Federal Pay, Federal Retirement and the Debt Ceiling

By on July 14, 2011 in Current Events with 110 Comments

Several days ago, President Obama made headlines and, no doubt, scared a lot of America’s senior citizens with his statement there is no guarantee that Social Security checks (or many other government checks) will be sent out if the debt ceiling is not raised.

Presumably, those not getting government payments would also include federal employee retirement payments and, possibly, many current federal employees.

To put this into perspective, here are two comments from the president:

“So are we really going to start paying interest to Chinese who hold Treasuries and we’re not going to pay folks their Social Security checks?”

— President Obama, June 30, 2011 

*** 

“I cannot guarantee that those checks go out on August 3rd if we haven’t resolved this issue. Because there may simply not be the money in the coffers to do it.”

— President Obama, July 12, 2011

The latest statement is, in part, a way to put political pressure on Republicans that are not giving the president the legislation he wants to continue business as usual. We have no way of knowing what will really happen if there is a technical default while the politicians try to work out an agreement on the debt ceiling.

FedSmith has attempted to find out from the Office of Personnel Management about the status of the money that federal employees pay for their federal retirement. Despite verbal assurances an answer would be forthcoming, we were never able to obtain information from the agency. We resorted to submitting a Freedom of Information Act request to OPM but, to date, they have ignored this as well.

Based on reports from previous administrations, it is reasonable to conclude that there is very little money, if any, in a retirement fund for future retirement payments to be paid to federal employees. As with Social Security, the fund is essentially full of “IOU’s” from the government as the money is spent as it comes in to pay for current government expenses.

In other words, the money that is actually paid each month to federal retirees comes from current government receipts. There are not billions of dollars sitting in an account waiting to be disbursed. This is essentially the same situation as exists for Social Security (See No Money in the Social Security Trust Fund).

Understandably, for those that have been paying attention, this creates the same anxiety and insecurity among federal retirees that is felt by those who may be depending on Social Security payments each month to pay their bills. 

Here is a quote in a column published on July 14th by Karl Rove:

 

The $172 billion in revenues collected over the rest of the month can pay the $29 billion interest charges on the national debt, Social Security benefits ($49 billion), Medicaid and Medicare ($50 billion), active duty military pay ($2.9 billion), Department of Defense vendors ($31.7 billion), IRS refunds ($3.9 billion), and about a quarter of the $12.8 billion in unemployment checks due that month.

There will, however, be no cash for highway construction, no checks for federal workers or retirees, no agriculture payments, no open national parks. Interest rates are also likely to rise if U.S. debt is downgraded, adding massively to the deficit and further damaging the economy. This would be a disaster with no political winners. 

There is apparently legal authority for the federal government to continue to pay Social Security benefits even if the debt ceiling has been reached. During the 1996 debt limit crisis, Treasury Secretary Robert Rubin said that the Treasury Department did not have sufficient funds to pay Social Security benefits. Later that year, Congress passed public law 104-121. It put into law the Treasury’s authority to use Social Security trust funds to pay benefits and administration expenses in the event a debt ceiling is reached. This law would presumably give the administration the authority necessary to pay Social Security benefits even if the debt ceiling is not raised.

Whether the administration would do so, or whether it would withhold the checks to create political pressure, is anyone’s guess.

Federal employees and retirees are not in the same situation. We do not know if the Treasury Department would redeem the notes for civil service securities to pay retirement benefits or if there would even be a viable market for these notes if the debt limit is not raised.

The Civil Service Retirement and Disability Fund provides benefits to retired and disabled federal workers covered by the Civil Service Retirement System. This money is invested in special-issue Treasury bonds. The federal government is already borrowing money from this source to keep the government running despite its massive debt. Under a 1986 law, the Treasury Department can (and has) stopped investing new employee and agency contributions, along with interest earnings on existing investments and income from maturing securities. Also, Treasury can redeem income of about $6 billion per month in existing securities ahead of schedule. (See What Happens to Your TSP Funds If the Debt Limit is Not Raised? and Debt Ceiling Reached But Sky Isn’t Falling on Thrift Savings Plan Investors.)

Bluntly, the money contributed by federal employees has already been spent. Chances are, if the administration decides not to issue Social Security payments, federal retirees won’t get paid either. Paying former federal employees while not issuing Social Security checks to millions of Americans would be unpopular.

And what about payments to currently employed federal workers? No one knows or, if they do know, they are not issuing public statements. There could be some federal employees who do not get a paycheck. 52 House Republicans sent a letter to the White House this week demanding that military pay, as well as Social Security checks, Medicare payments and all interest payments, remain unaffected if a deal on the debt is not reached. Note that this does not include a request to continue to issue federal retirement payments or payments to current federal employees. There is also legislation introduced this week to pay military personnel if no agreement is reached on the debt limit.

Some agencies, or some programs in federal agencies, could also be impacted if the federal government is required to spend only what it receives in revenue each month. Presumably, some federal employees would not get paid—at least not on their regular pay dates. This is a new version of a government shutdown and how it would be implemented or the final impact on federal employee pay is not known. (See After the Shutdown: Will Federal Employees Get Paid?)

