Lawrence: Welcome to The FED Weekly for 17 - 23 August 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
The Looming 2026 Pay Freeze and Eroding Compensation
The financial outlook for federal employees has become starkly
clear this week, as all signs now point to a pay freeze for 2026.
President Trump has until August 31 to issue an alternative pay plan, a
formal step required to prevent large, automatic locality pay increases
mandated under the 1990 Federal Employees Pay Comparability Act.
While this is an annual procedural deadline, this year it serves as
the final confirmation of a policy that has been signaled for months.
The administrationâs intentions were first revealed in April through
Office of Management and Budget "passback" documents, which instructed
agencies to plan for a pay freeze.
This was later formalized in the President's budget
proposal for Fiscal Year 2026.
With congressional appropriators declining to include a pay raise in their funding
bills, the Presidentâs forthcoming alternative pay plan is expected
to be the final word on the matter.
This stands in sharp contrast to proposals from federal employee advocates.
The Federal Adjustment of Income Rates, or FAIR Act, had called for an average 4.3%
raise, while the Federal Salary Council, a body that advises the
White House on pay, recommended a 3.3%
increase based on economic data.
For context, the pay raise for 2025 was a 2.0%
average increase.
However, viewing the pay freeze as an isolated event misses the larger picture.
It is the primary component of a financial perfect storm bearing down
on the entire federal community.
A current employeeâs gross income is now set to stagnate.
At the same time, their single largest benefit costâhealth
insuranceâis about to increase dramatically, as we will discuss next.
The combination of frozen income and sharply rising mandatory costs results in
a guaranteed reduction in take-home pay.
This is not merely a freeze; for many, it will feel like a functional pay cut.
The situation is parallel for retirees.
The modest cost-of-living adjustment projected for next year will be largely,
if not entirely, consumed by the same health premium hike and other rising
costs, such as for Medicare Part B.
These concurrent policy decisions on pay and benefits are creating a
multi-pronged financial squeeze that will undoubtedly impact morale, recruitment,
and retention across the government.
A Major Overhaul of Federal Health Benefits
This week also brought two shocking developments for the Federal Employees
Health Benefits, or FEHB, program: a politically charged reduction in coverage
and a historically large premium increase.
On August 20, 2025, the Office of Personnel Management formally
notified insurance carriers that coverage for gender-affirming care
will be eliminated from all FEHB plans starting in plan year 2026.
The directive states that "chemical and surgical modification of an individualâs
sex traits through medical interventions" will no longer be a covered benefit.
This policy change is a direct result of two executive orders issued by
President Trump: âDefending Women from Gender Ideology Extremism and
Restoring Biological Truth to the Federal Governmentâ and âProtecting Children
from Chemical and Surgical Mutilationâ.
While the ban is sweeping, OPM has outlined several key exceptions.
Coverage will remain for mental health counseling for individuals
with gender dysphoria, for patients who are already undergoing a
course of surgical or hormonal treatment, and for hormone therapies
prescribed for non-gender-related medical conditions, such as cancer.
The advocacy group Lambda Legal immediately condemned the move as illegal,
arguing it violates Title VII of the Civil Rights Act and the Affordable
Care Act, and announced it is exploring legal action to challenge the policy.
This development creates an environment of extreme uncertainty.
Earlier this year, OPM had issued guidance that eliminated this care
for minors but explicitly preserved the option for insurance carriers
to continue offering it to adults.
This weekâs announcement is a complete reversal, removing all
carrier discretion and banning coverage for enrollees of any age.
This kind of rapid, ideologically driven reversal of benefits policy creates
chaos for both consumers and providers.
It signals that benefits once considered stable can be eliminated with little
warning, undermining the perceived value of the federal benefits package.
This reduction in coverage comes just as federal employees and retirees
are being asked to pay significantly more for their health insurance.
OPM has confirmed that FEHB premiums will rise by an average of 13.5%
for the 2025 plan year, the largest such increase in nearly two decades.
This sharp hike follows substantial increases of 7.7%
in 2024 and 8.7%
in 2023.
OPM attributes the increase to several market-wide factors, including price
increases by healthcare providers, higher utilization of expensive
specialty prescription drugs, and increased spending on outpatient
services and behavioral health care.
