‘Plan B’ would raise amount federal workers contribute toward retirement

December 20, 2012

The Plan B bill up for a House vote today contains a provision that for much of the year has been Plan A among House Republicans regarding federal employees: raising the amount they are required to contribute toward their retirement benefits.

The measure, a fallback brought up because political leaders have not resolved the pending fiscal cliff crisis, would increase contributions by all employees by 5 percent of salary, phased in over five years.

The increase would begin in January with a 1.5 percentage point increase, followed by another half-percentage point in 2014 and then 1 percent more each the following three years. The required contribution by members of Congress would increase even more, by a total of 8.5 percent of salary over five years starting with an additional 2.5 percentage points in 2013.

The language duplicates provisions of a bill the House passed in May calling for higher contributions by all employees. Several other bills, including a House-passed budget outline, also called for raising contributions by varying amounts. The Senate set each aside and may do the same with the Plan B bill.

However, earlier in the year, a law was enacted requiring an increase by future employees. Those first hired in 2013 or after, or who are rehired into government with fewer than five years of prior service, will have to pay an additional 2.3 percentage points,

Currently, employees under the Federal Employees Retirement System pay 0.8 percent of salary toward a civil service retirement benefit, plus the standard Social Security payroll tax – typically 6.2 percent of salary, but 4.2 percent this year. Those under the Civil Service Retirement System do not pay Social Security taxes nor receive benefits from that system through their federal employment. Instead, they pay 7 percent of salary toward a civil service benefit that is worth nearly twice what a FERS employee with a similar work record would receive.

Organizations representing federal employees decried the House bill’s provision.

“Make no mistake, an increased contribution toward one’s pension, with no corresponding increase in benefits, is a pay cut.” National Treasury Employees Union President Colleen M. Kelley said in a letter to legislators.

“Most federal employees make a modest salary, and singling them out for deficit reduction flies in the face of those calling for tax relief for the middle class,” said Joseph A. Beaudoin, president of the National Active and Retired Federal Employees Association. “It’s time Congress found other ways to reduce the deficit than to continually take from our nation’s public servants.”

The bill also would mostly eliminate, effective in 2013, a supplement paid to employees under the FERS system who retire before age 62. That supplement is designed to duplicate their earned Social Security benefit until age 62 when they are eligible to begin drawing that benefit.

Employees subject to mandatory retirement, mainly law enforcement officers, firefighters and air traffic controllers, would continue to be eligible for it.

Another provision meanwhile would allow employees to invest in the 401(k)-style Thrift Savings Plan the cash payment they receive for unused annual leave when they separate from government for retirement or other reasons.

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