The FED Weekly

Lawrence: Welcome to The FED Weekly
for 18-24 January 2026, 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.

Issues That Affect Current
and Retired Federal Workers

The primary focus for the federal family
this week has been the finalization

of the financial and legislative
landscape for the 2026 calendar year.

Between executive orders and the
passage of long-awaited spending

bills, the "new normal" for federal
service is becoming much clearer.

Finalization of the 2026
Federal Pay Adjustment

During the week of 18 January 2026,
the Office of Personnel Management,

or OPM, released detailed guidance
regarding the 2026 pay adjustment.

Following a period of significant debate
and previous proposals for a total pay

freeze, the President signed an Executive
Order earlier this year authorizing a 1.0

percent across-the-board increase
for statutory pay systems.

This increase, which took effect
during the first full pay period

of the new year, applies to the
General Schedule, the Foreign Service

schedule, and statutory schedules for
the Veterans Health Administration.

A critical component of this year’s
pay strategy is the decision to freeze

locality pay percentages at 2025 levels.

This means that while the base salary
for federal employees has risen

slightly, the geographic adjustments
intended to offset the cost of living

in high-cost areas remain unchanged.

To understand the practical
effect of this 1.0

percent increase, we can look
at specific examples provided

by OPM for the "Rest of U.S."

locality area.

A General Schedule employee at grade
9, step 5, who earned a locality

rate of $69,259 in 2025, has seen
that rate rise to $69,954 in 2026.

For those at grade 11, step 5, the
previous locality rate of $83,795

has been adjusted to $84,638.

Finally, an employee at grade 12,
step 2, has seen their 2026 locality

rate move from $91,575 to $92,491.

This 1.0

percent raise is the smallest
annual adjustment since 2021.

Analysts have pointed out that this
modest increase may struggle to keep pace

with rising costs, particularly given
that Federal Employees Health Benefits

premiums are projected to increase by
more than 12 percent in the coming year.

For those planning for retirement, this
smaller raise also impacts the calculation

of the "high-three" average, which
determines future pension annuities.

The House Passes H.R.

7148: The Consolidated
Appropriations Act, 2026

On 22 January 2026, the House
of Representatives passed H.R.

7148, the Consolidated Appropriations Act,
2026, with a bipartisan vote of 341 to 88.

This massive "minibus" package
includes funding for Defense;

Labor, Health and Human Services,
Education; and Transportation and

Housing and Urban Development.

Chairman Tom Cole stated that the bill
replaces previous spending levels with

"disciplined, Republican-led funding
that puts America First" and incorporates

reforms backed by the Department
of Government Efficiency, or DOGE.

The bill contains several provisions
that directly affect federal

benefits and healthcare access.

Notably, the legislation extends
critical telehealth flexibilities for

two years, through 31 December 2027.

This ensures that Medicare beneficiaries,
including federal retirees, can

continue to receive care in their
homes and that rural health clinics

can provide services without the
geographic restrictions that were

temporarily waived during the pandemic.

H.R.

7148 also targets the Pharmacy
Benefit Manager, or PBM, industry.

The bill requires new transparency
reporting and seeks to "delink" PBM

compensation from the negotiated
rebates of Medicare prescription drugs.

For retirees on fixed incomes, these
reforms are intended to reduce the

financial incentive for PBMs to favor
higher-priced medications, potentially

lowering out-of-pocket costs.

Furthermore, the bill maintains the
salary cap for the National Institutes

of Health at Executive Level II,
or $228,000, and provides $47.2

billion for the agency’s base budget—a
$415 million increase over 2025 levels.

The bill also includes several
unique "America First" riders.

These include a prohibition on
using federal funds for vehicle

"kill switch" technology and a ban
on using funds for the annexation

or purchase of Greenland without
explicit congressional authorization.

Additionally, the bill designates
the "Melania Trump Foster Youth

to Independence Initiative" within
the Department of Housing and

Urban Development to support foster
youth transitioning to adulthood.

DHS Appropriations and Border Security

Simultaneously, on 22 January
2026, the House passed H.R.

7147, the Department of Homeland
Security Appropriations Act,

2026, by a vote of 220 to 207.

This legislation is heavily focused on
the administration's priority to secure

the border and empower federal agents.

The bill eliminates funding for
the "shelter and services program,"

which previously provided grants to
non-governmental organizations assisting

immigrants, and removes funding for the
Office of Immigration Detention Ombudsman.

For the thousands of federal employees
within Customs and Border Protection and

Immigration and Customs Enforcement, the
bill provides the resources needed to

expand detention capacity and increase
the rate of removals for criminal aliens.

Digital Accessibility Milestones

On 20 January 2026, federal agencies
reached a compliance deadline under

Section 508 of the Rehabilitation Act.

Pursuant to OMB Memorandum M-24-08,
agencies were required to report the

name and contact information of their
agency-wide Section 508 program managers

to the Office of Management and Budget.

This is part of a broader push to ensure
that the federal government's digital

environment—including the software
and portals used by employees—is fully

accessible to people with disabilities.

Moving forward, agencies are preparing
for a March 2026 deadline to place

digital accessibility statements
on all websites and to establish

public feedback mechanisms for
reporting accessibility barriers.

Issues That Affect Retired Federal Workers

While the major legislative victories
of the week provide long-term optimism,

federal retirees are currently navigating
several technical shifts regarding

taxes and pension administration.

2026 IRS Tax Withholding Updates

Retirees began seeing the
practical effects of the 2026

tax year updates this week.

The IRS has finalized the 2026 versions
of Form W-4P, for periodic pension

and annuity payments, and Form W-4R,
for non-periodic distributions.

