An increasing number of federal employees are bumping against a statutory pay cap that will cost them thousands of dollars in salary and annuities, according to a report issued last week.
More than 7,100 GS-15 employees in 12 cities are at the cap, currently $149,000. Employees in Washington hit the cap this year, while those in three additional cities — Philadelphia, Seattle and Minneapolis — should hit the cap in January, according to an Oct. 6 report by the Congressional Research Service.
While a $149,000 salary is nothing to sneeze at, the pay cap translates into significant losses for affected employees. Employees hitting the pay ceiling no longer receive the full amount of the annual pay raise, which reduces not only their take-home pay but lowers their overall salaries used to calculate future retirement benefits.
GS-15, Step 10 employees in San Francisco, the highest paid locality in the country, have forgone nearly $49,000 in salary since first hitting the pay cap in 2003. If those employees retire at the end of this year under the Civil Service Retirement System with 30 years of service, their annual pension will be more than $7,000 less than it would have been without the cap. Over a 20-year period, that translates to more than $141,000 in lost retirement income, not including annual cost-of-living increases.
The problem will only grow worse in future years as pay adjustments in the General Schedule continue to outpace increases in the Executive Schedule, which is used to determine the GS pay cap. Under federal law, GS salaries are capped at Level IV of the Executive Schedule, which is the same salary paid to assistant secretaries, inspectors general and chief management officers.
Annual pay increases for both schedules are tied to the Employment Cost Index, which measures adjustments in wages and salaries for private-sector workers. However, each schedule uses a different 12-month ECI cycle to determine the increase, and Congress typically provides a higher pay raise for GS employees than the ECI would suggest.
For 2009, for instance, the ECI formula provides for a 2.9 percent pay raise for GS workers and a 2.8 percent pay raise for senior executives, political appointees and lawmakers paid according to the Executive Schedule. But Congress approved a 3.9 percent average pay hike for GS employees in January, while Executive Schedule salaries will increase 2.8 percent.
So while the GS-15, Step 10 salary will total about $154,000 in 2009, the maximum GS salary under the pay cap will be $153,200. Employees in nearly half of the 32 locality zones will hit the cap in 2009, while the problem could spread to GS-14 employees in the highest-paid locality zone, San Francisco, in 2012. This could deter some GS-14 employees from accepting promotions because their pay would not increase, CRS said.
A GS-15 engineer who has worked at the Environmental Protection Agency for 35 years will hit the pay cap in January as salaries in Philadelphia top out at $153,200. The engineer, who asked that his name not be used, said he knows he makes a decent salary but could make much more in the private sector. With his salary capped, the engineer said he'll consider retiring in two years after his son graduates from college.
'To government, it means the loss of the most experienced and some of the brightest people that I know who have had the greatest impact on getting government right," he said.
Some agencies have adopted their own solutions to the pay compression problem. The pay cap for GS-equivalent employees under the Defense Department's National Security Personnel System equals Level IV of the Executive Schedule plus 5 percent. In 2008, the NSPS cap was $156,450, nearly $7,500 higher than the cap under the GS system.
In September, Congress passed and President Bush signed legislation raising the cap for GS-equivalent employees at the Government Accountability Office from Level IV to Level III of the Executive Schedule. In 2008, this would have raised the cap from $149,000 to $158,500.
Once implemented, GAO will have the highest pay cap for GS-equivalent employees in government. However, GAO intends to use the higher rate only for hard-to-fill positions.
"In the wake of the NSPS and GAO legislation, other agencies may ask Congress for agency-specific … pay cap relief," CRS said.
But raising the pay cap to relieve the pay compression that's occurred could create other problems, CRS warned. For example, it would allow GS salaries to eclipse salaries for some higher-ranked senior executives and senior professional employees.