A recent report concluded that federal retirement benefits compare well with those of not only the private sector but also of state and local governments. While that’s money in the pocket for federal employees, by the perverse logic of Washington, it might actually be bad news.
Comparing federal compensation—pay, benefits or some combination—has always been problematic. There are many variables within the federal system itself—think of the differences between CSRS and FERS, for example—but even more variation out in the wider market, including the availability of certain benefits (such as stock options) in some places but not others.
The main question is, what is the proper benchmark? The economy as a whole? Or just large employers? Just large employers that are at least partly unionized? Just employers with a similar demographic in terms of education and nature of the work, such as non-profits or colleges? Just large non-profits or colleges? What about state governments? Just states with the largest number of employees? How about large cities?
There are arguments for and against each.
The Postal Service inspector general’s office took on that task with an all of the above approach, selecting benchmarks from various sectors in order to compare retirement benefits with what USPS provides to its employees—and since postal employees are under the same retirement system as other federal workers, by extension what the federal government as a whole provides as an employer.
Specifically, it examined—without naming them in the final report—an academic and research institution; a large communications firm; a package delivery company; a state government; a city government; a physical and electronic delivery company; an energy company; and an insurance company.
“All eight benchmarked organizations historically had defined benefit pension plans,” it said. “However, seven benchmarked organizations transitioned, at least partially, to a defined contribution retirement benefits plan. The one remaining organization maintained a traditional defined benefit pension plan but increased the retirement age requirement, decreased employee benefits, and offered a delayed compensation plan.”
Another telling finding, based on national data not just on those benchmarks: “Benefits constitute a larger share of compensation for federal workers, accounting for 39 percent of total compensation, compared with 30 percent in the private sector. As such, benefits help attract and maintain staff in the federal workforce. The Postal Service’s retirement expense was about 12 percent of total annual compensation and benefits expenses in FYs 2011 through 2013. In the private sector, retirement and savings benefits average 3.7 percent of total compensation and benefits costs. For state and local governments, retirement and savings benefits average 9.4 percent.”
This is more than a purely academic exercise. The report was done amid various proposals to break off into a separate postal retirement system that most likely would feature either a smaller or no defined benefit feature for future postal employees. Although that likely would be accompanied by a larger defined contribution feature—for example, increased employer contributions into the TSP or a similar new plan—the effect still would be to shift obligations for the retirement security of employees off the employer’s shoulder and onto the employee’s shoulder, and at a lower cost to the employer and higher risk to the employee.
Said the report: “The Postal Service should consider these practices, used by the organizations we examined, if it changes its retirement benefits.”
While those proposals involve only postal employees, the pattern of federal benefits is that what is tried in one place is later applied in another. Already, there are similar plans in circulation to overhaul the retirement program for all of the executive branch. In fact, the House-passed budget outline of earlier this year has that as an underlying assumption.
If nothing else, reports such as this one underscore that federal employment carries advantages in terms of its benefits, especially retirement, compared with work just about anywhere else. Previous, more limited, comparisons were used as a justification for raising the required contributions by newly hired federal employees two years in a row, so that the FERS system now has three separate levels of required contributions depending on the year in which the employee was first hired—all for the same level of future benefits.
Call it envy, call it equity, call it mean-spiritedness, call it fiscal responsibility—call it what you want, that pressure is not going away.