The House Budget Committee’s report on Rep. Paul Ryan’s fiscal 2014 budget fills in a few more details on how it would affect federal employees. The budget, which the House passed March 21, would get rid of the Federal Employees Retirement System supplemental payment beginning in January 2014. That supplement is paid to FERS employees who retire before age 62, to replace the Social Security payment for which they are not yet eligible.
The bill also would eliminate student loan repayments for federal employees. And its 10 percent federal workforce cut would be achieved by allowing agencies to only hire one new employee for every three who leave.
Ryan’s budget also takes a page from the Simpson-Bowles commission and increases the amount federal employees contribute to their pensions. The House Budget Committee said the retirement benefit cuts could save $132 billion over a decade.
The Ryan budget is sure to run aground in the Democratic-controlled Senate. But some of these proposals could be resurrected later this year, as part of budget negotiations.
The House yesterday passed a budget that hikes federal employees’ retirement contributions by 5 percent, which translates to an effective cut in take-home pay. If that becomes law, what would it mean for you? Would it change how much you invest in the Thrift Savings Plan? Or would you go so far as to bail out of the pension system — leave the federal service before retirement and get your FERS contributions refunded, with interest? (See “If You Leave Before Retirement Age” on this page for more details.)
Write me at email@example.com if you’d like to talk further. If you prefer to stay anonymous, that’s fine.
The Republican Study Committee yesterday proposed steep increases to the amount federal employees would contribute to their pension plans.
The committee’s budget plan for next year — called “Cut, Cap and Balance: A Budget for Fiscal Year 2013″ — calls for federal employees to split the cost of their pensions with taxpayers. Federal Employees Retirement System employees now contribute 0.8 percent of each paycheck toward their pensions; the government covers the remaining 11.7 percent. This would mean FERS employees would pay 6.25 percent of each paycheck toward their pension. (Plus another 6.2 percent towards Social Security, of course, and their regular Thrift Savings Plan contributions if they choose to participate.)
Employees under the older Civil Service Retirement System would be unaffected, since they already pay the same 7 percent toward their pensions as the government.
The Republican Study Committee said this would save $110 billion over ten years.
The proposal also calls for switching to a so-called chained CPI method for inflation-based adjustments to federal pensions, which the GOP said would save $26 billion over a decade.
And it wants to turn the Federal Employees Health Benefit Program to a premium support system, which it expects would save $27.6 billion over ten years. Under this plan, the government would cover the first $5,000 of premiums for a self-only health plan, or the first $11,000 for a family plan, and federal employees would cover the rest. The GOP plan doesn’t say whether or by how much those subsidies would increase in the future, but when the bipartisan Simpson-Bowles deficit committee considered a similar plan for FEHBP, it proposed increasing subsidies by the gross domestic product plus one percentage point. Critics of that plan said the growth would not keep up with inflation, eventually shifting the bulk of health care costs onto federal employees.
Last year’s Republican Study Committee budget proposal would have frozen pay for five years and cut the workforce by 15 percent. But yesterday’s plan does not include those provisions.
Key congressional negotiators have just signed off on a conference report to extend the payroll tax cut and unemployment insurance, and there’s an unexpected surprise in there. New members of Congress would no longer get a cushy pension, and would instead get the same annuity as rank-and-file federal employees, according to Ali Ahmad, who is a spokesman for Rep. Darrell Issa, R-Calif.
Feds under the Federal Employees Retirement System have their pension calculated at either 1 percent or 1.1 percent, depending on their age. But lawmakers under FERS have their pension calculated at 1.7 percent. That, when combined with their much higher salaries, means lawmakers’ pensions are often more than twice those enjoyed by everyday feds.
Rep. Dennis Ross, R-Fla., who is one of Issa’s deputies, has been pushing to eliminate Congress’ pension perk for some time now. If it passes, this would amount to a big win for him.
The deal also would make new federal employees pay 3.1 percent toward their pensions, instead of the current 0.8 percent. And that element isn’t just upsetting federal unions. Rep. Steny Hoyer, D-Md., called the deal “unacceptable” and said he will vote against it. “We must stop targeting these hardworking men and women while not asking others to contribute their fair share,” Hoyer said.
UPDATE: Ross is from Florida, not California.
Rep. Dennis Ross, R-Fla., has scheduled a hearing for next Wednesday on federal pensions, and feds aren’t going to like what he’s got in store. Ross, the chairman of the House Oversight and Government Reform subcommittee on the federal workforce, is going to look at how to move “the entire federal workforce, Congress included, to a more realistic and cost-effective defined contribution pension system as opposed to the bankrupting defined benefit plan.”
What would that mean? No more FERS pensions, for one, though it remains to be seen whether it would scratch pensions only for future employees or include some current employees.
Rep. Darrell Issa, R-Calif., who is chairman of the full oversight committee, proposed just such a plan last October. Issa’s office last year said his proposed 401(k)-like defined contribution plan would operate alongside the similar Thrift Savings Plan, which is also a defined contribution plan. So, under Issa’s plan, you’d essentially have two 401(k)s.
In a statement set to formally go out on Monday, Ross said:
The American people are also, rightfully, outraged by the pension benefits guaranteed to a bloated federal workforce, paid for through an ever-increasing tax burden on the American worker. Too many hard-working Americans watched their pensions evaporate because of unsustainable promises. [...] As Congress looks for ways to cut costs, pension reform that ensures a positive return to the worker while delivering cost savings to the taxpayer should be job one.
