J. Scott Applewhite/AP

Senate Passes Budget Bill Cutting Pension Benefits for New Feds and Military Retirees

The $85 billion savings package would fund the government well past mid-January 2014, and sets spending levels through fiscal 2015. By Kellie Lunney

The Senate on Wednesday approved 64-36 a two-year budget agreement that requires new federal workers and working-age military retirees to contribute $12 billion in a bipartisan deal to partially repeal some of the spending cuts under the sequester.

The $85 billion savings package approved by the House last week would fund the government past Jan. 15, 2014, averting another shutdown and setting spending levels through fiscal 2015. As part of the deal, federal employees hired on or after Jan. 1, 2014, with less than five years of service would have to pay 4.4 percent toward their pensions -- 1.3 percent more than employees hired after 2012 contribute to their defined retirement benefit, and 3.6 percent more than most workers hired in or before 2012 contribute.

In addition, working-age military retirees would receive less generous pensions until they reach the age of 62. The cost-of-living adjustment for those eligible retirees younger than 62 would be 1 percent less than the rate of inflation beginning on Dec. 1, 2015, until the retiree reaches age 62. At that point, the annual COLA would be adjusted fully. The initial budget agreement summary provided by the conference committee included a different COLA calculation and time frame that has since been corrected; the current legislation under consideration includes the 1 percent COLA decrease beginning in late 2015. The current bill also does not exempt disabled veterans from the pension changes, as the original, erroneous copy of the budget deal had stated.

The absence of an exemption for working-age military retirees with a service-connected disability or injury, as well as the pension changes, have caused an uproar from the military community and lawmakers.

(Read more: Here’s Why the Proposed Military Retiree Benefit Cuts Are No Big Deal)

Sen. Patty Murray, D-Wash., plans to introduce stand-alone legislation to exclude the retirement benefits of disabled vets and their survivors from the changes. Rep. Paul Ryan, R-Wis., who led the budget conference panel with Murray, supports such a bill “and a pledge by the Senate and House Armed Services Committees to take a harder look at military-compensation reform,” said Will Allison, spokesman for the House Budget Committee. It’s unclear when Murray will introduce that bill.

The budget deal requires new civilian federal workers and military retirees to contribute $12 billion in savings overall -- $6 billion from each group -- to help partially cancel the sequester for fiscal 2014 and fiscal 2015. That $12 billion figure is part of a proposed $63 billion in savings found in various programs to offset the cost of rolling back some of the automatic spending cuts for two years. Other savings in the package include higher airline fees for travelers, crackdowns on federal benefit waste and fraud, and increased premiums on companies that pay the federal government to guarantee their pension benefits.

Current federal employees are not affected by the pension changes. Early reports of the deal said current federal workers would have to contribute $20 billion overall to the budget savings, prompting federal employee unions and other advocacy organizations, as well as the Washington-area congressional delegation, to push back hard against such a proposal.