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FERS retirement fund projects surplus

Apr. 23, 2012 - 06:00AM   |  
By STEPHEN LOSEY   |   Comments
Republican lawmakers such as Rep. Darrell Issa, R-Calif., want to eventually get rid of future federal employees' FERS pensions.
Republican lawmakers such as Rep. Darrell Issa, R-Calif., want to eventually get rid of future federal employees' FERS pensions. (Mark Wilson / Getty Images)

The Federal Employees Retirement System held a projected $12.2 billion surplus at the end of fiscal 2010, its first surplus in four years.

And the Civil Service Retirement System's unfunded liability shrank from $663.4 billion at the end of fiscal 2009 to $634.5 billion at the end of fiscal 2010, according to the government's latest report on the fiscal health of its pension systems.

The Office of Personnel Management released the Civil Service Retirement and Disability Fund annual report for fiscal 2011 at Federal Times' request.

Republican lawmakers such as Rep. Darrell Issa of California and Rep. Dennis Ross of Florida want to eventually get rid of future federal employees' FERS pensions, saying such defined benefit plans are expensive and unsustainable and are rapidly disappearing in the private sector.

Issa in October promised to "end the fiscally irresponsible practice of accumulating large unfunded liabilities for retiree pensions" when he proposed doing away with FERS for new employees.

But the latest numbers continue to show that the unfunded liability problem facing federal pensions is entirely due to CSRS' poor design, which Congress sought to fix in 1986 when it created FERS and began to wind down CSRS.

The more-generous CSRS plan requires both federal employees and the government to each contribute 7 percent of an employee's paycheck toward the CSRS pension, and did not allow the government to regularly adjust those rates. Because the 14 percent of CSRS payroll that went to fund pensions was not nearly enough to cover the system's future costs, a massive shortfall grew. This means the government has to contribute additional payments which reached a record $33.2 billion in fiscal 2010 each year to cover part of that shortfall.

The FERS law, however, requires federal employees to contribute 0.8 percent of their paychecks toward their pensions, and requires the government to cover the rest of the cost to avoid the accumulation of unfunded liabilities. That is why the government in fiscal 2011 hiked the amount it contributes to FERS pensions from 11.2 percent to 11.7 percent, and in October increased it further to 11.9 percent.

That means that if the FERS pension went away today, as Issa and Ross have called for, it would actually worsen the federal pension system's total unfunded liability, which was $622.3 billion at the end of fiscal 2010. FERS ran deficits of $1 billion in fiscal 2007, $900 million in fiscal 2008 and $9.7 billion in fiscal 2009.

Between fiscal 1994 and 2006, however, FERS ran projected annual surpluses of up to $14.9 billion. FERS ran projected deficits of between $1.8 billion and $6.1 billion between fiscal 1987 and fiscal 1993, when the plan was in its infancy.

OPM said last October that the two-year federal pay freeze lowered the expected cost of future pension payments, and helped FERS return to the black. The government's increase to FERS contribution rates also likely helped create that projected surplus.

President Obama has proposed increasing the amount FERS employees contribute toward their pensions from 0.8 percent of each paycheck to 2 percent, and CSRS employees' contributions from 7 percent to 8.2 percent. Obama expects that would raise $21 billion over a decade, which he would use to reduce CSRS' massive unfunded liability.

Issa's and Ross' offices did not respond to a request for comment from Federal Times. An OPM official was unavailable for an interview.

FERS employees also contribute 6.2 percent of each paycheck to Social Security. CSRS employees neither pay into, nor receive payments from Social Security.

OPM said data on surpluses and unfunded liabilities at the end of fiscal 2011 is not yet available.

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