A significant new cost driver is the mandated coverage of GLP-1 anti-obesity
drugs like Ozempic and Wegovy.
While the government's share of the premium will also rise, by 10.01%,
employees and retirees will be left to cover the remainder
of this steep increase.
Tax Changes from the "One, Big, Beautiful Bill Act"
Amid these financial pressures, some modest relief is coming
in the form of tax changes.
Public Law 119-21, the "One, Big, Beautiful Bill Act," which was signed
into law on July 4, 2025, introduced several new tax deductions that will
take effect for the 2025 tax year.
For current federal workers, the law creates a new deduction for qualified
overtime compensation, allowing them to deduct up to $12,500 of pay
that exceeds their regular rate.
It also provides a deduction of up to $25,000 for qualified tips
reported on a W-2 or 1099 form.
For retirees, the law introduces a new, additional deduction of $6,000
for individuals aged 65 and older.
This is a significant benefit, as it can be claimed on top of the existing
additional standard deduction for seniors.
It is important to note, however, that these are deductions that reduce taxable
income, not dollar-for-dollar tax credits.
While helpful, their actual value will not be enough to fully offset
the impacts of a pay freeze or a double-digit health premium increase.
OPM Cancels the 2025 Federal Employee Viewpoint Survey
In a move that has drawn sharp criticism from good government groups, the Office
of Personnel Management officially announced on August 20, 2025, that
it is canceling the Federal Employee Viewpoint Survey, or FEVS, for 2025.
The survey, which is considered the flagship measure of job satisfaction
and morale across the federal workforce, is expected to return
in 2026 with retooled questions.
In a statement, OPM Director Scott Kupor explained that the
agency is "revising FEVS to remove questions added by the Biden-Harris
administration and to refocus on core administration priorities: to restore
a high-performance, high-efficiency, and merit-based civil service".
The move is seen as part of an effort to "recalibrate" the survey to align
with the administration's objectives, particularly by removing questions related
to Diversity, Equity, and Inclusion.
This decision is highly controversial because federal law requires agencies
to conduct an annual employee survey.
The FEVS is the primary instrument used to fulfill this mandate, providing
critical data to agency leaders, Congress, and watchdog groups.
The timing of the cancellation is particularly notable.
The administration is currently implementing a series of sweeping and
disruptive workforce policies, including the pay freeze, benefit cuts, and a
government-wide push to reduce staff.
The FEVS is the only standardized mechanism for measuring the impact of
these policies on the federal workforce.
By canceling the survey at this critical juncture, the administration effectively
prevents the collection of data during the most intense period of its
"realignment of the federal workforce".
Critics argue this is a strategic move to create an information vacuum, allowing the
administration to control the narrative about its policies' effects without
being contradicted by its own data.
Section 2: Issues That Affect Current Federal Workers
The IRS Reversal: From Mass Layoffs to Emergency Rehiring
The biggest workforce story of the week is a dramatic reversal
at the Internal Revenue Service.
The agency announced on August 22, 2025, that it is canceling all
planned layoffs and is now actively working to rehire staff to fill what
it calls "mission-critical" gaps.
This stunning turnaround comes after the agency shed approximately
a quarter of its workforceâover 26,000 employeesâsince the start of
the year through buyouts, firings, and voluntary separation programs.
The reversal appears to be a direct response to warnings from the National
Taxpayer Advocate and others that the deep staffing cuts could jeopardize
the upcoming 2026 tax filing season.
The agency is now using every tool at its disposal to plug the holes, including
internal reassignments and rescinding deferred resignation offers made to
employees who had agreed to leave.
Already, about 50 employees in the now-shuttered Taxpayer Experience
Office who had received layoff notices have been told their jobs are
safe, and they are being reassigned to other roles within the agency.
This situation is a case study in the consequences of non-strategic, politically
motivated workforce reductions.
The administration's "Department of Government Efficiency," or DOGE,
initiative drove a top-down mandate to slash staff across the federal government,
with the IRS being a prime target.
However, it appears the operational reality on the ground has collided
with these ideological directives.
