward their retirement. The change would apply to employees hired or appointed after enactment. It would not apply to employees who cannot appeal adverse actions to the Merit Systems Protection Board, including most USPS employees. It also would exclude certain other employees, including positions excepted from the competitive service due to the confidential, policy focused nature of their work.

At-will employees can have their employment terminated at any time without cause. Those employees retain protection under antidiscrimination laws, however, including laws that prohibit termination on the basis of race, sex, or religion. Under this provision, new hires who choose not to become at-will employees would retain civil service protections that require employers to show cause for any adverse personnel action and would retain the right to appeal employment termination.

Based on data from OPM, CBO estimates that roughly 124,000 affected federal hires will enter FERS in fiscal year 2026 with an annual salary of about $71,000, on average. Using data about employees’ perceptions of job security and willingness to forgo current compensation for future benefits, CBO estimates that roughly one quarter of affected federal hires would choose to contribute an additional 5 percent of their salary toward retirement rather than enter into at-will employment. On that basis, CBO estimates that the larger retirement contributions of those who reject at-will employment would increase revenues by $4.7 billion over the 2025-2034 period.

Federal agencies also are required to contribute toward employees’ retirement. Under section 90004, agencies’ contributions would decrease by the same percentage that employees’ contributions rise. CBO estimates that reduced employer contributions for FERS employees in agencies other than USPS would decrease spending subject to appropriation by $4.5 billion over the 2025-2034 period.

CBO estimates that section 90004 would apply to roughly 10 percent of USPS employees. A reduction in USPS’s contributions for affected hires who do not choose at-will employment would reduce that agency’s required payments to the CSRDF (as well as receipts into the fund) by $112 million over the 2025‑2034 period, CBO estimates, thereby boosting on-budget direct spending by that amount. Because CBO projects that USPS will exhaust both its borrowing authority and its reserve funds in 2027, any savings to the Postal Service Fund would be fully offset beginning in that year. Thus, CBO estimates no net change in off-budget outlays by USPS over the 2025-2034 period.

Filing Fee for Merit Systems Protection Board Claims and Appeals

Section 90005 would direct the Merit Systems Protection Board (MSPB) to impose fees for employees, former employees, or applicants for employment to file certain types of claims against federal agencies. Fees collected from claimants whose appeals are denied would be deposited into the Treasury as miscellaneous receipts. CBO expects that under this provision fewer claims would be filed than the 4,000 that are filed annually, on average, under current law. Using information from the MSPB, CBO estimates that enacting the provision would increase revenues by $3 million over the 2025‑2034 period.

FEHB Protection

Section 90006 would require federal agencies to verify the eligibility of enrollees’ dependents to participate in the FEHB program. That program provides health insurance to about 8 million federal workers and annuitants, including current and retired USPS employees, and coverage for their dependents and survivors. Verification would occur when the employee or annuitant starts or changes a dependent’s enrollment—for example, during open season, because of a change in employment, or in response to a qualifying life event, such as a marriage or the birth or adoption of a child. Within six years of enactment, the legislation would require OPM to conduct a verification audit of all dependents enrolled in the program. Dependents found to be ineligible would be denied enrollment or disenrolled. The legislation also would expand OPM’s annual assessment of fraud risk to include a risk assessment for enrollment by ineligible dependents.

Agencies currently verify dependents’ eligibility at initial enrollment or when employees change their coverage at the time of a qualifying life event. OPM requires federal agencies to verify 10 percent of enrollment elections during open season. However, the Government Accountability Office has indicated that some ineligible dependents have been enrolled and that additional measures could be taken to reduce fraud in the program.

Over the 2026-2034 period, the legislation would authorize OPM to spend $604 million from the FEHB trust fund to expand that agency’s oversight of the program, increasing outlays by the same amount. Authorized amounts would be for the following activities:

• $474 million to develop, maintain, and conduct ongoing verifications for and oversight of the FEHB program’s enrollment and eligibility systems;
• $80 million to audit enrollment of dependents; and
• $50 million for program oversight by OPM’s Office of the Inspector General.

