Publisher's Perspective

fedweek.com: cbo report on federal pay and benefits justification for benefit cuts cherry picking The recent fiscal 2021 budget proposal from the Trump administration once again cites the report as grounds for cutbacks to retirement benefits.

Federal employees who are tasked to work on a report ordered by Congress often say that afterward, the effort feels like a waste because the report just gets filed away.

That might not seem like such a bad outcome, though, considering what has happened with a 2017 Congressional Budget Office report on federal pay and benefits.

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That has been cited as the justification for making major changes in those programs involving tens of billions of dollars—by people who don’t seem to have much, if any, of it.

The recent fiscal 2021 budget proposal from the Trump administration once again cites that report as grounds for proposing cutbacks to retirement benefits including reducing the value of initial benefits by switching to a “high-five” calculation base; ending the FERS special retirement supplement for those who retire before age 62; reducing the value of COLAs and more.

Here’s a representative quote that appears in largely the same form in several places among the budget books:

“In 2017, CBO found a 17-percent disparity on average, in total compensation, between federal employees and their private sector peers.

The disparity—which varies significantly by education level—is overwhelmingly attributable to benefits. As the CBO study shows, in comparison to the private sector, the federal government continues to offer a very generous package of retirement benefits, even when controlling for certain characteristics of workers.”

A recent proposal by the Republican Study Committee, a group of conservative House Republicans—that is, almost all of them—similarly cited CBO in support of ending defined benefits entirely for newly hired federal employees and replacing it with an enhanced government contribution toward the TSP.

From that reaction, one might think that the CBO concluded that federal retirement benefits need to be “reformed”—that is, cut—and made those recommendations for doing so.

What the CBO actually did was compare federal pay and benefits with those of the private sector based on educational levels (one of many ways of doing so, and not necessarily the best).

It concluded that by that measure federal employees on average are slightly ahead of the private sector in pay at similar education levels and farther ahead on average if the value of benefits is included.

Said the report: “Most of the higher benefit costs incurred by the federal government stem from differences in retirement benefits. The federal government provides retirement benefits to its workers through both a defined benefit plan and a defined contribution plan, whereas many large private-sector employers have replaced defined benefit plans with defined contribution plans.”

That’s apparently where advocates of retirement cuts stopped reading.

As infomercial announcers say, “But wait, there’s more!”

The report also said that for both pay and benefits, the federal advantage is strongest among those with the least education, no more than a high school diploma, and that it lessens as educational levels increase.

Those with the highest levels of education are not only behind by 24 percent in salary, it said, but their benefits also are 3 percent less valuable. That is no small thing in the federal workforce, since 28 percent have at least a master’s level degree, compared with 11 percent of private sector employees.

Also, there’s this: “CBO’s estimates of the costs of benefits are much more uncertain than its estimates of wages, primarily because the cost of defined benefit pensions that will be paid in the future is more difficult to quantify and because less-detailed data are available about benefits than about wages” for private sector employees.

Further, it said, the value of deferred compensation such as a defined benefit like FERS or CSRS annuities depends on factors including how long the employee stays with the employer. “The value of those benefits rises sharply if an employee waits to leave federal service until he or she is eligible for an immediate pension (at which point the employee is generally also eligible to receive federal health care benefits in retirement),” it said.

The opposite also is true, of course: Federal retirement benefits are less valuable for those with shorter working careers, to say nothing of those who leave before becoming eligible for a benefit at all.

The CBO report contains valuable information about federal retirement benefits and some political figures obviously consider it authoritative. If only they would read it.

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CSRS Employees Down to 4 Percent: Are you one?

FERS Retirement Guide 2020