Lawrence: Welcome to The FED Weekly for 18-24 January 2026, 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.
Issues That Affect Current and Retired Federal Workers
The primary focus for the federal family this week has been the finalization
of the financial and legislative landscape for the 2026 calendar year.
Between executive orders and the passage of long-awaited spending
bills, the "new normal" for federal service is becoming much clearer.
Finalization of the 2026 Federal Pay Adjustment
During the week of 18 January 2026, the Office of Personnel Management,
or OPM, released detailed guidance regarding the 2026 pay adjustment.
Following a period of significant debate and previous proposals for a total pay
freeze, the President signed an Executive Order earlier this year authorizing a 1.0
percent across-the-board increase for statutory pay systems.
This increase, which took effect during the first full pay period
of the new year, applies to the General Schedule, the Foreign Service
schedule, and statutory schedules for the Veterans Health Administration.
A critical component of this yearâs pay strategy is the decision to freeze
locality pay percentages at 2025 levels.
This means that while the base salary for federal employees has risen
slightly, the geographic adjustments intended to offset the cost of living
in high-cost areas remain unchanged.
To understand the practical effect of this 1.0
percent increase, we can look at specific examples provided
by OPM for the "Rest of U.S."
locality area.
A General Schedule employee at grade 9, step 5, who earned a locality
rate of $69,259 in 2025, has seen that rate rise to $69,954 in 2026.
For those at grade 11, step 5, the previous locality rate of $83,795
has been adjusted to $84,638.
Finally, an employee at grade 12, step 2, has seen their 2026 locality
rate move from $91,575 to $92,491.
This 1.0
percent raise is the smallest annual adjustment since 2021.
Analysts have pointed out that this modest increase may struggle to keep pace
with rising costs, particularly given that Federal Employees Health Benefits
premiums are projected to increase by more than 12 percent in the coming year.
For those planning for retirement, this smaller raise also impacts the calculation
of the "high-three" average, which determines future pension annuities.
The House Passes H.R.
7148: The Consolidated Appropriations Act, 2026
On 22 January 2026, the House of Representatives passed H.R.
7148, the Consolidated Appropriations Act, 2026, with a bipartisan vote of 341 to 88.
This massive "minibus" package includes funding for Defense;
Labor, Health and Human Services, Education; and Transportation and
Housing and Urban Development.
Chairman Tom Cole stated that the bill replaces previous spending levels with
"disciplined, Republican-led funding that puts America First" and incorporates
reforms backed by the Department of Government Efficiency, or DOGE.
The bill contains several provisions that directly affect federal
benefits and healthcare access.
Notably, the legislation extends critical telehealth flexibilities for
two years, through 31 December 2027.
This ensures that Medicare beneficiaries, including federal retirees, can
continue to receive care in their homes and that rural health clinics
can provide services without the geographic restrictions that were
temporarily waived during the pandemic.
H.R.
7148 also targets the Pharmacy Benefit Manager, or PBM, industry.
The bill requires new transparency reporting and seeks to "delink" PBM
compensation from the negotiated rebates of Medicare prescription drugs.
For retirees on fixed incomes, these reforms are intended to reduce the
financial incentive for PBMs to favor higher-priced medications, potentially
lowering out-of-pocket costs.
Furthermore, the bill maintains the salary cap for the National Institutes
of Health at Executive Level II, or $228,000, and provides $47.2
billion for the agencyâs base budgetâa $415 million increase over 2025 levels.
The bill also includes several unique "America First" riders.
These include a prohibition on using federal funds for vehicle
"kill switch" technology and a ban on using funds for the annexation
or purchase of Greenland without explicit congressional authorization.
Additionally, the bill designates the "Melania Trump Foster Youth
to Independence Initiative" within the Department of Housing and
Urban Development to support foster youth transitioning to adulthood.
DHS Appropriations and Border Security
Simultaneously, on 22 January 2026, the House passed H.R.
7147, the Department of Homeland Security Appropriations Act,
2026, by a vote of 220 to 207.
This legislation is heavily focused on the administration's priority to secure
the border and empower federal agents.
The bill eliminates funding for the "shelter and services program,"
which previously provided grants to non-governmental organizations assisting
immigrants, and removes funding for the Office of Immigration Detention Ombudsman.
For the thousands of federal employees within Customs and Border Protection and
Immigration and Customs Enforcement, the bill provides the resources needed to
expand detention capacity and increase the rate of removals for criminal aliens.
Digital Accessibility Milestones
On 20 January 2026, federal agencies reached a compliance deadline under
Section 508 of the Rehabilitation Act.
Pursuant to OMB Memorandum M-24-08, agencies were required to report the
name and contact information of their agency-wide Section 508 program managers
to the Office of Management and Budget.
This is part of a broader push to ensure that the federal government's digital
environmentâincluding the software and portals used by employeesâis fully
accessible to people with disabilities.
Moving forward, agencies are preparing for a March 2026 deadline to place
digital accessibility statements on all websites and to establish
public feedback mechanisms for reporting accessibility barriers.
Issues That Affect Retired Federal Workers
While the major legislative victories of the week provide long-term optimism,
federal retirees are currently navigating several technical shifts regarding
taxes and pension administration.
2026 IRS Tax Withholding Updates
Retirees began seeing the practical effects of the 2026
tax year updates this week.
The IRS has finalized the 2026 versions of Form W-4P, for periodic pension
and annuity payments, and Form W-4R, for non-periodic distributions.