Those amounts would be used in part for activities that would reduce enrollment in FEHB and result in smaller government contributions to premiums. CBO anticipates that OPM would implement the section’s auditing requirements using contracts with private-sector entities. Given the likely duration and complexity of such an undertaking, CBO expects that the audit would begin later in fiscal year 2026 and continue through 2031.

Using data on the composition of enrollment in the FEHB program, along with information about the share of dependents removed as a result of other verification audits, CBO expects that implementing the section would cause enrollment to decline by about 100,000 people, on average, in each year over the 2026-2034 period, of which about 10,000 would be removed as a result of open-season verifications.

Government contributions to premiums for federal annuitants and USPS employees are classified in the budget as direct spending. Therefore, a decline in FEHB enrollment among those groups would reduce direct spending. CBO estimates that about 35 percent of the people disenrolled would be ineligible dependents of federal annuitants and USPS employees, at an average annual cost of about $6,900 per dependent, for a total reduction in direct spending of $2.1 billion over the 2026-2034 period.

In total, CBO estimates enacting the section would reduce direct spending by about $1.5 billion over the 2026‑2034 period.

Uncertainty

CBO’s estimates for the budgetary effects of enacting title IX are subject to uncertainty. Several areas in particular are difficult to estimate:

• Anticipating federal employees’ responses to changes in FERS contributions and benefits is uncertain because decisions related to employment and retirement depend on a wide variety of individual circumstances.
• Estimating new federal employees’ responses to a requirement to contribute a larger percentage of their salary toward their retirement or accept at-will employment is subject to significant uncertainty due to limited data and historical experience related to how workers have responded in similar situations.
• Estimating the budgetary effects of section 90006 is subject to significant uncertainty because no similar verification audit of the FEHB program has been undertaken. CBO projected the cost of an audit, length of time required to complete an audit, the number of dependents who could be found ineligible, and the number disenrolled, but actual amounts could be larger or smaller than estimated. Moreover, given the inherent uncertainty concerning patterns of health care use by people who would be newly found ineligible, the reductions in spending that would be generated by an audit also could be larger or smaller than estimated here.

Pay-As-You-Go Considerations

The Statutory Pay-As-You-Go Act of 2010 establishes budget-reporting and enforcement procedures for legislation affecting direct spending or revenues. The net changes in outlays and revenues that are subject to those pay-as-you-go procedures are shown in Chief, Projections Unit

Ann E. Futrell
Acting Chief, Natural and Physical Resources Cost Estimates Unit

Sarah Masi
Senior Adviser, Budget Analysis Division

Kathleen FitzGerald 
Chief, Public and Private Mandates Unit

Christina Hawley Anthony
Deputy Director of Budget Analysis

H. Samuel Papenfuss 
Deputy Director of Budget Analysis

Chad Chirico 
Director of Budget Analysis

[Table 2 begins on the next page.]

