Riding the 2025 Tidal Wave: The Surprising Reality for Federal Employees & Retirees (6-12 Jul 2025, Episode 6)

Let me tell you a secret: my grandmother used to clip federal benefit articles and tape them to the fridge, warning me that "change comes in waves—some big, some barely a ripple." This July, the waves feel more like a tidal surge for anyone in the federal workforce. So whether you’re on the verge of retirement, plotting your next pay step, or just reading from the sidelines, here’s the no-spin tour of what really happened (and what it actually means) in the federal arena this wild week.

1. New Benefits, Familiar Fears: What the One Big Beautiful Bill Act Really Changed

If you’re like me, you probably spent the first half of 2025 anxiously refreshing news feeds, waiting to see what would happen to federal employee benefits. The One Big Beautiful Bill Act (OBBB), signed by President Trump on July 4, 2025, was the end of months of rumors, heated debates, and a lot of sleepless nights for federal employees and retirees. The fear was real: proposals to eliminate the FERS supplement, hike FERS contributions, and switch to a “High-5” annuity calculation were all on the table. For a while, it looked like federal retirement as we knew it was about to be gutted.

But in a dramatic twist, the final version of the OBBB left those severe cuts on the cutting room floor. Thanks to procedural hurdles in the Senate—specifically the Byrd Rule, which blocks certain reforms in budget bills—these drastic changes were stripped out at the last minute. As one colleague put it,

"The relief for many in the federal community comes from the provisions that were ultimately excluded from the bill."

Health Savings Accounts Changes: More Flexibility, More Access

Instead of slashing benefits, the OBBB delivered some genuine enhancements—especially around Health Savings Accounts (HSAs). Here’s what changed for federal employees in 2025:

• Telehealth Coverage: High Deductible Health Plans (HDHPs) can now permanently cover telehealth services before you meet your deductible. This pandemic-era flexibility is here to stay.
• Expanded HSA Eligibility: All bronze and catastrophic plans on the individual market now count as qualified HDHPs, making it easier for more people to open and contribute to HSAs.
• Direct Primary Care (DPC) Inclusion: Starting in 2026, being enrolled in a DPC arrangement won’t disqualify you from HSA contributions. Plus, DPC fees are now a qualified medical expense.

These Health Savings Accounts changes signal a shift toward more benefit flexibility for federal employees in 2025 and beyond.

Dependent Care Flexible Spending: A Long-Overdue Increase

For those of us juggling work and family, the OBBB finally delivered some good news on Dependent Care Flexible Spending. The annual contribution limit for dependent care FSAs will jump from $5,000 to $7,500 starting in 2026—the first permanent increase since 1986. This is a big win for working parents and caregivers, and it’s a change that’s been needed for decades.

Permanent Student Loan Repayment Assistance

Another bright spot: the OBBB made permanent the ability for agencies to provide up to $5,250 per year in tax-free student loan repayment assistance under Section 127 educational assistance programs. Even better, this amount will be indexed for inflation starting in 2026. For many federal employees, this is a meaningful benefit that can help ease the burden of student debt.

What Wasn’t in the Bill—and Why That Matters

While the OBBB’s final version focused on expanding benefits, it’s important to remember how close we came to major cuts. Proposals like FERS supplement elimination, higher FERS contributions, and the “High-5” annuity calculation were only narrowly avoided. The fact that these ideas made it so far hints at the direction of future policy battles over federal employee benefits.

For now, the OBBB has brought some welcome improvements—but the familiar fears haven’t disappeared. The landscape for federal employee benefits in 2025 is more flexible, but the debates are far from over.

2. Sticker Shock: Premiums, Pensions, and the High Price of Security

If you’re a federal employee or retiree, you’ve probably already heard the big news: health benefits premium increases for 2025 are the steepest we’ve seen in almost 20 years. As I logged into my Open Season portal, the number staring back at me was hard to ignore—a 13.5% average hike for the Federal Employees Health Benefits (FEHB) program. That’s an extra $26.10 coming out of each biweekly paycheck for the average non-postal worker or annuitant. As OPM bluntly put it,

"Current and retired federal employees enrolled in the FEHB program are facing the largest premium increase in nearly two decades for 2025."

Why the spike? OPM points to rising healthcare provider costs, more expensive prescription drugs, and a surge in outpatient and behavioral health spending. But there’s a twist: while we’re paying more, we’re also getting expanded coverage. For 2025, every FEHB plan must now cover in vitro fertilization (IVF) and at least one GLP-1 anti-obesity drug (think Wegovy) along with other oral anti-obesity medications. It’s a step forward for coverage, but it comes at a real price—one that hits especially hard for those of us on fixed incomes or tight budgets.

Thrift Savings Plan Updates: New Funds and More Flexibility

While we’re grappling with health premium hikes, the Thrift Savings Plan (TSP) is rolling out some noteworthy updates. At the end of June, TSP introduced the new L 2075 fund, aimed at those planning to start withdrawals around 2075. Meanwhile, the L 2025 fund has reached its target and merged into the L Income fund, which is designed for retirees focused on capital preservation.

