Robert and John Smith, identical twin brothers, begin work in 1949 after finishing college. Each works 30 years, is now 55, and earns about $20,000 at the start of this year. Their salary histories over the years are identical, except that Robert worked for the U.S. government and John for a private business.
If Robert Smith plays his cards right, he can expect to receive $320,000 in combined civil service, Social Security and private pensions over the rest of his lifetime, measured in constant 1979 dollars. Four-fifths of it will come from his civil service pension.
All he has to do is retire from his U.S. job at 55 and start drawing his civil services pension, then go out and get a job in private industry at his old salary until he's 65. His civil service pension will keep coming in; meanwhile, the 10 years of private employment will earn him a Social Security pension and a private pension when he reaches 65, assuming he works in a firm with a private pension plan.
Brother John, who works all his life at the same salary as his twin, but for a private employer, won't be so lucky. In the normal course of things, he, too, will work until he is 65. Then he will get a Social Security pension and a private pension.
But his combined pension benefits for the rest of his life will total only $170,000 measured in constant 1979 dollars.
Calculations for both brothers assume that they live to 79, the life expectancy of a man who has attained age 65.
These startling differences in benefit totals for a hypothetical set of twins, resulting from the fact that one worked part of his life for the federal government, illustrate why there is a growing clamor in this tight-budget era to cut costs of the civil service returement system.
Some proposals would throw it out and give U.S. employes a Social Security pension plus a supplementary pension typical of those in private industry. A move in this direction failed in the last Congress but the issue is on the agenda again.
The American Federation of Government Employes, American Postal Workers Union and other U.S.-worker unions will battle the changes.
"I don't think we'd deny civil service retirement is a nice deal," Greg Kenefick of the AFGE said in an interview, "but that goes part and parcel to [compensating for] bad working conditions, low status and low pay for federal workers. Just because you see a lot of GS-16s riding around in big cars around here, it doesn't mean their salaries are typical of federal workers all over the country."
Social Security has some benefit advantages over civil service. Civil service has no "wife's benefit." For widows and children of workers who die young, for young disabled workers and their families, for some older widows, Social Security benefits can be higher, because Social Security is designed in part to protect the needy rather than reward long-term employes for years of service.
Social Security benefits aren't taxable, while civil service retirement benefits are. And Social Security beneficiaries receive Medicare at 65, though this is probably offset by the fact that retired federal employes can purchase an excellent health care plan for $52 a month, with the United States putting up $60 a month to help pay premium costs.
Nevertheless, for most retirees civil service is a far better deal than Social Security, even where the private industry worker's Social Security benefit is supplimented by a private pension, which isn't always the case.
Civil service has three great advantages:
The civil servant can retire at 55 after 30 years of service whereas the Sicial Security retiree must be 65 (or he can opt for 62 with a reduced benefit).
Civil service benefit levels are far higher, equivalent to what a worker in private industry would get only if he received Social Security plus a good private pension.
The entire civil service pension receives automatic cost-of-living increases twice a year. But a person who receives a Social Security pension plus a private pension normally gets regular cost-of-living boots only on the Social Security part, because 97 percent of private pensions don't include automatic cost-of-living increases. So even if the private industry employe starts with combined Social Security and private pensions equal to his civil service counterpart, he quickly falls behind because inflation erodes the private pension's value.
The civil servant who can retire at 55 (with a pension equal to 56.25 percent of his highest three-year earnings' average) can then go out and find a private job, earning the right to Social Security later and perhaps a private pension as well.
This allows many to pile one benefit on top of another. In fiscal 1980, about 520,000 civil service beneficiaries, of a total of 1.4 million on the rolls, are expected to draw $1.6 billion in Social Security in addition to their civil service pensions. Some aren't well to do, but President Carter has vowed to reduce such "double dipping" if they are.
The higher civil service benefit levels are reflected in these figures: if an individual worked for the United States for 42 years, earning $40,000 a year his last three years, and decided to retire in 1979 at 65, he'd get a civil service pension of $2,667 a month. A private industry worker with an identical employment record would get $503 a month from Social Security -- the maximum. Even if he had a wife who was entitled to the "free" additional "wife's benefit," his total would only be $754.
