Naval intelligence analyst Art Joseph would lose $81,000 in pay over the course of his future federal career, under a proposal being considered by budget negotiators. (Art Joseph)
Nearly 1.7 million federal employees would take home thousands of dollars less each year under a deficit-reduction plan gaining traction with lawmakers and the White House.
Leading lawmakers have been meeting with Vice President Biden in recent weeks to hammer out an agreement to raise the debt ceiling in exchange for budget cuts. But practically the only thing participants appear to agree on is to require Federal Employees Retirement System (FERS) workers to dramatically increase what they contribute to their pension program.
Currently, FERS employees contribute only $1 for every $14 the government puts in. But budget negotiators have reportedly endorsed a proposal to split the employee and employer pension contributions evenly, which means FERS employees would pay an additional 5 percent of their salary and, thus, see a 5 percent cut in take-home pay.
Under the proposal, which was first proposed in September by a think tank called Third Way, FERS employees would go from contributing 0.8 percent of each salary to their pension to 5.8 percent. Details of the proposal under consideration by budget negotiators are not known. But Jim Kessler, Third Way's vice president, said in an interview it should probably be phased in over five years, one percentage point per year. Civil Service Retirement System employees would not be affected.
Critics of the current federal pension program say taxpayers cover almost the entire cost — a cost the nation no longer can afford. But defenders of the program say feds contribute more to their pension plan than do private-sector employees and some state employees, and that equalizing FERS contributions would throw them further behind.
According to the Labor Department, private-sector workers put in $1 for every $109 their employers contributed to their defined benefits plans in 2008, the latest year for which statistics were available.
New York state employees contributed $1 for every $51 the state contributed to its benefit plan last fiscal year. California state employees' defined benefit plan is not as lopsided, but even those workers contribute $1 for every $2 put in by the state.
"What's being proposed for FERS would be unusual for the private sector," said Jack VanDerhei, research director for the nonprofit, nonpartisan Employee Benefit Research Institute (EBRI). "It's almost always that there are no employee contributions for defined benefit plans" in the private sector.
Third Way first proposed the idea of equalizing federal employees' contributions to FERS in a September paper. In an introductory summary, Third Way said "it is often the case in the private sector" that employers and employees contribute equally to defined-benefit plans. Later in the paper, Third Way said the private-sector breakout is 52-48, when both defined-benefit and defined-contribution plans such as 401(k) plans are taken into account.
Third Way's idea was picked up by the White House's deficit reduction commission and later adopted by Rep. Paul Ryan, R-Wis., as part of his deficit-reduction plan.
"It's not that the federal pension system is overly lavish," Kessler said. "But the financing of it is really out of line with what is going on any place else in America these days."
Kessler said most companies don't offer both pensions and 401(k)s. This means the government's combination of a FERS pension with the Thrift Savings Plan — a defined-contribution plan similar to a 401(k) — is out of balance with the rest of the country.
EBRI said that in 2009, about 12 percent of private-sector workers had both a defined-benefit and defined-contribution plan, up from 10 percent in 1979. But in 2009, only 3 percent of private-sector workers had only a defined-benefit plan, a sharp drop from 28 percent in 1979.
Kessler said the pension benefit is dying out in the private sector because companies can't afford it, and the government is finding itself in the same boat.
"I think it's a shame, but that's what's happening," Kessler said. "These [benefits] are dinosaurs."
Dan Adcock, legislative director for the National Active and Retired Federal Employees Association, which strongly opposes the FERS changes, said the numbers undercut the argument that FERS contributions should be increased out of fairness.
"The information Third Way used was not an apples-to-apples comparison," Adcock said. "What this proposal is about is deficit reduction. It doesn't have anything to do with equity between the private sector and government."
Federal employees are livid at the proposed changes. Some told Federal Times the proposed changes are being passionately discussed around their offices, and said some co-workers are talking about retiring earlier than planned to avoid losing http://blogs.federaltimes.com/federal-times-blog/2011/05/23/pension-cuts-by-the-numbers/">tens of thousands of dollars.
Some see it as the latest in a string of attacks by legislators on federal workers. Critics have hammered federal salaries over the last year as being out of line with private-sector pay, and Ryan and other House Republicans want to cut the size of the federal workforce.
"We feel they want to balance the budget on our backs," said Navy intelligence analyst Art Joseph, who said he and his co-workers feel targeted. "You don't hear anything about subsidies being cut to oil companies making billions in profits. Government employees, we're not making billions of dollars in profits."
Louis Bornman, an operations research analyst for the Army at Fort Leavenworth, Kan., was already planning to retire this summer, when he turns 62. If he was asked to stay on another year or so to help finish a major project or to mentor younger workers, he said he would have considered it before. But if FERS contributions are hiked, he said, forget about it.
"Today, there's too great a risk that I'll lose too much," Bornman said.
Retention also would likely suffer, feds say. Bornman and others said hiking contributions will make younger workers less inclined to stay with the government for their whole careers. Highly skilled employees also may be more likely to look for work elsewhere.
Another proposal embraced by the White House deficit commission — also known as the Simpson-Bowles Commission — is to base federal pensions on an employees' highest five years of salary, instead of the three highest years of salary.
So far, no lawmaker has introduced a bill to switch feds to a high-five system, but many observers expect one will come sometime this year. Rep. Dennis Ross, R-Fla., chairman of the federal workforce subcommittee, said in an April interview that current FERS employees should be switched to a high-five to ensure the government will be able to afford those pensions.
That would lower most employees' pensions by a few hundred dollars each year, instead of imposing the several-thousand dollar contribution hikes Congress is considering.
"If [a high-five] is implemented at a stage in your career when people have time to plan, I wouldn't have any objection to it," said Anne, a Justice Department special agent who asked for her last name not to be printed because she was not authorized to talk to the press.
Kessler said Third Way considered endorsing the high-five proposal, but decided against it because it did not want to alter the retirement formula employees were promised, and because it would have cut far less from the budget.
Anne, who hopes to retire in three years, said that if her FERS contributions are increased, she and her family would have to significantly cut their vacation budget. Anne said that would hurt, because she uses vacations to decompress from her stressful work as a special agent.
"We're already on a two-year freeze for [cost-of-living adjustments to salaries], and I'm good with that, because we all have to be affected" by the poor economy, Anne said. "But I'm just not confident Congress is using the right numbers to make their decision on this."