Publisher's Perspective

A year ago when the Congressional Budget Office issued a report comparing federal versus non-federal compensation, almost all of the attention focused on what it had to say about salaries.

But with proposals tabled that would see federal employees retirement benefits reduced in various ways, benefits should have been the main focus.

The report said that overall, salary rates in the two sectors are about comparable, with about a 3 percent advantage for federal workers on average. That was in line with a similar report it had issued five years before finding virtually the same advantage on the federal side, 2 percent.

In both cases, CBO found that federal employees with the lowest levels of education–a high school diploma or less–at a significant advantage and the scales tilted more and more toward the private sector with each higher level of education. In the 2017 report, federal workers with a bachelor’s degree were found to be 5 percent ahead, those with a master’s degree 7 percent behind and those with a professional degree or doctorate 24 percent behind.

That report quickly got thrown into the debate over how salaries compare, the basis for the annual decision on a federal pay raise for the following year.

Midpoint between extremes

CBO’s position was essentially a midpoint between two extremes. On one end is the figure endorsed by federal employee unions that sit on a salary council which produces an annual report—based on official government data, but massaged in a certain way—finding federal workers underpaid on average by about a third. On the other are reports by conservative or libertarian think tanks concluding that federal employees are overpaid on average by about as much, or even more—also based on solid data but massaged in a different way.

The report set off another long battle in that never-ending war and by the end the two sides were pretty much where they had started, which is to say the same place they have been all along. Neither of the most extreme viewpoints ever has had much influence on the actual process of setting annual pay raises, although they do seem to enjoy a good fight.

Advantage feds

What drew less attention but that could have more influence in the long run, is that the CBO focused not just on pay but on total compensation, including benefits as well. And there it found an overwhelming advantage for federal employees.

It said that for employees with no more than a high school education the benefits advantage is 93 percent, for those with some college 80 percent, and for those with a bachelor’s degree 52 percent. Only among those with a professional degree or doctorate were federal benefits less valuable—and even there, only by 3 percent. Overall, it said, federal employees enjoy a benefits advantage on average of 47 percent.

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. The federal government also provides subsidized health insurance to qualified retirees, an arrangement that has become much less common in the private sector.”

Proposals to reduce benefits

No surprise, then, that the Trump administration would use that report as ammunition in its budgetary requests to reduce those benefits. Here’s a representative sample from the main White House budget proposal:

“A Congressional Budget Office report issued in April 2017 found that, based on observable characteristics, Federal employees on average received a combined 17 per­cent higher wage and benefits package than the private sector average over the 2011-2015 period. The disparity is overwhelmingly on the benefits side: CBO found that federal employees receive on average 47 percent higher benefits and 3 percent higher wages than counterparts in the private sector . . . The generous benefits package offered by the federal government includes a defined benefit annuity plan and retiree health care benefits – both are increasingly rare in the private sector.”

And this from an OPM budget document: “The employee retirement landscape continues to evolve as private companies are providing less compensation in the form of retirement benefits. The shift away from defined benefit programs and cost of living adjustments for annuitants is part of that evolution. By comparison, the federal government continues to offer a very generous package of retirement benefits in the form of deferred compensation. Consistent with the goal of bringing federal retirement benefits more in line with the private sector, adjustments to reduce the long-term costs associated with these benefits are included in this proposal.”

The fight to protect them

On the other side are some members of Congress, the good-government community and federal employee organizations—essentially the same people who argue that federal employees are under-paid. However, it’s harder for them to make a similar counter-argument regarding benefits.

For example, they can’t seriously contend that the federal government doesn’t offer health insurance for retirees with a continued employer contribution, and both defined benefit and defined contribution retirement benefits. It does; that’s exactly what they’re trying to protect. Similarly, there is no question that the private sector has been cutting back on such benefits for years.

Instead, they argue that the government has to offer better benefits to recruit and retain employees, given that it underpays them on salary. They also say that just because the private sector is skimping on benefits for its employees, that doesn’t mean that the federal government should too. In other words, that Uncle Sam should not join a “race to the bottom.”

There’s merit to both arguments. But to support the contention that federal benefits must be left alone to make up for inferior salaries requires agreeing in the first place that federal salaries are inferior—and obviously there is no such widespread.

As for the race to the bottom argument, when most of the rest of workers in the nation already are down there, it’s a stretch to think that they’ll have much sympathy.