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Obama budget proposes hike in pension contributions for feds

Apr. 10, 2013 - 12:44PM   |  
By STEPHEN LOSEY   |   Comments
Copies of the Obama Administration's proposed FY 2014 federal budget are on display before going on sale at the Government Printing Office Book Store on April 10 in Washington.
Copies of the Obama Administration's proposed FY 2014 federal budget are on display before going on sale at the Government Printing Office Book Store on April 10 in Washington. (Chip Somodevilla / Getty Images)

President Obama’s budget plan for 2014 proposes increasing the retirement contributions for federal employees hired before 2013 by 1.2 percentage points, phased in over three years, as part of his fiscal 2014 budget.

This would bring the contributions of Federal Employees Retirement System (FERS) workers up from 0.8 percent to 2.0 percent, and Civil Service Retirement System (CSRS) employees’ contributions up from 7 percent to 8.2 percent. Obama proposed the same increase last year, as part of his fiscal 2013 budget request.

Congress last year hiked the pension contributions of federal employees who are newly hired or rehired with less than five years of service beginning in 2013 to 3.1 percent of each paycheck, which is expected to save $15 billion over a decade. Obama’s 2014 budget would not further increase those employees’ contributions.

The budget said a 1.2 percentage point increase in previously hired employees’ contributions would save $20 billion over a decade. However, that is less than the $27 billion in savings predicted in last year’s budget. Part of that reduction may come from the fact that newly hired federal employees, whose pensions have already been increased, are not included in this change.

The budget proposal calls for the pension contribution increases to begin in 2014. They would help the government reduce the unfunded liability of the Civil Service Retirement and Disability Fund, which hit $761.5 billion in fiscal 2011, the latest year for which statistics are available. Critics of the federal pension system say that deficit — which is primarily due to a severe flaw in the design of the older CSRS system — is a serious problem that must be addressed.

The budget also proposes a 1 percent increase in federal pay in 2014, which would break the current three-year pay scale freeze.

“A permanent pay freeze … is neither sustainable nor desirable,” the budget said.

The budget proposal also calls for switching to a less-generous measure of inflation known as the chained Consumer Price Index. This would translate into lower cost-of-living adjustments for federal retirees’ pensions, and also reduce the growth in Social Security benefits. Federal employee groups and unions strongly oppose the chained CPI.

The chained CPI is usually 0.25 to 0.30 percentage points lower each year, on average, than the standard CPI measurements that are used to determine COLAs. Switching to a lower CPI at first would mean a few hundred dollars less per year for federal retirees. But its effect would compound over the years until, eventually, some retirees would likely earn tens of thousands of dollars less than they would under the current method of setting COLAs.

The White House budget plan also proposes eliminating the so-called FERS annuity supplement for newly hired employees, as Obama proposed last year. Republicans such as Rep. Paul Ryan, R-Wis., have also proposed eliminating that supplement, which is paid to FERS employees who retire before age 62, to replace the Social Security payment for which they are not yet eligible.

The National Active and Retired Federal Employees Association denounced the White House’s proposal to adopt the chained CPI and increase federal employee pension contributions.

“For the third year in a row, the president’s budget blueprint disproportionately takes aim at federal employees in an effort to balance the budget,” NARFE President Joseph Beaudoin said. “Federal employees who are currently enduring a three-year pay freeze have already sacrificed $114 billion from their pocketbooks for US budget savings over the next decade. Enough is enough.”

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