The FED Weekly

Lawrence: Welcome to The FED Weekly
for 17 - 23 August 2025, your essential

weekly briefing on the policies
and proposals shaping your career,

your benefits, and your retirement.

Whether you’re a current federal employee
navigating changes in the civil service,

or a retiree keeping a close watch on your
hard-earned pension and healthcare, this

is your source for the latest news from
Capitol Hill and the executive branch.

Each week, we cut through the noise to
bring you the critical updates on budget

negotiations, pay raises, workforce
policies, and the legislative battles that

directly impact the federal community.

Let's get you up to speed on
what happened this past week.

Section 1: Issues That Affect
Current and Retired Federal Workers

The Looming 2026 Pay Freeze
and Eroding Compensation

The financial outlook for federal
employees has become starkly

clear this week, as all signs now
point to a pay freeze for 2026.

President Trump has until August 31
to issue an alternative pay plan, a

formal step required to prevent large,
automatic locality pay increases

mandated under the 1990 Federal
Employees Pay Comparability Act.

While this is an annual procedural
deadline, this year it serves as

the final confirmation of a policy
that has been signaled for months.

The administration’s intentions
were first revealed in April through

Office of Management and Budget
"passback" documents, which instructed

agencies to plan for a pay freeze.

This was later formalized
in the President's budget

proposal for Fiscal Year 2026.

With congressional appropriators declining
to include a pay raise in their funding

bills, the President’s forthcoming
alternative pay plan is expected

to be the final word on the matter.

This stands in sharp contrast to
proposals from federal employee advocates.

The Federal Adjustment of Income Rates, or
FAIR Act, had called for an average 4.3%

raise, while the Federal Salary
Council, a body that advises the

White House on pay, recommended a 3.3%

increase based on economic data.

For context, the pay
raise for 2025 was a 2.0%

average increase.

However, viewing the pay freeze as an
isolated event misses the larger picture.

It is the primary component of a
financial perfect storm bearing down

on the entire federal community.

A current employee’s gross
income is now set to stagnate.

At the same time, their single
largest benefit cost—health

insurance—is about to increase
dramatically, as we will discuss next.

The combination of frozen income and
sharply rising mandatory costs results in

a guaranteed reduction in take-home pay.

This is not merely a freeze; for many,
it will feel like a functional pay cut.

The situation is parallel for retirees.

The modest cost-of-living adjustment
projected for next year will be largely,

if not entirely, consumed by the same
health premium hike and other rising

costs, such as for Medicare Part B.

These concurrent policy decisions
on pay and benefits are creating a

multi-pronged financial squeeze that will
undoubtedly impact morale, recruitment,

and retention across the government.

A Major Overhaul of
Federal Health Benefits

This week also brought two shocking
developments for the Federal Employees

Health Benefits, or FEHB, program: a
politically charged reduction in coverage

and a historically large premium increase.

On August 20, 2025, the Office
of Personnel Management formally

notified insurance carriers that
coverage for gender-affirming care

will be eliminated from all FEHB
plans starting in plan year 2026.

The directive states that "chemical and
surgical modification of an individual’s

sex traits through medical interventions"
will no longer be a covered benefit.

This policy change is a direct result
of two executive orders issued by

President Trump: “Defending Women
from Gender Ideology Extremism and

Restoring Biological Truth to the Federal
Government” and “Protecting Children

from Chemical and Surgical Mutilation”.

While the ban is sweeping, OPM has
outlined several key exceptions.

Coverage will remain for mental
health counseling for individuals

with gender dysphoria, for patients
who are already undergoing a

course of surgical or hormonal
treatment, and for hormone therapies

prescribed for non-gender-related
medical conditions, such as cancer.

The advocacy group Lambda Legal
immediately condemned the move as illegal,

arguing it violates Title VII of the
Civil Rights Act and the Affordable

Care Act, and announced it is exploring
legal action to challenge the policy.

This development creates an
environment of extreme uncertainty.

Earlier this year, OPM had issued
guidance that eliminated this care

for minors but explicitly preserved
the option for insurance carriers

to continue offering it to adults.

This week’s announcement is a
complete reversal, removing all

carrier discretion and banning
coverage for enrollees of any age.

This kind of rapid, ideologically driven
reversal of benefits policy creates

chaos for both consumers and providers.

It signals that benefits once considered
stable can be eliminated with little

warning, undermining the perceived
value of the federal benefits package.

This reduction in coverage comes just
as federal employees and retirees

are being asked to pay significantly
more for their health insurance.

OPM has confirmed that FEHB premiums
will rise by an average of 13.5%

for the 2025 plan year, the largest
such increase in nearly two decades.

