Most Read: Politics

Read In

Now Viewing: People from around the country looking at Post Politics section

See what's being read across the country ›
Federal Eye
Posted at 11:45 AM ET, 07/26/2011

Proposals to cut retirement benefits

Federal retirement benefits are on the chopping block during the debt ceiling debate. While nothing is definite at this point — the battle over the debt ceiling remains intense, with President Obama and House Speaker John Boehner making dueling TV appearances Monday night — the following ideas on retirement benefits have been raised. Many have been mentioned in more than one of the proposals.

The deadline before default is Aug. 2, a week away.

Increasing the employee contribution to retirement

First, there are two main federal retirement systems, the Civil Service Retirement System and the Federal Employees Retirement System. Employees under CSRS pay 7 percent of their salary into the federal retirement fund but nothing into Social Security. They receive a civil service annuity but no Social Security benefits unless they qualified through other employment.

Employees under FERS, which mainly covers those hired in 1984 and later, pay into Social Security and receive the same benefits from it as other workers. The Social Security contribution typically is 6.2 percent of salary, though this year it’s 4.2 percent. Most FERS employees also pay 0.8 percent of their salary into the civil service retirement fund and receive a federal annuity that is worth about half of what a CSRS employee with a similar work history would receive.

Under both systems, some employees, such as law enforcement officers, pay in slightly more and receive a somewhat larger benefit.

The government as an employer also pays both Social Security for FERS employees, and into the federal retirement fund for both CSRS and FERS employees. The government share for the civil service benefit is significantly larger than the employee’s. For example, for most FERS employees, agencies pay an amount equal to 11.7 percent of salary into the federal retirement fund.

Included among the formulas raised for federal cuts is the idea of setting the employee and employer share at equal amounts, which would require additional employee contributions of more than 5 percent of salary.

Most of the attention has focused on the FERS system, in part because it covers the large majority of federal employees, but current CSRS-covered employees could be affected as well.

Another formula would require the hike in worker contributions to apply to those hired after a certain date. Current employees would face a smaller increase, possibly phased in over several years.

Changing the annuity calculation base

Currently, under both CSRS and FERS, annuities for those who retire are based on years of service and what is called the “high-3”—the highest three consecutive salary years, typically an employee’s last three years. One option that has been raised repeatedly is to change this to the highest five years.

The impact on a retiring employee would depend on the person’s salary history. CBO in 2009 estimated an average reduction in new annuities under CSRS of $757 and under FERS of $246.

Should such a change be made, an important question for employees would be when it would take effect. About a quarter of federal employees are currently eligible to retire, and such a formula change could compel some to retire before the effective date. No potential effective date has emerged publicly.

Changing the annuity payout formula

Another idea that has circulated, again with a focus on FERS, is reducing annuity payouts by changing the “multiplier” used in the benefits calculation.

Benefits under FERS are calculated as 1 percent of high-3 per year of service. For example, an employee with a $60,000 high-3 and 30 years of service would receive an annual annuity of $18,000. The multiplier is 1.1 percent for FERS employees who retire at age 62 or above with at least 20 years of service.

Employee organizations say one option that has been discussed by political leaders is reducing the multiplier, by possibly 0.4 percentage points. In the example, that would reduce the annual benefit to $10,800.

The CSRS payout formula is more generous, resulting in a benefit of nearly twice what a FERS employee with similar earnings and years of service would receive.

Again, the effective date would be a major issue for federal employees, particularly those currently eligible for retirement. Reducing the payout formula only for employees newly hired after some point would shield current employees, but it would not produce budgetary savings until far into the future.

Cost of living changes.

Currently, federal retirement benefits, along with Social Security, military retirement and various other benefits, are based on a Consumer Price Index that measures the change in costs, month to month, for a fixed set of goods and services. One idea under consideration is to adopt what is called the “chained” CPI, which attempts to take into account changes in consumer buying habits when the cost of a good or service increases — buying more chicken, for example, if the price of beef rises.

Switching to the chained CPI would result in annual future inflation increases of about a quarter of a percentage point below what they would be under current law, the Congressional Budget Office has estimated. On average, it said, a CSRS annuitant would receive about $3,900 less over 10 years, a FERS annuitant $1,000 less. The difference is due to the more generous benefit formula under CSRS and restrictions that already apply to COLAs in the FERS program.

And what happens if there is no debt ceiling agreement by the deadline on Aug. 2?

The White House has said it can’t guarantee that Social Security payments would be made in the event of a default, which suggests that federal retirement payments would be vulnerable, too. But, again, nothing is definite.

Federal Workers:

"How confident are you that default will be avoided? Why?"

Joe Davidson, The Post

Tell us

By  |  11:45 AM ET, 07/26/2011

Categories:  Budget, Workplace Issues

 
Read what others are saying
     

    © 2011 The Washington Post Company