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Obama budget calls for 1% raise, but higher pension contributions

Apr. 15, 2013 - 07:42AM   |  
By STEPHEN LOSEY   |   Comments
President Obama's budget has drawn fire from a number of groups representing federal workers and retirees.
President Obama's budget has drawn fire from a number of groups representing federal workers and retirees. (AFP)

Commenting on how the White House’s proposed 2014 budget treats federal pay and benefits, William Dougan, head of the National Federation of Federal Employees, said: “With friends like these, who needs enemies?”

“It’s clear today that Washington has abandoned federal employees,” he added.

Other groups, such as the Federal Managers Association, National Active and Retired Federal Employees Association, National Treasury Employees Union and American Federation of Government Employees, also blasted the White House’s proposals, using terms such as outrageous, disappointed and shameful.

The budget contains a proposal to increase retirement contributions for federal employees by 1.2 percentage points, phased in over three years. This would bring the contributions of Federal Employees Retirement System workers up from 0.8 percent to 2.0 percent, and Civil Service Retirement System employees’ contributions up from 7 percent to 8.2 percent. The White House proposed the same thing last year as part of the 2013 budget request.

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.

The White House also proposes to eliminate the so-called FERS annuity supplement for newly hired employees, as it also did in its proposed 2013 budget.

The budget had a sliver of good news for federal employees — a proposed 1 percent federal pay increase, which would break the current three-year pay scale freeze.

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

But the small raise provided little comfort for federal union leaders. NTEU President Colleen Kelley said a 1 percent raise “is simply inadequate, particularly in light of what will become at the end of 2013 a three-year pay freeze.”

“It is time to get the federal pay raise back on track,” Kelley said. “Federal workers have sacrificed enough. They are facing an actual pay cut this year from unpaid furlough days generated by sequestration, on top of the existing freeze.”

Higher pension contribution rates

The budget argues that raising pension contributions for federal employees 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 — primarily due to a severe flaw in the design of the older CSRS — is a serious problem that must be addressed.

The increase in employees’ contributions would save $20 billion over a decade.

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. The proposed 2014 budget would not increase those employees’ contributions.

The administration’s chained CPI proposal is bitterly opposed by federal employee groups, as well as other unions and liberal organizations, which say it would amount to slashing Social Security.

The chained CPI is usually 0.25 to 0.30 percentage points lower each year, on average, than the standard CPI measurements 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.

NARFE denounced the administration’s chained CPI and pension contribution increase proposals.

“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 U.S. budget savings over the next decade. Enough is enough.”

Automated retirement system

The 2014 budget proposal also includes $2.6 million to build a case management system that would automate the calculation of new federal retirees’ pensions.

In its congressional budget justification document, the Office of Personnel Management said such a system is crucial to store and track the government’s digitized personnel data and efficiently process retirement and related benefit claims.

OPM has struggled for years to convert a paper-based system of calculating retirees’ pensions into a completely electronic system. About $100 million has been wasted over two decades on several such efforts, with virtually nothing to show for it.

Former OPM Director John Berry told Congress last year that some records now have electronic components, but the majority of the government’s legacy records are still paper. OPM said in 2011 that agencies currently scan all new employee records immediately to create electronic file folders. And OPM has triaged its scanning of older records to focus on employees likely to retire within the next five years.

Eventually, OPM wants agencies to begin tracking service records, salaries, possible law enforcement history and other employee information as structured data — information entered into a computer that bypasses the need for paper records that must be scanned.

The budget document had few details on how the case management system would work and how the government’s old records would be digitized.

Paper personnel records have long undermined OPM’s attempts to calculate new retirees’ pensions quickly. Some personnel folders are missing documents, forcing OPM staff to hunt down those files from the agencies where they were kept.

OPM’s last major attempt to automate the pension process died in 2008 after the RetireEZ system created by Hewitt Associates failed numerous tests. OPM spent about $21 million on RetireEZ before canceling the contract.

The sluggish paper-based system has meant many federal retirees wait several months before getting their complete pensions. Some of those retirees have been forced to dip into their savings or Thrift Savings Plan accounts to cover their expenses in the meantime.

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