THE CIVIL SERVICE retirement system will pay out $24 billion in benefits this fiscal year. By 1991, if the rules remain the same, the cost will rise to $32 billion, an increase of one third. The president would cut the increase in half by making less than full inflation adjustments in benefits and raising the contributions required of employees. He would save another $1.3 billion in 1991 by cutting the taxpayer contribution to federal employee health insurance roughly in half.
This hewing at the federal benefit structure is a major element in his effort to reduce the deficit without a tax increase. There is no more complex area in which to make judgments than federal employee compensation. Feds are forever tempting targets, right up there with plumbers and auto mechanics, Everyman's employees -- who Everyman thinks are paid too much. Layoffs and recent labor "give backs" in the private sector have done nothing to moderate that view. Nor have politicians; Ronald Reagan is not the only recent president to have made the bureaucracy a punching bag.
The retirement system is the symbol of the cushy federal job. There are careful studies that contradict the popular wisdom and show that total compensation of federal employees lags behind that of their private sector counterparts. But the retirement system is a Cadillac. The payout has tripled in the last 10 years.
Congress three years ago did something about this for employees hired beginning in 1984. It put them under Social Security and is expected this year to supplement that with the equivalent of a private pension plan. The question is what parallel changes to make in the older system as well. The president has proposed, for the long term, basing retirement benefits on an employee's highest-paid five years instead of three, and reducing benefits for "early" retirees, those who retire before 62. Congress should concur; the Senate (though not the House) has already incorporated these features in its bill for new employees. They would go a long way toward bringing the federal system back into conformity with most private pension plans. Currently, in contrast to most other Americans, federal employees with 30 years' service can retire without penalty at age 55.
To save money in the shorter run -- and also to conform the federal system more closely to private plans -- the president would alter the present indexation rules. Instead of rising the full inflation rate each year, benefits would rise 2 percentage points less. This would strip away too much protection, and without discriminating between those who need it most and least; Congress should consider alternatives. A fairer proposal might be to index benefits only after retirees reach age 62, on the theory that they could help themselves by working until then.
The president would also require employees to contribute an extra 2 percent of pay to the retirement fund. In effect this would take back the 3 percent pay raise his budget calls for. Since pay this year was frozen, it would be the second no-raise year in a row. That goes too far. So does his proposal to halve the health insurance contribution. The object should not be to balance the budget at the expense of federal employees, but to balance the federal compensation system.