The time has come to consider switching federal employee benefits to a cafeteria approach, according to a panel of experts on government. To which veterans of the federal workforce might add “Yes, it has come. And come, and come, and come.”
However, just because it’s not a new idea it’s not necessarily a bad idea. And as a recent report points out, it may be what the government of the future needs, although that may not be true of the government of the future, much less the one of the past.
The report by the National Commission on Military, National and Public Service has received little attention, having been released just as the Coronavirus pandemic hit. Even under normal circumstances that might have been understandable, since the report focused on many familiar, eye-glazing themes of personnel management: the inflexibility of the federal pay system, especially the General Schedule, to attract and keep employees in high-demand career fields, lack of meaningful rewards for top performance, and so on.
To the extent that the group touched on benefits for federal employees, much of the attention has been negative. Their report again raised the possibility of offering only a defined contribution retirement plan—an enhanced TSP—to those hired sometime in the future, and eliminating the traditional defined benefit.
The report argues that FERS, into which all new hires have been put since 1984 “is a poor value for employees who serve fewer than 20 years.” That reflects a not-uncommon view that the employees who work for fewer years than that would be better off investing in the TSP their required contribution toward FERS. Those not staying with the government until retirement have the choice of either withdrawing that money with little interest being paid on it and losing entitlement to a future benefit, or waiting to claim that benefit until they are old enough, given their years of service, and accepting that it has been eroded in value over that time.
While that particular idea has long proven to be a non-starter, it’s worth noting that it was presented within an overall conclusion that federal benefits are not well serving either the government or employees.
Said the report, “The federal government has not kept up with competing employers in offering other benefits, such as disability-income insurance. Developing a new benefit option that addresses these changes in the workforce and competitive landscape—and that incorporates the needs of various agencies and stakeholders—would enable agencies to compete more effectively for talented individuals who value career mobility.”
That would benefit not only those hired in the future looking for more career mobility, it argues, but also current employees following the traditional model of making long, and even full, career of government employment. The current benefit structure is not meeting their needs either, it says.
Many federal employees who reject FEGLI coverage in favor of other types of life insurance, for example, say they’d rather use the money the government is willing to pay toward FEGLI, for something else—such as coverage under the FEDVIP or FLTCIP programs, where there is no government contribution—but that is not allowed.
Similarly, many employees with no dependents eligible for coverage under the flexible spending account program say they’d rather use elsewhere the tax break that the government provides to those who do—but again, that is not allowed. Same goes for the tax break on FEHB premiums that the government would otherwise pay to those who get their health insurance elsewhere.
Said the report, “Under current policy, federal agencies contribute to some benefits—including life insurance—but not to others, such as dental insurance. Some employees might prefer to use the agency contribution for benefits other than life insurance.
“Incorporating a cafeteria plan within the benefits package would enable federal employees to redirect agency contributions toward the supplemental benefits—such as dental insurance, vision coverage, and flexible spending accounts—that they value most.”
Specifically, the report proposes that the amount the government pays toward benefits other than retirement and FEHB health insurance—directly, or effectively through tax breaks—be available for employees to designate as they choose as cash, flexible spending arrangements for health care or dependent care, a health savings account, life insurance, disability-income insurance, dental insurance, and vision insurance.
“The legislation should ensure that the agency contribution grow annually by a percentage linked to an appropriate inflation-related indicator such as the Consumer Price Index or the Employment Cost Index,” it adds.
Crafting such a system would be complex and likely would require years to put in place. That’s largely why it hasn’t happened yet. But that doesn’t mean the cafeteria is closed.