But the real game-changer is coming in January 2026: in-plan Roth conversions. This long-awaited feature will let us convert traditional pre-tax TSP balances to Roth, all within the plan—no more complicated rollovers. For those eyeing tax diversification in retirement, this is a big deal. Plus, thanks to the Secure 2.0 Act, there’s a new, higher catch-up contribution limit for participants aged 60-63, giving late-career savers a little more room to boost their nest egg.

COLA Forecast: The FERS Diet COLA Penalty Persists

Let’s talk about the other elephant in the room: the projected Cost of Living Adjustment (COLA) for 2026. As of June 2025, the forecast sits at just 2.5%. But here’s the kicker—if you’re a FERS retiree, you’ll likely get only 2%, thanks to the infamous FERS COLA penalty (often called the “diet COLA”). CSRS retirees and Social Security beneficiaries will see the full 2.5% increase, but FERS annuitants are once again left with less. This gap may seem small, but over time, it erodes the value of FERS pensions, especially as inflation keeps nibbling away at our purchasing power.

• FEHB premium increase: 13.5% for 2025, +$26.10 biweekly
• Expanded coverage: IVF and anti-obesity drugs now included in all FEHB plans
• TSP updates: New L 2075 fund, in-plan Roth conversions (Jan 2026), higher catch-up limits
• COLA forecast: 2.5% for 2026; FERS retirees get only 2%

Between rising health costs, shifting TSP options, and the ongoing COLA disparity, it’s no wonder so many federal employees and retirees are feeling the squeeze. The “high price of security” is more than just a headline—it’s our new reality.

3. Layoffs, Lockdowns, and Leadership Jolts: The Unexpected Fallout

This past week, the federal workforce was rocked by a series of seismic events—each one with the potential to reshape careers, benefits, and daily routines for federal employees and retirees. If you thought the threat of mass layoffs was just political posturing, the Supreme Court’s July 8th ruling changed everything. Suddenly, Supreme Court federal layoffs aren’t just a headline—they’re a reality for thousands across agencies like the Social Security Administration, IRS, and Department of Veterans Affairs.

Supreme Court Greenlights Mass RIFs: Layoffs Get Real

On July 8, 2025, the Supreme Court lifted previous restrictions, giving the administration the green light to proceed with agency-wide reductions in force (RIFs). For months, these cuts were stalled by legal challenges, but now, agencies are moving fast. The anxiety is palpable—federal employee unions are sounding the alarm, and lawmakers like Rep. Don Beyer are urging a pause, but the machinery is already in motion. If you’re a federal worker, the risk of being swept up in a RIF is no longer theoretical.

"The week saw significant developments at the federal government's Central Human Resources Agency."

OPM Leadership Changes: A New Era of Tech and Data

As if layoffs weren’t enough, the OPM leadership changes added another layer of uncertainty. On July 9th, Scott Cooper—a venture capital executive with a reputation for tech-driven transformation—was confirmed as the new OPM Director in a tight 49-46 Senate vote. His arrival signals a major push toward digital modernization and data-driven decision-making at OPM. For many, this is a double-edged sword: while modernization is overdue, it often comes with growing pains and job cuts.

FedScope Data: Shrinking Workforce, Rising Pressure

OPM’s newly revamped FedScope platform dropped a bombshell: between September 2024 and March 2025, the federal workforce shrank by over 23,000 employees. That’s not just a statistic—it’s a sign of the administration’s commitment to “right-sizing” government. For those left behind, the pressure is mounting. More work, fewer hands, and the ever-present threat of further cuts are fueling burnout and uncertainty.

Return-to-Office Mandates: Colliding with Burnout and Retirements

Layered on top of layoffs and leadership jolts is the return-to-office push. A new executive order ends pandemic-era telework, forcing agencies back to 2019 routines. The Department of Veterans Affairs has already set a July 28th deadline for remote staff. For many, this means longer commutes, less flexibility, and a spike in retirement applications. In fact, federal retirement processing delays are now at a six-year high, with OPM’s shift to all-digital applications (effective July 15th) struggling to keep up with a 22% jump in claims.

• Supreme Court federal layoffs are now a reality, not a rumor.
• OPM leadership changes signal a tech-driven shakeup.
• FedScope data shows a net loss of 23,000+ federal workers in just six months.
• Return-to-office mandates are colliding with a surge in retirements and burnout.

Mass layoffs, digital transitions, and forced returns to the office are converging, creating an unprecedented moment for federal employees and retirees. The fallout is real, and nobody—from the cubicle to the corner office—is immune.