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Table 2. Estimated Changes in Direct Spending and Revenues Under Reconciliation Recommendations Title IX, House Committee on Oversight and Government Reform, as Ordered Reported on April 30, 2025
		By Fiscal Year, Millions of Dollars
		2025	2026	2027	2028	2029	2030	2031	2032	2033	2034	2025-2029	2025-2034
		Increases or Decreases (-) in Direct Spending
Sec. 90001, Increase in FERS Employee Contribution Requirements
Budget Authority		0	0	578	415	378	341	306	273	242	214	1,371	2,747
Estimated Outlays		0	0	578	415	378	341	306	273	242	214	1,371	2,747
	On-Budgeta	0	183	395	415	378	341	306	273	242	214	1,371	2,747
	Off-Budgetb	0	-183	183	0	0	0	0	0	0	0	0	0
Sec. 90002, Elimination of FERS Annuity Supplement
Budget Authority		-22	-229	-530	-781	-1,013	-1,219	-1,387	-1,521	-1,623	-1,709	-2,575	-10,034
Estimated Outlays		-22	-229	-530	-781	-1,013	-1,219	-1,387	-1,521	-1,623	-1,709	-2,575	-10,034
Sec. 90003, High-5 Average Pay for Calculating CSRS and FERS Pension
Budget Authority		0	0	-38	-122	-224	-329	-435	-541	-650	-761	-384	-3,100
Estimated Outlays		0	0	-38	-122	-224	-329	-435	-541	-650	-761	-384	-3,100
Sec. 90004, Election for At-Will Employment and Lower FERS Contributions for New Federal Civil Service Hires
Budget Authority		0	0	6	7	10	13	15	18	20	23	23	112
Estimated Outlays		0	0	6	7	10	13	15	18	20	23	23	112
	On-Budgeta	0	2	4	7	10	13	15	18	20	23	23	112
	Off‑Budgetb	0	-2	2	0	0	0	0	0	0	0	0	0
Sec. 90006, FEHB Protection
Budget Authority		0	113	-27	-94	-158	-224	-283	-275	-266	-258	-166	-1,472
Estimated Outlays		0	40	-12	-79	-143	-209	-270	-275	-266	-258	-194	-1,472
	On-Budgetc	0	41	-13	-79	-143	-209	-270	-275	-266	-258	-194	-1,472
	Off-Budgetd	0	-1	1	0	0	0	0	0	0	0	0	0
Total Changes
Budget Authority		-22	-116	-11	-575	-1,007	-1,418	-1,784	-2,046	-2,277	-2,491	-1,731	-11,747
Estimated Outlays		-22	-189	4	-560	-992	-1,403	-1,771	-2,046	-2,277	-2,491	-1,759	-11,747
	On-Budget	-22	-3	-182	-560	-992	-1403	-1771	-2046	-2277	-2491	-1,759	-11,747
	Off-Budget	0	-186	186	0	0	0	0	0	0	0	0	0
(Continued)

Table 2. Estimated Changes in Direct Spending and Revenues Under Reconciliation Recommendations Title IX, House Committee on Oversight and Government Reform, as Ordered Reported on April 30, 2025 (Continued)
	By Fiscal Year, Millions of Dollars
	2025	2026	2027	2028	2029	2030	2031	2032	2033	2034	2025-2029	2025-2034
	Increases in Revenues
Sec. 90001, Increase in FERS Employee Contribution Requirements
Estimated Revenues	0	1,768	4,052	4,525	4,404	4,270	4,123	3,967	3,805	3,634	14,749	34,548
Sec. 90004, Election for At-Will Employment and Lower FERS Contributions for New Federal Civil Service Hires
Estimated Revenues	9	71	177	286	397	509	624	740	859	981	940	4,653
Sec. 90005, Filing Fee for Merit Systems Protection Board Claims and Appeals
Estimated Revenues	*	*	*	*	1	*	*	*	*	2	1	3
Total Changes
Estimated Revenues	9	1,839	4,229	4,811	4,802	4,779	4,747	4,707	4,664	4,617	15,690	39,204
	Net Decrease in the Deficit From Changes in Direct Spending and Revenues
Effect on the Deficit	-31	-2,028	-4,225	-5,371	-5,794	-6,182	-6,518	-6,753	-6,941	-7,108	-17,449	-50,951
On-Budget Deficitta,c	-31	-1,842	-4,411	-5,371	-5,794	-6,182	-6,518	-6,753	-6,941	-7,108	-17,449	-50,951
Off-Budget Deficitb,d	0	-186	186	0	0	0	0	0	0	0	0	0
a. The on-budget effect arises from reduced contributions by the Postal Service for FERS employees’ retirement, resulting in smaller deposits of offsetting receipts into the Civil Service Retirement and Disability Fund. b. The off-budget effect arises from reduced contributions by the Postal Service for FERS employees’ retirement. Under current law, CBO expects that the Postal Service will exhaust both its borrowing authority and its reserve funds in 2027. As a result, CBO expects that the savings to the Postal Service Fund under the legislation would be fully offset beginning in that year. c. The on-budget effect arises from reductions in enrollment in the FEHB program of dependents of federal annuitants. d. The off-budget effect comes from reduced Postal Service contributions for postal employees’ health benefits. Under current law, CBO expects that the Postal Service will exhaust both its borrowing authority and its reserve funds in 2027. As a result, CBO expects that the savings to the Postal Service Fund under the legislation would be fully offset beginning in that year.

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