Delivered on: Tuesday, December 17, 2024

To Watch on YouTube, CLICK HERE

Changes Coming to Your Federal Benefits in 2025

What’s changing, what’s not, and what it means for your take-home pay in the new year.

• EXPECTATIONS: What we know for sure is changing (and what stays the same)
• UNCERTAINTY: What lurks ahead for federal workers with the new administration
• BOTTOM LINE: How your take-home pay will be affected in 2025

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Prefer to read instead? A transcript of this webinar is below:

Welcome to today’s FedImpact webinar where we are talking about all of the changes that are coming to your federal benefits in 2025. Just when we think we have it all down, here we have some changes that we have to incorporate.

Today’s session is going to be all about what’s changing, what’s not, and what it means for your take home pay in the new year, because let’s face it, that’s what you care about. You’re not really concerned about the dollars, you’re worried about how the dollars that you’re spending end up affecting the money that’s coming into your bank account that you can spend. We’re going to stay nice and focused on that and that will feel a little different for everyone, but we’ll be able to see what all these numbers look like.

You guys know me. I’m your presenter, Chris Kowalik. I am the Founder of ProFeds. I’m the developer of the FedImpact Retirement Workshop and the host of the FedImpact podcast. I always, always, always love being able to do these sessions and be able to get real straightforward information out to federal employees because the government doesn’t always make it all that simple if I’m being honest, and I love that I’m able to be here with you today.

Agenda

We’ve got a lot to cover. For our agenda, we’re going to be talking about some expectations, what we know for sure is changing, and the opposite, which is what’s staying the same. There are plenty of benefits that aren’t being affected at all, but most of them are in some way, shape, or form. We’ll also talk a little bit about the uncertainty, and this is going to be a little later in the session where we look at what lurks ahead for federal workers with the new administration.

And then of course you all are concerned about the bottom line, what happens to your take home pay? And again, this will feel different for everyone because all of you are at different pay levels, you have different insurance programs, you’re in different stages of your life, but I want you to at least have the figures that you’re able to start to piece together what your bottom line is going to look like.

What this webinar will NOT cover

In this webinar, there’s a lot that we are going to cover, but there is a lot we are not going to cover. As I go through each one of the sections of the benefits where there is a modification, I’m going to give just a highlight overview of what the program is that we’re talking about, especially for those of you who may be not as familiar with all of these benefits. But then I’ll get into the changes that happen, but I’m not going to be able to go into all of the intricate details about how all of these benefits work.

Gosh, we’d be here till next week if I tried to get through all of that. This will feel like a little bit of the wave talk, but I’m going to try to give context for everybody so that at least what I’m talking about.

Changes Coming to Your Federal Benefits in 2025

Annual Pay Raises

We’re going to start with the annual pay raise. This is always top of mind for federal employees and of course the pay raise increase for January, 2025 is not official just yet. It is kind of ironic that some lawmakers are pushing for a higher pay raise for feds when we know next year we have an incoming administration that perhaps is not looking for the federal workforce to be quite so large. And so, I guess we’ll see who ends up winning that battle. But as it stands right now, we’ll be able to show you what those pay raises are.

Pay Raises (with Locality) for Current Employees

There was some talk about some new locality pay areas being created for 2025. That is not happening, so all of the standard locality pay areas that stood for 2024 will carry into 2025. When we think about the pay raises, we’re going to take a look at what pay raises with locality pay looks like for current employees. For 2024, the increase was 5.2%. From 2023 into 2024, we were looking at 5.2%. At that time, the 10 year average for pay raises was 2.39%. It just gives some perspective.

This was a rather large pay raise that happened last year. For 2025, we are looking right now at a 2% pay raise. This is the across the board pay raise, and then locality pay. And we know that this isn’t a perfect 2%. For those of you who are in locality pay areas, that gets divvied out a little bit different amongst locality pays. We’re looking at a 1.7% across the board and then a 0.3% locality pay increase. Overall, looking at that 10 year average, we’re looking at 2.49%.

Cost of Living Adjustments

Next up are cost of living adjustments. COLA’s are only paid to retirees. They’re not paid to employees. Please do not confuse this with locality pay that is paid to employees while you’re still working. COLA’s are only paid to retirees. This number, this percentage is determined by the Consumer Price Index or the CPI-W, and that number is directly tied to inflation.

I want to share this with you, not to get too far into the weeds of COLA’s, but I oftentimes hear federal employees or retirees really excited when there’s a high COLA, but if we understood why the COLA is happening, why the change to the pension is happening, it’s because there was high inflation.

