The FED Weekly

Lawrence: Welcome to The FED Weekly
for 6-12 July 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.

The second week of July 2025 marked
a period of seismic shifts for the

United States federal workforce,
delivering a series of transformative

events that will reverberate
through every agency and impact the

careers and retirements of millions.

Within a few short days, the Supreme
Court unleashed the potential for mass

layoffs, a new director was confirmed to
lead the Office of Personnel Management

(OPM) with a mandate for change, and
the passage of a major budget bill

solidified both new benefit rules and the
high probability of a 2026 pay freeze.

These developments, occurring nearly
in unison, represent more than a

collection of disparate news items;
they signal a coordinated and pivotal

moment in a multi-front effort
to fundamentally reshape the U.S.

civil service, altering the landscape
of federal employment for both

current and retired personnel.

Section 1: Issues That Affect
Current and Retired Federal Workers

This section analyzes developments
impacting the entire federal

community, from financial benefits
and healthcare costs to the leadership

and data infrastructure of the
Office of Personnel Management.

The "One Big Beautiful Bill
Act" (OBBB) Signed into Law:

A Mixed Bag of Benefit Changes

On July 4, 2025, President Trump
signed the "One Big Beautiful Bill Act"

(OBBB) into law, concluding a period of
intense anxiety for federal employees

and retirees who had been bracing
for severe cuts to their benefits.

While earlier versions of the legislation
contained proposals that would have

dramatically altered the federal
retirement system, the final version

that passed the House and Senate was
stripped of these most controversial

provisions, largely due to procedural
challenges under the Senate's Byrd

Rule, which limits what can be included
in a budget reconciliation bill.

Instead of cuts, the final law
delivered several benefit enhancements,

primarily focused on expanding the
use and availability of tax-advantaged

health and savings accounts.

Key provisions include:

Health Savings Account (HSA)
Expansions: The OBBB makes three

significant changes to HSAs.

First, it permanently allows
high-deductible health plans (HDHPs)

to cover telehealth services before
the plan's deductible is met, a popular

provision from the pandemic era.

Second, it expands HSA eligibility
by automatically treating all

Bronze and Catastrophic health
plans available on the individual

market exchange as qualified HDHPs.

Third, starting in 2026, it clarifies
that participation in a Direct

Primary Care (DPC) arrangement does
not disqualify an individual from

contributing to an HSA, and it makes
DPC fees a qualified medical expense.

Dependent Care FSA Increase: Beginning
in 2026, the annual contribution

limit for Dependent Care Flexible
Spending Accounts (FSAs) will

increase from $5,000 to $7,500.

This is the first permanent
increase to the limit since

it was established in 1986.

Permanent Student Loan Repayment
Assistance: The law makes permanent

a provision allowing employers to
provide up to $5,250 annually in

tax-free student loan repayment
assistance to employees under a section

127 educational assistance program.

The $5,250 limit will also be indexed
for inflation starting in 2026.

The relief for many in the federal
community comes from the provisions that

were ultimately excluded from the bill:
Increase required contributions from 0.8%

of salary to 4.4%

for most FERS employees, Eliminate the
SRS for most new retirees, affecting

those who retire before age 62, and Change
the basis of the annuity calculation

from an employee's highest three
years of salary to their highest five.

While employees dodged these cuts,
the legislative process itself

reveals a clear strategic direction.

The administration was able to achieve
a legislative victory with benefit

enhancements while simultaneously
pursuing its workforce reduction goals

through other, more powerful channels.

Thrift Savings Plan (TSP) Updates:
Fund Changes and Future Features

The Thrift Savings Plan (TSP) implemented
several key changes at the end of June and

provided updates on future developments.

Effective June 30, 2025, the TSP
introduced the new L 2075 Fund,

designed for participants who plan
to begin withdrawing from their

accounts around the year 2075.

