Publisher's Perspective

Federal employees are naturally concerned/upset/outraged about how their retirement benefits have been kicked around in recent times, involving issues such as increasing required contributions, threats to COLAs and on and on.


Many of the attacks, and much of the defense, center on how federal retirement programs stack up against benefits in the private sector. As with the never-ending dispute over how pay compares, each side tends to focus on the indicators that work in their favor and ignore the others.

That’s been generally the case in the debates over retirement benefits, with the federal employee and retiree side focusing on benefits offered by large private sector employers. As in the pay debate, they say the government shouldn’t be compared to the private sector as a whole but rather against large corporations – or large state governments.

A recent report from the Center for Retirement Research put it this way: "Pension discussions in the last few years have focused primarily on the financial health of state/local plans or on the shift from defined benefit to 401(k) plans in the private sector. Often forgotten is that while coverage at the state/local level is virtually universal, only 42 percent of private sector workers age 25-64 have any pension coverage in their current job. As a result, more than one third of households end up with no coverage at all during their entire work lives and others, who move in and out of coverage, end up with inadequate 401(k) balances.

"Coverage of private sector workers in employer-sponsored plans is shockingly low and shows no sign of improving on its own."

The report shows how difficult it is to make comparisons, though.

For example, a private sector person "can work for an employer that sponsors a plan for any of its employees. They can be covered by a plan, but not eligible for benefits. Or they can actually participate in the plan. ‘Coverage’ and ‘participation’ are not the same since, for example, 21 percent of workers covered by 401(k) plans choose not to participate."

In the federal government, in contrast, all employees are eligible for defined benefits at certain age and years of service combinations, with the shortest possible service being only five years.

The TSP is comparable to a 401(k) plan, both being "defined contribution" plans, and as in the private sector not everyone "participates" by investing with their own money. About a sixth of FERS-covered employees don’t invest (although even they still get an automatic 1 percent of salary employer contribution), nor do about a third of CSRS-covered employees.

However, a direct comparison is difficult to make because federal employees, unlike the majority of the private sector employees, have a defined benefit as a base. For people without such a base, personal savings and Social Security benefits become all the more important. More than a third of retirement households are entirely dependent on Social Security for their income, and those benefits fall far below the benchmark 80 percent of income replacement rate for retirement.

Those who have 401(k)-type plans in addition to Social Security are better off, it said, but even they will not meet that benchmark on average, with projected savings being far below what would be needed to make up the gap.

As with the pay debate, much depends on how you define the population you want to compare.