Lawrence: Welcome to The FED Weekly for 13 - 19 July 2025, your essential
weekly briefing on the policies and proposals shaping your career,
your benefits, and your retirement.
Whether youâre a current federal employee navigating changes in the civil service,
or a retiree keeping a close watch on your hard-earned pension and healthcare, this
is your source for the latest news from Capitol Hill and the executive branch.
Each week, we cut through the noise to bring you the critical updates on budget
negotiations, pay raises, workforce policies, and the legislative battles that
directly impact the federal community.
Let's get you up to speed on what happened this past week.
Section 1: Issues That Affect Current and Retired Federal Workers
This section addresses the overarching economic and healthcare developments
that will financially impact nearly every member of the federal
community, from those currently serving to those in retirement.
The 2026 Economic Outlook: A Looming Financial Squeeze
The financial forecast for 2026 presents a challenging picture for the federal
community, where anticipated benefit adjustments are on a collision course
with escalating healthcare costs.
Early projections for the annual Cost-of-Living Adjustment (COLA)
suggest only modest gains, which are likely to be significantly
eroded, if not entirely erased, by a substantial hike in Medicare premiums.
Based on the latest inflation data from June 2025, the 2026 COLA is
projected to fall within a range of 2.3%
to 2.7%.
The National Association of Letter Carriers (NALC), using the June Consumer
Price Index for Urban Wage Earners and Clerical Workers (CPI-W), projects a 2.3%
COLA for annuitants under the Civil Service Retirement System (CSRS).
However, this same data translates to a lower 2.0%
COLA for those under the Federal Employees Retirement System (FERS).
This discrepancy stems from the FERS "diet COLA" formula, which caps the adjustment.
If the official CPI-W increase is between 2% and 3%, FERS retirees
receive a flat 2% increase.
If the increase is 3% or more, they receive the full amount
minus one percentage point.
Independent analysts and organizations like The Senior Citizens League
(TSCL) are forecasting a slightly higher COLA, between 2.6%
and 2.7%,
citing persistent inflationary pressures, some of which are
attributed to newly imposed tariffs.
Compounding the issue of a modest COLA is a projected sharp
increase in healthcare expenses.
The 2025 Medicare Trustees annual report forecasts a significant 11.6%
increase in the standard Medicare Part B premium for 2026.
This would raise the monthly premium from $185.00
to $206.50,
an increase of $21.50
per month and the largest such jump since 2022.
For a large segment of the federal retiree population, this confluence of factors
makes a "net loss" year highly probable.
The mechanics are straightforward: a FERS retiree with a $2,000 monthly
annuity would see a 2% COLA add $40 to their gross monthly payment.
However, after subtracting the $21.50
Medicare Part B premium hike, the net gain shrinks to just $18.50.
If Federal Employees Health Benefits (FEHB) program premiums
also rise significantly, as they did in 2025 with an average 13.5%
increase for non-postal workers, this small gain could be completely
nullified, resulting in a decrease in real-dollar disposable income.
This creates a significant financial planning challenge that goes far
beyond the headline COLA number.
Some relief may come from the newly signed "One Big Beautiful Bill Act" (OBBBA),
which introduces a tax credit for seniors.
The law provides a $6,000 credit for single filers with incomes below
$75,000 and a $12,000 credit for couples with incomes below $150,000.
While this could provide a meaningful offset for many middle-income retirees,
it is important to note that an estimated half of all seniors do not
have a federal tax liability on their Social Security benefits, meaning
many of the lowest-income annuitants will not benefit from this provision.
The Federal Employees Health Benefits (FEHB) Program: Navigating
Costs and Changes in 2026
The FEHB program, a cornerstone of federal benefits, is facing a period
of transformation and tension.
The Office of Personnel Management (OPM) is pushing for benefit enhancements
and a more user-friendly experience, even as the program confronts the
dual threats of rising premiums and potential structural changes.
In its annual "call letter" to insurance carriers, a document outlining policy
goals for the 2026 plan year, OPM stressed several key initiatives.
It is important to note that this letter was issued under the
previous administration, and its policies are subject to change.
