Hidden Between the Lines: Why This Week’s Federal Employee News Might Affect Your Retirement Outlook

Key Takeaways

• Several policy updates from this week may seem minor but can have a significant ripple effect on your federal retirement planning.

• Ignoring these developments could lead to missed opportunities, reduced annuities, or higher healthcare costs in retirement.

Why Weekly Federal Updates Matter More Than You Think

If you’re approaching retirement as a public sector worker, this week’s federal employee news might look routine on the surface. But beneath the headlines are subtle shifts that could impact your long-term retirement strategy. Whether it’s a tweak in TSP policies, a budget proposal affecting annuity formulas, or shifting rules on Medicare integration, understanding these updates is no longer optional.

You’ve worked hard for your benefits. Now it’s time to protect them.

Legislative Proposals That Could Reduce Your Annuity

Recent proposals introduced in Congress are targeting how retirement benefits are calculated. One item currently under review is a bill that would exclude locality pay from the “high-3” salary calculation. This change could lower your FERS or CSRS annuity significantly, especially if you’ve spent your career in a high-cost area like Washington, D.C. or San Francisco.

If this passes, your annuity would be based only on your base salary, not the locality adjustment you’ve been counting on. That means you could see a reduction of hundreds of dollars per month in your lifetime pension.

The latest reconciliation bill has dropped this provision for now, meaning current workers avoid an immediate impact. However, future proposals may revive this change. Continue monitoring this development closely.

The Push to Change Government Contributions to Health Coverage

Another noteworthy development is the renewed discussion around shifting FEHB (Federal Employees Health Benefits) contributions to a flat-rate voucher model.

Right now, the government pays about 70% of your premium. If this proposed shift moves forward, retirees and employees would receive a fixed contribution regardless of the plan they choose. That could mean higher out-of-pocket costs if your preferred plan exceeds the voucher amount.

This would be particularly important to monitor during the Open Season in November and December, especially for those planning to retire in 2025 or 2026. You may need to consider switching plans or increasing your Health Savings Account (HSA) or FSA contributions to offset rising costs.

Implications of the G Fund Subsidy Elimination

The Thrift Savings Plan (TSP) G Fund has historically benefited from a subsidy that ensures it earns interest similar to long-term Treasury bonds without the volatility. A new proposal aims to eliminate that subsidy.

This would make the G Fund less attractive and could reduce its returns. If you rely heavily on the G Fund in your retirement allocation, it might be time to rebalance or diversify your portfolio.

Remember, in 2025 the TSP limits are:

• Elective deferral: $23,500

• Catch-up contribution (age 50+): $7,500

• Super catch-up (ages 60–63): $11,250

June 2025 showed strong performance across all TSP funds. The I Fund is up 18% year-to-date, and Lifecycle Funds posted returns over 4.6%. Review your allocations in light of these shifts.

Changes to Medicare Integration Rules for USPS Retirees

The Postal Service Health Benefits (PSHB) program fully replaced FEHB for USPS workers starting January 1, 2025. If you are a postal retiree, new rules require Medicare Part B enrollment for continued eligibility under PSHB unless you fall into an exemption category (such as having retired before 2025 or being age 64 or older as of January 1, 2025).

Failing to enroll in Part B means losing access to your PSHB coverage. This is especially urgent because the next Medicare General Enrollment Period opens from January 1 to March 31, 2026, if you missed the 2024 Special Enrollment Period.

You should:

• Confirm whether your status requires Part B enrollment

• Review your PSHB plan’s cost-sharing benefits if enrolled in Medicare

• Explore whether your plan includes Part B premium reimbursements or cost offsets

Watch for the Annual Notice of Change (ANOC)

Every year, federal retirees with Medicare Advantage or PSHB-integrated coverage receive an ANOC letter. This document outlines changes to premiums, deductibles, coinsurance, and covered benefits.