Everything around you got more expensive. This is just the government’s way of allowing your pension to keep up or at least keep pace, maybe not full pace with the inflation rate, but it’s super important that we realize that COLAs never get you ahead.

We should not be excited about high cost of living adjustments even in retirement when you’re receiving them because of what it means has just happened, which is a high period of inflation.

Cost of Living Adjustments for CSRS Retirees

Let’s take a look at what things look like for CSRS retirees. In 2024, the COLA for all of those retirees was 3.2%, and at that time that 10 year average was 2.75%. Again, I’m going to give this 10 year average on a lot of these figures just to give a little bit of perspective on these numbers.

In 2025, we’re looking at a 2.5% increase. Inflation was not as strong in 2024. When that COLA is set in October of 2024 for 2025, we’re looking at that 2.5%. And again, 10 year average, if we’re looking over the past 10 years, we’re looking at 2.83%, again only for our CSRS retirees.

Cost of Living Adjustments for FERS Retirees

For FERS retirees, things look different. You don’t get the full COLA, you get the diet COLA. I’m not going to go into the details of how it’s calculated, but for 2024, we were looking at a 2.2% increase for those first retirees, which put us at a 2.37% 10 year average. And in 2025, we’re looking at a 2% increase or a 2.4% 10 year average. Again, CSRS and FERS retirees get a different level of COLA. And again, I’m not going to go into the details of how it’s all calculated, but at least the end numbers.

Basic Employee Death Benefit

Next step is a benefit you probably don’t hear much about. Perhaps you have never heard about this benefit. It’s called the basic employee death benefit. This is only available for FERS employees and it essentially says if a FERS employee dies while they’re still working, their spouse will receive a one-time lump sum death benefit. And this is separate from FEGLI, it’s separate from the TSP, all those other benefits. This is a very unique number.

FERS Basic Employee Death Benefit (Lump-Sum)

And this number that I’m about ready to show you, changes each year with inflation. It is based on CPI-W. In 2024, if we had a FERS employee die while they were still working, their family, their spouse would received a death benefit of $41,568, and the reason this is an odd number is because it is adjusted by that CPI-W or the inflation number, and so it’s always going to be kind a weird looking number. For 2025, that number has gone up to $42,607.

I want to reiterate, this is only for FERS employees and it is only for people who die while they’re still employed. Honestly, I hope that you and your family never see this money because it means that you made it to retirement, but just in the off chance that that happens to you, this money is made available.

Children’s Survivor Benefits

Next up are the children’s survivor benefits. This is for CSRS and FERS. This has nothing to do with Social Security survivor benefits or anything like that. This is for CSRS and FERS.

Here’s the deal. This is a very bizarre benefit and for those of you who have not heard of this, pay very close attention because it can get a little confusing. This benefit is payable when an unmarried dependent child who is under the age of 18, or 22 if they’re a full-time student, this is the amount that they will receive if their federal parent dies.

And this is true whether the federal parent was a CSRS or a FERS employee, and whether that parent was working or were already retired. This is a pretty wide group of people, although most of the time, by the time someone gets to a point that they have retired, they likely do not have eligible children. There are some exceptions if we have disabled children incapable of self-support.

Again, I’m not going to go into the details of that today, but I do want to make a special note that this benefit, this children’s survivor benefit is very, very different than the spousal survivor benefit. I don’t want there to be any confusion whatsoever.

Children’s Survivor Benefits (Monthly)

This benefit really has nothing to do with your federal pension like the spousal survivor benefit does. You’re going to see this is a set dollar amount. Let’s see what that is. In 2024, if a federal parent was to pass, the eligible child would receive $658 per month, for a maximum of $1,975 a month. If we had three children, so three or more children are going to split $1,975. It does cap out at that three children mark. In 2025, that number has gone up to $674 per child for a maximum of $2,024.

Again, this has nothing to do with federal pension, although we’re calling it CSRS and FERS, it means that it’s under OPM. It’s not based on some other benefit like Social Security. It is important to know, although I’m not putting all these details on the slide, I feel compelled to let you know that this benefit would be offset dollar for dollar for any amount of Social Security benefit that your child is receiving from your record.

It’s important to realize that although this number looks good, most children will actually not receive this benefit because the benefit coming from Social Security is so much better.

