The FED Weekly

Lawrence: Welcome to The FED Weekly
for 13 - 19 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.

Section 1: Issues That Affect
Current and Retired Federal Workers

This section addresses the overarching
economic and healthcare developments

that will financially impact
nearly every member of the federal

community, from those currently
serving to those in retirement.

The 2026 Economic Outlook:
A Looming Financial Squeeze

The financial forecast for 2026 presents
a challenging picture for the federal

community, where anticipated benefit
adjustments are on a collision course

with escalating healthcare costs.

Early projections for the annual
Cost-of-Living Adjustment (COLA)

suggest only modest gains, which
are likely to be significantly

eroded, if not entirely erased, by a
substantial hike in Medicare premiums.

Based on the latest inflation data
from June 2025, the 2026 COLA is

projected to fall within a range of 2.3%

to 2.7%.

The National Association of Letter
Carriers (NALC), using the June Consumer

Price Index for Urban Wage Earners and
Clerical Workers (CPI-W), projects a 2.3%

COLA for annuitants under the Civil
Service Retirement System (CSRS).

However, this same data
translates to a lower 2.0%

COLA for those under the Federal
Employees Retirement System (FERS).

This discrepancy stems from the FERS "diet
COLA" formula, which caps the adjustment.

If the official CPI-W increase is
between 2% and 3%, FERS retirees

receive a flat 2% increase.

If the increase is 3% or more,
they receive the full amount

minus one percentage point.

Independent analysts and organizations
like The Senior Citizens League

(TSCL) are forecasting a slightly
higher COLA, between 2.6%

and 2.7%,

citing persistent inflationary
pressures, some of which are

attributed to newly imposed tariffs.

Compounding the issue of a
modest COLA is a projected sharp

increase in healthcare expenses.

The 2025 Medicare Trustees annual
report forecasts a significant 11.6%

increase in the standard
Medicare Part B premium for 2026.

This would raise the
monthly premium from $185.00

to $206.50,

an increase of $21.50

per month and the largest
such jump since 2022.

For a large segment of the federal retiree
population, this confluence of factors

makes a "net loss" year highly probable.

The mechanics are straightforward:
a FERS retiree with a $2,000 monthly

annuity would see a 2% COLA add
$40 to their gross monthly payment.

However, after subtracting the $21.50

Medicare Part B premium hike, the
net gain shrinks to just $18.50.

If Federal Employees Health
Benefits (FEHB) program premiums

also rise significantly, as they
did in 2025 with an average 13.5%

increase for non-postal workers,
this small gain could be completely

nullified, resulting in a decrease
in real-dollar disposable income.

This creates a significant financial
planning challenge that goes far

beyond the headline COLA number.

Some relief may come from the newly signed
"One Big Beautiful Bill Act" (OBBBA),

which introduces a tax credit for seniors.

The law provides a $6,000 credit
for single filers with incomes below

$75,000 and a $12,000 credit for
couples with incomes below $150,000.

While this could provide a meaningful
offset for many middle-income retirees,

it is important to note that an
estimated half of all seniors do not

have a federal tax liability on their
Social Security benefits, meaning

many of the lowest-income annuitants
will not benefit from this provision.

The Federal Employees Health
Benefits (FEHB) Program: Navigating

Costs and Changes in 2026

The FEHB program, a cornerstone of
federal benefits, is facing a period

of transformation and tension.

The Office of Personnel Management (OPM)
is pushing for benefit enhancements

and a more user-friendly experience,
even as the program confronts the

dual threats of rising premiums
and potential structural changes.

In its annual "call letter" to insurance
carriers, a document outlining policy

goals for the 2026 plan year, OPM
stressed several key initiatives.

It is important to note that
this letter was issued under the

previous administration, and its
policies are subject to change.

The letter directs carriers to streamline
plan administration by implementing online

claims submission portals by the end
of 2026 and improving the accuracy and

usability of online provider directories.

On the benefits side, OPM is
mandating coverage for fertility

preservation for individuals at risk
of iatrogenic infertility (e.g.,

from chemotherapy) and is strongly
encouraging carriers to expand

their mental health provider
networks to reduce appointment wait

times and improve access to care.