For 2025, some key changes include:

• The Part B premium has increased to $185

• The Part B deductible is now $257

• The Part A hospital deductible is $1,676 per benefit period

Many PSHB plans reduce or waive deductibles for Medicare enrollees, so cross-checking your plan details after receiving the ANOC could help avoid surprise costs.

The End of the Part D Donut Hole

If you’re enrolled in a Medicare plan that includes prescription coverage, the elimination of the Medicare Part D coverage gap (donut hole) as of January 1, 2025, offers some financial relief.

Now, after you spend $2,000 on out-of-pocket prescription costs in the year, your plan covers 100% of additional drug costs for the rest of the year. You no longer enter a high-cost phase.

This is a huge shift and benefits anyone with high recurring medication expenses. But remember, some PSHB plans have integrated EGWP (Employer Group Waiver Plans), which have their own rules. Check your PSHB plan documentation to understand how the $2,000 cap is applied.

New TSP Features Worth Your Attention

The TSP Modernization Act and Secure Act changes introduced in recent years have continued rolling out. In 2025, many of those features are now fully active:

• More flexible withdrawal options (installments, partial withdrawals)

• Roth TSP withdrawals are now eligible for Qualified Birth or Adoption Distributions (QBADs) without penalty

• Spousal beneficiary options are clearer and more automated

If you haven’t logged into your TSP account or reviewed your withdrawal strategy in the last six months, now is the time.

Timing Your Retirement Under Current Rules

With legislative shifts looming, it might be wise to assess whether retiring before new changes take effect could preserve some benefits.

For instance:

• Retiring before locality pay is removed from high-3 calculations could increase your annuity

• Locking in FEHB coverage now might help you avoid future voucher-based models

The average federal retirement processing time is 60–90 days, and as of July 15, 2025, all OPM retirement applications must be submitted online. Plan to apply at least 3 months before your intended date.

The Quiet Cost of Delaying Annual Plan Reviews

Each year, Open Season offers the chance to reevaluate:

• Your health plan (FEHB or PSHB)

• Medicare coordination

• TSP contribution elections

• Flexible Spending Account elections

Skipping these updates could result in:

• Higher premiums from plan changes you didn’t see coming

• Missed opportunities for cost savings via HSAs, FSAs, or Roth conversions

• Inefficient TSP allocations that no longer reflect your retirement timeline

Set a reminder every November to fully review your benefit elections and compare plans.

Survivor Benefits and Election Timing

This week’s updates also included reminders around survivor elections. If you’re retiring soon, your survivor benefit elections must be finalized before your retirement is processed.

Changing your mind after finalization is extremely difficult, and failing to elect survivor benefits could make your spouse ineligible for continued FEHB or PSHB coverage.

You have options:

• Full survivor annuity (maximum continued health coverage)

• Partial survivor annuity

• No survivor annuity (but no continued coverage for spouse)

Make sure you understand the long-term implications before locking in your election.

Don’t Ignore the Impact of COLAs

The 2025 COLA for federal retirees is 2.5%, slightly lower than last year’s adjustment. This increase applies to:

• FERS and CSRS annuities

• Social Security benefits

Although modest, it’s critical for maintaining purchasing power, especially as health costs rise. Ensure your budget projections for 2025 and 2026 reflect this adjustment.

Also, remember that FERS retirees often receive reduced COLAs compared to CSRS retirees unless inflation exceeds 3%.

What You Do Next Could Shape Your Retirement Security

As you can see, this week’s federal updates are more than administrative. They are signals of shifts that may reshape the financial landscape for government retirees.

Now is the time to:

• Review your TSP allocations

• Check Medicare and PSHB alignment

• Monitor legislative proposals closely

• Prepare for Open Season well ahead of time

Small oversights today can lead to large financial impacts down the road. If you feel uncertain about any of the updates mentioned here, it’s wise to speak directly with a licensed professional listed on this website who can help tailor your decisions to your individual situation.