Reg Jones Expert's View

In February, President Obama signed a law that would dramatically increase the amount Federal Employees Retirement System employees have to contribute to the retirement fund to pay for their annuities. From 0.8 percent to 2.3 percent, nearly triple the amount that they now pay. Not surprisingly, that news created a panic in the ranks—a panic that would have been justified if it applied to current FERS employee. But it didn’t.

The new law doesn’t become effective until January 1, 2013, and applies only to those who are first hired on or after the effective date or who used to work for the government, left, and then are rehired starting next year with fewer than five years of prior federal service. That’s five years of actual federal employee service, not service for which a deposit has been made to get credit for such things as active duty service in the armed forces.

Therefore, those of you who are already on board can breathe a sigh of relief, unless you will leave the government with less than five years of FERS service by the end of this year and later return to work for the government.

You’re probably wondering why the Congress approved such a big increase in the amount new hires and certain rehires will have to pay. Are they going to give them increased benefits? Perish the thought. The affected employees won’t get a penny more than those of you whose retirement deductions aren’t being increased.

So, why the increase? Part of the logic – and a small and questionable part at that – is that the current contribution level doesn’t cover the cost of the benefit retiring employees receive. But the underlying reason is to help cover the cost of extending unemployment benefits for all of those covered by that program. The bill for doing that is $30 billion, of which those increased FERS retirement contributions will cover half.