Federal worker pensions emerge as target in debt-reduction talks

The generous pension system enjoyed by millions of federal workers from clerks to senators and judges has emerged as a key target in negotiations between Vice President Biden and congressional leaders looking to restrain the growing national debt.

Republicans have proposed saving more than $120 billion over the next decade by requiring the civilian workforce to contribute more toward retirement — a plan that would effectively impose an immediate 5 percent pay cut on more than 2 million federal employees. President Obama’s bipartisan fiscal commission has also endorsed the idea, calling the federal system “out of line” with the private sector.

Now, administration officials have expressed interest in raising the amount that employees contribute to their pensions — though probably not as high as the GOP proposal, definitely not as fast and possibly not for all workers, according to people in both parties familiar with the discussions.

If adopted as part of a compromise plan to control federal borrowing, the proposal promises to test the resolve of local lawmakers — particularly Democrats — by forcing them to choose between the lofty goal of debt reduction and the interests of public-sector workers, who have come under fire from Republicans in Washington and several state capitals.

Rep. Chris Van Hollen (D-Md.) may be the first to face that dilemma. One of only six lawmakers at the table in the Biden talks, Van Hollen represents a suburban Washington district that is home to one of the nation’s largest concentrations of federal employees.

Van Hollen has vocally opposed the GOP pension proposal, which was included in the budget blueprint that passed the House last month. He declined to comment on the closed-door talks at Blair House, which have already set off alarm bells among union leaders.

“We’re very concerned,” said Maureen Gilman, legislative and political director for the National Treasury Employees Union, noting that federal workers were hit in January with a two-year pay freeze.

“These are difficult times, and federal employees understand this,” Gilman said. “But we’d like to see some other people in the shared pot for sacrifice before anybody comes back to us for seconds.”

Hard road ahead

The proposal to change pension funding represents one of the plumpest pots of potential savings under discussion by the Biden group. The White House has not previously endorsed the idea, and a White House spokeswoman declined to comment, citing the private nature of the talks.

The issue illustrates the hard road ahead for policymakers trying to rebalance the federal budget. Participants in the Biden talks have temporarily set aside the most ideologically divisive issues, such as raising taxes and cutting entitlement benefits. But while the remaining targets are smaller, they are also guarded by a thicket of lobbyists and interest groups.

Since May 5, negotiators have focused on a list of proposed reductions to “mandatory” programs, which are financed outside the annual appropriations process. The Republican-controlled House’s budget blueprint includes $715 billion in such savings through 2021; Obama has offered $290 billion.

Negotiators have identified areas of overlap that could save as much as $200 billion over the next decade, sources familiar with the talks said, though that figure is expected to shrink as the two sides hash out details.

“We just tasked the staff with about 10 things we all agree that we had to go back and look at, things that we weren’t crazy about looking at and a lot of things they weren’t crazy about looking at,” Biden told reporters Thursday after the most recent meeting.

The potential savings include as much as $30 billion in farm subsidies, nearly $20 billion from making graduate students pay interest on college loans while still in school and $16 billion in higher premiums for private pensions insured by the federal Pension Benefit Guaranty Corp.

Airlines could face higher security fees. TV stations could be encouraged to sell under-used airwaves. And both sides want to save money by overhauling mortgage giants Fannie Mae and Freddie Mac.

Virtually every idea has a ready stable of opponents: The National Association of Broadcasters opposes voluntary broadcast spectrum sales, fearing that small stations could be pressured by deep-pocket wireless providers. Big business and organized labor both oppose higher PBGC premiums. And rural conservatives in the Senate have long protected the nation’s farmers.

Changing the federal pension system is no exception. Worker advocates vow a fierce fight, arguing that the idea is driven more by partisan ideology than fiscal responsibility.

“There’s a not-so-hidden agenda to go after federal workers and the public employee unions that represent them. And we’ve seen this across the country, whether in Wisconsin or in the federal government,” said Rep. Gerald E. Connolly (D), a fiscal conservative whose Northern Virginia district is home to nearly 60,000 federal workers.

Even some Republicans are not happy with the House pension proposal. As he cast a vote for the GOP budget blueprint, Rep. Frank R. Wolf (R-Va.) said, “I regret that the . . . proposal seeks to make government service an unattractive career choice,” in part “by changing retirement plans.”

Bipartisan plan

Still, the pension proposal is hardly partisan. Third Way, a centrist Democratic think tank, promoted it in a September brief, arguing that federal workers “enjoy one of the most generous retirement plans in the country.”

Created in 1986, the system features a thrift savings program similar to a 401(k) retirement account and a traditional, defined-benefit pension, which is fast disappearing at private companies. The system provides benefits that are slightly “more generous than what most other middle-class families receive in retirement,” the brief says, but federal employees contribute strikingly little. Just $1 of every $15 paid into the pension plan, known as the Federal Employment Retirement System or FERS, comes from workers’ paychecks.

Overall, Third Way calculates that federal taxpayers are far more generous to their employees than private-sector companies, contributing 12.7 percent of payroll to retirement accounts vs. 5.3 percent in the private sector.

“Everyone should have a decent retirement system, but the match there is out of line,” said Jim Kessler, a Third Way co-founder who said he has been interested in the issue since his days as an aide to Sen. Charles E. Schumer (D-N.Y.).

“A tiny amount was taken out of my paycheck. And when I left, I kept wondering how the amount I put in could” generate such handsome benefits, he said.

House Republicans picked up Third Way’s proposal to require workers to contribute 6 percent of salary to FERS, equalizing payments with the federal government. Because workers currently contribute 0.8 percent, the change would amount to more than a 5 percent pay cut.

Federal employee unions dispute the need for adjustments, arguing that FERS is already significantly less generous than its predecessor, the Civil Service Retirement System. CSRS paid retirees $2,587 per month on average in 2007, versus $944 for FERS, according to the National Treasury Employees Union, one of the largest representing federal workers. And unlike many state employee pension systems, FERS is fully funded.

“We’re sort of surprised, actually, to see the attacks on this as if it were some kind of a gold-plated system,” said Gilman, the union legislative director.

David John, a retirement expert at the Heritage Foundation, agreed that FERS “is far more responsible than most of the state and local pension plans.” But at a time when the federal government is spending drastically more than it takes in, he said, it is reasonable to ask whether taxpayers can afford it.

In the private sector, less than 20 percent of workers still have access to a traditional pension, John said. “With FERS, everyone does.”

Lori Montgomery covers U.S. economic policy and the federal budget, focusing on efforts to tame the national debt.
Comments
Show Comments
Most Read Business