The FED Weekly 6-12 July 2025 (Episode 6)

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.