Special Retirement Supplement

Next up is the special retirement supplement. This is a benefit that is paid to most FERS retirees who retire prior to the age of 62. I say most because there are instances where that will not be payable, at least not for the entire duration from the time someone retires all the way to 62. Again, not going to go into those details, but generally, FERS retirees prior to the age of 62 who are retired will receive this benefit.

The thing I want to point out here is if a recipient has a job earning “too much money,” this benefit of the special retirement supplement can be reduced or eliminated. This process is known as the earnings test. It essentially will begin to take away some of your supplement.

Special Retirement Supplement Earnings Test (Annual)

In 2024, you were allowed to earn from a job $22,320 and your supplement was fine. You would get this money from your job, you would get your pension, you would get the supplement, whatever that dollar amount is for you all free and clear. Once you begin to make more than this amount, the $22,320, they start stripping away some of your benefit.

Again, we have a whole webinar on the special retirement supplement. If you’re curious, if you’re not all that up to speed on the supplement, or frankly any of these other benefits, go watch one of these webinars. We’ve got webinars on all of these topics, but here we’re just giving kind of that wave top highlight of the number.

For 2024, we were looking at that $22,320. For 2025, we’re looking at $23,400. Again, this is the amount that you’re allowed to go out and make from a job after you’ve already retired from federal service, and as long as you make less than this, your supplement will not be affected at all. Once you start making more than this amount, that’s when your supplement can be affected.

Social Security

Next up is Social Security. Most federal workers pay 6.2% of their pay into the social security program, and that way they can receive benefits at age 62. It doesn’t mean you should draw Social Security at 62, you can certainly wait to draw a higher amount. That is all still fair game, but I want you to realize when the benefit becomes at least available to you at that 62 mark.

The Social Security benefit that you would be receiving once you start drawing the benefit, it’s going to change every year based on the CPI-W. We’ve already looked at the CPI-W. We’re going to review those numbers here shortly.

I do want to point out though that just like this special retirement supplement, the Social Security program has an earnings test as well. If you make too much money, your Social Security benefit can be reduced. This moment in time that they’re looking at this earnings test is under your full retirement age, which for most of you will be age 67.

If you are under 67 and you’re already retired, drawing Social Security, if you have another job and you are drawing that money, or frankly, even if you’re still a federal worker and you decide to turn on your Social Security during that time, know that likely it will all go away because of this earnings test.

Social Security Maximum Taxable Wages (Annual)

In 2024, next thing we’ll talk about is the maximum taxable wages. We’re going to kind of go in the order in which these things happen in Social Security. In 2024, if you made up to $168,600, that is the maximum amount that was subject to that 6.2% of your pay that goes into paying for your Social Security benefit.

If you made $200,000 that year, only $168,600 would be used to determine how much you have to contribute to Social Security. This maximum taxable wage limit has gone up drastically over the last several years. What it means is more and more and more wages are being used to collect Social Security taxes.

In 2025, that number has gone up to $176,100. It just means that if you’re in this higher bracket of income, that more and more and more of your income is being used to determine how much you owe for Social Security tax.

Social Security Cost of Living Adjustments

Next up is the Social Security Cost of Living adjustment. In 2024, the cost of living adjustment coming from 2023 into 2024 was 3.2%, and the 10 year average at that point was 2.75%. In 2025, we’re looking at 2.5% year over year increase and then an average of 2.83%. It’ll at least give you an idea of how those numbers are faring year to year.

If these numbers look familiar, it’s because we just reviewed almost this exact slide in the CSRS pension, the COLA increased to the CSRS pension. It is based on the exact same number that CPI-W or the inflation mark that is released by the Bureau of Labor Statistics each year.

Social Security Earnings Test (Annual)

Next up is the Social Security earnings test. I spoke about this just a moment ago in the intro to Social Security as well as in the special retirement supplement section.

In 2024, you could make $22,320 and it not affect your Social Security benefit. In 2025, that number has gone up to $23,400.

Federal Employees Group Life Insurance

Finally, we have a benefit that no changes are being made to. Who knows, maybe they’ll throw us a surprise in the middle of the year to be able to change up something. But for now, FEGLI is going to run just like it has all these years, no changes that have been announced.

FEHB Premium

Whoa, have we gotten a lot of complaints about FEHB premiums going up. We’ll talk about the numbers here in just a moment, but you need to understand that premiums will change every year whether you’re employed or you’re retired. It’s also worth noting that employees and retirees pay the same premiums. You don’t have a special rate just because you’re retired, you’re going to pay that same rate across the board. This is true for the 25-year-old who is just hired as it is for the 95-year-old retiree.