This sharp hike follows
substantial increases of 7.7%

in 2024 and 8.7%

in 2023.

OPM attributes the increase to several
market-wide factors, including price

increases by healthcare providers,
higher utilization of expensive

specialty prescription drugs, and
increased spending on outpatient

services and behavioral health care.

A significant new cost driver is the
mandated coverage of GLP-1 anti-obesity

drugs like Ozempic and Wegovy.

While the government's share of the
premium will also rise, by 10.01%,

employees and retirees will
be left to cover the remainder

of this steep increase.

Tax Changes from the "One,
Big, Beautiful Bill Act"

Amid these financial pressures,
some modest relief is coming

in the form of tax changes.

Public Law 119-21, the "One, Big,
Beautiful Bill Act," which was signed

into law on July 4, 2025, introduced
several new tax deductions that will

take effect for the 2025 tax year.

For current federal workers, the law
creates a new deduction for qualified

overtime compensation, allowing
them to deduct up to $12,500 of pay

that exceeds their regular rate.

It also provides a deduction of
up to $25,000 for qualified tips

reported on a W-2 or 1099 form.

For retirees, the law introduces a
new, additional deduction of $6,000

for individuals aged 65 and older.

This is a significant benefit, as it
can be claimed on top of the existing

additional standard deduction for seniors.

It is important to note, however, that
these are deductions that reduce taxable

income, not dollar-for-dollar tax credits.

While helpful, their actual value
will not be enough to fully offset

the impacts of a pay freeze or a
double-digit health premium increase.

OPM Cancels the 2025 Federal
Employee Viewpoint Survey

In a move that has drawn sharp criticism
from good government groups, the Office

of Personnel Management officially
announced on August 20, 2025, that

it is canceling the Federal Employee
Viewpoint Survey, or FEVS, for 2025.

The survey, which is considered the
flagship measure of job satisfaction

and morale across the federal
workforce, is expected to return

in 2026 with retooled questions.

In a statement, OPM Director
Scott Kupor explained that the

agency is "revising FEVS to remove
questions added by the Biden-Harris

administration and to refocus on core
administration priorities: to restore

a high-performance, high-efficiency,
and merit-based civil service".

The move is seen as part of an effort
to "recalibrate" the survey to align

with the administration's objectives,
particularly by removing questions related

to Diversity, Equity, and Inclusion.

This decision is highly controversial
because federal law requires agencies

to conduct an annual employee survey.

The FEVS is the primary instrument
used to fulfill this mandate, providing

critical data to agency leaders,
Congress, and watchdog groups.

The timing of the cancellation
is particularly notable.

The administration is currently
implementing a series of sweeping and

disruptive workforce policies, including
the pay freeze, benefit cuts, and a

government-wide push to reduce staff.

The FEVS is the only standardized
mechanism for measuring the impact of

these policies on the federal workforce.

By canceling the survey at this critical
juncture, the administration effectively

prevents the collection of data
during the most intense period of its

"realignment of the federal workforce".

Critics argue this is a strategic move to
create an information vacuum, allowing the

administration to control the narrative
about its policies' effects without

being contradicted by its own data.

Section 2: Issues That Affect
Current Federal Workers

The IRS Reversal: From Mass
Layoffs to Emergency Rehiring

The biggest workforce story of
the week is a dramatic reversal

at the Internal Revenue Service.

The agency announced on August
22, 2025, that it is canceling all

planned layoffs and is now actively
working to rehire staff to fill what

it calls "mission-critical" gaps.

This stunning turnaround comes
after the agency shed approximately

a quarter of its workforce—over
26,000 employees—since the start of

the year through buyouts, firings,
and voluntary separation programs.

The reversal appears to be a direct
response to warnings from the National

Taxpayer Advocate and others that the
deep staffing cuts could jeopardize

the upcoming 2026 tax filing season.

The agency is now using every tool at
its disposal to plug the holes, including

internal reassignments and rescinding
deferred resignation offers made to

employees who had agreed to leave.

Already, about 50 employees in the
now-shuttered Taxpayer Experience

Office who had received layoff
notices have been told their jobs are

safe, and they are being reassigned
to other roles within the agency.

This situation is a case study in the
consequences of non-strategic, politically

motivated workforce reductions.

The administration's "Department
of Government Efficiency," or DOGE,

initiative drove a top-down mandate to
slash staff across the federal government,

with the IRS being a prime target.

However, it appears the operational
reality on the ground has collided

with these ideological directives.

Agency leaders have now been forced to
acknowledge that the cuts went too far,

too fast, creating critical knowledge
and capacity gaps that threaten the IRS's

ability to perform its most fundamental
mission: collecting the nation's taxes.

