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Feds plan their exits: Interest surges in retirement seminars

Sep. 12, 2011 - 06:00AM   |  
By STEPHEN LOSEY and Comments
Gay Page, executive director of the Colorado Federal Executive Board, says open-enrollment retirement conferences have been selling out. Federal employees are becoming increasingly nervous about possible benefits cuts, and many are eyeing the exit to avoid proposed changes.
Gay Page, executive director of the Colorado Federal Executive Board, says open-enrollment retirement conferences have been selling out. Federal employees are becoming increasingly nervous about possible benefits cuts, and many are eyeing the exit to avoid proposed changes. ()

Earlier this year, Army employee Louis Bornman watched the news grow worse and worse.

Pay freezes. Budget cuts. Politicians demonizing federal employees. But for Bornman, the final straw was when Congress began looking at cutting federal pensions as a way to reduce the deficit. His last day as an operations research analyst at Fort Leavenworth, Kan., was July 30.

"I couldn't afford not to retire," Bornman said. "You never know when things will change."

Bornman's not alone. Federal employees across the nation are becoming more nervous about proposals to slash their benefits, and many are eyeing the exit door to avoid possible changes.

Organizers of federal retirement seminars say they are seeing bigger audiences than ever. Some have scheduled additional seminars to accommodate the increased interest.

Mike Miles, a Washington-area financial planner who writes">Federal Times' Money Matters column, said he's seen a significant increase in new clients and calls from interested feds in recent months.

What frightens feds most, experts say, is a proposal to calculate federal employees' pensions based on the average of their five highest annual salaries, instead of the current high-three method, which uses the average of their three highest annual salaries. Although no lawmaker has yet introduced a bill to enact the high-five, it is on many lawmakers' minds.

Several deficit-reduction plans have proposed such a change, and it was reportedly part of the so-called "grand bargain" on deficit reduction President Obama and House Speaker John Boehner were pursuing earlier this summer. Many observers expect the high-five will come up for congressional approval this year or next, most likely as a component in a deficit-reduction package being developed by the super committee of 12 lawmakers that began meeting last week.

"We don't know what's going to happen, but something probably will happen," said Dave Snell, retirement benefits director for the National Active and Retired Federal Employees Association. "They're not going to let fed employees off the hook on this deficit thing entirely, I feel sure."

Many federal employees nearing retirement view the high-five reform as a double whammy. First, it would reduce their pensions by factoring two lower salaries into their pension calculation. Second, a high-five average salary would be further tamped down by pay freezes in effect this year and next, with the exception of raises for within-grade step increases.

Many older employees like Bornman feel there's no point in staying in any longer and their pensions could take a hit if they don't bail out now.

"I already lost money because there was no pay raise, so my high-three didn't go up very much," Bornman said. "I was basically stuck forever at my current pay grade. So if they went to a high-five, what's my incentive to stay?"

Miles said he understands why some feds feel that way, but said that leaving earlier could be a mistake for some. The high-five would cost many feds just a few hundred dollars per year. And because federal pensions are also based in part on years of service, Miles said that someone who works even one more year could more than make up for the revenue lost from switching to a high-five. He said federal employees should sit down and map out different scenarios to find the best time to retire.

"Unfortunately, many people make their decisions based on incomplete information," Miles said. "They wind up hurting themselves."

Increase in pension contribution

Federal employees are also concerned about proposals to increase the amount they contribute to their defined benefit pension plans by as much as 5 percent. Bornman said that was another factor that encouraged him to retire.

"It's really just a 5 percent tax on top of all the other taxes you've got, and you're not getting anything extra for it," Bornman said.

Colleen Kelley, president of the National Treasury Employees Union, said her union has seen a big increase in questions from its members about the proposed benefits cutbacks. NTEU emphasizes to employees that such a huge change would not happen without warning. Kelley worries that a spike in retirement could cost the government valuable knowledge and experience.

The American Federation of Government Employees agrees.

"This might be the equivalent of a run on the bank," said Bill Fletcher, AFGE's national director of field services and education. "People are scared."

Dennis Marshall, vice president of Personal Benefit Services, a Colorado-based firm that offers pre-retirement training for federal employees around the country, is also noticing heightened concern. The top question he's gotten since about March is whether Congress will switch to the high-five.

"If they do change the number, based on my interaction with these people, you would see an exodus of federal government people retire," he said.

The latest data suggest that already may be happening.

In the fiscal year ending at the end of this month, nearly 60,000 full-time permanent federal employees are likely to retire, up almost 20 percent from the year before, said John Palguta, vice president for policy at the Partnership for Public Service, citing Office of Personnel Management figures through March. Those numbers do not include U.S. Postal Service employees.

And in the first seven months of calendar 2011, the number of monthly Thrift Savings Plan withdrawal payments to retirees both military and civilian jumped more than 13 percent to almost 650,000. Civilian-only figures were not available.

Federal Executive Boards councils of senior federal executives located in cities and regions that have a large federal presence organize retirement seminars for the feds in their regions. Some FEB officials say they have been surprised by the increased demand among feds in their regions for retirement-related information and seminars.

"We've been selling out," said Gay Page, executive director of the Colorado FEB. Colorado this fiscal year is offering 12 open-enrollment retirement conferences, compared with eight the year before.

When the Buffalo, N.Y., FEB offered a retirement seminar for Civil Service Retirement System participants in spring 2010, four people showed up, said Executive Director Paul Kendzierski. But interest exploded for this April's session, at which 42 people showed up.

Likewise, Kendzierski said, Federal Employees Retirement System seminars once attracted 20 to 25 people, but the last one drew 60.

Gladean Butler, executive director of the Dallas-Fort Worth FEB, said attendance at a March retirement seminar was far greater than in previous years. And for the first time this year, Butler said, additional demand prompted the FEB to add a second day to the seminar to focus on TSP, investments, Medicare, health care and other insurance.

"There's a heightened interest in retirement benefits," Butler said. "People are finding that level of security they've always had isn't as secure as they thought it was."

Francine Roby, executive director of San Francisco's FEB, said the FEB's April classes filled up quickly. Demand was so great that some people who didn't get in showed up anyway the day of the class, hoping to take the place of anyone who dropped out.

"There was a real urgency some people had about getting in," Roby said. "It seemed some folks didn't do long-term planning and needed information quickly to help them make future plans."

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