House Oversight and Government Reform Committee Chairman Darrell Issa, R-Calif., talks to a crowd of reporters after leaving a House GOP conference meeting in July. Issa wants to replace the Federal Employees Retirement System pension plan with a mandatory, 401(k)-type defined contribution plan that would operate alongside the similar Thrift Savings Plan. (Chip Somodevilla / Getty Images)
House Oversight and Government Reform Committee Chairman Darrell Issa, R-Calif., wants to replace the Federal Employees Retirement System pension plan with a mandatory, 401(k)-type defined contribution plan that would operate alongside the similar Thrift Savings Plan.
Issa's office said that TSP — also a defined contribution plan similar to 401(k)s — and Social Security would remain part of the new FERS the Congressman envisions. But the new defined contribution plan would be a new "third leg" of the FERS plan, replacing the program's defined benefit pension that has been in place for 27 years.
New federal employees from Day 1 would be enrolled in the new defined contribution plan. Feds with more than five years of service would no longer contribute to their old defined benefit pension plan and would spend the rest of their career contributing to the new defined contribution plan. When they retire, they would receive a prorated pension that would cover their career up until the point that the defined benefit pension ended.
Federal employees with less than five years of service at the time the new plan is instituted would not receive any pension when they retire. They would be shifted entirely to the new defined contribution plan. Issa's office said that any money they previously contributed to the FERS defined benefit pension would be shifted to the new defined contribution plan.
Issa did not call for any changes to the older Civil Service Retirement System.
Dan Adcock, legislative director for the National Active and Retired Federal Employees Association, said that Issa's plan would weight federal employees' retirements too heavily toward the stock market and expose them to too much risk. This would force many federal employees to delay their retirement when the economy crashes, he said, and throw off agencies' strategic workforce plans.
Today's FERS pension "represents a backstop for federal workers that protects them from the volatility of the stock market," Adcock said. Giving employees two defined contribution plans "puts all of your retirement savings eggs in one basket."
But Adcock said Issa's plan to replace the defined benefit pension is better than a plan from Sens. Tom Coburn and Richard Burr to cancel FERS pensions entirely for new employees, and replace them with nothing.
In his Oct. 14 proposal to the deficit reduction supercommittee, Issa said the government can no longer afford defined benefit pensions, and said most private companies have already ended their pensions and switched to defined contribution plans.
"Such a transition would allow the federal government to gradually end the fiscally irresponsible practice of accumulating large unfunded liabilities for retiree pensions," Issa wrote.
But the Office of Personnel Management said recently that there is no longer an unfunded liability in FERS, and that the entire liability is in the older Civil Service Retirement System. CSRS — a more generous plan that was not required by law to be fully funded — had a $663 billion unfunded liability at the beginning of fiscal 2010.
FERS is legally required to be fully funded. It has run an unfunded liability in the past, but that is largely due to variations in future economic predictions and funding, and FERS solvency has varied slightly over the years between running small surpluses and deficits.