A House Ways and Means subcommittee voted 6 to 2 yesterday to phase out the present generous federal retirement system and put all government workers in the country - federal, state and local - under Social Security.
Congress could then enact a new supplemental federal, retirement system as it chose, to keep benefits from falling.
The subcommittee set no date for the proposed changeover, which it approved as a way of increasing Social Security revenues at least in the short run.
Subcommittee Chairman James A. Burke (D-Mass.) said he doubts the changeover will stay in the Social Security bill. Burke, one of those who voted against the proposal, called it a "trial balloon" and predicted that when unhappy federal employees find out about it, "you'll see members running out of the door" deserting the plan.
The subcommittee, in another action, voted a new formula for future Social Security retirees that would cause initial monthly payments to rise substantialy more slowly than under current law and a bit more slowly than sought by the Carter administration.
The overall trend of future benefits in terms of purchasing power would still be upward, however, because the new formula would allow future beneficiaries to share in increased economic output over the years, as reflected in rising wages.
Under the formula, a worker with average wages would retire with an initial monthly benefit worth about 43 per cent of his Social Security-taxed earnings during the last year before his retirement, he Carter administration had sought to keep the ratio at the current level of around 45 per cent, and an unintended quirk in existing law would have driven the percentage of 67 cent by the year 2050 and totally bankrupted the system. Once he retired, the worker's monthly benefit payment would be increased to keep pace with cost-of-living increases.
The new computation goes into effect in 1979 but under a "hold harmless" rule, no one retiring in the 10 years after that will receive lower retirement benefits than he or she would have received under the old formula based on the same earnings record.
The new formula, if ultimately approved, would wipe out more than half the projected long-term deficit of the Social Security system.
If enacted into law, the federal and local government worker provision would bring billions of tax dollars into the Social Security system in the next few years in excess of any benefits paid out to government employees - and thus help cure a serious shortrun deficit facing the disability and old-age insurance funds. It might even make it possible to avoid any tax increases for the near future.
However, Burke warned that the legal and technical complexities of meshing in 2.4 million federal employees who are not now covered (and have their own pension system) are so great, and the time to rescue Social Security from its immediate problems so short, that the provision may have to be dropped later. Bill Archer (R-Tex) joined Burke in voting against the provision.
Burke said that without an immediate rescue operation, the disability trust fund will run out of money next year while the Post Office and Civil Service Committee and other bodies in Congress explored the best way to mesh in federal pensions with Social Security. It was for this reason that Rep. J. J. Pickle (D-Tex.) left out any effective date for coverage of the government employees.
The subcommittee also voted:
To increase the benefit bonus to 3 per cent for each year a worker delays retirement beyond age 65. The figure is now 1 per cent.
To "freeze" the initial monthly minimum benefit (now $114 a month). The idea, strongly backed by Republicans, is to prevent persons with other government pensions but with a small amount of work in jobs covered by Social Security from receiving an extra pension from Social Security far beyond what is warranted by how much they put in.
The most significant change voted yesterday is the "decoupling" of the initial monthly benefit formula from its old figures, and approval of a 43 per cent constant wage-replacement ratio. It would save billions of dollars as compared with the formula in existing law, yet still allow benefits in terms of 1977 prices to triple in the next 75 years because of increases in labor productivity.