WASHINGTON - Around 700 U.S. government employees could be trading in their civil service retirement benefits for shares in a private company next month, if a proposal by the Office of Personnel Management to create the federal government's first private ESOP proceeds as planned.
OPM last year drafted a plan to turn its investigative service over to employees, rather than simply close the division as mandated by President Clinton's 1994 plan to downsize the federal government. Under the proposal, employees of the investigative service, which conducts background checks on new federal government employees, will receive shares in the new private company through an employee stock ownership plan.
The new company, US Investigations Service Inc., is scheduled to open July 8. The ESOP shares are estimated to cost USIS $2.3 million a year or approximately $6,000 per employee. Social Security coverage is estimated to cost USIS $2.4 million per year.
Employees would receive no other pension benefits, according to Stephen Hester, partner of American Capital Strategies Inc., a Bethesda, Md., investment banking firm that helped structure the ESOP.
The market value of the company is projected to be close to $30 million in five years, according to Phil Harper, the new chief executive officer. Employees don't contribute out of their paychecks for the stock, but they do have to make the usual 6.2% contributions to Social Security.
Employees will be able to set aside 10% of pay in a 401(k) plan, but will not receive matching contributions from the company.
Currently, OPM's investigative service employees are covered by the Federal Employees' Retirement System, a defined contribution plan to which they can contribute up to 10% of gross pay, and OPM matches up to 5% of their gross pay.
OPM sent notices in early May informing the 733 employees of its investigative service that their employment will be terminated July 6. So far, 681 employees of the service, including 129 who are eligible to retire right now, already accepted the offer to join the new company, according to a spokesman for OPM. Only two have turned down the offer, and another 35 have not yet decided.
In a congressional hearing last month on the privatization proposal, OPM Director James B. King said: "The employees will continue doing the same work, at the same or better pay and benefits. They will own the company and share in whatever success it achieves - and we believe their prospects for success are extremely good."
Some federal legislators are seeking to block the proposed privatization until it can be studied further.