The Federal Employee Benefits Trends You Need to Know About Before 2025

This article was originally published here

Key Takeaways:

1. Federal employee benefits are undergoing significant changes before 2025, including rising healthcare premiums, retirement contribution updates, and evolving insurance options.

2. Understanding these changes can help you make informed decisions to protect your financial well-being and plan for the future.

What’s Changing in Federal Employee Benefits?

Federal employee benefits are evolving in ways that will impact both active workers and retirees. With updates to healthcare costs, retirement planning, and insurance premiums, understanding these trends is essential. Whether you’re nearing retirement or still climbing the career ladder, these changes affect how you manage your benefits now and into the future.

Rising Healthcare Costs: Brace Yourself

Premiums Are Climbing Steadily

The Federal Employee Health Benefits (FEHB) program will see an average 13.5% premium increase in 2025. This is one of the largest hikes in recent years, and it reflects broader trends in healthcare inflation. For federal employees, this translates to higher paycheck deductions, while retirees will see a larger portion of their annuities going toward premiums.

Why Are Costs Increasing?

Healthcare costs are rising due to factors like:

• Inflation affecting medical services and prescriptions.
• An aging population requiring more extensive care.
• The ongoing demand for advanced treatment options and newer technology.

Understanding these factors won’t stop the increases, but it can help you plan for higher costs.

What You Can Do Right Now

• Compare plans during Open Season: The 2024 Open Season runs from November 11 to December 9. Take time to evaluate whether your current FEHB plan still meets your needs.
• Consider healthcare savings options: Flexible Spending Accounts (FSAs) or Health Savings Accounts (HSAs) can help you manage out-of-pocket expenses more effectively.

Medicare and Its Expanding Role

Medicare Enrollment Becomes Critical for Some

By January 1, 2025, Medicare-eligible Postal Service retirees must enroll in Medicare Part B to retain their Postal Service Health Benefits (PSHB) coverage. This requirement highlights the growing importance of Medicare for federal retirees.

Why Combine Medicare with FEHB?

Coordinating Medicare and FEHB often reduces out-of-pocket costs by ensuring you’re covered for a broader range of medical services. For example:

• Medicare Part B often covers outpatient care and preventive services.
• FEHB can fill in gaps, covering services Medicare doesn’t, like certain prescriptions or additional hospitalization costs.

Your Action Plan

• Enroll in Medicare during your Initial Enrollment Period (IEP), which spans 7 months around your 65th birthday (3 months before, the month of, and 3 months after).
• Reassess your combined Medicare and FEHB coverage annually to optimize your benefits.

Retirement Contributions: Plan Smarter

New Thrift Savings Plan (TSP) Limits

For 2024, the TSP contribution limit has increased to $23,000, with an additional $7,500 in catch-up contributions available for those aged 50 and older. Beginning in 2025, changes from the SECURE 2.0 Act will allow workers aged 60 to 63 to contribute even more.

Social Security Earnings Caps

If you’re receiving Social Security benefits while still working, the earnings limit for 2024 is $22,320 per year. Exceeding this threshold can result in reduced benefits. However, once you reach your full retirement age, this cap no longer applies, and you can earn freely without reductions.

How to Optimize Contributions

• Max out your TSP contributions each year to take full advantage of matching contributions from your agency.
• Use catch-up contributions if you’re eligible, as these extra savings can significantly bolster your retirement fund.

Shifting Retirement Dynamics: FERS vs. CSRS

The Rise of FERS

The Federal Employees Retirement System (FERS) now covers the vast majority of federal workers. It combines a civil service pension, Social Security benefits, and TSP contributions, offering flexibility but requiring proactive management.

The Decline of CSRS

Only a small percentage of federal employees remain under the Civil Service Retirement System (CSRS). While CSRS pensions are more generous than FERS, they don’t include Social Security, making additional retirement savings critical for those still covered by this system.

The Role of the Special Retirement Supplement

FERS employees who retire before age 62 may qualify for a Special Retirement Supplement (SRS), which bridges the gap until Social Security benefits begin. However, this supplement phases out once your earnings exceed a certain threshold.

Rising Insurance Premiums: Time to Reassess

FEGLI Costs Are on the Rise

The Federal Employees’ Group Life Insurance (FEGLI) program will see higher premiums in 2025, particularly for older enrollees. This increase reflects both longer life expectancies and rising administrative costs.

FEDVIP Plans Aren’t Exempt

Dental and vision insurance under FEDVIP is also experiencing premium increases. While these changes are less dramatic than FEHB hikes, they still add to the overall cost burden for federal employees and retirees.

Tips for Managing Insurance Costs

• Reassess your FEGLI coverage levels. If your life insurance needs have changed, consider adjusting your coverage to lower your premiums.
• Shop around during Open Season to find the most cost-effective dental and vision plans that meet your needs.

Enhancements to Work-Life Benefits

Paid Leave Policies

Paid leave for federal employees has expanded in recent years, with options like paid parental leave becoming standard. These changes reflect a broader commitment to work-life balance and employee satisfaction.

Training and Career Development

Agencies are investing in professional development programs to keep employees competitive. Access to new skills and certifications not only benefits you but also strengthens your agency’s mission.

Flexible Work Arrangements

Telework and hybrid work models are becoming more widely adopted, offering greater flexibility for federal employees. These arrangements help improve productivity and reduce commuting costs.

Retirees, Stay Vigilant

Cost-of-Living Adjustments (COLA)

For 2024, the COLA for federal pensions and Social Security benefits is 3.2%, offering a modest increase in monthly income. While helpful, COLAs often fail to keep pace with rising costs for healthcare and other essentials, so planning ahead is crucial.

Estate Planning Considerations

Federal retirees should also focus on updating their estate plans to account for any changes in tax laws or benefit structures. Ensuring that your plans align with your financial goals and the needs of your beneficiaries is essential.

Preparing for the Future: Your Checklist

To stay ahead of these changes and make the most of your benefits:

1. Evaluate Healthcare Plans: Compare options during Open Season to find a plan that offers the best value for your needs.
2. Maximize Retirement Savings: Contribute the maximum allowed to your TSP and take advantage of catch-up contributions.
3. Plan for Medicare: If you’re nearing age 65, understand how Medicare enrollment affects your overall healthcare strategy.
4. Adjust Insurance Coverage: Reassess life, dental, and vision insurance to ensure you’re not overpaying for coverage you no longer need.
5. Account for COLAs: Incorporate cost-of-living adjustments into your financial planning.

Federal Benefits in 2025: Stay Informed, Stay Prepared

Federal employee benefits are changing rapidly, and staying informed is your best tool for navigating these shifts. By taking proactive steps, you can ensure your healthcare, retirement, and insurance options continue to support your goals both now and in the years ahead.