WHEN FEDERAL government retirees get their twice a year cost-of-living pension adjustments, who pays for it? You do -- whether or not you have worked or will ever work for the federal government. The mail we get from federal pensioners and their advocates suggests that there is a lot of confusion on this point. Most retirees seem to believe that their payroll contributions, matched by an equivalent amount from the government, are sufficient to keep the federal pension fund solvent for the next 100 years or so.
In fact, it has been a decade since federal employee contributions accounted for even half of the system's revenues. The federal retirement system is kept from bankruptcy only because it, unlike the less favored Social Security system, has a virtually unlimited tap on the general revenues collected from federal income and other taxes.
This tap is already of mighty proportions. It is estimated that the government contribution to the fund, paid by you the taxpayer, this year will be $13.5 billion -- an amount four times as large as the contributions paid by employees.
Federal pensions cost so much because they are very generous. Average benefit levels are high compared not only with Social Security benefits but also with the combined value of Social Security and private pensions for the relatively few retirees who get both. In 1980, retired federal workers received on average about $1,050 a month; the average Social Security beneficiary got $330, if single, and 50 percent more, if married. Federal employees can retire with full benefits at age 55 after 30 years of work and at age 60 after 20 working years. Social Security retirees must wait until they are 62 to get any retirement benefits and until they are 65 to get full benefits. For these much lower benefits, almost all Social Security covered workers will be paying 5.35 percent of their total wages starting next year, not much less than the 7 percent federal workers pay for their much better pensions.
It is true that federal pensions are taxable except for the amount actually paid for by employees' contributions that have already been taxed. But so are private pensions. Social Security benefits are not taxed, and probably, on the same principle, they should be. But the non-taxability of Social Security benefits is partly to compensate for their much lower value, and the incomes of Social Security recipients are, on the average, much lower than those of federal pensioners. Finally, there are the cost-of-living adjustments that federal retirees receive twice a year, Social Security beneficiaries only once, and most private pensioners not at all.
Most of the people in this country who finance this liberality with their taxes have not kept up with inflation themselves in recent years. Many would like to make up some of this loss by paying lower taxes. We recommend to them one very good way to do this -- to the tune of about $800 million next year and a billion and more in years thereafter. It is to slow down the rise in the cost of the federal retirement system by restricting federal pensions to the once a year cost-of-living adjustment, which is, at best, all that most Americans will ever get.