4. Pay Freezes & Performance Pressure: When the Numbers Get Personal

If you’re a federal employee, the numbers for 2026 are about to get very personal. The latest federal workforce legislative updates have made one thing clear: a pay freeze is (almost) guaranteed. The OBBB, the major budget law, skipped any provision for a 2026 raise, and the president’s budget proposal doubled down, calling for a flat-out freeze for all civilian employees. The Federal Adjustment of Income Rates (FAIR) Act—which would have meant a 4.3% raise—remains stalled in Congress. So, what’s left? A tiny average bump of about 0.5% from locality pay adjustments. That’s it.

For those of us watching our paychecks, this isn’t just a line item. It’s a real hit, especially as costs keep rising. The talk of federal employee pay cuts may not be literal, but with inflation and no real raise, it sure feels like one. And while there’s no increase in FERS contribution rates (yet), the squeeze is real.

Performance Pressure: The OPM Memo Shakes Things Up

Just as pay is locked, the pressure to perform is ramping up. On June 17, 2025, a sweeping memorandum issued by OPM “completely overhauls the performance management system for all non-senior federal employees.” Here’s what that means for us on the ground:

• Shorter PIPs: Performance Improvement Plans (PIPs) are now capped at just 30 days—down from the traditional 60 or 90. That’s a much shorter leash if you’re flagged for performance issues.
• Easier Firings: Agencies are encouraged to use Chapter 75 adverse action procedures, which don’t even require a PIP before moving to discipline or removal.
• Stricter Ratings: The memo directs agencies to crack down on “rating inflation.” It’s now harder to get an “Outstanding” rating, and some agencies may even implement forced distribution—meaning a set percentage of employees must be rated lower, no matter what.

The stated goal is a “high performance culture,” but for many, it feels like job protections are being chipped away. Federal employee unions like AFGE are calling foul, arguing these changes violate existing labor contracts. The administration, however, seems determined to push ahead.

Return to Office: The End of Pandemic-Era Flexibility

The other shoe dropping in 2025 is the return to office for federal employees. Agencies like the VA have set hard deadlines (July 28, 2025, for many remote workers) to end most telework agreements. The “Show Up Act” in Congress would force agencies back to pre-pandemic telework levels—and make any future flexibility much harder to justify.

This comes despite a June 2025 GAO report showing that remote work helped agencies hire for mission-critical jobs. Morale is already taking a hit, and many predict a wave of retirements and resignations as the new rules take hold.

“A sweeping memorandum issued by OPM on June 17, 2025, completely overhauls the performance management system for all non-senior federal employees.”

Pay is locked, expectations are up, and the definition of a federal career is changing fast. For those of us in the trenches, these aren’t just policy shifts—they’re personal.

5. Wild Card: What If...? Future Scenarios and Unanswered Questions

As I look ahead to the next chapter for federal employees and retirees, I can’t help but feel that we’re all riding a tidal wave of uncertainty. The latest Federal retirement system updates have left us with more questions than answers, especially when it comes to the infamous FERS COLA penalty. If this formula persists, what does the long-term picture really look like for FERS retirees? Imagine watching your annuity shrink in real terms, year after year, for a decade or more. That’s not just a hypothetical—it’s the very real risk we face if the current COLA disparity continues to erode the purchasing power of FERS annuities compared to CSRS or Social Security benefits.

The Equal COLA Act, championed by federal employee unions and introduced by the late Representative Jerry Connelly, was supposed to be the fix. Its goal is simple: eliminate the FERS COLA penalty and put FERS retirees on equal footing with CSRS and Social Security recipients. But as of now, the bill is stuck in committee, a casualty of Congressional gridlock and the broader uncertainty surrounding the Budget Resolution 2025. With Congress divided and new bills stalling, I have to wonder—are radical shifts and legislative inertia just the new status quo for federal retirement policy?

Meanwhile, the push for modernization at OPM is a double-edged sword. The agency’s move to a fully digital retirement system, effective July 15, 2025, is supposed to streamline a process that’s been bogged down by paper for decades. But here’s the paradox: “The paradox of retirement processing: modernization meets gridlock. Even as OPM moves to modernize its systems, new retirees are facing significant delays.” In June 2025, OPM’s retirement claims backlog surged by 22%, hitting its highest midyear level in six years. Could this digital transition create a ‘retirement limbo’ where hundreds of new retirees wait months for their first check? For those relying on timely income, this is more than a technical hiccup—it’s a potential crisis.

And what about the broader workforce? Suppose layoffs accelerate in response to budgetary pressures or further policy changes. Will agencies lose irreplaceable institutional knowledge, leaving only newbies at the Social Security office counter? The Social Security Fairness Act could boost benefits for some, but if churn and inexperience become the norm, the quality of service may suffer.

Between policy shifts, reform fatigue, and the growing pains of digital modernization, the future for those invested in federal service is anything but clear. The fate of the Equal COLA Act, the potential for further FERS formula changes, and the ongoing influence of federal employee unions all hang in the balance. As we move into 2025 and beyond, I’m left asking: Will the lived reality for federal employees and retirees be stranger—and perhaps tougher—than any scenario we can imagine? Only time will tell, but one thing is certain: staying informed and engaged is more important than ever.