While these benefit enhancements
are welcome, the premium outlook

remains a significant concern.

In a sign of broad pressure on the
health insurance market, insurers

participating in the Affordable Care
Act (ACA) Marketplace are requesting

a median premium increase of 15% for
2026, the largest hike since 2018.

While not a direct corollary,
this trend signals an environment

of rapidly growing healthcare
costs that will almost certainly

impact FEHB premium negotiations.

This follows the substantial
average premium increase of 13.5%

for non-postal FEHB enrollees in 2025, an
increase driven largely by major carriers.

The program is at a crossroads.

OPM is pursuing a vision for a more
comprehensive and modern FEHB program,

with a focus on high-demand services.

At the same time, the financial
underpinnings of the program are

facing significant pressure from
market-driven premium inflation.

This is exacerbated by an undercurrent of
political discussion around proposals to

fundamentally alter FEHB, such as shifting
to a voucher-based system or reducing

the government's premium contribution
from its current level of 72% to 75%.

This creates a fundamental tension that
may force employees and retirees into

a difficult trade-off between plans
with better services and plans they

can afford, potentially undermining
the program's core value proposition.

Thrift Savings Plan (TSP)
Updates for All Participants

The Thrift Savings Plan (TSP) announced
several administrative and structural

changes relevant to all participants.

As of June 30, 2025, the L 2025
Fund, having reached its target date,

was rolled into the L Income Fund.

Concurrently, a new L 2075 Fund was
established to cater to participants

with a longer investment horizon, such
as those born after 2009 or planning

to withdraw funds in 2073 or later.

Participants should also note that
their second quarter 2025 statements,

covering account activity from April 1
through June 30, will be made available

online in My Account by the end of July.

In a broader move toward modernization,
the TSP began delivering annual

statements electronically by default in
2025 for all participants who have an

email address on file with the agency.

Section 2: Issues That Affect
Current Federal Workers

This section details the profound
and rapid changes to job security,

employment rights, compensation,
and the very nature of the civil

service that unfolded this week.

The Unraveling of Civil Service
Protections: A Multi-Front Assault

The long-standing framework of
merit-based civil service protections,

designed to ensure a professional
and non-partisan government

workforce, faced an unprecedented and
coordinated challenge this week from

all three branches of government.

The most immediate blow
came from the judiciary.

On July 8, 2025, the Supreme Court
struck down a lower court injunction

that had barred the administration
from conducting mass layoffs, known

as Reductions in Force (RIFs).

This ruling was widely seen as a
"major reversal" of the conventional

wisdom that federal workers enjoy
significant job protections.

It effectively gives the executive
branch a powerful tool to reshape

the workforce and allows dozens
of previously stalled RIF actions

to proceed across the government.

Just nine days later, on July
17, the executive branch advanced

a radical new legal theory.

Justice Department attorneys formally
argued before an administrative judge at

the Merit Systems Protection Board (MSPB)
that the Constitution grants the President

the authority to fire many career federal
employees "at any time for any reason".

This "at-will" employment argument seeks
to dismantle decades of precedent and

federal law, most notably the Civil
Service Reform Act of 1978, which requires

that agencies provide cause, notice, and
an opportunity for employees to respond

before a termination can take place.

On the same day, the President
signed an Executive Order creating

a new category of federal employee,
"Schedule G," in the excepted service.

This new schedule is designed for
noncareer positions of a "policy-making

or policy-advocating character"
that are normally subject to change

with a presidential transition.

Critically, the order specifies that
removals from Schedule G positions are

not subject to standard Civil Service
Rules and Regulations, effectively making

them at-will appointments who serve
at the pleasure of the administration.

These events do not appear
to be random or disconnected.

Rather, they represent a systematic
effort to increase executive control

over the federal bureaucracy and
weaken the merit-based system.

The legal argument for at-will employment
establishes the ideological foundation.

The Supreme Court's ruling on RIFs
provides the legal tool for large-scale

removals of existing career staff.

