FEDweek

Assessing Federal Retirement Programs

Federal retirement benefits are "adequate, but not overly generous." That’s the term used in testimony given on January 25, by David B. Snell, Director of Retirement Benefits Services, National Association for Active and Retired Federal Employees Association before a House subcommittee.

Because the points he made about both retirement systems were so clear, I thought it would be a good idea to share some of what he said with you.

CSRS

After providing the formula for computing a CSRS annuity and noting that it is protected from inflation by periodic cost-of-living adjustments, he pointed out that CSRS employees are neither covered by Social Security nor do they receive matching contributions to their Thrift Savings Plan accounts. Since as a group, CSRS retirees only receive an average monthly annuity of $3,191 ($39, 292 per annum) after an average of 32 years of service, "this means that CSRS retirement annuities explicitly are limited to providing no more than what is considered the amount needed to prevent a significant decline in standard of living in retirement."

Snell then went on to point out that any CSRS employee who has become eligible for a Social Security benefit will often be impacted by the windfall elimination provision and the government pension offset provision, two laws that can reduce either an earned Social Security benefit (WEP) or a spousal Social Security benefit (GPO).

Finally, he noted that, "around one half-million current CSRS covered employees have not benefited at all from the recent payroll tax holiday, as they are not covered by Social Security."

FERS

Whether you agree with Snell’s assessment or not, he made a case for FERS being not only a well-designed retirement system but one that Congress should view as a model for private sector reforms.

FERS, he said, "provides a three-legged stool of benefits: (i) a basic defined benefit, which is significantly lower that the CSRS benefit; (ii) Social Security coverage; and (iii) the Thrift Savings Plan. Both Social Security and the Thrift Savings Plan (TSP) balances are portable to private-sector jobs." Further, most employees retiring before age 62 receive an annuity supplement until age 62 that approximates the amount of Social Security benefit they earned while a FERS employee.

Snell pointed out that the annuity FERS provides "is modest – a median of $720 per month ($8,640 annually), and replaces only 1 to 1.1 percent of the average high-three years of salary [per year of service]. This provides modest retirement income security that is not overly generous."

In concluding this segment of his testimony, he pointed out that "The major motivation for private sector firms moving away from defined benefit plans does not apply to FERS. Enhanced funding requirements and the instability of market returns led many private employers to alter their retirement plan structures. On the other hand, agencies fund the full normal cost of FERS benefits annually, as required by law. This means that the FERS system is financially sound and 100 percent pre-funded, with no unfunded liability. According to the Congressional Research Service"[a]ctuarial projections indicate that the CSRDF [Civil Service retirement and Disability Fund] will be able to meet its financial obligations in perpetuity. In fact, the creation of FERS helped to shore up both the CSRSDF and the Social Security system."