On the same date, the L 2025 Fund reached
its target date and was consequently

retired, with all assets automatically
rolled into the L Income Fund, which

is designed for capital preservation
for those already in retirement.

Looking ahead, the TSP is
preparing to launch a significant

new feature in January 2026: an
in-plan Roth conversion option.

This will allow participants to
convert their traditional, pre-tax

TSP funds into the Roth TSP without
having to transfer the money out of

the plan, offering greater flexibility
for tax planning in retirement.

The TSP also reminded participants
of changes for the 2025 tax year

stemming from the SECURE 2.0

Act.

A new, higher catch-up contribution
limit is now available for participants

who are aged 60, 61, 62, and 63.

Administratively, participants can
expect their second quarter 2025

statements, covering account activity
from April 1 through June 30, to be

available online by the end of July 2025.

Federal Employees Health Benefits
(FEHB) Program: Navigating Steep

Premium Hikes and New Coverage

Current and retired federal employees
enrolled in the Federal Employees

Health Benefits (FEHB) program are
facing the largest premium increase

in nearly two decades for 2025.

Premiums are set to rise
by an average of 13.5%,

which translates to an additional $26.10

per biweekly paycheck for the average
non-postal employee or annuitant.

OPM has attributed the steep hike to
several factors, including higher prices

charged by healthcare providers, increased
utilization of certain prescription

drugs, and a rise in spending on
outpatient services and behavioral health.

Despite the cost increase,
OPM has mandated expanded

coverage in key areas for 2025.

All FEHB enrollees will now have
access to multiple nationwide plans

that offer comprehensive coverage
for in vitro fertilization (IVF).

Additionally, all health carriers will be
required to cover at least one GLP-1 class

anti-obesity drug, such as Wegovy, as well
as other oral anti-obesity medications.

For federal annuitants, OPM is
continuing to strongly encourage the

integration of Medicare Advantage
(MA) plans within the FEHB program.

These plans, known as Employer Group
Waiver Plans (EGWPs), are designed

specifically for federal retirees
and can significantly reduce or

even eliminate out-of-pocket costs
for hospital and medical services.

Many of these plans also reimburse
enrollees for their Medicare Part

B premiums, a feature that has
fundamentally changed the financial

calculation for retirees deciding
whether to enroll in Part B at age 65.

New Leadership and Data Transparency at
the Office of Personnel Management (OPM)

The week saw significant developments
at the federal government's

central human resources agency.

On July 9, 2025, the Senate confirmed
Scott Kupor, a longtime venture capital

executive, as the new Director of OPM.

The confirmation vote was a near
party-line 49-46, signaling the

contentious nature of his nomination and
the central role OPM is expected to play

in the administration's workforce agenda.

Earlier in the month, on July 1, OPM
announced a major overhaul of its

FedScope data platform, a key public
resource for federal workforce statistics.

As part of the announcement, OPM released
updated data through March 31, 2025,

providing the first official snapshot
of the administration's efforts to

"right-size" the federal bureaucracy.

The data showed a net reduction of over
23,000 federal civilian employees between

September 30, 2024, and March 31, 2025.

This move toward greater data transparency
is positioned as a way to track

progress on streamlining government,
but it also provides the statistical

foundation for the administration's
ongoing workforce reduction initiatives.

Section 2: Issues That Affect
Retired Federal Workers

2026 Cost-of-Living Adjustment
(COLA) Forecast: A Widening Gap

Federal retirees are closely watching
the forecast for the 2026 cost-of-living

adjustment (COLA), which dictates the
annual increase in their annuity payments.

As of June 2025, the projection
for the 2026 COLA stands at 2.5%.

This figure is based on year-over-year
inflation as measured by the Consumer

Price Index for Urban Wage Earners
and Clerical Workers (CPI-W).

The final COLA will be determined by
the average CPI-W from the third quarter

(July, August, and September) of 2025.

However, not all federal retirees
will receive the same adjustment.