The situation is fluid. Chances are, some agreement will be reached as the leaders of both political parties want to avoid the chaos and political fall-out that will ensue when the government decides who gets paid and who does not get paid. But, to be realistic, if you are living “close to the margin” and just barely getting by despite getting a federal check each month, you may want to seriously consider how to cut back on some expenses if that becomes necessary while the political debate rages about how (or if) our federal government will reduce spending or deal with our inability to live within our revenue limits.

© 2016 Ralph R. Smith. All rights reserved. This article may not be reproduced without express written consent from Ralph R. Smith.

About the Author

Ralph Smith has several decades of experience working with federal human resources issues. He has written extensively on a full range of human resources topics in books and newsletters and is a co-founder of two companies and several newsletters on federal human resources.

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  1. Littlealps1933 says:

    has anyone ask the polititions if they will get paid.  they  need to take a cut also but you and i know that want happen

  2. C.E. guy says:

    This whole DEBT CEILING issue has been brought to us by the JOBS, JOBS and more JOBS LIARS that were elected back into power in November with their EXTREME RIGHT WING IDEOLOGUE partners holding America’s economic future HOSTAGE to force their fascist agenda into law as they know it is unpopular and not what the majority of the American PEOPLE want. They started with stripping bargaining rights for public employees in their own particular States where they have a majority by vilifying them with negative propaganda like they are starting do to us that are federally employed. They will defund all social programs, medicaid and social security to offset the Tax Breaks and Tax Subsidies for the Oil Companies, Corporations and Top 2% that contribute heavily to their campaigns while underhandedly disenfranchising Middle, Lower Middle and Poor and minorities from voting by adding criteria to the right to vote. As Federal Employees we each need to do the research to get the right information that will give us the intelligence for each of us to make the RIGHT DECISIONS with our VOTES and elect representatives that will protect our JOBS and OUR RIGHTS in CONGRESS before it’s too late.

    C.E. guy  

  3. Jklippeatt says:

    I feel sick.  I’m scared.  I DEPEND on my civil service pension while my husband is receiving Social Security disability (and, that is not very much).  What about paying for our medical insurance through deductions from my pension?  I left my Thrift alone and now it looks like I could lose it all.  What will I do? I am my husband’s caregiver.  This is horrible.  I worked hard for 33 years.  I don’t know where the public gets the idea that Federal employees don’t work.  I know I worked 10 hours a day, Saturdays and sometimes Sundays to try to keep up with the workloads.  People left and no more were hired.  We went through hiring freezes, promotion freezes, furloughs and furlough threats, benefits decreased and cost more.  We have always been political footballs.  The everyday civil serice employee is just like all the other middle class workers.  We don’t get the perks that the real culprits (presidents and congress) get.    And, now we may end up homeless and hungry in our old age.  I feel like crying.  It’s almost enough to make you give up on life.

  4. Pasqualino Digesu says:

    Hey, lets keep it simple;
    If I get cut off what is owed to me after a lifetime of contributions then I simply cut off any local government that feels it should not only continue to collect property taxes but increases them annually. I get get cut off, they get cut off, screw the system from both ends, bank loans, credit cards, etc..
    P.S. with all the bailouts should’nt the banks and financials be paying me with interest?

  5. Comstock says:

     I have read numerous posted comments here and also with postings dealing with other subjects.   What I am wondering at this point is just one thing……is there anyone out there who is pro common sense and not pro democratic, pro republican, pro liberal, pro conservitive, anti Bush or anti Obama? 
      For those who want to be “fair”, wouldn’t it be “fair” for everyone to pay the same tax rate?  When I purchase, essentailly, anything for personal use I am charged a 6% sales tax….when I pay for the service or product do I have to show what my income is to prove I am destitute and not have to pay the tax or prove that I am financially well off and pay a higher tax rate?     Does anyone?
       What’s happened to common sense?    I could go on and on about how the system of government we have has gotten to be so unfair, but it would be an endless dissertation.
         Is anyone else concerned that a government financial default could ruin this entire country’s economy and possibly other country’s as well?    A government that holds us all at their mercy financially?  What’s wrong with this picture?
         The system is screwed up and it needs fixed… and the fix isn’t going to come from our current elected officials.   
          It will have to come from the citizens of this great country and it will have to be based on good old common sense.      
             Leroy

  6. Dphelps12 says:

    Can someone please tell me how is it that the U.S. can still afford to give billions of dollars away to other countries while Americans must continue to work to the bone and suffer with barely enough money to just to live each and every day?

  7. Fred Wells says:

    The people who don’t care about this country and only look for ways to take advantage of situations will rejoice when civil service is destroyed and what remains is just another job.  If the people of this nation ignore the sacrifices made by government employees, refuse to honor the contract, then unfortunately this administration and all future administrations deserve what what happens.  

  8. Rartista22 says:

    I say mandate all corporations and individuals to pay 10% of all their income in taxes, corporations who take jobs overseas would have to pay penalties and an additional 30% in taxes. I’m not any financial expert but it seem to me that some of us pay and pay and some of us just play and play.

