Pay, Pensions, Premiums Under the Knife

Mike Causey

Pay, Pensions, Premiums Under the Knife

Friday is supposed to be a slow news day so we\'ll limit it to this: a 3 year pay freeze, 10 percent job cut, higher FEHBP premiums for retirees, lower benefits for...

Federal News Network Staff

November 12, 2010 4:00 am

3 min read

Let’s see, a 3-year pay freeze, 10 percent job cut, smaller pensions, higher health plan contributions. Where to begin? How about here…

In most American companies that still have retirement plans, the benefits of workers are based on their length of service and their highest-5 year average salary. Many of those plans do not require employees to contribute any of their own money into the retirement plan.

In the federal government the annuity is based on length of service and the employee’s high-3 year average salary. Under the old CSRS program the computation formula is more generous than most private sector pension programs, and is also more generous than the FERS retirement plan which covers most current active duty federal and postal workers.

But the high-3 formula for federal and postal workers would likely go away (replaced with the high-5 system) if what is being proposed by the National Commission on Fiscal Responsibility and Reform is approved and sent to Congress.

President Obama set up the Commission to help politicians, of both parties, to make some quick, hard choices. The Commission was modeled after the BRAC (military base closure) plan which gave Congress the option to vote up or down on military base realignments.

Along with the change to the high-5 formula, the bipartisan co-chairmen of the Commission would require federal-postal retirees to pay a higher share of their FEHBP health premiums. Under current law, retirees get the same government contribution to their health premiums (just over 70 percent of total premium) as younger, healthier active feds. It would also require workers under the FERS retirement program to contribute more to their retirement.

The co-chairmen of the commission are former Clinton administration official Erskine Bowles and former Sen. Alan Simpson (R-Wyo.) whose verbal pot shots at feds are legendary.

A third tentative proposal by the Commission co-chairmen would use a different Consumer Price Index calculation to determine cost of living raises for federal, military and Social Security retirees. Most experts believe using the new system would result in smaller COLAs in the future. Because of low-inflation and periods of deflation, the retirees didn’t get a COLA in 2010 and will not get one in 2011 either. The retirement age for Social Security recipients would also be raised, to 69, over the next decade.

So how serious are these threats to federal worker/retiree benefits? Very serious in that most of the people who are looking for ways to dig the nation out of a massive debt are focusing on cuts in government in various programs and levels. The tentative plan, from Bowles and Simpson so far, includes a 3-year federal pay freeze and 10 percent job cut.

But it is important to remember that the proposals made public this week in a 50-page report are just that. Proposals by individuals. They are what is called a “chairman’s mark.” Before being sent to Congress for the up-or-down vote promised earlier by House and Senate leaders, each proposal would have to be okayed by 14 of the 18 commission members.

To reach me: mcausey@federalnewsradio.com

While You Were Out: Want to know what else you missed while you were off for Veterans Day? Take a look at the stories Federal News Radio has been working on.

Nearly Useless Factoid
by Suzanne Kubota

From bookofodds.com we learn that “older drivers are less likely to drive drunk than younger drivers. According to the US National Highway Traffic Safety Administration, in 2008 only 5% of drivers over 65 in fatal crashes had blood alcohol content of .08 or higher, compared to 17% of drivers aged 16 to 20 and 32% of drivers aged 21 to 34.”