Posted on Wednesday, 13th March 2013 by

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The Sequester has many feds concerned about furloughs, possibly an extended pay freeze, and fewer resources to get the job done.  Retirement applications may also take longer to process if HR specialists are furloughed. The good news is that it isn’t happening overnight and Congress is working to reduce the impact when this kicks in. I recall being furloughed several times for a day or two throughout my career and each time my pay wasn’t docked. That could be different this time around.  Another point is that many agencies hold back filling positions throughout the year and use the money saved to purchase end-of-year equipment, supplies, and to pay other expenses. I wasn’t in headquarters or accounting however from my perspective and understanding as a manager this is how the agency paid for many things on their wish list. Especially considering that in most agencies, the lions share — often as high as 85% or more of their budget — is PC and B, payroll, compensation, and benefits.

Since most agencies hold back on staffing at the beginning of the fiscal year they may be able to weather the storm and hopefully there will be minimal impact within your agency.  Only time will tell. According to FactCheck.org, “The federal government will spend about $3.55 trillion this year, so $85 billion (in cuts) amounts to about 2.4 percent of all federal spending. But that’s misleading, because large parts of the federal budget are exempt from the sequester cuts — including such “mandatory” programs as Medicaid, Social Security, welfare and food stamps. The sequester cuts are split between defense and nondefense spending. They include cuts to discretionary defense spending (such as weapons purchases and base operations, but not military personnel) and to both discretionary and nondiscretionary domestic programs (everything from airport security to education aid to research grants). Cuts to those programs will be much deeper than 2.3 percent.”

Congress knows that they must address the entitlement and healthcare issues to fend off a budget crisis in the next few years and the sooner they get realistic about their options and alternatives the less impact we will all feel. The longer they hold off making meaningful tax and entitlement reforms the worse off we will all be.

Unlike many state governments the federal government has done its part to reduce employee retirement costs, one of the largest budget items on most lists, and the States should follow suit. They enacted FERS reforms in the 1980s substantially decreasing defined benefit plan payouts and converting to a mix of defined benefit and defined contribution plans utilizing the THRIFT Savings program.  They also recently increased FERS contributions for new employees.

Change is always disconcerting especially when you really don’t know what to expect.  The best defense is to be prepared as much as possible for the inevitable budget cutting coming to agencies and departments everywhere.  This applies to employees and retirees alike. Have a sufficient emergency fund set aside and contingency plans to handle a more austere life for awhile. Some agencies are considering furloughs of one day a week for 20 weeks, some longer.  Start economizing now, making sure your emergency fund is sufficient and that you have what you need to get through what may surly be coming your way. 

Employees planning on retiring soon should be prepared to live on less than their total estimated annuity since they may have to live with interium checks for extended periods.  Stock up on non perishable food supplies that are on sale and look for sales and ways to save wherever you can. It may not be easy but if you start now it will help to lesson your burden if the proposed cuts are eventually implemented. 

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Last 5 posts by Dennis Damp

Posted in ANNUITIES / ELIGIBILITY, BENEFITS / INSURANCE, FINANCE / TIP, RETIREMENT CONCERNS, SURVIVOR INFORMATION | Comments (0)


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