Some feds under Uncle Sam's old pension program fear that the powers that be are out to get them. As in: Hit the road, Jack!
The worried-but-in-fact-well feds are under the old Civil Service Retirement System. It was replaced in the mid-1980s by the Federal Employees Retirement System.
Thanks to false but persistent and persuasive Internet rumors, many of the 800,000 workers still under the CSRS plan think they will soon be toast.
Reason: They are being told (incorrectly) that Uncle Sam can no longer afford them because their CSRS plan costs taxpayers more than the FERS program. Wrong!
CSRS offers workers a more generous lifetime civil service annuity and inflation protection. FERS is more like a private plan with a smaller employer-supplied annuity but benefits from Social Security and employee (and employer) contributions to the 401(k) plan. Less of the FERS pension benefit comes from the civil service side of government.
At first glance, CSRS appears more costly. But it isn't, according to the Congressional Research Service and the Office of Personnel Management, which runs the pension plans.
Still, many CSRS workers are reacting to faked "news" items on the Internet. They say that legislation is pending (or has been secretly passed) in Congress to wipe out CSRS. The end of the program--depending on which fake report you swallow--is 2002 or 2003. Again, wrong!
Some feds have heard they will be offered buyouts, bonuses, retirement and age credits and even a waiver of early-retirement penalties if they switch from CSRS to FERS. Others hear they will be canned or forcibly converted to FERS.
Not true. CSRS will be around until it dies a natural death sometime late in the next century.
No CSRS-ending bill has been introduced, much less approved. There is no "secret' deal or plan. The last CSRS employee came on board 16 years ago. The number of people covered by it--both active and retired--shrinks daily.
There is plenty of money to pay CSRS benefits even after the last employee makes the final, relatively small, contribution. After all, we are talking about a program that also covers active and retired members of Congress and congressional staff members. And it is backed by the nation's only company that has a license to print money.
The congressional watchdog unit and OPM agree that FERS actually costs more--not less--than CSRS. That's why President Clinton fought legislation last year that allowed CSRS employees one last open season when they could switch to FERS. Few did it. The White House opposed the open season on grounds that FERS costs the government more than CSRS. In other words, the administration opposes anybody converting to FERS. Because of cost.
When FERS was set up, Congress estimated--incorrectly, as it turned out--that it would cost less than CSRS. It assumed higher pay raises in the 1980s and 1990s than were granted. Higher pay would have driven up the value of pension benefits, which, under CSRS, come exclusively from the civil service retirement fund.
But lower-than-expected raises meant that FERS--with its more generous 401(k) option and matching government contributions--is more expensive, according to OPM and the Congressional Research Service. The bulk of benefits for FERS employees will come from Social Security or their thrift savings plan investments, where FERS employees can contribute twice as much as CSRS workers and get a 5 percent match (not available to CSRS workers) from the government.
About 89 percent of FERS employees are contributing an average of 6.5 percent of salary to the thrift plan. That means they qualify for the 5 percent federal match to their accounts.
According to OPM and the Congressional Research Service, the CSRS program costs 24.2 percent of payroll. Employees contribute 7 percent, with the government contributing the remaining 17.2 percent.
The cost of FERS is 11.5 percent of payroll for basic pension benefits. The government contributes 10.7 percent of that. FERS employees also contribute 6.2 percent to Social Security, and that is matched by the government. All FERS employees get an automatic 1 percent match (from the government) to their thrift accounts, and up to 5 percent if they contribute 5 percent themselves. The bottom line, according to the Congressional Research Service and OPM data, is that the FERS programs cost the government at least 17.9 percent--and much more if employees get the full 5 percent government match to the thrift savings plan, as most do.
That means the official cost score is CSRS 17.2 percent, FERS 17.9 percent.
There is nothing to prevent somebody in Congress from trying to wipe out one of the pension plans because it is too costly. But Congress hasn't done it yet, and there is little chance that will happen. And if Congress went after the more costly plan, FERS would be the target.
So if you are an aging CSRS type and want something to worry about, disrobe, at home, and stand in front of a mirror. But don't sweat your pension plan.
Mike Causey's e-mail address is firstname.lastname@example.org
Tuesday, Sept. 7, 1999