The letter directs carriers to streamline plan administration by implementing online
claims submission portals by the end of 2026 and improving the accuracy and
usability of online provider directories.
On the benefits side, OPM is mandating coverage for fertility
preservation for individuals at risk of iatrogenic infertility (e.g.,
from chemotherapy) and is strongly encouraging carriers to expand
their mental health provider networks to reduce appointment wait
times and improve access to care.
While these benefit enhancements are welcome, the premium outlook
remains a significant concern.
In a sign of broad pressure on the health insurance market, insurers
participating in the Affordable Care Act (ACA) Marketplace are requesting
a median premium increase of 15% for 2026, the largest hike since 2018.
While not a direct corollary, this trend signals an environment
of rapidly growing healthcare costs that will almost certainly
impact FEHB premium negotiations.
This follows the substantial average premium increase of 13.5%
for non-postal FEHB enrollees in 2025, an increase driven largely by major carriers.
The program is at a crossroads.
OPM is pursuing a vision for a more comprehensive and modern FEHB program,
with a focus on high-demand services.
At the same time, the financial underpinnings of the program are
facing significant pressure from market-driven premium inflation.
This is exacerbated by an undercurrent of political discussion around proposals to
fundamentally alter FEHB, such as shifting to a voucher-based system or reducing
the government's premium contribution from its current level of 72% to 75%.
This creates a fundamental tension that may force employees and retirees into
a difficult trade-off between plans with better services and plans they
can afford, potentially undermining the program's core value proposition.
Thrift Savings Plan (TSP) Updates for All Participants
The Thrift Savings Plan (TSP) announced several administrative and structural
changes relevant to all participants.
As of June 30, 2025, the L 2025 Fund, having reached its target date,
was rolled into the L Income Fund.
Concurrently, a new L 2075 Fund was established to cater to participants
with a longer investment horizon, such as those born after 2009 or planning
to withdraw funds in 2073 or later.
Participants should also note that their second quarter 2025 statements,
covering account activity from April 1 through June 30, will be made available
online in My Account by the end of July.
In a broader move toward modernization, the TSP began delivering annual
statements electronically by default in 2025 for all participants who have an
email address on file with the agency.
Section 2: Issues That Affect Current Federal Workers
This section details the profound and rapid changes to job security,
employment rights, compensation, and the very nature of the civil
service that unfolded this week.
The Unraveling of Civil Service Protections: A Multi-Front Assault
The long-standing framework of merit-based civil service protections,
designed to ensure a professional and non-partisan government
workforce, faced an unprecedented and coordinated challenge this week from
all three branches of government.
The most immediate blow came from the judiciary.
On July 8, 2025, the Supreme Court struck down a lower court injunction
that had barred the administration from conducting mass layoffs, known
as Reductions in Force (RIFs).
This ruling was widely seen as a "major reversal" of the conventional
wisdom that federal workers enjoy significant job protections.
It effectively gives the executive branch a powerful tool to reshape
the workforce and allows dozens of previously stalled RIF actions
to proceed across the government.
Just nine days later, on July 17, the executive branch advanced
a radical new legal theory.
Justice Department attorneys formally argued before an administrative judge at
the Merit Systems Protection Board (MSPB) that the Constitution grants the President
the authority to fire many career federal employees "at any time for any reason".
This "at-will" employment argument seeks to dismantle decades of precedent and
federal law, most notably the Civil Service Reform Act of 1978, which requires
that agencies provide cause, notice, and an opportunity for employees to respond
before a termination can take place.
On the same day, the President signed an Executive Order creating
a new category of federal employee, "Schedule G," in the excepted service.
This new schedule is designed for noncareer positions of a "policy-making
or policy-advocating character" that are normally subject to change
with a presidential transition.
Critically, the order specifies that removals from Schedule G positions are
not subject to standard Civil Service Rules and Regulations, effectively making
them at-will appointments who serve at the pleasure of the administration.
These events do not appear to be random or disconnected.
Rather, they represent a systematic effort to increase executive control
over the federal bureaucracy and weaken the merit-based system.
The legal argument for at-will employment establishes the ideological foundation.
The Supreme Court's ruling on RIFs provides the legal tool for large-scale
removals of existing career staff.
