Rep. Rod Chandler (R-Wash.) introduced legislation yesterday that would set up a three-tier retirement system for federal workers, with pensions that would be based on civil service benefits, Social Security and an optional tax-sheltered savings plan.
The plan would eliminate employe contributions and allow workers to shelter $1 of every $10 from income taxes. U.S. workers now contribute 7 percent of their salaries to the civil service retirement program and do not have any kind of employer-matching savings plan.
As a trade-off for the private sector-type plan, Chandler would eliminate both the option of retiring on unreduced benefits at age 55 after 30 years' service and fully indexed cost-of-living raises for retirees. Those two features, rare in private pension plans, are the two most costly items in the federal retirement program, which covers more than 2 million former workers and employes' survivors.
If approved by Congress, only federal and postal workers hired since 1984 would be required to go into the new plan. Those employes were placed under Social Security by Congress two years ago. Current employes who are outside of Social Security could continue with the present retirement program or elect to buy into the new system.
When it placed new workers under Social Security, Congress gave itself a two-year deadline to set up a replacement program for those employes by next December. An estimated 300,000 employes out of the federal work force of 2.6 million are now paying the full 7.05 percent Social Security tax as well as token payments into the civil service retirement fund.
Civil servants hired before 1984 put 7 percent of their salaries into the federal retirement program and pay only the 1.3 percent Medicare portion of Social Security.
Unless Congress comes up with a new pension plan for the growing number of workers who are under Social Security, those employes will have to start contributing to both Social Security and the civil service retirement fund next year, a bite of more than 14 percent from their paychecks.
Here are the major features of Chandler's bill:
* No civil service retirement contributions would be required of employes.
* Early retirement would still be permitted (at age 55 with 30 years or at age 60 with 20 years), but workers would take a 2 percent-a-year reduction for each year they were under age 65 when they retired. The Reagan administration earlier had proposed a 5 percent per year penalty.
* Civil service benefits would be based on the average salary of the highest five years (a common practice in the private sector), rather than the current system based on the highest three years.
* Cost-of-living adjustments would be reduced from 100 percent of the annual inflation rate to 30 percent.
* Workers could shelter up to 10 percent of their annual salaries from federal taxes by investing the money in an optional savings plan. The government would make matching contributions of up to 3 percent of salary.