Finally, the creation of Schedule
G provides the mechanism for

backfilling influential positions
with political appointees who lack

traditional civil service protections.

The combined effect is a "pincer movement"
that fundamentally alters the relationship

between political leadership and the
career workforce, creating a more pliable

and politicized government apparatus.

Workforce Reductions in Action:
RIFs and Buyouts Accelerate

With legal barriers removed, several
agencies moved swiftly to implement

previously announced workforce reductions.

Immediately following the Supreme
Court's decision, the Department

of Education was cleared to proceed
with the termination of approximately

1,300 employees, which constitutes
roughly one-third of its workforce.

These employees had been on paid
administrative leave since the

RIF was first announced in March.

The Department of State began issuing
termination notices to over 1,300 civil

and foreign service employees on July 11.

The Internal Revenue Service (IRS)
has reportedly fired between 6,000 and

7,000 probationary employees, including
120 from the critical Large Business

and International division that audits
high-asset individuals and corporations.

The IRS is reportedly aiming to
cut its overall headcount by 20%

to 50% through a combination of
layoffs, attrition, and buyouts.

Other agencies, including the
Environmental Protection Agency

(EPA) and the Department of Veterans
Affairs (VA), are also proceeding

with significant staff cuts.

In parallel with these involuntary
actions, agencies have been

aggressively using "voluntary"
measures to reduce headcount.

Widespread offers of Voluntary
Early Retirement Authority (VERA)

and Voluntary Separation Incentive
Payments (VSIP) are being used

to encourage employees to leave.

The Social Security Administration
(SSA), for example, offered VERA

and VSIP to all its employees, with
financial incentives of up to $25,000,

though the window to accept was
tight, closing on April 19, 2025.

Similarly, the Department of the Interior
(DOI) offered VERA/VSIP packages with a

maximum payout of $25,000, although many
positions were excluded from the offer.

The Future of Federal Pay
and the Work Environment

The climate of uncertainty extends
to federal compensation and the work

environment, with new legislative
proposals threatening to alter

pay structures and benefits.

The debate over the 2026 federal
pay raise is already taking shape.

The administration's Office of Management
and Budget (OMB) has advised agencies

to plan for a 3% average pay raise.

This stands in contrast to the 4.3%

average raise—composed of a 3.3%

across-the-board increase and a 1% average
boost to locality pay—proposed in the

Federal Adjustment of Income Rates
(FAIR) Act, a bill introduced

by Democrats in Congress.

Proponents of the higher raise
point to Federal Salary Council

data from 2024 showing that
federal employees earned 24.72%

less on average than their
private-sector counterparts.

Meanwhile, several bills introduced
in Congress could have a direct

and negative impact on federal pay.

H.R.

201, the Federal Employee Performance
and Accountability Act of 2025,

proposes a five-year pilot program for
employees at the GS-11 level and above.

Under this program, pay would be tied
directly to performance: those exceeding

metrics could receive up to a 10% raise,
but those merely meeting metrics would

get no raise, and those rated below
expectations would face a 10% pay cut.

Participants would be ineligible
for standard annual and

locality pay adjustments.

Another bill, S.

27, the Federal Employee Return to
Work Act, would strip locality pay from

any federal employee who teleworks at
least one day per week, reverting their

salary to the much lower "Rest of U.S."

pay scale.

Additionally, the newly passed OBBBA
permanently eliminates the tax-free

status of employer reimbursements
for bicycle commuting and moving

expenses, effectively turning
these benefits into taxable income.

Evidence of growing financial
stress among the workforce is

already apparent in official data.

The Federal Retirement Thrift Investment
Board's 2024 annual report revealed

a concerning increase in both TSP
plan loans and hardship withdrawals.

Loan usage rose to 8.6%

of participants, while
hardship withdrawals reached

a five-year high of 3.9%.

This trend was particularly acute
among mid-career and lower-paid

workers, with the second-lowest
salary quintile reporting a

hardship withdrawal rate of 8.47%.

This combination of aggressive
workforce reductions, attacks on pay

and protections, and a hostile work
environment is creating the conditions

for a significant "brain drain" and
loss of institutional knowledge.

