Paydays, Pitfalls, and Power Plays: Inside the Federal Employee Money Maze (31 Aug - 6 Sep 2025, Episode 14))

I remember the first time a cost-of-living adjustment hit my bank account: relief, then… confusion, because somehow everything still cost more. If you work in the federal sphere, you know the dizzying dance of pay raises, benefit cuts, and legislative curveballs never really stops. This week, I'm sorting out the latest maze of policy twists—from pay raise proposals that barely keep pace with inflation, to union battles, benefit shakeups, and a new round of big promises (and even bigger questions) for 2026. Let’s get real about what these shifts mean—personally and systemically—for feds everywhere.

1. The Shrinking Paycheck Illusion: Pay "Raises" vs. Premium Hikes

Every year, we wait for the news: Will there be a meaningful Federal Employee Pay Raise? For 2026, the answer is a modest 1% for most of us—barely enough to notice. But here’s the real kicker: while our paychecks inch up, our health insurance costs are sprinting ahead. The Office of Personnel Management (OPM) just confirmed a jaw-dropping 13.5% increase in Federal Employees Health Benefits (FEHB) premiums for 2025. That’s the largest single-year jump in nearly two decades, and it’s hitting our wallets hard.

Let’s break it down. For the average federal family, this means an extra $26.10 coming out of every biweekly paycheck. That’s more than $678 a year—gone before you even see it. Meanwhile, the 2026 Pay Raise proposal is just 1% for most, with a slightly better 3.8% for some law enforcement roles. But even that higher raise is dwarfed by the premium hike. As one analyst put it:

"The cost of a core benefit is rising at a rate more than thirteen times that of the proposed pay raise."

Why are premiums climbing so fast? OPM points to several factors: higher prices from healthcare providers, increased use of expensive prescription drugs, and a notable uptick in spending on behavioral health services. Plus, expanded FEHB benefits—like coverage for IVF and anti-obesity medications—are driving costs even higher. While these additions are valuable, they come at a steep price, and the impact on our take-home pay is impossible to ignore.

Inflation Impact: When Raises Can’t Keep Up

It’s not just active employees feeling the squeeze. Retirees are watching their buying power shrink, too. The latest inflation data suggests the 2026 cost-of-living adjustment (COLA) for Social Security and Civil Service Retirement System (CSRS) annuities will land between 2.5% and 2.7%. That sounds decent—until you realize that most retirees under the Federal Employees Retirement System (FERS) get less, thanks to the so-called “diet COLA.” If the official COLA is between 2% and 3%, FERS retirees receive a flat 2%—no matter how high inflation goes.

Here’s what that means in practice:

• FEHB premiums up 13.5% (2025)
• Pay raise: 1% for most (2026 proposed)
• COLA: 2.5-2.7% projected (2026), but only 2% for many FERS retirees
• Average TSP balance: $196,668 for FERS, $134,633 for CSRS (June 2025)
• Family FEHB cost up $26.10 per biweekly pay period

With the Federal Pay Comparability Act intended to keep federal pay in line with the private sector, these numbers show just how far reality has drifted from that goal. Expanded benefits are great, but when every “raise” is swallowed up by premium hikes and inflation, it’s hard not to feel like we’re running in place—or worse, falling behind.

As we navigate the federal employee money maze in 2026, it’s clear that pay raises alone aren’t enough to keep up with the rising cost of core benefits. The illusion of a bigger paycheck quickly fades when out-of-pocket costs stack up, leaving both employees and retirees with less real earning power year after year.

2. Law Enforcement: The Paywinner Exception (And What It Means)

Let’s talk about the biggest headline in the 2026 federal pay raise proposal: the Law Enforcement Pay Increase, also known as the “Paywinner Exception.” If you’re in federal law enforcement, you’re probably already hearing the buzz. While most federal employees are looking at a modest 1% across-the-board pay raise, law enforcement personnel could see a much bigger bump—up to 3.8%. That’s not just a number; it’s a statement about priorities, and it’s shaking up the entire federal workforce.

The Two-Tier Pay Raise: Who Gets What?

Here’s how it breaks down:

• Most federal employees: 1% base pay increase, with locality pay frozen at 2025 levels.
• Law enforcement (select roles): Up to 3.8% total pay raise, matching the Military Pay Raise for 2026.

This Alternative Pay Plan isn’t just about numbers—it’s about where the administration wants to put its money and attention. As one observer put it:

'By singling out law enforcement for a substantial raise while offering a minimal one to the rest...the administration is using compensation as a tool to signal its priorities.'

How Is “Law Enforcement” Defined?

That’s the million-dollar question. The Office of Personnel Management (OPM) has been directed to use its special salary rate authority to determine exactly which job categories qualify. OPM will consult with the Departments of Homeland Security, Justice, and the Interior, with a clear focus on roles tied to border security and immigration enforcement. If your job is critical to those missions, you’re likely in the running for the higher raise.

