A federal pay raise is a lot more than just a pay raise!

The 4.8 percent January pay raise set by Senate-House conferees will boost future pension benefits dramatically for current workers, as well as the dollar amount they can invest tax-deferred into their in-house 401(k) plan. And for several hundred thousand workers, the 4.8 percent adjustment won't be the only raise they get in 2000.

Many federal workers also will qualify for a within-grade (longevity) pay raise worth about 3 percent--in addition to the regular January adjustment. Workers get raises every one, two or three years, depending on how long they have been in grade. Employees at the top--10th step--of their grade don't get longevity raises.

That means a 7.8 percent raise--in total--next year for about one-third of the government's million-plus employees.

Annuities of federal employees are linked to their time in government and their highest three-year average salary. Those retiring under the Civil Service Retirement System with 30 years' service at age 55 would get an immediate starting annuity equal to about 55 percent of their final year's salary. That benefit is indexed to inflation. Unlike most private-sector pension plans, which are noncontributory, Civil Service Retirement Service workers contribute just over 7 percent of salary toward their own retirement. Workers under the newer Federal Employees Retirement System contribute much less but pay the full Social Security tax.

The 2000 raise (or raises) will boost the dollar amount federal workers can put into their Thrift Savings Plan, as well as the dollar amount Uncle Sam kicks in for most investors. Employees under the old Civil Service Retirement System can contribute up to 5 percent of pay to the Thrift Savings Plan. Those under the Federal Employees Retirement System (which offers a less generous civil service pension benefit) can contribute up to 10 percent of their salary, before taxes, and qualify for a match of up to 5 percent of their salary from Uncle Sam. FERS employees who contribute nothing still get an automatic 1 percent of their salary contributed to their accounts.

Union Marriage

After 82 years as an independent union, the financially foundering National Federation of Federal Employees is about to become an AFL-CIO affiliate. Members voted overwhelmingly to team up with the International Association of Machinists and Aerospace Workers. It will become the NFFE Federal District of the IAMAW AFL-CIO.

NFFE in recent years has had money and leadership problems. Presidents came and went--some by resignation, some by being forced out of office--so often that even Washington headquarters staffers had trouble knowing who was in charge. Early this year, the NFFE was more than $500,000 in debt with bills mounting. Its new leadership--which isn't associated with past financial problems--decided the best deal for the union and members was to seek affiliation with a bigger, more secure union.

Like other independents, NFFE had been courted by other AFL-CIO affiliates over the years. Several years ago, another longtime independent, the National Association of Government Employees union, affiliated with the AFL-CIO. NAGE did it to increase its clout rather than for financial reasons.

The federal union with the most white- and blue-collar civil servant members has been, and continues to be, the American Federation of Government Employees, a longtime AFL-CIO affiliate. The American Federation of State, County and Municipal Employees is the largest of the public employee unions, but most of its members are in state and local governments, rather than the federal government.

Investment Eye-Popper

Federal workers with money in the C-fund (stock index) of their 401(k) plan enjoyed a return of--are you ready?--39.72 percent for the 12-month period ending in August. To give you a point of reference, an investment making 7.2 percent will double in about 10 years. At 39.72 percent, it would double a lot faster.

During the same 12-month period, the F-fund (bond index) was up 0.75 percent while the G-fund (Treasury securities) was up 5.59 percent.

The big jump in the C-fund isn't because of any recent good news from the stock market. In fact, the C-fund was down 0.50 percent for the month of August. What caused the big jump in the 12-month returns is the fact that the month of August 1998 was dropped from the equation. That month, the C-fund took a 14.47 percent nosedive.

The C-fund, like many mutual funds available to nonfederal workers, tracks the Standard & Poor's 500, which rises and falls with the stock market. The return that federal workers get, within their Thrift Savings Plan, is usually slightly higher than other index funds offer because the federal employees pay a much lower administrative fee.

Mike Causey's e-mail address is causeym@washpost.com

Monday, Sept. 13, 1999