A structural difference between the
two main retirement systems creates

a significant disparity, particularly
in times of moderate inflation.

This is often referred to as the
"FERS COLA penalty" or "diet COLA".

This formula means that
if the current 2.5%

forecast for 2026 holds, CSRS
retirees will receive a 2.5%

increase, while eligible FERS
retirees will receive only 2%.

This continues a trend
from 2025, when the 2.5%

COLA also resulted in a 2%
adjustment for the FERS population.

Over time, this compounding difference
erodes the purchasing power of FERS

annuities compared to their CSRS
counterparts and Social Security

benefits, which receive the full COLA.

Legislative Watch: The Equal COLA Act

In an effort to address this
disparity, the Equal COLA Act was

introduced in Congress by the late
Representative Gerry Connolly.

The bill's sole purpose is to eliminate
the FERS COLA penalty and ensure that

FERS retirees receive the same full
cost-of-living adjustment as CSRS retirees

and Social Security beneficiaries.

While endorsed by federal employee
unions, the bill remains in committee

and its prospects for passage are
uncertain, leaving FERS retirees

subject to the current tiered formula.

The Paradox of Retirement Processing:
Modernization Meets Gridlock

Even as OPM moves to modernize
its systems, new retirees are

facing significant delays.

OPM has mandated a full transition to
a digital retirement system, and as

of July 15, 2025, it will no longer
accept paper retirement applications.

All agencies must now submit
retirement cases electronically

through OPM's online portal.

This initiative is designed to streamline
a notoriously slow and paper-based process

that has been plagued by delays for years.

Ironically, this push for
efficiency is occurring at a time of

unprecedented strain on the system.

OPM's retirement claims backlog surged
by 22% in June 2025, reaching its

highest mid-year level in six years.

This is being driven by a significant
increase in retirements; over 33,500

federal employees retired in the
first quarter of 2025 alone, a 12%

increase from the previous year, as
many choose to leave amid the uncertain

political and professional environment.

The result is a "double bind" for new
annuitants: they are exiting federal

service into a retirement system where
their future annuity payments are

structurally designed to lag inflation,
and their entry into that system is

likely to be met with processing delays
that can leave them waiting up to 64

days for their first pension payment.

Section 3: Issues That Affect
Current Federal Workers

The Dam Breaks: Supreme Court
Greenlights Mass Layoffs (RIFs)

On July 8, 2025, the Supreme Court
delivered a landmark decision that cleared

the way for the Trump administration to
resume large-scale agency reorganizations

and Reductions-in-Force (RIFs).

The ruling reversed a lower court
injunction that had barred these mass

layoff actions, meaning that dozens
of RIFs that had been put on hold

across the government can now proceed.

The decision was met with immediate
alarm from federal employee advocates

and some members of Congress.

On July 11, Representative Don Beyer
led a group of 74 House members in

sending a letter to the administration,
urging it to halt any planned firings.

The lawmakers argued that the
Supreme Court's decision was based on

procedural grounds and did not rule
on the underlying legality of the

RIF plans themselves, which are still
being challenged in lower courts.

They warned that proceeding with
firings would be premature and

could create chaos if the plans
are later found to be unlawful.

While the ruling applies government-wide,
agencies that had previously announced

or prepared for major cuts are now
expected to move forward, including

the Social Security Administration,
Department of Defense, IRS, and

Department of Veterans Affairs.

The Big Chill: A 2026 Federal Pay
Freeze Appears All But Certain

The financial outlook for current
federal employees grew colder this

week, as a pay freeze for 2026 now
appears to be a near certainty.

The OBBB, the major budget package
signed into law, passed without any

provision for a 2026 civilian pay raise.

This omission, combined with President
Trump's fiscal year 2026 budget

proposal that explicitly called for
a pay freeze for civilian employees,

has created a clear path toward a zero
percent across-the-board increase.

