Former Sen. Alan Simpson and Erskine Bowles recommended in a new report that federal employee pension contribution rates gradually rise so that current employees eventually pay one-quarter of the cost and new workers pay one-half. (Mark Wilson / Getty Images)
The former leaders of a White House deficit reduction commission are again urging dramatic cuts to federal employee benefit programs, with a goal of saving tens of billions of dollars over the next decade.
In a report released Friday, Erskine Bowles and retired Sen. Alan Simpson, R-Wyo., recommended that federal employee pension contribution rates gradually rise so that current employees eventually pay one-quarter of the cost and new workers pay one-half.
At retirement, pensions should be based on the five highest-earning years, not the highest three, the report said.
The report also recommends:
Reducing cost-of-living adjustments for military and civilian workers who retire before age 62, with a full catch-up once they reach that age.
Adopting the so-called chained-CPI for calculating cost-of-living adjustments, a step that would have the effect of reducing future COLAs from what they would be under the existing system.
Taking a “premium support” approach for the Federal Employees Health Benefits Program, meaning that workers would get a fixed amount to buy coverage on their own from competing insurers.
The proposed pension changes would save about $60 billion over a decade, the report said, while the revamped FEHBP and other changes to federal health programs should cut more than $40 billion in projected spending during the same time. The changes are part of a larger package of spending and tax changes geared to reducing federal deficits by a total of about $2.5 trillion over 10 years.
The recommendations are virtually the same as those made in late 2010 by the White House’s National Commission on Fiscal Responsibility and Reform, chaired by Simpson and Bowles.
Both military and civilian pensions “are out of line with pension benefits available to the average worker in the private sector,” they said in Friday’s report echoing language from the original. The same is true for retiree health benefits, which “tend to offer generous coverage at no cost to beneficiaries,” the new report said.
If enacted in full, the proposed changes would take a big bite out of federal employees’ paychecks. Most participants in the Federal Employees Retirement System, for example, currently pay 1/14 of their pension costs, although Congress last year raised the contribution rate for workers hired after December. Most FERS employees pay 0.8 percent of their salaries toward their pensions; those hired beginning this year pay 3.1 percent.
Most of the 2010 commission’s recommendations never became law as the 18-member panel could not muster the 14 votes needed to send them to Congress. Max Stier, president of the Partnership for Public Service, said Friday that the new report could nonetheless “influence the conversation.”
“It may not be that the whole package is adopted without change,” Stier said, “but it’s likely to have an impact on the larger debate on how best to deal with our various financial challenges.”
Simpson and Bowles now head the Moment of Truth Project sponsored by the nonprofit Committee for a Responsible Federal Budget.