The premiums are the same. If you are in a specific plan, the cost for that plan is the same no matter how old you are and no matter whether you’re employed or already retired. And overall, the government pays roughly 72% of the full premium. That’s not the case in some instances with respect to different carriers, but generally we’re looking at a 72% cost share with the government, and it’s worth mentioning I suppose, that that 72% carries into retirement as well.

FEHB Premium Increases (Average Across All Carriers)

Let’s take a look at these FEHB premium increases. This is the average across all carriers. Certainly, yours might have been much higher depending on the carrier that you have or the specific plan that you have. In 2024, we saw a 7.7% increase to FEHB again, across the board, and at that point, the 10 year average was 4.63%. I think you know what the punch line is here.

Unfortunately in 2025, we just went through open season, I’m sure many of you were looking at switching up the plans that you had. We are looking across the board at a 13.5% increase. This is shocking. This is the largest increase that I have seen since I started working with federal employees decades ago, 13.5, this is huge.

There wasn’t a whole lot of room to escape this unfortunately, because this was happening across lots of different carriers. But at this point, the 10 year average is at 5.66%. Remember, your pay is going up maybe 2%, your FEHB premium on average is at 13.5%.

It doesn’t take a math genius to do that math equation. What this means is this is going to gobble up more and more and more of your pay as you go throughout the year. It’s unfortunate that it’s happened this way where we have a low pay raise and very high FEHB premium increases, but this is what it is.

Medicare Part B premiums

The base part of Medicare Part B, those premiums change each year. It is important to note though, that if you have a lot of income and not just from a job, but income from investments, that type of thing, you may very well pay a higher premium based on your modified adjusted gross income. I can’t get into all the details here, but they’re looking two years prior to your modified adjusted gross income to determine how high your Medicare Part B premium really needs to be.

Base Medicare Part B Premiums (Monthly)

This is a big deal. That’s why it’s so important to not look at federal benefits in a bubble. We have to be looking at your entire financial picture to really know whether getting into Part B makes sense or not. In 2024, the base Medicare Part B premium on a monthly basis was $174.70, looking at about a 3.79% 10 year average, and in 2025, we’re looking at a slight increase of $185.00 With a 10 year average of 4.38%.

Flexible Spending Accounts

The next type of account that we’re going to be talking about is a flexible spending account. An FSA is a type of tax arrangement that allows an employee to set aside pre-tax money to pay for certain types of expenses. There are kinds of FSAs that pay for different things. There’s a Healthcare FSA, a Limited Expense FSA, and a Dependent Care FSA.

Health Care / Limited Expense FSA Limits (Annual)

Let’s review the limits for each one. For the healthcare and the limited expense FSA on an annual basis in 2024, you were allowed to contribute $3,200 a month to that, essentially carving out $3,200 of your income that is not going to be taxed to you in that year. If you didn’t end up using all of that $3,200, you are allowed to carry over $640 into the following year into 2025. In 2025, that contribution limit has gone up to $3,300 and you are allowed to carry over $660 into the following year, so into 2026.

Dependent Care FSA Limits (Annual)

For Dependent Care FSA, those limits on an annual basis were $5,000 a year in 2024, and there is no carry over allowable with Dependent Care FSA. In 2025, you’ll notice there are no changes made to these dollar amounts and no change to the carry over criteria.

Federal Long-Term Care Insurance Program

Since December of 2022, the FLTCIP program has been suspended by the Office of Personnel Management. During this time that this plan has been suspended, no new applications are accepted. So anyone who had this plan prior to the suspension got to keep their plan. They’re still able to submit claims and all that, but no new applications are being accepted.

OPM announced that the FLTCIP is suspended until at least December of 2026, so that just recently came out. It had originally been suspended until December of 2024. Right now they came out and did another extension to that suspension to take us all the way another two years out.

Who knows what this is going to look like at that time, but as of right now, this program is not available for new people to enroll. It’s worth mentioning though that just because there’s not a government program, or in this case really an employer sponsored plan, which is what this is for you, this doesn’t mean you don’t have a problem. It means that the government doesn’t have a solution for you.

You need to look out into the private sector to see what options are available, and there’s a lot of creative ways to be able to solve this long-term care issue, and I encourage you to seek out some help to be able to do that.

Thrift Savings Plan

A couple of highlights. The first is the Lifecycle Funds. The L-2070 was recently created. They kind of do that pretty quietly. And here in July, the L-2025 fund will simply morph into the Lifecycle Income Fund. That is the way they are designed.

