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Commission Proposes “High-Three” to “High-Five” for Retirement, Pay Freeze and Changes to FEHB for Federal Employees

by Ian Smith |

The National Commission on Fiscal Responsibility and Reform has issued a report today (December 1, 2010) that outlines its recommendations for long term ways to cut federal spending and reduce the deficit.  In summary, the Commission says that its plan will:

  • Achieve nearly $4 trillion in deficit reduction through 2020, more than any effort in the nation’s history.
  • Reduce the deficit to 2.3% of GDP by 2015 (2.4% excluding Social Security reform), exceeding President’s goal of primary balance (about 3% of GDP).
  • Sharply reduce tax rates, abolish the AMT, and cut backdoor spending in the tax code.
  • Cap revenue at 21% of GDP and get spending below 22% and eventually to 21%.
  • Ensure lasting Social Security solvency, prevent the projected 22% cuts to come in 2037, reduce elderly poverty, and distribute the burden fairly.
  • Stabilize debt by 2014 and reduce debt to 60% of GDP by 2023 and 40% by 2035.

Here are some of the recommendations likely to be of most interest to readers:

Unleash agencies to begin identifying savings
Every federal agency will need to do its part to live within tough spending caps. The Commission recommends that as part of their annual budget submissions and Congressional Budget Justifications, all agency heads should be required to identify a share of their budget recommended for cancellation and to identify ways to shift from inefficient, unproductive spending to productive, results-based investment. As a tool to improve productivity, agencies should be given a two-year window to conduct employee buyouts, and expanded latitude for personnel realignment. Congress should also consider a “BRAC commission” for terminating major weapons systems, appointed and headed by the Secretary of Defense, for trimming redundant or ineffective weapons from the Defense Department’s inventory.

Under the umbrella of adopting immediate reforms to reduce spending and make the federal government more efficient, one finds several key recommendations in the report:

  • Impose a three-year freeze on Member pay
    Members of Congress get an automatic salary increase each year.  This would be an immediate freeze on that for 3 years.
  • Impose a three-year pay freeze on federal workers and Defense Department civilians.
  • Reduce the size of the federal workforce through attrition.
    On this point, the Commission recommends “doing more with less” and cutting the federal workforce by 200,000 (10 percent).
  • Reduce federal travel, printing, and vehicle budgets.
  • Eliminate all congressional earmarks

In the realm of cutting taxes, the report has several ideas:

  • Cut rates across the board, and reduce the top rate to between 23 and 29 percent.
  • Dedicate $80 billion to deficit reduction in 2015 and $180 billion in 2020
  • Simplify key provisions to promote work, homes, health, charity, and savings while increasing or maintaining progressivity. It states that the new tax code must include provisions for:
    • Support for low-income workers and families (e.g., the child credit and EITC)
    • Mortgage interest only for principal residences
    • Employer-provided health insurance
    • Charitable giving
    • Retirement savings and pensions

In the realm of federal workforce retirement programs, the report lists the following recommendation and information:

REVIEW AND REFORM FEDERAL WORKFORCE RETIREMENT PROGRAMS. Create a federal workforce entitlement task force to re-evaluate civil service and military health and retirement programs and recommend savings of $70 billion over ten years.

Military and civilian pensions are both out of line with pension benefits available to the average worker in the private sector, and in some cases, out of line with each other across different categories of federal employment. The Commission recommends a federal workforce entitlement review to analyze civil service and military retirement programs in order to 1) Make program rules more consistent across similar programs, and 2) Bring both systems more in line with standard practices from the private sector. The review will have a ten-year savings target of $70 billion; recommendations of the task force would receive fast track consideration in Congress. Examples of program design reforms that the task force should consider include:

Use the highest five years of earnings to calculate civil service pension benefits for new retirees (CSRS and FERS), rather than the highest three years prescribed under current law, to bring the benefit calculation in line with the private sector standard.
(Saves $500 million in 2015, $5 billion through 2020)

 
Defer Cost of Living Adjustment (COLA) for retirees in the current system until age 62, including for civilian and military retirees who retire well before a conventional retirement age. In place of annual increases, provide a one-time catch-up adjustment at age 62 to increase the benefit to the amount that would have been payable had full COLAs been in effect.

(Saves $5 billion in 2015, $17 billion through 2020)

Turning the Federal Employees Health Benefits Program into a defined contribution premium support program
that offers federal employees a fixed subsidy that grows by no more
than 1 percent over the gross domestic product each year. For federal retirees, the subsidy
could pay a portion of the Medicare premium. 

(Saves $2 billion in 2015, $18 billion through 2020)

Finally, the report addresses the fiscal problems that the Post Office has faced in recent years:

Give Post Office Greater Management Autonomy
To put the Postal Service on a path toward long-term solvency, the Commission recommends reversing restrictions that prevent the Postal Service from taking steps to survive – such as shifting to five-day delivery and gradually closing down post offices no longer able to sustain a positive cash-flow.

 
You can download and read the full report from the link below.

Attachments

The Moment of Truth: Report of the National Commission on Fiscal Responsibility and Reform (PDF)

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About the Author

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Ian Smith

Ian Smith is one of the founders of FedSmith.com. He writes about current topics that impact federal employees.

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