Congress has passed the payroll tax cut extension agreement and the President is expected to sign it. But what exactly are the details of the agreement as they relate to federal pensions?
The legislation governing the changes is HR 3630. As is usually the case with federal legislation, the language in the bill is obfuscated, but here are the basics as we understand them.
Pension changes will apply to “revised annuity employees.” Federal employees or members of Congress fall into this new class of employees if they meet all of these criteria:
- The individual is not performing creditable civilian service work
- The individual has less than five years of creditable civilian service work
- The individual becomes employed as a federal employee or member of Congress after December 31, 2012
In other words, new hires and new members of Congress starting in 2013 or later and rehired employees with less than five years of creditable civilian service work will be affected by this new legislation. Most current federal employees and members of Congress will be exempt from this new pension plan.
These “revised annuity employees” will pay 3.1% of each paycheck towards their FERS pension plan beginning in 2013. That is a 2.3% increase over the 0.8% currently paid.
Also, members of Congress and their staff that fall within the terms of this new plan will no longer get the pension advantage over regular federal civilian employees. Lawmakers have their FERS pensions calculated at 1.7% of their high three salaries whereas regular employees’ FERS pensions are calculated at either 1% or 1.1% depending on age and length of service.
According to AFGE President John Gage, Congress still potentially comes out ahead in the deal despite the cuts to its future members’ pensions. “A federal employee and a member of Congress who both start on the same day will pay the same rate toward their pension, but the federal employees’ pension will be reduced by 50 percent for retiring early while the congressman will be able to retire years earlier and start receiving their full pension immediately,” said Gage.
Gage is referring to a provision in the bill that allows new members of Congress to retire at age 50 with 20 years of service without significant penalty whereas most federal employees receive a penalty for retiring early.