The Reagan administration is considering a new retirement plan for future federal workers that would cut government costs and sharply reduce benefits available to people hired after 1983.
If the new proposal were to become law, Uncle Sam's excellent retirement program for future feds would be more like some of the less appealing plans offered in the private sector.
The new economy-sized retirement plan was well received at the recent Harpers Ferry summit held by the Office of Personnel Management. It would define what an employe would have to contribute to the retirement program, but unlike the present system, it would not offer any defined level of benefits. The new program would supplement Social Security benefits, which, generally speaking, are much lower than those offered by the existing federal retirement program.
The present federal retirement program features both a defined contribution (7 percent of an employe's salary) and a defined benefit.
For example, an employe eligible to retire after five years of federal service knows that he or she will be entitled to a lifetime annuity (adjusted periodically to reflect any rise in living costs) equal to 7 1/2 percent of the highest three consecutive years' annual average.
Employes with 30 years of service now know they can retire on an annuity equal to 56 1/4 percent of their highest three-year average salaries. The worker with 42 years service is guaranteed an annuity equal to 80 percent of the three year average.
The proposed supplemental system for future federal hires would feature a defined contribution (probably about 4 percent of salary) but benefits would depend on how much money workers put into the retirement fund and the rate of return on the fund's investments. In addition, new workers (those hired starting in January) would also pay the 7 percent social security tax.
OPM wants to reduce the government share of the retirement program to 11 percent of payroll. That would be possible under the new plan if the government matched the employe 4 percent contribution to the retirement fund and the 7 percent social security payment.
OPM would also like to raise the contribution rate for current federal employes to 9 percent next year and 11 percent in 1985. But it has not introduced its proposed retirement changes for current workers, and isn't likely to this year.
Federal employe groups, and their friends in Congress, are certain to oppose any new supplemental retirement plan that does not provide a defined benefit. They think such a plan would make it tougher for the government to recruit in the future, and also fear that if such a change were made for future employes it would only be a matter of time before budget cutters zeroed in on the present system, which covers 2.6 million workers, including about 400,000 in the Washington-Baltimore area.