It’s worth noting that while federal pensions are deeply underfunded by some $673 billion, that is entirely due to the poor design of the now-closed Civil Service Retirement System, and the far less-generous Federal Employees Retirement System was designed to always stay fully funded (although most of the funding for the FERS pension comes from the government).
But Ross also wants to bring Congress’ lavish retirement benefits back in line with those enjoyed by rank-and-file feds. (If you wanna get mad, take a look at this chart.) Ross and I had an exchange via Twitter this afternoon in which he said “time to make Congressional pensions like everyone else’s” and added the hashtag “#nomoreperks.” When I asked if that meant he thought a FERS lawmaker, for example, should get his pension calculated at 1.1 percent instead of the current 1.7 percent, Ross replied, “absolutely.”
That’s the first time I know of that Ross has called for equalizing federal and congressional pensions. And it looks like he will fulfill a promise he made to ABC News last November, to consider the multiple bills that would whittle down congressional pensions. But feds’ pensions may get caught in the crossfire.
President Obama’s proposal to hike the amount federal employees pay into their pensions by 1.2 percent struck a nerve. In the latest reaction, National Treasury Employees Union President Colleen Kelley today sent a letter to the super committee on deficit reduction calling those changes “ill-advised and inequitable,” and said they would lead to “an exodus of our most highly-trained and experienced workers.”
What do you think about the proposals? Sound off below, or e-mail me at firstname.lastname@example.org. We’d like to hear your thoughts on this potential major change to federal employees’ benefits.
It’s looking increasingly likely that a deficit reduction deal is going to hit future feds particularly hard, as we reported last week. Rep. Dennis Ross, R-Fla., today confirmed that not only are lawmakers seriously considering raising the amount federal employees contribute toward their pensions, but the increase would be a lot higher for new employees than for current employees.
Ross told me that he’s not personally involved in the negotiations and couldn’t say how big the increases might be. (Unions have been told that current employees’ contributions — to both the Federal Employees Retirement System and the Civil Service Retirement System — would go up by either 0.4 or 0.5 percentage points per year for three years once the pay freeze ends, and that future employees’ FERS contributions would be either 5.5 percent or 6 percent. FERS contributions are now 0.8 percent.)
“For those existing employees, it will not be as significant as what it will be for new employees,” Ross said. “There’s no question that that’s going to be considered. To what extent, I don’t know.”
Ross said the deficit reduction deal may also require federal employees to pay more toward their health insurance.
But just how deep will the cuts to federal employees’ pay and benefits go? “I think that’s probably some of the fine print that’s going to be decided after an overall deal is made, as to the amount of [spending] cuts,” Ross said. “We’ll probably know more, maybe before the weekend.”
Although negotiations now appear in disarray, Ross is confident that lawmakers and the White House will find some way to cut the deficit and raise the debt ceiling. “There’ll be a deal struck,” Ross said. “It’s just a matter of when.”
The National Active and Retired Federal Employees Association is gearing up for the deficit fight over Social Security and federal employees’ pensions. NARFE President Joseph Beaudoin issued a statement July 8 opposing a possible change to how Social Security cost-of-living adjustments are set.
Once the so-called chained Consumer Price Index (CPI) comes to Social Security, NARFE says, it’s just a hop, skip and a jump to federal pensions. This would make it even harder for retirees — who served their country for decades and are already living on tight incomes — to get by, Beaudoin said. Full text of his statement after the jump.
A group of 25 federal unions, employee groups and management organizations has once again called on lawmakers and the Obama administration to reject sweeping changes to their pay and benefits as part of a debt ceiling deal.
The Federal-Postal Coalition is most concerned about proposals to have employees under the Federal Employees Retirement System cover half the cost of their pension plan, which would effectively mean a 5 percent pay cut.
The July 1 letters — one to House and Senate leaders of both parties, and the other to President Obama — track closely with a previous letter sent to Vice President Biden while he was leading negotiations to raise the debt ceiling. But those talks broke down late last month, and President Obama is likely to start negotiating directly with top congressional leaders. Which is why the coalition is dusting off this letter to reiterate their position — hands off federal pensions.
Former Minnesota governor and Republican presidential candidate Tim Pawlenty today called for scrapping the defined benefit pension in the Federal Employees Retirement System.
In a speech at the libertarian Cato Institute, which can be heard online here, Pawlenty said that federal employees should be “transitioned” from receiving both the FERS defined benefit and defined contribution plan, aka the Thrift Savings Plan, to just the TSP. This would bring federal retirement plans more in line with what the private sector offers, he said, since the private sector has largely given up on the defined benefit plan.
Pawlenty also said that federal employees receive far more compensation — both pay and benefits combined — than private sector counterparts, and that federal pay should be frozen further until the private sector catches up.
He also wants to take a look at the government’s step increase system of awarding pay increases to federal employees based on how long they’ve been in their current grade. And the federal workforce must shrink, and should only hire one new employee for every two who retire, Pawlenty said.
Pawlenty’s speech is a sign of the times. I can’t recall a prior presidential candidate ever talking about federal pay and benefits, beyond an occasional afterthought in a policy statement or letter to federal unions. But with the deficit shaping up to be a major issue in the 2012 elections and public sympathy in short supply for federal employees, they should expect more of such talk over the next year and a half — and brace themselves for bad news.