If you’re upset by the recent passage of a law to increase the retirement contributions of future federal employees and the continuing threat to do the same with current employees, you might want to skip reading a new Government Accountability Office report on what is happening with annuity systems at other levels of government.
There, you will find that the news goes from bad to worse in one page. Just reading the summary page—where it notes that fully half of states have increased employee contributions to retirement in the last four years—will do it.
But if you can take it, a deeper dive into this report on state and local pension plans is worth it, just to gauge what it all might mean for your future as a federal employee.
Let’s start with a baseline that has been widely reported, but seemingly has yet to sink in to the federal workforce: only 18 percent of private sector employees now are covered by any defined benefit plan (other than Social Security). Therefore, griping about inadequacy of FERS or CSRS benefits, the raising of contributions or the threats of future diminished benefits will fall on deaf ears of four-fifths of private sector workers. That’s just a fact.
Second, even among state and local governments–which are more comparably structured to the federal government as far as benefits go and where feds most naturally look for allies–a fifth of employees aren’t covered by defined benefits. Some states have been moving in the same direction as the private sector, substituting 401(k) type plans for defined benefit plans, at least for employees hired after a certain date.
After passage of the law raising contributions only for newly hired federal employees who come on board after this year, many employees breathed a sigh of relief. Their idea was, and apparently still is in most cases, that the threat to current employees is over. They were encouraged in this thinking by statements of some members of Congress who while rightfully taking credit for shielding current workers this time around, suggested strongly that the issue has been settled. Their implication is that Congress had a chance to look at the law and the promises made to current employees and concluded that neither would allow increasing contributions by current employees.
Not so fast. The idea that it’s somehow unthinkable that current employees can be made to contribute more toward retirement requires rethinking. First of all, it has been done before, in the Clinton administration, which agreed to a .5 percent increase phased in over three years. Only the first two steps had occurred when that was repealed, but it was done.
Now the GAO has found that of the 25 states that have increased employee contributions, just five of those limited the increase to only future employees. The rest applied it to future employees plus at least some current employees. In some cases those increases were ordered to be only temporary, but anyone who has worked in government more than a short time knows how “temporary” tends to morph into “permanent.”
In addition, employees holding the rosy view about their protection from future contribution increases seem to think they have the same, or even stronger, protection from changes to current benefits. Such ideas as high-5, reducing retiree COLAs and eliminating the FERS Social Security supplement simply can’t be enacted, they say, and sponsors of those ideas are just posturing.
GAO, again, paints a different picture. Twenty-four states have adjusted their benefits formula, 29 have raised the retirement age or increased the years of service required for benefits and 18 have reduced or eliminated COLA increases on benefits. In most cases, those were applied only to future employees and only some current employees, but it was done.
Another common misperception is that benefits won’t be changed because of the potential impact on recruitment and retention. Federal employee unions make this argument all the time, as do some members of Congress. GAO said that such changes “could affect recruitment and retention” but that officials of the state governments that have done it don’t expect to have any such problem. And the federal government is in downsizing mode; it needs employees to leave so it doesn’t have to lay them off at great effort and expense, and it will be replacing only a percentage of employees who do leave.
Finally, there’s a point of view that federal employees already overpay for their retirement benefits. It is true that some states do not require their employees to contribute toward their retirement pensions (that is also true of some private sector companies that still have such plans). But the number of such states is dwindling, because several that previously didn’t require employee contributions have started imposing them.
Also, of state plans that don’t include Social Security—making them comparable to CSRS in that regard—the median employee contribution is 8 percent. In CSRS, it is 7 percent. Of state plans that do include Social Security—making them comparable to FERS in that regard—the median employee contribution to the employer-sponsored benefit is 5 percent. In FERS it is 0.8 percent.
Making exact comparisons of federal retirement benefits against other retirement benefits is difficult; even comparing FERS vs. CSRS has layers of complexity. But don’t lose sight of the forest through those trees.