Bill Introduced to Reduce Federal Workers’ Pensions
by Ralph Smith |
Rep. Dennis Ross (R-FL) has introduced legislation that would increase the amount federal employees would be required to pay towards their retirement plans. HR 3813, Securing Annuities for Federal Employees Act of 2012, would also reduce pensions for new employees.
The language of the bill is, as is frequently the case, written in obtuse language incomprehensible to native speakers of the English language. Interpreting the language of our laws now requires an in-depth expertise in how the current system works. No doubt, if the public cannot understand what is being foisted on them, it is harder to protest the changes being proposed.
Keep in mind: if this bill should pass both Houses of Congress and get signed by the president, which is unlikely, the Office of Personnel Management would then write and propose regulations giving its interpretation of how the new system would be implemented.
That is a roundabout way of saying: don’t get too upset over this initial proposal. It isn’t likely to pass in anything like its current form and, if it should pass, we won’t know all of the details until much later.
With this caveat, here is what we think this new bill would do if it were to become law as written.
The bill would increase contributions for current federal employees by 0.5 percentage points per year for three years beginning next year. This would apply to both CSRS and FERS employees. The required contribution amounts would start to increase by 0.5% per year in 2013. The result is that this would mean a contribution of 2.3% for FERS employees and 8.5% for CSRS.
Many readers have previously contacted us about the FERS annuity supplement. To prevent confusion, the annuity supplement is still in existence. This new bill would also eliminate the FERS annuity supplement for new federal retirees starting in 2013. The only exceptions would be for employees required to retire early. Some categories of federal employees that fall into this category include some law enforcement personnel and air traffic controllers.
Under the current system, FERS employees who retire before they are 62 receive a supplement using a formula that gives a person a portion of their age 62 Social Security benefit. (See FERS and the Special Retirement Supplement)
The bill would create a new category of federal employee referred to in the bill as “secure annuity employees.” This new category would consist of new employees hired starting in 2013 and who have less than five years of previous federal service. They would receive a smaller pension when they retire.
This would come about by using a “high five” calculation instead of a “high three” calculation. These future feds would also have their pensions calculated at a rate of 0.7 percent. According to the bill: “in the case of an employee who is a secure annuity employee, 0.7 percent of that individual’s average pay multiplied by such individual’s total service.” The current rate for most FERS employees under 62 is now 1 percent and for employees over 62 it is 1.1 percent.
If you are still reading this, it gets even more complex. There are also changes that would apply to several other categories of employees.
In the case of a secure annuity employee who is a law enforcement officer, firefighter, member of the Capitol Police, member of the Supreme Court Police, air traffic controller, nuclear materials courier, or customs and border protection officer, the contributions of these employees to their future pension will “be equal to 10.7 percent.” Their rate of contributions would be higher because their pension amounts are higher. If you happen to fall into these categories and are a “secure annuity employee,” you would receive a pension rate of 1.4 percent for your first 20 years of service and 0.7 percent for subsequent years.
No doubt, there will be many questions that will arise as a result of this new bill. We will leave it up to retirement experts who may wish to calculate the actual “dollars and cents” impact on employees. But, in the interests of trying to satisfy the curiosity of our readers who are wondering how their future retirement will be impacted by new legislation, this is an initial summary we hope you will find useful.
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