Agency leaders have now been forced to acknowledge that the cuts went too far,
too fast, creating critical knowledge and capacity gaps that threaten the IRS's
ability to perform its most fundamental mission: collecting the nation's taxes.
This emergency course correction at the IRS may serve as a cautionary
tale for other agencies facing similar reduction mandates.
Probationary Periods Strengthened, Legal Challenges Falter
The administrationâs power to more easily remove new employees was solidified
this week through actions by both OPM and the Merit Systems Protection Board.
On August 18, 2025, OPM issued expanded guidance on the
executive order strengthening probationary periods for new hires.
The guidance reinforces the policy that these periods are to be used as an
"extension of the hiring process," during which the employee bears the burden
of demonstrating that their continued employment is in the public interest.
Just days later, on August 21, a key legal challenge to this policy faltered.
An MSPB hearing officer ruled that the board lacks jurisdiction to
hear appeals from fired probationary employees who argue their terminations
were "constructive" reductions in force, or RIFs, that should have
followed stricter RIF procedures.
Together, the OPM guidance and the MSPB ruling give agencies a clearer
framework for termination while closing a potential avenue for legal appeal,
leaving terminated probationary employees with fewer options for recourse.
The Future Workforce: AI, Design, and Legislative Battles
Finally, this week provided a glimpse into the administration's vision for the
future federal workforceâone that relies more on technology and is governed by
fundamentally different employment rules.
On August 19, the Federal Chief Information Officer stated that the
administration is "100%" looking to Artificial Intelligence to
mitigate the impact of staffing losses across government.
This push for technological solutions was coupled with the launch of a new "America
by Design" initiative, established by an executive order on August 21.
The initiative aims to improve the design and usability of government
websites and services and includes a new recruiting push for top design
talent from the private sector.
This move follows a pattern of dismantling existing government innovation
hubs, like GSA's 18F and the U.S.
Digital Service, and then launching a new, similarly-focused initiative under
the administration's own branding.
This allows the administration to claim credit for modernizing government while
simultaneously purging institutions associated with previous administrations.
Meanwhile, several pieces of legislation that would fundamentally alter the federal
workplace remain pending in Congress.
These include:
H.R.
201, the Federal Employee Performance and Accountability Act, which would create a
pilot program for performance-based pay that could result in a 10% pay cut for
employees rated "below expectations".
H.R.
236, the Federal Employee Return to Work Act, which would make federal
employees who telework ineligible for annual or locality pay raises.
And S.
1006, the Federal Workforce Freedom Act, which aims to prohibit federal employees
from participating in labor unions for the purpose of collective bargaining.
Section 3: Issues That Affect Retired Federal Workers
2026 Cost-of-Living Adjustment Projections
The latest projections for the 2026 Cost-of-Living Adjustment, or COLA, for
Social Security and federal retirement annuities are now converging around 2.7%.
This forecast, from groups like the Senior Citizens League, is based
on inflation data through July.
The final, official figure will be determined by third-quarter inflation
data and announced by the Social Security Administration in October.
This modest COLA will have different impacts on federal retirees
depending on their retirement system.
Annuitants under the older Civil Service Retirement System, or CSRS,
are set to receive the full adjustment.
However, retirees under the Federal Employees Retirement System, or FERS,
will receive a reduced, or "diet," COLA.
The FERS formula stipulates that when the official COLA is between 2% and 3%, FERS
annuitants receive a flat 2% increase.
This means a FERS retiree will see their annuity grow by only 2%, falling
behind both the projected rate of inflation and their CSRS counterparts.
This is a critical point of financial divergence between the two retirement
systems that becomes more pronounced in years with moderate inflation.
Financial Planning Advice for Senior Annuitants
In a piece of practical advice for older annuitants, federal benefits
expert Tammy Flanagan highlighted a potentially costly oversight in
an article published on August 21.
The advice is simple but crucial: federal retirees over the age of 70
should double-check to ensure they have filed for Social Security benefits.
Flanagan warns that some retirees may be "leaving thousands on the table" by
forgetting to claim benefits to which they or their spouse are entitled.
This can happen when retirees are focused on managing their federal annuity and
Thrift Savings Plan, sometimes overlooking separate Social Security entitlements.
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.