This Year’s Federal Workforce Headlines May Seem Small—But the Policy Changes Aren’t

Key Takeaways

• Policy updates in 2025 may not dominate headlines, but their long-term effect on your retirement timeline, benefits, and cost-sharing responsibilities is significant.

• If you’re a public sector worker nearing retirement, understanding these updates now helps you plan around potential reductions in annuities, increased healthcare costs, and changes to Social Security.

The Headlines May Be Quiet, But the Impact Is Loud

You might skim the news and feel like 2025 has been a quiet year for the federal workforce. No massive overhauls, no sweeping retirement reforms signed into law with big fanfare. But beneath that calm surface, some of the most consequential changes in decades are starting to take root. These updates don’t just affect newly hired employees. They touch everyone close to retirement and even those already drawing benefits.

If you’ve been in the government workforce for 15, 25, or even 35 years, this is not the time to tune out. Subtle policy changes in 2025 can shape your next 20 to 30 years in retirement.

1. FERS Contributions Could Rise for New Employees

One of the most serious proposals under discussion in 2025 targets newly hired federal employees. A draft reform package suggests raising employee contributions to the Federal Employees Retirement System (FERS) to as high as 15.6% of salary. While this does not apply to current employees or retirees, the direction of this policy could eventually shift to affect you too.

In the past, incremental increases began with new hires and expanded. If you’ve been considering working a few extra years or switching positions, watch this trend closely. Any changes to FERS structure could influence your retirement income forecast.

2. Social Security Offsets Were Repealed

One of the biggest victories for public sector retirees came early in 2025 with the repeal of the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO). These rules, which previously reduced Social Security benefits for those receiving a government pension, no longer apply.

If you’re under CSRS or receive a FERS pension plus Social Security, this repeal could result in hundreds of dollars more per month. Those already receiving reduced benefits should see retroactive adjustments for 2024 and higher monthly checks in 2025. This policy shift is particularly critical if you were relying on partial Social Security benefits or had spousal benefits reduced due to the offset.

3. Cost-of-Living Adjustment (COLA) and Inflation Protection

The 2025 COLA for federal retirees is 2.5%. While modest, it still reflects ongoing inflation pressure. The concern, however, is the cumulative effect of years with below-inflation COLAs. Over time, your purchasing power declines if benefit increases don’t keep up with real-world prices.

This is especially critical for CSRS retirees who rely primarily on their pension. Even with full COLA protection, recurring under-adjustments can reduce your effective income over a 20-year retirement span. FERS retirees, who only get COLAs if they retire at age 62 or older, face a further risk if they retire under MRA+10 or other early options.

You may want to evaluate:

• How your income will keep pace with inflation

• Whether you need supplemental income sources

• If delaying retirement could preserve COLA eligibility

4. The Postal Service Health Benefits (PSHB) Program Now Active

January 1, 2025, marked the full transition of USPS employees and annuitants from the Federal Employees Health Benefits (FEHB) Program to the new Postal Service Health Benefits (PSHB) Program.

Key changes:

• Medicare-eligible annuitants must enroll in Medicare Part B to maintain PSHB coverage (with some exemptions)

• Prescription drug coverage is now integrated under a Part D Employer Group Waiver Plan (EGWP)

• Cost-sharing structures include copayments, coinsurance, and deductibles that differ from past FEHB plans

This shift is especially relevant if you’re a USPS retiree or planning to retire soon. Not coordinating your Medicare enrollment properly could result in loss of drug coverage or higher out-of-pocket costs.

5. Medicare Costs in 2025 Are Up

Whether you’re already retired or planning to retire within a year or two, healthcare costs will play a critical role in your income planning. Here’s what’s changed in 2025:

• Part A Deductible: $1,676 per benefit period

• Part B Premium: $185 per month

• Part B Deductible: $257 annually

• Part D Deductible: Up to $590

• Prescription Drug Cap: $2,000 out-of-pocket maximum now applies to all Part D plans

These increases aren’t alarming by themselves, but they compound over time. If your annuity is modest or you have a high-deductible plan, these costs could take up a larger share of your income.