All retirement plan administrators,
including the Office of Personnel

Management and the Thrift Savings
Plan, were required to incorporate

these changes into their substitute
forms by no later than 16 January 2026.

The 2026 Form W-4P includes updated
deduction worksheets that account

for 2026 inflation adjustments.

For retirees who may be taking one-time
distributions or rolling over funds, Form

W-4R provides updated marginal tax rate
tables to ensure accurate withholding.

Safe Harbor and Rollover Explanations

On 15 January 2026, the Department
of the Treasury and the IRS issued

Notice 2026-13, providing updated
"safe harbor" explanations for

retirement plan participants.

These explanations are required to
be provided to participants when they

receive eligible rollover distributions.

The update is significant because
it reflects several major tax law

changes originating from the SECURE 2.0

Act.

Specifically, the notice addresses
changes to the 10 percent additional

tax on early withdrawals, updated
required minimum distribution rules for

surviving spouses, and the increased age
for beginning required distributions.

Retirees should ensure that any
distribution notices they receive

this week include these updated
explanations to help them make

informed financial decisions.

The Importance of Retirement Timing

The week of 18 January 2026 also serves
as a reminder of the impact of retirement

timing on cost-of-living adjustments.

For those who retired by 30 November
2024, the January 2026 annuity checks

were the first to reflect the full 2.5

percent cost-of-living adjustment.

However, those who retired on
31 December 2024 only received

11/12ths of that adjustment.

This technical nuance underscores
the financial importance of choosing

a retirement date with a full
awareness of how the first year

of benefits will be calculated.

For the average retiree, the 2.5

percent adjustment added approximately
$50 to their monthly check, which

many retirees report is essential for
offsetting the rise in healthcare costs.

A Legacy of Advocacy

The implementation of the Social Security
Fairness Act is the result of what

advocacy groups like NARFE and Mass
Retirees describe as a "41-year quest".

These organizations have been fighting
to reverse the 1983 laws that created

the Windfall Elimination Provision
and the Government Pension Offset.

As retirees receive their first
major updates on retroactive

payments this week, the historical
context of this victory highlights

the power of sustained grassroots
effort in the federal community.

Issues That Affect Current Federal Workers

New Special Salary Rates
for Law Enforcement

In a positive development for federal
law enforcement, OPM announced

the approval of new special salary
rates, effective 11 January 2026.

Throughout the week of 18 January
2026, agencies have been implementing

these new schedules, which provide
a total pay increase of 3.8

percent over 2025 levels—aligning federal
civilian law enforcement with the 3.8

percent raise provided to the military.

The Department of Homeland Security
coverage includes Aviation Enforcement

Agents, Criminal Investigators, Customs
and Border Protection Officers, and

Border Patrol Agents, as well as
Air and Marine Interdiction Agents.

Within the Department of Justice,
the rates apply to Deputy U.S.

Marshals, Federal Enforcement
Officers, Aviation Enforcement

Officers, and Detention Officers.

These special rates are considered basic
pay for purposes such as retirement and

overtime, though they remain subject to
a statutory cap of $197,200 for 2026.

TSP "Spillover" Method Implementation

The Thrift Savings Plan reached a major
operational milestone this week with the

full implementation of the "spillover"
method for catch-up contributions.

Under this new system,
required by the SECURE 2.0

Act, participants aged 50 and older
no longer need to make a separate

election for catch-up contributions.

Once an employee reaches the elective
deferral limit of $23,500, their

regular contributions will automatically
"spill over" into the catch-up limit.

For members of the Federal Employees
Retirement System and the Blended

Retirement System, these spilling-over
contributions will be matched by

the government up to the 5 percent
of basic pay limit, ensuring that

employees do not miss out on matching
funds even if they reach their primary

contribution limit early in the year.

Agency Layoffs and Workforce Reductions

The week of 18 January 2026 saw
continued instability within

several federal agencies.

Reports indicated that the Department
of Health and Human Services and

the Centers for Disease Control and
Prevention are moving forward with

significant workforce reductions.

Earlier this year, approximately
1,700 workers at the CDC received

reduction-in-force notices.

While some of these were later rescinded
due to "data discrepancies," roughly

1,000 employees remain impacted.

This follows the reported "gutting" of
the HHS Office of Population Affairs,

where nearly all 50 employees were
locked out of their accounts and

subjected to a reduction in force.

Federal unions have responded with legal
challenges, seeking to expand court orders

that previously barred "illegal shutdown
firings" to protect the non-partisan

civil service from targeted terminations.

Legal Challenges and Board Quorums

The federal labor landscape shifted
this week as the Federal Labor

Relations Authority officially
reached a quorum following the Senate

confirmation of Charles Arrington.

Arrington, a Trump nominee with
extensive labor relations experience

at the VA and HHS, gives the
authority a 2-1 Republican majority.

While this allows the FLRA to begin
processing a massive backlog of appeals

and negotiability cases, the AFGE has
expressed concerns that the new majority

may issue management-friendly rulings that
could roll back existing union rights.

Simultaneously, the Merit Systems
Protection Board continues

to face legal uncertainty.

On 20 January 2026, the Supreme
Court issued an order allowing

the administration to continue
with the removal of members of

certain independent agencies while
legal proceedings are ongoing.

This order has raised significant
questions about the long-term independence

of the MSPB and the survival of the
merit system, which was originally

designed to prevent federal employment
from becoming a patronage-based system.

Currently, the MSPB is operating with
only two Republican members, as the

chairwoman confirmed under the previous
administration was fired in early 2025.

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.