There’s nothing special happening here. I just want to make you aware that you will see the 2025 go away, but in reality it just melted right into the L Income Fund.

In 2025, something very bizarre is happening with the Thrift Savings Plan and other plans like it. Employees turning age 60 to 63 are now allowed to contribute more to the TSP. Again, this is affecting other types of plans as well, but in your context, we’re talking about the TSP.

The TSP contribution limits on an annual basis for 2024, regardless of your age, you were allowed to contribute $23,000 into TSP. If you were 50 or older, you got to contribute an extra $7,500, so for a total of $30,500 that you could put away into the TSP.

In 2025, that’s where this new change came into play, it’s very bizarre. We still have the $23,000, now $500 for every participant in the TSP that you’re allowed to contribute. If you are 50 or older, with the exception of this other special age group, you’re allowed to contribute $7,500. So just the same as last year.

But this special group of those turning age 60 to 63 in 2025, you’re allowed to contribute, instead of $7,500, you’re allowed to contribute $11,250. Why they chose to do this, I’m not exactly sure. I hope that you’re not waiting until 60 to 63 to really start saving, whether you’re doing that in TSP or you’re doing that into another type of account.

Some Final Thoughts

Some final thoughts for today. You have some amazing benefits and those benefits are going to change pretty frequently. It’s important every once in a while, even if it’s just once a year, coming back and taking a look at these benefits and seeing how they’re changing. That’s the purpose of today’s session so that I’m able to at least bring you up to speed on those changes that happen pretty regularly.

But here’s the deal. The effect that those changes are going to have on each one of you will be different, or at least it’s going to feel different because as I mentioned before, each of you are coming to the table with a different salary level, with different FEHB elections that you’ve made for coverage.

Some of you have the federal long-term care program, some of you have children, some of you… There’s all sorts of variables that go into this. And so what I want you to do is to take a look at the changes that I’ve shared with you today and find the ones that are relevant to you. Find the ones that are relevant to you and determine how your take-home pay is going to change.

I would love for you not to be surprised in January when you get your check. You’ve got all the pieces. It’s a matter of figuring out what that’s really going to look like for you.

Wrap-Up & Next Steps

And here’s the deal, there are a lot of employees concerned about the security of their jobs with the new administration and the DOGE traction that is being made right now with respect to looking at government efficiency and the size of the federal workforce and what’s coming.

I’m of the opinion that the more you know, the better prepared you’re going to be. So stand by. We’re going to have a special announcement about the next webinar here in just one moment.

If our job is to help you be fully prepared to retire, the very best way that I know how to do that is to have you attend one of our workshops. These workshops are in-person training sessions. These are full day sessions. There is no cost for you to attend.

And frankly, most agencies allow their people to attend our sessions on the clock because we do satisfy OPM’s Financial Literacy Initiative where agencies can send their people on government time to be able to get this training.

In these workshops, we’re covering all the federal benefits topics and the decisions that you’re going to be making at the time that you retire. But there’s a whole lot that you can do before you ever get to that point that you’re retiring, to put yourself in the driver’s seat. Anything that we can do to help you get your brain wrapped around all of these variables, the better off you are going to be.

There is some one-on-one help available following the workshops. This is where you really get to put pen to paper and see your numbers and start to really get into the nitty-gritty of the elections that you’re going to need to be making.

And having that one-on-one help along the way is really, really valuable. You can see all of the details by going to fedimpact.com/attend. There, you will see all of the locations and the dates that are available. We have our workshops filling up very quickly these days. By all means, get in there, find your city, find a date that works for you, and get yourself on that list so that you can be the hero in your own retirement story.

For those of you who have followed us for a while, you know that we have the ProFed’s planning principles, and number eight, I saved the best to last, nobody should care more about your retirement than you do, not your HR department, not your supervisor, not your buddy, not even me. You have to care about your own future.

And if you do, then you’re going to seek counsel from people who know what they’re talking about. They’re able to explain things in a simple way. I hope that that’s why you come here for these webinars and ultimately to our workshops. But super, super important that you put yourself in the driver’s seat and give yourself the very best chance to have the retirement that you want.

Thank you all for joining us for today’s session. As always, you can find a workshop in your local area by going to fedimpact.com/attend and to sign up for the next webinar or go and listen to any of the replays that we have of our past webinars, you can go to fedimpact.com/webinar. Thank you all so much. We’ll see you next time.

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Find a comprehensive retirement workshop for your area: FedImpact.com/attend