For federal retirees coordinating Medicare with FEHB or PSHB, many plans still waive or reduce deductibles and copayments if you’re enrolled in both Parts A and B. This reinforces the importance of reviewing your health plan annually, especially during Open Season.

6. Open Season Still Carries Hidden Risks

The 2024 Open Season may be behind us, but decisions made then are in full effect throughout 2025. If you didn’t actively review and change your FEHB or PSHB plan, you may now be locked into a plan that no longer meets your financial or medical needs.

Some key things to check:

• Were your specialist or hospital networks narrowed?

• Did premiums rise faster than expected?

• Are new coinsurance or copayment tiers in effect?

Unless you experience a qualifying life event, you won’t be able to change plans until the next Open Season in November 2025. Mark that period on your calendar now, especially if your health or finances have changed since last year.

7. TSP Performance in 2025 Shows Positive Momentum

The Thrift Savings Plan (TSP) is rebounding in 2025 after a volatile 2022 and moderate recovery in 2023 and 2024. As of mid-year, the I Fund is showing a year-to-date return of 18%, with strong growth across the C and S Funds as well.

Lifecycle (L) Funds are also posting solid gains, especially those closer to the 2030 and 2040 targets. If you’re within five years of retirement, this may be a good time to reassess your TSP asset allocation.

Some points to consider:

• Should you rebalance to reduce equity exposure?

• Are you using the correct L Fund for your retirement date?

• Have you considered RMDs if you’re over age 73?

Remember, TSP’s strong returns this year won’t last forever. Retirement planning means locking in gains when you can and preparing for potential downturns.

8. Online OPM Retirement Applications Now Live

Starting July 15, 2025, the Office of Personnel Management (OPM) has transitioned retirement applications to a fully online process. While processing time is still expected to take 60 to 90 days, the digital process offers:

• Better status tracking

• Faster document submission

• Fewer administrative delays

If you’re within 6 to 12 months of retirement, familiarize yourself with the new system now. Submitting early and ensuring your service records are accurate can help avoid last-minute issues and delays in receiving your first annuity payment.

9. Federal Workforce Downsizing May Affect Access to Support

A less visible change in 2025 is the gradual reduction in federal staffing. Since September 2024, the public sector workforce has declined by nearly 23,700 employees, and a hiring freeze has been in place since January 20, 2025.

This can lead to:

• Longer wait times for retirement processing

• Fewer support staff for benefit inquiries

• Delays in updating service records or insurance files

Now more than ever, it’s important to keep your personal records organized and make early contact with your human resources or retirement services office.

10. Future Retirement Provisions Still in Discussion

While several potentially harmful changes were dropped from the 2025 Senate budget reconciliation bill, such as:

• Cutting COLAs

• Removing the FERS annuity supplement

• Excluding locality pay from the high-3 average

That doesn’t mean these proposals are gone for good. Many lawmakers have signaled intent to revisit these issues for new hires or for budget balancing purposes in future years.

If your retirement date is flexible, staying informed on these developments may help you lock in benefits before changes go into effect. If you’re already retired, knowing what’s off the table (for now) can help you plan your long-term income with greater confidence.

Planning Ahead in a Quiet-Looking but Active Policy Year

You might not see retirement headlines in your daily news alerts, but if you’re a public sector worker nearing retirement, 2025 is anything but quiet. This year’s legislative and administrative activity is setting the tone for what retirement benefits will look like five, ten, or twenty years from now.

Take action now:

• Review your annuity and TSP estimates under different retirement dates

• Coordinate Medicare with your FEHB or PSHB plan

• Track COLA updates and inflation’s impact on your income

• Schedule time to re-evaluate your Open Season choices before November

To make the most of your benefits, get in touch with a licensed professional listed on this website for personalized help tailored to your federal employment history.