Retirement threats – separating fact from fiction

By Jolie Lee
Federal News Radio

The rumor that Congress will change federal employees’ annuity calculation from a high-three to a high-five formula has many feds more worried than they should be.

A more realistic threat to feds’ pensions is a provision in the 2012 House budget that would increase FERS employees’ retirement contributions from 0.8 percent to about 6 percent as part of a deficit reduction compromise.

“It’s absolutely a disguised pay cut,” said Jessica Klement, government affairs director at the Federal Managers Association, in an interview with Your Turn with Mike Causey.

But feds seem to be more concerned about the proposal to adopt a high-five formula that would base feds’ annuity on the highest five years of salary instead of the highest three. This proposal is not included in any legislation and only appeared in December’s bipartisan fiscal commission report.

“The bottom line is this is the least talked about provision in all the things that Congress and the administration could do to harm federal employees,” Klement said. “I’m not saying it’s not possible, but thus far it’s getting less attention than other things.”

On the other hand, the pension contribution hike is “absolutely on the table” in lawmakers’ discussions, she said.

Vice President Joe Biden has been holding budget talks with legislators at the Blair House in Washington, D.C. Currently, only rumors have been coming out of those discussions.

“Really, the only thing they can agree on is ending farm subsidies and changing the pensions for federal employees,” Klement said.She pointed out that agencies are “on the hook” for a much larger contribution than a matching contribution.

“The agency doesn’t just match 7 percent. They actually pay several more percentage points,” she said.

What is “realistic right now” is Congress shift some of that burden from the agency to the employee, Klement said.

Compounding the rumors are reports that defined pension plans are “going the way of the dodo,” Klement said. In the Senate, one proposed bill would end the defined benefits pension portion of FERS for new hires starting in 2013.

Even if some threats affect new employees and not current ones, these proposals will impact agencies’ ability to hire and retain their workforce. Federal employees, particularly those in upper-level management positions, could be making more money in the private sector. Receiving generous retirement benefits is “one way to entice them to join federal service,” Klement said.

Mike also spoke with Steve Watkins and Steve Losey from the Federal Times to bring us up to speed on what’s happening on Capitol Hill, and what is likely to happen and talk about the possibility of much higher health premiums for you.