Federal Report

Feds’ retirement plan is ground zero

Senior Correspondent Mike Causey asks which of the long list of proposed changes to federal retirement is most likely to succeed.

Mike Causey@mcauseyWFED

September 20, 2017 1:00 am

4 min read

For decades, the generous federal retirement system has dodged an annual hail of legislative bullets. Despite some sometimes serious attacks — under both Democrats and Republicans — the vast majority of retirement “reforms” fizzled before they could get even close to becoming law. Feds suffered through pay freezes, furloughs and government shutdowns. But the retirement package, the jewel in the civil service crown, was largely untouched and remains intact, even as more and more private-sector companies eliminate pension plans, forcing workers to fund their retirement via Social Security and contributions to a 401(k) plan.

The few changes that have been made in the federal retirement program didn’t have any impact on workers who were already on the job. The vast majority of workers under the FERS retirement program still contribute only 0.8 percent toward their retirement. What Congress and the White House did do was raise contributions to 3.1 percent for workers hired in 2013 and increased them to 4.4 percent for those hired after 2013. That’s it. But the days of avoiding close calls may be over.

For many people, the question has shifted from will any of the proposed changes be made this year, to which of the proposals is most likely to become law.

The top contender, according to a number of people who watch Capitol Hill for feds and retirees, is a proposal by the president to raise retirement plan contributions for all FERS workers by 1 percent a year over each of the next six years. That would provide the biggest savings to the government. At the same time, it would gradually reduce workers’ take-home pay by 6 percent. Under that plan, the 1.9 percent January pay raise proposed by the White House would be slashed in half.

The president’s budget also takes aim at the cost-of-living feature of the two major federal retirement programs. Few of the remaining private-sector pension plans ever make any adjustment for inflation. Someone who retired on $1,000 per month in 2000 still gets the same amount, even though just about everything — from cars and homes, to food and medicine — has gone up.

People who retired under the old Civil Service Retirement System get regular cost-of-living adjustments based on inflation as measured by the Bureau of Labor Statistics. Those COLAs begin as soon as they retire, regardless of age.

Those who retire under the newer Federal Employees Retirement System are not eligible for any COLAs until age 62. Then they are under a so-called Diet COLA system, which reduces their annual annuity increases by 1 percentage point less than the actual rise in inflation.

Under the White House plan, CSRS retirees in the future would get Diet COLAs that would be 0.5 percent less than the actual rise in inflation as measured by the Consumer Price Index-W.

FERS retirees would fare even worse. The White House plan — if it becomes law — would freeze pensions at their current level. There would be no more COLAs.

There are also legislative proposals to base the annuities of future retirees on their highest five-year average. Currently, the starting annuity is based on the employees highest three-year salary. Many retirement-eligible feds have been watching this one because it is one of the few they could actually “beat” by retiring before the date of enactment.

Another proposal would eliminate the gap payment that FERS retirees get if they retire before age 62, when they become eligible for COLAs. In some cases, that gap payment can be worth thousands of dollars per year. It would be especially harmful to feds —like air traffic controllers and people in law enforcement — who are often forced to retire at age 57.

Nobody has a crystal ball that will forecast which, if any, of the proposed changes might become law. But with a Republican-controlled White House and Congress, many think this year that it, whatever it is, is going to happen. So listen up. Please.

Today, by popular demand, we are going to repeat last week’s Your Turn radio show, in which NARFE legislative director Jessica Klement dissects the various whack-the-retirement-system plans and discusses which are the most likely to succeed. That’s 10 a.m. EDT here on FederalNewsRadio.com or 1500 AM in the D.C. metro area.

Nearly Useless Factoid

By David Thornton

The 250-year-old Great Banyan Tree in Acharya Jagadish Chandra Bose Botanical Garden near Calcutta, India has a canopy that covers 3.5 acres, making it the widest tree in the world.

Source: Atlas Obscura