Moreover, a civil servant of 55, retiring after 30 years with an average salary of $20,000 his last three years, would get a pension exceeding $900 a month. This is still higher than the Social Security husband-wife maximum -- and it is attainable at 55, not 65.
Government figures show that civil servants going into retirement at 55 in mid-1977 after 30 years of work averaged $953 a month as an initial benefit.
By contrast, private industry workers going on Social Security rolls at ages 62-65 in mid-1978 averaged $277 a month, which would rise to a bit over $400 in cases where the "wife's benefit" was payable.
Suppose the Social Security recipient also receives a private pension? Will his total benefits equal what he could get under civil service with the same salary history? Sometimes.
But a great many private pensions are very low -- the average for those who got them was only $185 a month in 1975 -- and most private industry retirees don't get such pensions. In 1975, only 7 million to 8 million persons were drawing private pensions nation-wide. These figures are probably higher now, but still wouldn't make up the gap in benefits.
The civil servant does make a higher payroll contribution -- 7 percent of entire salary, versus 6.13 percent on the first $22,900 for a private industry employe subject to the Social Security tax.
But the federal worker gets back the payment very rapidly. All he puts in comes back to him in pension money within 18 months of retirement on the average, according to Thomas Tinsley, deputy assistant director of the U.S. Office of Personnel Management (formerly the Civil Service Commission).
What all this adds up to is a system that is pretty expensive compared with a combined Social Security pension and private benefit.
Pension system costs are usually measured by actuaries by a figure called "normal cost."
The "normal cost" of the civil service retirement system is estimated at 30 to 35 percent of payroll, according to Edwin Hustead, civil service chief actuary. This means that to pay all the benefits eventually accruing to any class of employes, funds equal to 30 to 35 percent of their pay over their working lifetimes in U.S. employment would have to be put aside at given rates of interest, inflation and wage growth.
Under civil service, the employe pays about 7 percentage points of the cost and the government pays the other 21 to 28 percentage points. This means that the government is paying about four-fifths of the total cost.
(Despite this, the fiction persists among many federal workers that "employes pay half.")
By contrast, the "normal" cost of Social Security is 13.8 percent of payroll (excluding Medicare) for all benefits that would be payable over their lifetimes to workers aged 18 to 22 who enter the labor force in 1978. And the typical private pension, according to Lynn Vandercock, an actuary with Wyatt and Co., pension experts, would add another "5 to 6 to 7 percent of pay as a normal cost."
So the civil service "normal cost" is far higher than Social Security plus a typical private pension.
Some federal employe unions challenge these calculations, but they are the ones generally used by the U.S. government, and actuaries say they are valid.
Rick Gelleher of the AFL-CIO public employe department defended early-retirement provisions as a national trend. He said the Auto Workers, Steelworkers and many other unions recently have negotiated contracts with industry calling for retirement at 55 -- even some for retirement after 30 years regardless of age.
As much as 10 percent of outlays for civil service retirement could be saved if the normal retirement age were changed to 65, as in Social Security, civil service actuary Hustead estimated. (Outlays last year were $9.6 billion.)
He also estimated savings of 15 percent if, instead of receiving cost-of-living increases on their entire civil service pensions, beneficiaries got the automatic increases only on that portion of the pension equivalent to what the benefit would be under Social Security (say 70 percent of the benefit).
Most observers believe the only fair and politically feasible wasy to change the system is to "grandfather" current U.S. employes into the present civil service retirement system and apply any new rules only to future employes.
Federal employe unions aren't buying this. Kenefick said the attack on costs of the retirement system is merely a "lever to reduce" other federal employe benefits.
Moreover, he said, current employes fear they won't be grandfathered in but will see the rules changed on them in mid-career.
"We're not engaging or trying to engage in a ripoff," he said.
Federal unions are powerful and may win their point. But at a time when social planning experts are already talking of eventually raising the Social Security regular retirement age from 65 to 68 to help cut costs of that system, it seems questionable whether such features of civil service as age 55 normal retirement can be permanetly preserved.