Winners, Losers, and the Fallout

This Pay Raise Proposal is already causing friction. Unions like NTEU and AFGE are pushing back hard, demanding the full 3.8% for all federal workers, not just a select few. They argue that a two-tier system breeds resentment and undermines morale. Meanwhile, the administration is unapologetic about its priorities—shifting resources and pay toward enforcement roles it sees as vital.

Here’s what’s at stake:

• Targeted raises mean more money and hiring for border, immigration, and enforcement jobs.
• Federal Workforce Reductions: Up to 200,000 positions could be lost or reorganized as resources are shuffled to support these priorities.
• Congressional battle ahead: In past years, Congress has sometimes overridden proposed pay plans, so this fight isn’t over yet.

What This Means for Federal Employees

If you’re in law enforcement, this could be your biggest raise in years. For everyone else, the 1% increase feels like a slap in the face—especially with inflation and cost-of-living pressures. The 2026 Pay Raise is more than a budget line; it’s a clear signal of where federal power and money are flowing. Differential pay and hiring policies are creating clear winners and losers, and the message is unmistakable: enforcement is in, and everything else is being asked to do more with less.

3. The Ghosts of Pay Parity: Locality Freezes and Legislative Tug-of-War

Let’s talk about the elephant in every federal worker’s break room: the Locality Pay Freeze. If you’re living in a high-cost city, you already know how much those extra dollars matter. But for 2026, the administration’s Alternative Pay Plan is putting the brakes on any new locality pay increases, freezing rates at their 2025 levels. That’s a tough pill to swallow for anyone watching rent, groceries, and gas climb ever higher.

Missed Opportunities: The Numbers Behind the Freeze

Here’s what really stings: If the statutory formula in the Federal Pay Comparability Act had been followed, we’d be looking at an 18.88% locality pay raise—yes, you read that right—plus a 3.3% General Schedule increase. Instead, the Alternative Pay Plan blocks these much larger, formulaic raises, leaving most of us with a mere 1% base pay bump. That’s a huge missed opportunity, especially for those of us in cities where the cost of living is skyrocketing.

Winners and Losers: Law Enforcement Exception

But wait, there’s a twist. The plan carves out a significant exception for certain law enforcement personnel. Thanks to special salary rate authority, some law enforcement roles—especially those tied to border security and immigration enforcement—are set to receive a total pay raise of about 3.8%, aligning them with the military’s increase. OPM is now working with Homeland Security, Justice, and Interior to decide exactly who qualifies. For everyone else, it’s business as usual—meaning, not much movement at all.

Congressional Timeline: The FAIR Act and Ongoing Advocacy

Every year, there’s a tug-of-war between the White House and Congress over federal pay. This year, the FAIR Act is back in the spotlight, proposing a 4.3% raise that combines base and locality pay. But as always, passage is uncertain. As one union leader put it:

"Legislative efforts like the FAIR Act…indicate ongoing advocacy for higher federal pay increases."

Federal employee unions are pushing hard, calling the 1% raise “meager and inadequate” and demanding that the higher law enforcement increase be extended to all federal workers. But with the Alternative Pay Plan in play, the administration is using pay as a policy tool—rewarding sectors it wants to prioritize, while keeping a tight grip on the overall budget.

Dueling Visions: Control vs. Compensation

• Control/Punishment: The administration’s approach signals fiscal restraint, but feels like a penalty for most federal workers, especially in expensive metro areas.
• Compensation/Fairness: Congress, especially through the FAIR Act, keeps pushing for more generous raises, arguing that fair pay is essential for recruitment and retention.

It’s a classic legislative tug-of-war, with federal employees caught in the middle. The Locality Pay Freeze overrides cost-of-living adjustments, and the Alternative Pay Plan blocks much larger increases that the law would otherwise require. For now, advocacy continues, but the ghosts of pay parity haunt every paycheck.

4. Unions in the Crosshairs: Legal Drama and Labor Shifts

When I look at the current landscape for the Federal Employees Union movement, it’s impossible to ignore the seismic shifts happening right before our eyes. In late August, a sweeping executive order—E.O. 14343—landed like a thunderclap, banning collective bargaining at a host of major science and tech agencies. We’re talking about NASA, the U.S. Patent and Trademark Office, the National Weather Service, and several others. For thousands of federal employees, this wasn’t just a policy change; it was a direct hit to their workplace rights and representation.

Executive Orders and the End of Bargaining

This order didn’t come out of nowhere. It built on a previous March directive that had already targeted nearly twenty other agencies. The message was clear: union power in the federal government was in the crosshairs. The administration argued these moves were about efficiency and national security, but for many of us in the federal community, it felt more like union-busting—plain and simple.