  9. Traction says:

    Practical question:  Even if the worst case scenario happens,  isn’t it going to happen on August 2 or maybe 3?  Will it be somehow ‘retroactive’?  ie, my federal retirement annuity is Direct Deposited  on the first of the month, ie Aug. 1, so would I really not get that payment on August 1? 

    • Alexandra23 says:

      I want to know why all agree about Social Security retirees get their retirement check if the default happens? I just heard them list what could be the priorities. I forget who said it; but they said Social Security, military and bond interest? get paid and all other payments will have to wait until there is money.

      I want to know why Social Security retirees are better than Federal retirees. A bill was written to ensure that Social Security retirees get their retirement income. Same thing happened with the COL. SS retirees got paid an extra check because there was no COL raise. Federal retirees were told they would get a tax credit. The tax credit was NOT allowed when tax return was filed.

      SS retirees get extra checks and guarantee of payment if the default happens AND Federal retirees are in the “wait until there is more money”.  There is no mention of Federal retirees. On the chart Federal retirees are lumped in with Federal salaries.

  10. Henry Hersh says:

    Fed retirees checks goout on the first of the month. You don’t address this fact.

  11. Jwa1955 says:

    Have you ever heard of Revolution? Our so called Government better pull their heads out of their asses or they may see one very soon

  12. Rstang says:

    I certainly hope that if federal retirees and employees don’t get paid because our government “leaders” cannot get their act together, that the salary and benefits of the President, Congress and their staff are included in the no pay category.  Bet that would move them along!  I know most are millionaires and wouldn’t phase them one way or the other but when the staff starts walking because of no pay, it might actually get their attention.

  13. LegalizeTheConstitution says:

    “We, the people are the rightful masters of both Congress and the courts
    not to overthrow the Constitution, but to overthrow men who pervert
    the Constitution.”

          Abraham Lincoln

  14. Spivafam says:

    Has anyone heard about a reduction to the federal paypool for annual incentive awards?  We are hearing it will be reduced from 3.3 percent to 1 percent in FY12. 

  15. Emotion2 says:

    One thing you can always depend on the government to do and that is raid the money of the government employees and retirees and then get afraid to give people the money they have already worked and saved. What a bummer and America is suppose to be the greatest country in the world. what about Congress getting paid and why isn’t their money linked to Social Security? If so they would not waste time raising the debt limit and also if the President became all white.

  16. Wswift9999 says:

    I’m retired and I depend on income from FERS and from my TSP. It sounds like my August FERS payment is in doubt. What about my TSP payment?

  17. Ioxodes says:

    Let’s just hang 50% of the congress (flip a coin for which house) from the lamp posts in DC and maybe we could get some problems solved at the nat’l level instead of the constant party line bickering and finger pointing that goes on now. They are ALL responsible to some degree. Or just hang them all and get the guilty that way. (tongue slightly in cheek……….)

  18. Rvalori says:

    I am confused. I thought that the CSRS trust fund is not counted against the public debt and that is why the Government can borrow against it to keep the government running. If this is the case why can’t they continue to borrow against it to pay our retirment benefits, should they fail to increase the debt ceiling?

  19. Tonto_mejor says:

    for sure – the active duty military and military retirees will be paid as they have a big lobby and to pay them is “politically correct”. 

    The civilian federal retirees will become the whipping boy in this fray as we have no lobby and are generally despised by the public.

  20. ana m sanchez says:

    I DON’T BELIVE THAT WE ARE NO GOIN TO HAVE MONEY TO PAY AOUR BILLS, OR RENT, LIGTH, OR FOOD NO MEDICATIONS BECAUSE THE MEDICARE CAN PAY OUR MEDICINES

  21. Utahmillers says:

    Senator Hatch, you (and all elected officials) have had your chance to be a deficiet hawk.  But, you have failed year after year to rein in the spending.  Time to move over and let someone else have a chance to do the right thing.

  22. nunya987547 says:

    This is totally unfair to those of us who pay our taxes and never receive freebies offered to people who do nothing i.e. a lot of SSI people, welfare, etc.

  23. Peachy says:

    change taxes! change all loopholes, subsidies, etc to:
    When a manufacturing facility is established in USA, give the corporation, company, individual, etc. a tax exemption for that year equivalent to the amount of money invested in the manufacuring in the USA. This TAX REDUCTION is the only one that is sensible in my opinion..This TAX reduction would replace many of the “other current other proposed TAX REDUCTIONS”. With the increased income, SS, and medicare taxes paid by workers, the debt and deficits will soon be resolved. This will also reduce the money spent on Medicad, welfare, food stamps, section 8, umemployment etc. No Need to Cut anything other than focus on eliminating fraud and wasteful spending..Please let me know what you think of this idea. I just do not understand why Congress (both parties) have not already done this…Please someone explain!!!

  24. Steve says:

    OK folks, let’s screw them back come election time.  We can vote ALL of them out of office and make that a precedent for new people to remember by.  This is a game that little children play.  Get your acts together or ELSE!!!

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