Improper Annuity Payments for Federal Employees Who are Retiring?

The major objective of
the legislation was to enhance the accuracy and integrity of federal
payments…
GAO letter to Congress,
May 31, 2007 re: Improper Payments Information Act

Federal employees pay into the retirement fund for years. Then, when they retire, the Office of Personnel Management (OPM) deliberately pays them less than they are entitled to. The reduction in the so-called “interim” payment can be 20%, 30%, or even—in some cases—more than 50%. True, months later, when they finally determine the correct amount, OPM catches up; that is, they pay the money to the employee that he was entitled to all along (no interest, of course). In the meantime, the employee is hurting financially.

Why do they do this? They KNOW they are shorting employees. They also KNOW there is no possibility of the Government losing money, because the monthly payments are a lifelong stream, and offsetting the stream to recapture any overpayments is exceedingly easy, entailing no risk at all. When they know it is unfair, why do they do this?

In an article published in the Federal Times on April 30, 2011, OPM’s Bill Zielinski was quoted saying “…OPM is not allowed to overpay new retirees’ pensions, even if it later collects the overpayment, due to the 2002 Improper Payments Information Act.”

Two Problems 

I see two problems with this situation.

First, there appears to be an assumption that the agency estimate of the annuity is too high and the estimate must be wrong. I am betting that in at least 90% of the cases the estimate will be found to be essentially correct. Even in the few cases where it is not correct, the likelihood of being higher than the final amount is probably no greater than the likelihood of being lower. So, the OPM assumption appears to be old-fashioned bias.

My other problem has to do with the law cited by Mr. Zielinski. Interestingly enough, the law does not—as far as I can see—allow for the possibility of federal agencies under-paying their obligations. Isn’t an underpayment “improper?” If an underpayment is just
as improper as an overpayment, then does it not appear that OPM’s policy of deliberately shorting new retirees is, in and of itself, a violation of the Act?

This is just my opinion, but I believe OPM should pay new retirees 100% of the estimate provided by their agencies. In those few cases where this turns out to be too much, OPM can easily make deductions from future payments. And when the estimate is too low, they can pay more, to catch up. Either way, equity will be served.

One other change: in arriving at the interim payment, OPM currently allows -0- for the FERS annuity supplement, even though it is
hundreds of dollars. I cannot imagine why this is omitted. Anyway, they should include this in the interim payment, too. (Incidentally, Chapter 40 of the OPM handbook requires agencies to provide employees with an estimate of the annuity supplement (Section 40A2.1-3.N.12). If agencies did this, the interim payments would likely be considerably larger, I believe.)

The two changes above would, if implemented, remove a great deal of financial pain from the retirement transition.

There is a helpful discussion of the Improper Payments Information Act at www.gao.gov/new.items/d07767r.pdf.

Accurate calculations of annuities can be performed at my website: www.fedbens.us

© 2016 Robert F. Benson. All rights reserved. This article may not be reproduced without express written consent from Robert F. Benson.

About the Author

Robert Benson served 35 years in various Federal agencies, as both a management analyst and IT specialist. He is a graduate of Northwestern University.

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