This emergency course correction at
the IRS may serve as a cautionary

tale for other agencies facing
similar reduction mandates.

Probationary Periods Strengthened,
Legal Challenges Falter

The administration’s power to more easily
remove new employees was solidified

this week through actions by both OPM
and the Merit Systems Protection Board.

On August 18, 2025, OPM issued
expanded guidance on the

executive order strengthening
probationary periods for new hires.

The guidance reinforces the policy
that these periods are to be used as an

"extension of the hiring process," during
which the employee bears the burden

of demonstrating that their continued
employment is in the public interest.

Just days later, on August 21, a key
legal challenge to this policy faltered.

An MSPB hearing officer ruled that
the board lacks jurisdiction to

hear appeals from fired probationary
employees who argue their terminations

were "constructive" reductions in
force, or RIFs, that should have

followed stricter RIF procedures.

Together, the OPM guidance and the
MSPB ruling give agencies a clearer

framework for termination while closing
a potential avenue for legal appeal,

leaving terminated probationary employees
with fewer options for recourse.

The Future Workforce: AI,
Design, and Legislative Battles

Finally, this week provided a glimpse
into the administration's vision for the

future federal workforce—one that relies
more on technology and is governed by

fundamentally different employment rules.

On August 19, the Federal Chief
Information Officer stated that the

administration is "100%" looking
to Artificial Intelligence to

mitigate the impact of staffing
losses across government.

This push for technological solutions was
coupled with the launch of a new "America

by Design" initiative, established
by an executive order on August 21.

The initiative aims to improve the
design and usability of government

websites and services and includes
a new recruiting push for top design

talent from the private sector.

This move follows a pattern of
dismantling existing government innovation

hubs, like GSA's 18F and the U.S.

Digital Service, and then launching a
new, similarly-focused initiative under

the administration's own branding.

This allows the administration to claim
credit for modernizing government while

simultaneously purging institutions
associated with previous administrations.

Meanwhile, several pieces of legislation
that would fundamentally alter the federal

workplace remain pending in Congress.

These include:

H.R.

201, the Federal Employee Performance and
Accountability Act, which would create a

pilot program for performance-based pay
that could result in a 10% pay cut for

employees rated "below expectations".

H.R.

236, the Federal Employee Return to
Work Act, which would make federal

employees who telework ineligible
for annual or locality pay raises.

And S.

1006, the Federal Workforce Freedom Act,
which aims to prohibit federal employees

from participating in labor unions for
the purpose of collective bargaining.

Section 3: Issues That Affect
Retired Federal Workers

2026 Cost-of-Living Adjustment Projections

The latest projections for the 2026
Cost-of-Living Adjustment, or COLA, for

Social Security and federal retirement
annuities are now converging around 2.7%.

This forecast, from groups like the
Senior Citizens League, is based

on inflation data through July.

The final, official figure will be
determined by third-quarter inflation

data and announced by the Social
Security Administration in October.

This modest COLA will have different
impacts on federal retirees

depending on their retirement system.

Annuitants under the older Civil
Service Retirement System, or CSRS,

are set to receive the full adjustment.

However, retirees under the Federal
Employees Retirement System, or FERS,

will receive a reduced, or "diet," COLA.

The FERS formula stipulates that when the
official COLA is between 2% and 3%, FERS

annuitants receive a flat 2% increase.

This means a FERS retiree will see
their annuity grow by only 2%, falling

behind both the projected rate of
inflation and their CSRS counterparts.

This is a critical point of financial
divergence between the two retirement

systems that becomes more pronounced
in years with moderate inflation.

Financial Planning Advice
for Senior Annuitants

In a piece of practical advice for
older annuitants, federal benefits

expert Tammy Flanagan highlighted
a potentially costly oversight in

an article published on August 21.

The advice is simple but crucial:
federal retirees over the age of 70

should double-check to ensure they have
filed for Social Security benefits.

Flanagan warns that some retirees may
be "leaving thousands on the table" by

forgetting to claim benefits to which
they or their spouse are entitled.

This can happen when retirees are focused
on managing their federal annuity and

Thrift Savings Plan, sometimes overlooking
separate Social Security entitlements.

And that’s a wrap on this week’s
Federal Workforce Roundup.

The landscape for federal employees
and retirees is constantly shifting,

with major decisions being made about
everything from pay and job security

to retirement benefits and the very
structure of the civil service.

Staying informed is your best tool.

Be sure to subscribe wherever you get your
podcasts, so you never miss an update.

Thanks for tuning in.

We’ll be back next week to
track the latest developments

and what they mean for you.

Until then, stay engaged and be well.