Unions Strike Back: Lawsuits and Legal Fireworks

The response from unions was swift and fierce. On September 3, the National Treasury Employees Union (NTEU) filed a lawsuit in D.C. District Court to block the order. Their argument? The president had overstepped his statutory authority. Under existing law, only agencies whose primary function is intelligence or national security can be excluded from collective bargaining. NASA and the Patent Office simply don’t fit that bill.

The American Federation of Government Employees (AFGE) didn’t mince words either, calling the executive order “immoral and an abomination.” Both unions saw the move as illegal retaliation for their outspoken opposition to administration policies—especially as debates over the Alternative Pay Plan and Pay Raise Proposal heated up in Congress.

States Step In: A Coalition for Worker Rights

But the unions weren’t fighting alone. On September 2, just a day before the NTEU lawsuit, a coalition of state attorneys general filed a legal brief in the Ninth Circuit, supporting the unions. They argued that the administration’s actions amounted to unconstitutional retaliation—a violation of the First Amendment. This wasn’t just about contracts anymore; it was about the very right of federal workers to organize and speak out.

“The lawsuits therefore represent more than a fight over contracts. They are a fight over the fundamental structure and independence of the federal workforce.”

Layoffs, Legislation, and the Future of Federal Unions

All of this legal drama is unfolding against a backdrop of sweeping Federal Workforce Reductions. Mass layoffs and changes to hiring and firing practices have already depleted union ranks, making organized resistance even harder. Meanwhile, new legislation threatens to further erode essential support for low-income federal families, even as some benefit from tax cuts. The stakes couldn’t be higher.

• Sweeping executive orders ban collective bargaining at major agencies
• Unions (NTEU, AFGE) sue, calling moves unconstitutional and retaliatory
• State attorneys general join legal fight, citing First Amendment violations
• Big layoffs deplete union ranks and organized resistance

In this climate, every legal brief, every court hearing, and every new executive order feels like a battle over more than just paychecks or contracts. It’s about the future shape and independence of federal employment itself.

5. Retirement Roulette: TSP Triumphs, COLA Conundrums, and New Tax Perks

Retirement planning for federal employees is always a balancing act, but this year feels especially high-stakes. The Thrift Savings Plan (TSP) has hit a historic milestone, soaring past $1 trillion in assets as of September 2025. That’s not just a headline—it’s a testament to the steady contributions of over 7.2 million participants, strong market performance, and the long-term power of compounding. For those of us under the Federal Employees Retirement System (FERS), the average TSP balance now stands at an impressive $196,668, while the overall average is $134,633. These numbers reflect years of diligent saving and the crucial boost from agency matching contributions.

The recent market rally has only sweetened the pot. In August, the C Fund (stock-based) gained 2.03%, the S Fund rose 4.8%, and the International Fund climbed 3.95%. Even the bond-focused F Fund posted a positive 1.19%. The G Fund, known for its stability, set its September interest rate at 4.25%. It’s clear that the TSP is now the backbone of federal retirement security. But with most of us now relying on FERS rather than the old CSRS defined benefit pension, our futures are more closely tied to market swings than ever before. A downturn could hit much harder than it would have twenty years ago.

But while the TSP is breaking records, the annual cost-of-living adjustment (COLA) is causing concern—especially for FERS retirees. Based on July’s inflation data, the 2026 COLA for Social Security and CSRS annuities is projected to land between 2.5% and 2.7%. The final figure will be set after September’s inflation numbers are in. However, FERS retirees face the so-called “diet COLA.” If the COLA is between 2% and 3%, FERS annuitants get a flat 2%. If it’s above 3%, they get the COLA minus one percentage point. For example,

Assuming the final COLA is 2.6%, a CSRS retiree with a $50,000 annual pension would see their annuity increase by $1,300. A FERS retiree with the identical pension would receive only a 2% increase, amounting to $1,000.

On the tax front, there’s a new bright spot: the Senior Tax Deduction. For 2026, individuals age 65 and older can claim a $6,000 deduction, or $12,000 for couples. However, this benefit phases out for those with adjusted gross incomes above $75,000 (or $150,000 for couples). It’s a welcome break for many, but higher earners may not see the full benefit.

Meanwhile, Social Security recipients face a new threat. The agency has begun aggressively recouping overpayments, withholding up to 50% of monthly checks until debts are repaid—a sharp increase from the previous 10% cap. For low-income retirees, losing half of a Social Security check could be devastating, adding financial stress at a time when every dollar counts.

In short, the federal retirement landscape is full of both triumphs and trials. The TSP’s growth offers hope, but COLA policies and Social Security changes remind us that vigilance is essential. As always, staying informed and proactive is the best way to navigate the ever-shifting money maze.