Finally, the creation of Schedule G provides the mechanism for
backfilling influential positions with political appointees who lack
traditional civil service protections.
The combined effect is a "pincer movement" that fundamentally alters the relationship
between political leadership and the career workforce, creating a more pliable
and politicized government apparatus.
Workforce Reductions in Action: RIFs and Buyouts Accelerate
With legal barriers removed, several agencies moved swiftly to implement
previously announced workforce reductions.
Immediately following the Supreme Court's decision, the Department
of Education was cleared to proceed with the termination of approximately
1,300 employees, which constitutes roughly one-third of its workforce.
These employees had been on paid administrative leave since the
RIF was first announced in March.
The Department of State began issuing termination notices to over 1,300 civil
and foreign service employees on July 11.
The Internal Revenue Service (IRS) has reportedly fired between 6,000 and
7,000 probationary employees, including 120 from the critical Large Business
and International division that audits high-asset individuals and corporations.
The IRS is reportedly aiming to cut its overall headcount by 20%
to 50% through a combination of layoffs, attrition, and buyouts.
Other agencies, including the Environmental Protection Agency
(EPA) and the Department of Veterans Affairs (VA), are also proceeding
with significant staff cuts.
In parallel with these involuntary actions, agencies have been
aggressively using "voluntary" measures to reduce headcount.
Widespread offers of Voluntary Early Retirement Authority (VERA)
and Voluntary Separation Incentive Payments (VSIP) are being used
to encourage employees to leave.
The Social Security Administration (SSA), for example, offered VERA
and VSIP to all its employees, with financial incentives of up to $25,000,
though the window to accept was tight, closing on April 19, 2025.
Similarly, the Department of the Interior (DOI) offered VERA/VSIP packages with a
maximum payout of $25,000, although many positions were excluded from the offer.
The Future of Federal Pay and the Work Environment
The climate of uncertainty extends to federal compensation and the work
environment, with new legislative proposals threatening to alter
pay structures and benefits.
The debate over the 2026 federal pay raise is already taking shape.
The administration's Office of Management and Budget (OMB) has advised agencies
to plan for a 3% average pay raise.
This stands in contrast to the 4.3%
average raiseâcomposed of a 3.3%
across-the-board increase and a 1% average boost to locality payâproposed in the
Federal Adjustment of Income Rates (FAIR) Act, a bill introduced
by Democrats in Congress.
Proponents of the higher raise point to Federal Salary Council
data from 2024 showing that federal employees earned 24.72%
less on average than their private-sector counterparts.
Meanwhile, several bills introduced in Congress could have a direct
and negative impact on federal pay.
H.R.
201, the Federal Employee Performance and Accountability Act of 2025,
proposes a five-year pilot program for employees at the GS-11 level and above.
Under this program, pay would be tied directly to performance: those exceeding
metrics could receive up to a 10% raise, but those merely meeting metrics would
get no raise, and those rated below expectations would face a 10% pay cut.
Participants would be ineligible for standard annual and
locality pay adjustments.
Another bill, S.
27, the Federal Employee Return to Work Act, would strip locality pay from
any federal employee who teleworks at least one day per week, reverting their
salary to the much lower "Rest of U.S."
pay scale.
Additionally, the newly passed OBBBA permanently eliminates the tax-free
status of employer reimbursements for bicycle commuting and moving
expenses, effectively turning these benefits into taxable income.
Evidence of growing financial stress among the workforce is
already apparent in official data.
The Federal Retirement Thrift Investment Board's 2024 annual report revealed
a concerning increase in both TSP plan loans and hardship withdrawals.
Loan usage rose to 8.6%
of participants, while hardship withdrawals reached
a five-year high of 3.9%.
This trend was particularly acute among mid-career and lower-paid
workers, with the second-lowest salary quintile reporting a
hardship withdrawal rate of 8.47%.
This combination of aggressive workforce reductions, attacks on pay
and protections, and a hostile work environment is creating the conditions
for a significant "brain drain" and loss of institutional knowledge.
Experienced employees who are eligible are taking VERA and VSIP
offers to escape the uncertainty.