This stands in stark contrast to the
Federal Adjustment of Income Rates (FAIR)

Act, a bill introduced by congressional
Democrats that proposed an average 4.3%

pay raise for 2026.

However, the FAIR Act has never been
enacted into law and is not expected

to advance in the current Congress.

There may be a small silver
lining for some employees.

Even with a 0% across-the-board
freeze, there will likely be a minor

average pay increase of around 0.5%

due to annual adjustments in locality pay
rates, which are calculated separately.

OPM's Performance Management
Revolution: A New Era of Accountability

Concurrent with the threat of layoffs,
the administration is moving to make

it easier to discipline and remove
employees for performance reasons.

A sweeping memorandum issued by OPM
on June 17, 2025, completely overhauls

the performance management system
for all non-senior federal employees.

The stated goal is to create a
"high-performance culture," but the

practical effect is to weaken job
protections and expedite removals.

Key mandates from the memo include:

Quicker Firings: The memo encourages
agencies to shorten the duration of

Performance Improvement Plans (PIPs) to
just 30 days and to use Chapter 75 adverse

action procedures, which do not require
a PIP, to address performance issues.

Stricter Standards: It directs agencies
to end "performance rating inflation" by

making it harder to achieve "Outstanding"
ratings and potentially implementing

a forced distribution of ratings.

"Schedule Policy/Career": The memo
highlights a new category of excepted

service positions for employees in
confidential or policy-making roles.

This schedule allows for their
"expeditious removal" and is widely

viewed as a revival of the controversial
"Schedule F" plan, which would have

converted tens of thousands of career
civil servants into political appointees.

Federal unions have fiercely
opposed these changes.

The American Federation of Government
Employees (AFGE) called the memo

an illegal attack on the civil
service, arguing that it unilaterally

violates existing labor contracts
that stipulate how employees are

to be evaluated and disciplined.

The End of an Era: The
Mandated Return to the Office

The administration is also moving to
end the era of expanded telework that

began during the COVID-19 pandemic.

A government-wide executive order
requires a full return to in-person

work, with agencies terminating most
telework and remote work agreements.

The Department of Veterans Affairs,
for example, has set a July 28, 2025,

deadline for many of its remote employees
to return to a physical worksite.

This policy is supported by
legislation like the SHOW UP Act (H.R.

473), which was reintroduced
by Representative James Comer.

This bill would legally mandate that
agencies revert to their pre-pandemic

2019 telework levels within 30
days and require them to complete a

rigorous justification process for
any future expansion of telework.

This push comes despite a June 2025
report from the Government Accountability

Office (GAO) which found that remote
work had actually helped agencies meet

hiring goals for mission-critical jobs.

Legislative Watch: A Summary of Key Bills

Several pieces of legislation
currently in Congress could have

profound impacts on federal employees.

The FAIR Act proposes an average 4.3%

pay raise for 2026 and this
applies to current Employees.

Status is that it has been
introduced in Committee.

The Equal COLA Act eliminates
the FERS "diet COLA" to give FERS

retirees the full COLA, and this
applies to retired employees (FERS).

Status is that it has been
introduced in Committee

The SHOW UP Act (H.R.

473) mandates a return to 2019
telework levels and restricts

future telework expansion, and
applies to current employees.

It has been Introduced in Committee.

The Federal Employee Performance
and Accountability Act (H.R.

201) establishes a 5-year pilot
program for pay-for-performance,

including a potential 10% pay cut for
underperformance and it applies to

current employees (GS-11 to GS-15).

It has been introduced in Committee.

Together, these legislative and
administrative actions represent

a comprehensive effort to
reshape the federal workforce.

The combination of a pay freeze, the
threat of RIFs, a more aggressive

performance management system, and
a mandatory return to the office

creates a high-pressure environment
designed to fundamentally alter the

nature of federal employment, moving
it away from a stable, career-based

system toward one that is more
precarious and politically responsive.

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.