All retirement plan administrators, including the Office of Personnel
Management and the Thrift Savings Plan, were required to incorporate
these changes into their substitute forms by no later than 16 January 2026.
The 2026 Form W-4P includes updated deduction worksheets that account
for 2026 inflation adjustments.
For retirees who may be taking one-time distributions or rolling over funds, Form
W-4R provides updated marginal tax rate tables to ensure accurate withholding.
Safe Harbor and Rollover Explanations
On 15 January 2026, the Department of the Treasury and the IRS issued
Notice 2026-13, providing updated "safe harbor" explanations for
retirement plan participants.
These explanations are required to be provided to participants when they
receive eligible rollover distributions.
The update is significant because it reflects several major tax law
changes originating from the SECURE 2.0
Act.
Specifically, the notice addresses changes to the 10 percent additional
tax on early withdrawals, updated required minimum distribution rules for
surviving spouses, and the increased age for beginning required distributions.
Retirees should ensure that any distribution notices they receive
this week include these updated explanations to help them make
informed financial decisions.
The Importance of Retirement Timing
The week of 18 January 2026 also serves as a reminder of the impact of retirement
timing on cost-of-living adjustments.
For those who retired by 30 November 2024, the January 2026 annuity checks
were the first to reflect the full 2.5
percent cost-of-living adjustment.
However, those who retired on 31 December 2024 only received
11/12ths of that adjustment.
This technical nuance underscores the financial importance of choosing
a retirement date with a full awareness of how the first year
of benefits will be calculated.
For the average retiree, the 2.5
percent adjustment added approximately $50 to their monthly check, which
many retirees report is essential for offsetting the rise in healthcare costs.
A Legacy of Advocacy
The implementation of the Social Security Fairness Act is the result of what
advocacy groups like NARFE and Mass Retirees describe as a "41-year quest".
These organizations have been fighting to reverse the 1983 laws that created
the Windfall Elimination Provision and the Government Pension Offset.
As retirees receive their first major updates on retroactive
payments this week, the historical context of this victory highlights
the power of sustained grassroots effort in the federal community.
Issues That Affect Current Federal Workers
New Special Salary Rates for Law Enforcement
In a positive development for federal law enforcement, OPM announced
the approval of new special salary rates, effective 11 January 2026.
Throughout the week of 18 January 2026, agencies have been implementing
these new schedules, which provide a total pay increase of 3.8
percent over 2025 levelsâaligning federal civilian law enforcement with the 3.8
percent raise provided to the military.
The Department of Homeland Security coverage includes Aviation Enforcement
Agents, Criminal Investigators, Customs and Border Protection Officers, and
Border Patrol Agents, as well as Air and Marine Interdiction Agents.
Within the Department of Justice, the rates apply to Deputy U.S.
Marshals, Federal Enforcement Officers, Aviation Enforcement
Officers, and Detention Officers.
These special rates are considered basic pay for purposes such as retirement and
overtime, though they remain subject to a statutory cap of $197,200 for 2026.
TSP "Spillover" Method Implementation
The Thrift Savings Plan reached a major operational milestone this week with the
full implementation of the "spillover" method for catch-up contributions.
Under this new system, required by the SECURE 2.0
Act, participants aged 50 and older no longer need to make a separate
election for catch-up contributions.
Once an employee reaches the elective deferral limit of $23,500, their
regular contributions will automatically "spill over" into the catch-up limit.
For members of the Federal Employees Retirement System and the Blended
Retirement System, these spilling-over contributions will be matched by
the government up to the 5 percent of basic pay limit, ensuring that
employees do not miss out on matching funds even if they reach their primary
contribution limit early in the year.
Agency Layoffs and Workforce Reductions
The week of 18 January 2026 saw continued instability within
several federal agencies.
Reports indicated that the Department of Health and Human Services and
the Centers for Disease Control and Prevention are moving forward with
significant workforce reductions.
Earlier this year, approximately 1,700 workers at the CDC received
reduction-in-force notices.
While some of these were later rescinded due to "data discrepancies," roughly
1,000 employees remain impacted.
This follows the reported "gutting" of the HHS Office of Population Affairs,
where nearly all 50 employees were locked out of their accounts and
subjected to a reduction in force.
Federal unions have responded with legal challenges, seeking to expand court orders
that previously barred "illegal shutdown firings" to protect the non-partisan
civil service from targeted terminations.
Legal Challenges and Board Quorums
The federal labor landscape shifted this week as the Federal Labor
Relations Authority officially reached a quorum following the Senate
confirmation of Charles Arrington.
Arrington, a Trump nominee with extensive labor relations experience
at the VA and HHS, gives the authority a 2-1 Republican majority.
While this allows the FLRA to begin processing a massive backlog of appeals
and negotiability cases, the AFGE has expressed concerns that the new majority
may issue management-friendly rulings that could roll back existing union rights.
Simultaneously, the Merit Systems Protection Board continues
to face legal uncertainty.
On 20 January 2026, the Supreme Court issued an order allowing
the administration to continue with the removal of members of
certain independent agencies while legal proceedings are ongoing.
This order has raised significant questions about the long-term independence
of the MSPB and the survival of the merit system, which was originally
designed to prevent federal employment from becoming a patronage-based system.
Currently, the MSPB is operating with only two Republican members, as the
chairwoman confirmed under the previous administration was fired in early 2025.
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.