Mid-career employees, who are the backbone of agency operations, are facing extreme
financial pressure and the threat of pay cuts, making them more likely to seek
stable employment in the private sector.
The risk of this talent exodus is not merely theoretical; the administration
has already had to rehire some "critical" employees it had previously laid off,
demonstrating a lack of strategic foresight in the reduction process.
This exodus will inevitably degrade agency performance, delay critical public
services, and weaken national security and public health functions as expertise
built over decades walks out the door.
Section 3: Issues That Affect Retired Federal Workers
This section distills the most critical financial and healthcare
news for federal annuitants, providing a clear-eyed view of the challenges
and opportunities on the horizon.
Your 2026 Bottom Line: The COLA vs.
Healthcare Cost Collision
For federal retirees, the financial outlook for 2026 is dominated by
the collision between a modest COLA and sharply rising healthcare costs.
As detailed previously, the projected 2026 COLA of approximately 2.3%
to 2.7%
is on a direct path to be consumed by a projected 11.6%
increase in Medicare Part B premiums.
The practical impact of this collision will not be felt equally.
Because FERS retirees will likely receive a COLA capped at 2.0%,
the $21.50
monthly Medicare hike will consume a much larger portion of their adjustment
compared to their CSRS counterparts, who will receive the full, uncapped COLA.
This dynamic widens the already existing gap in retirement
outcomes between the two systems.
The FERS "diet COLA" mechanism, designed in a different economic era,
is proving inadequate in the current volatile inflationary environment.
It provides less inflation protection precisely when it is needed most, leading
to a faster erosion of purchasing power for FERS annuitants and testing the
long-term financial viability of the system to provide a secure retirement.
It is therefore imperative that all retirees plan their 2026 budgets
based on their anticipated net income after these mandatory deductions,
not on the headline COLA figure.
Navigating Your Health Benefits in Retirement
Maintaining health coverage is a primary concern for annuitants, and navigating
the FEHB program requires diligence.
A critical and non-negotiable requirement is the "5-Year Rule," which stipulates
that an individual must have been continuously enrolled in an FEHB plan
for the five years immediately preceding their retirement date to be eligible
to carry that coverage into retirement.
Furthermore, the annual Open Season will be a more critical
decision point than ever.
With OPM pushing for changes in coverage for mental health, fertility, and
obesity care, and with the likelihood of another round of significant
premium increases, retirees must carefully reassess their plans.
A plan that was suitable one year may become financially untenable
or medically inadequate the next.
New retirees must also remember that FEHB premiums, which are paid
with pre-tax dollars during active employment, are paid with after-tax
dollars in retirement, increasing the effective cost of the insurance.
New Financial Relief for Annuitants: The OBBBA Senior Tax Credit
The "One Big Beautiful Bill Act" offers a new form of financial relief that could
benefit many middle-income retirees.
The law establishes a tax credit of $6,000 for single filers and $12,000
for couples, provided their incomes are below $75,000 and $150,000, respectively.
This credit could help offset some of the rising healthcare costs for annuitants
who have a federal tax liability.
However, it is important to recognize its limitations: the credit will not
benefit the lowest-income retirees who already have no federal income tax burden.
Annuitants should consult with a qualified tax professional to
understand how this new credit applies to their specific financial situation.
The complexity and volatility of the current environmentâwith interacting
variables like COLA calculations, Medicare premiums, FEHB plan changes,
and new tax lawsâmean that retirees can no longer afford to be passive
recipients of their benefits.
A high degree of financial literacy and proactivity has become essential.
Annuitants must understand the nuances of their specific COLA, track how
rising premiums will affect their net income, and investigate their
eligibility for new tax provisions.
This transforms retirement planning from a one-time event into an ongoing process
of active financial management, making advocacy and informational organizations
more critical resources than ever.
And thatâs a wrap on this weekâs Federal Workforce Roundup.
The landscape for federal employees and retirees is constantly shifting,
with major decisions being made about everything from pay and job security
to retirement benefits and the very structure of the civil service.
Staying informed is your best tool.
Be sure to subscribe wherever you get your podcasts, so you never miss an update.
Thanks for tuning in.
Weâll be back next week to track the latest developments
and what they mean for you.
Until then, stay engaged and be well.