Yesterday, the House passed a bill that if enacted would spare federal agencies from about $100 billion in cuts set to go into effect on January 3, 2013.  The Department of Defense (DoD) would have to take about $55 billion of this cut. 

Secretary of Defense Leon Panetta and other agency heads have warned lawmakers that the effect of these automatic cuts will be “catastrophic.”  The Sequester Replacement Reconciliation Act of 2012 (H.R. 5652), which passed the House yesterday 218Y-199N, provides for alternative savings so agencies can avoid the automatic cuts.

The good news is that the bill would achieve savings that would negate the need for the automatic cuts in January.

The bad news for federal employees is that most of these savings would be achieved by requiring federal employees to contribute significantly more into their retirement programs.

Under the House bill, pension contributions for employees covered under the Federal Employees Retirement System (FERS) would rise to 5.8 percent from the current 0.8 percent, effectively cutting pay by five percent.  For Civil Service Retirement System (CSRS) employees, the contribution would increase from the current 7 percent to 12 percent.  The increase would be phased in over five years: 1.5 percent in 2013, 0.5 percent in 2014, and one percent each year from 2015 to 2017.

New federal workers starting in 2013 or later would pay the 5.8 percent contribution when they begin employment.

Members of Congress and their staffs would also experience increases in their pension contributions under the House plan.  Contributions for members and staff covered under CSRS and members under FERS would rise to 8.5 percent.  Contributions by congressional staff under FERS would increase to 7.5 percent.

The bill does contain a bit of good news for federal employees.  A provision in the bill would allow retiring federal employees to put the value of unused annual leave into their Thrift Savings Plan accounts.

The bill would achieve other savings by trimming Medicaid spending, limiting eligibility for receiving food stamps food stamps, and shutting down health insurance exchange grants.  Congressional Democrats and the president strongly oppose these cuts.

Prospects for enactment of this bill are remote at best.  It is highly unlikely that the Democrat-controlled Senate will consider the House bill and the White House has said the president would veto it.  But, concern about Congress’ need to come up with an alternative will not go away. 

As the sequester date creeps closer and closer, anxiety about automatic cuts will grow and the air will be filled with political charges and countercharges about the need to act to avoid them.  Even so, it is doubtful that any serious action to avoid the sequester will occur before the November elections, which would leave the problem squarely in the hands of a congressional lame duck session.