New feds’ pension contributions increase under payroll tax cut deal

Federal pension contributions would increase under a compromise deal to extend a payroll tax cut and pay for jobless benefits through 2012.

(Updated: Feb. 17, 12:45 p.m.)

This story was updated from its original version at 1:30 p.m. on Feb. 16, 2012. In the original version, Federal News Radio reported new federal employees would contribute 2.3 percent of their salaries to their pensions. Federal News Radio has learned from the American Federation of Government Employees that the increase is 2.3 percent more than the current contribution rate of 0.8 percent, making the new feds’ total contribution a total of 3.1 percent.

The House and Senate approved Friday a compromise bill extending the payroll tax cut and unemployment insurance, among other provisions. To offset the cost of part of the bill, newly hired federal employees would be required to contribute more toward their pensions.

After weeks of tense negotiations, lawmakers on a House-Senate conference committee moved relatively quickly toward compromise.

Federal workers hired after Dec. 31, 2012, would be required to contribute 2.3 percent more of their salaries toward their defined benefit pensions, bringing the total contribution rate to 3.1 percent, according to the conference report.

The only exception to the increased contribution rate would be for federal employees with five years of previous service, who are re-hired after that date.

In an emailed statement Thursday before the votes, two members of the conference committee, Sen. Ben Cardin (D-Md.) and Rep. Chris Van Hollen (D-Md.) said they were pleased the deal would have “no negative impact on current federal employees but we still strongly oppose the provision that raises $15 billion to help offset the cost of this package from future workers.”

Initial conflicting reports

Initially, there were conflicting reports about how much pension contributions would increase — and for whom. The Associated Press first reported the contribution for new hires would be a total of 2.3 percent overall, rather than an increase of 2.3 percent.

Originally, conferees had considered including a provision to require all current federal employees to contribute an additional 1.5 percent of their pay to their pensions, according to the Associated Press.

However, Democrats, including Cardin and Van Hollen, who represent many federal employees, resisted that plan.

Unions, some lawmakers oppose

Even as the measure heads to the White House for the President’s signature, some lawmakers had expressed clear opposition.

House Democratic Whip Steny Hoyer (D-Md.), said he would not support the bill that emerged from the conference committee.

“The ongoing efforts to target federal workers will substantially undermine our ability to recruit and retain the quality of people we need to carry out duties to keep our country safe, efficient and equipped to compete in our increasingly competitive world,” Hoyer said in a statement.

In a letter to lawmakers Thursday afternoon, AFGE leaders urged a “no” vote on the bill, arguing it does not represent a “form of shared sacrifice.”

Under the proposed contribution rates, AFGE said a nursing assistant earning about $27,000 a year would see an annual tax increase of $628.

“This deal is an outrageous injustice that deserves the vociferous opposition of every member of Congress with a conscience,” the letter states.

Other federal-retirement bills wait in wings

Although what’s emerging from the payroll tax cut deal does not affect current feds’ pensions, another bill in consideration in the House, H.R.3813, would target their benefits. The bill, introduced by Rep. Dennis Ross (R-Fla.) would increase contributions by 1.5 percent, phased in over three years. For individuals not subject to mandatory retirement who choose to retire on or after Jan. 1, 2013, the FERS minimum supplement is eliminated. Currently, the FERS minimum supplement is paid to those qualifying employees who retire prior to age 62.

Ross’ bill also introduces a new pension formula that applies to employees who have less than five years of service or are hired after Dec. 31, 2012. The new annuity formula would be based on the highest five years of salary instead of the current calculation of the highest three years. Also, the contribution for these new employees would be 4 percent.

H.R.3813 previously was part of a larger transportation bill.

In an appearance on Fox News, Ross said he doesn’t support passage of the payroll tax cut extension because “it’s bad policy” and won’t lead to “true tax reform.”

Still, he said the provision increasing new federal employees’ pension contributions represents “a step in the right direction.”

But he said he would like to see the retirement increases go further and be applied to all federal employees.

“The American public demand that we do something that’s going to show that members of Congress and the federal workforce are not on these bonanza plans for retirement,” Ross said.

It’s unclear how the payroll tax provisions about federal retirement will affect the federal pension provisions in Ross’ stone-alone bill.

“You can’t use it in both places,” said Julie Tagen, legislative director for the National Active and Retired Federal Employees.

The Associated Press and Federal News Radio’s Jack Moore contributed to this story.


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