Federal retirement benefits likely target for GOP

Federal employees are bracing for more bad news about their retirement benefits as Republicans prepare to control both chambers of Congress.

“With the new Congress coming to town, we expect that proposals targeting federal employees will continue,” said Colleen M. Kelley, president of the National Treasury Employees Union, Washington, which represents 150,000 federal employees at 31 agencies.

Federal workers hired before 2012 contribute 0.8% of their salaries to the $412 billion Federal Employees Retirement System, Washington, while those hired in 2012 or later contribute up to 4.4%, depending on when they started. (An estimated 10% of workers participate in the predecessor to FERS, the Civil Service Retirement System.)

The FERS system includes the $404 billion Thrift Savings Plan; eligible employees receive an automatic contribution of 1% of pay from their employer into the TSP, as well as matches on their own contributions.

The first indication of how Republicans on Capitol Hill might change federal retirement benefits came in April, when the House of Representatives approved a fiscal 2015 federal budget raising federal employees' pension contributions, in part to counter revenue lost from reduced corporate and personal tax rates.

Under the direction of House Budget Committee Chairman Paul Ryan, R-Wis., the budget called for federal workers to contribute up to 6.35% of their salaries to their defined benefit plan, and for newer workers to be only in a defined contribution plan.

People participating in the CSRS would see their contributions rise to 12.5% from the current 7%. The measure did not advance to the Senate for final enactment.

On Oct. 29, Mr. Ryan and Darrell Issa, R-Calif., chairman of the House Oversight and Government Reform Committee, wrote a letter to Douglas Elmendorf, director of the Congressional Budget Office, asking the CBO to develop model projections of the long-term impact of the federal retirement system on the federal budget.

They also asked for “different options” for reform, including some of the ideas in the Ryan budget proposal.

“The report should include, but not limit itself to, adjusting the retirement contributions of federal employees, altering the formula for computing pension benefit payments, and expanding the defined contribution component while reducing the defined benefit component,” the letter said.

“CBO should be prepared to provide specific information about the long-term budgetary effects of substantial proposed changes,” they said in the letter.

A Democratic congressional staffer who declined to be identified said, “The letter seems to suggest the majority plans to make deeper budget cuts to the federal retirement system.”

“They have made it pretty clear that this (further cuts in federal retirement) is on their priorities list,” agreed Ms. Kelley of NTEU. “I do not think they have their facts right, and there's no recognition of the retirement crisis in this country in general. We think that FERS is a model retirement program for both the employees and employers,” she said in an interview, noting FERS replaced CSRS, which had more generous benefit formulas.

Federal employee compensation and benefits have been used repeatedly in recent years to offset other federal budget spending. In addition to the employee retirement contribution hikes enacted in 2012 and 2013 for newer workers, federal employees have been under a pay freeze for the past three years. Those two changes contributed $138 billion to reduce the federal budget deficit, NTEU officials estimate.

“More than any other group of Americans, we have paid the price of fiscal austerity,” J. David Cox Sr., president of the American Federation of Government Employees, with 670,000 members, said on a recent press call about the congressional actions. Mr. Cox said if the Ryan budget proposal or similar ideas move forward, “we will push back over that. We do have friends in both parties. We expect them to stand up for federal employees and retirees.”

Mr. Ryan is expected to become chairman of the House Ways & Means Committee in January, where corporate tax reform — and ways to pay for it — will be a top priority. A replacement for Mr. Issa, whose term as committee chairman ends this year, has not been decided yet by Republican leaders.

In 2013, the federal government paid $75 billion in civilian pension benefits, according to Messrs. Ryan and Issa's letter to the CBO. That figure is expected to come up in the lame-duck session of Congress as both houses work on a new federal budget (the current one is set to expire Dec. 11), and again when the 114th Congress tackles budgets and other fiscal issues, including Social Security.