Experienced employees who are
eligible are taking VERA and VSIP

offers to escape the uncertainty.

Mid-career employees, who are the backbone
of agency operations, are facing extreme

financial pressure and the threat of pay
cuts, making them more likely to seek

stable employment in the private sector.

The risk of this talent exodus is not
merely theoretical; the administration

has already had to rehire some "critical"
employees it had previously laid off,

demonstrating a lack of strategic
foresight in the reduction process.

This exodus will inevitably degrade
agency performance, delay critical public

services, and weaken national security
and public health functions as expertise

built over decades walks out the door.

Section 3: Issues That Affect
Retired Federal Workers

This section distills the most
critical financial and healthcare

news for federal annuitants, providing
a clear-eyed view of the challenges

and opportunities on the horizon.

Your 2026 Bottom Line: The COLA vs.

Healthcare Cost Collision

For federal retirees, the financial
outlook for 2026 is dominated by

the collision between a modest COLA
and sharply rising healthcare costs.

As detailed previously, the projected
2026 COLA of approximately 2.3%

to 2.7%

is on a direct path to be
consumed by a projected 11.6%

increase in Medicare Part B premiums.

The practical impact of this
collision will not be felt equally.

Because FERS retirees will likely
receive a COLA capped at 2.0%,

the $21.50

monthly Medicare hike will consume a
much larger portion of their adjustment

compared to their CSRS counterparts, who
will receive the full, uncapped COLA.

This dynamic widens the already
existing gap in retirement

outcomes between the two systems.

The FERS "diet COLA" mechanism,
designed in a different economic era,

is proving inadequate in the current
volatile inflationary environment.

It provides less inflation protection
precisely when it is needed most, leading

to a faster erosion of purchasing power
for FERS annuitants and testing the

long-term financial viability of the
system to provide a secure retirement.

It is therefore imperative that all
retirees plan their 2026 budgets

based on their anticipated net income
after these mandatory deductions,

not on the headline COLA figure.

Navigating Your Health
Benefits in Retirement

Maintaining health coverage is a primary
concern for annuitants, and navigating

the FEHB program requires diligence.

A critical and non-negotiable requirement
is the "5-Year Rule," which stipulates

that an individual must have been
continuously enrolled in an FEHB plan

for the five years immediately preceding
their retirement date to be eligible

to carry that coverage into retirement.

Furthermore, the annual Open
Season will be a more critical

decision point than ever.

With OPM pushing for changes in coverage
for mental health, fertility, and

obesity care, and with the likelihood
of another round of significant

premium increases, retirees must
carefully reassess their plans.

A plan that was suitable one year
may become financially untenable

or medically inadequate the next.

New retirees must also remember
that FEHB premiums, which are paid

with pre-tax dollars during active
employment, are paid with after-tax

dollars in retirement, increasing
the effective cost of the insurance.

New Financial Relief for Annuitants:
The OBBBA Senior Tax Credit

The "One Big Beautiful Bill Act" offers
a new form of financial relief that could

benefit many middle-income retirees.

The law establishes a tax credit of
$6,000 for single filers and $12,000

for couples, provided their incomes are
below $75,000 and $150,000, respectively.

This credit could help offset some of the
rising healthcare costs for annuitants

who have a federal tax liability.

However, it is important to recognize
its limitations: the credit will not

benefit the lowest-income retirees who
already have no federal income tax burden.

Annuitants should consult with
a qualified tax professional to

understand how this new credit applies
to their specific financial situation.

The complexity and volatility of the
current environment—with interacting

variables like COLA calculations,
Medicare premiums, FEHB plan changes,

and new tax laws—mean that retirees
can no longer afford to be passive

recipients of their benefits.

A high degree of financial literacy
and proactivity has become essential.

Annuitants must understand the nuances
of their specific COLA, track how

rising premiums will affect their
net income, and investigate their

eligibility for new tax provisions.

This transforms retirement planning from
a one-time event into an ongoing process

of active financial management, making
advocacy and informational organizations

more critical resources than ever.

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.