RSC Budget Would Require All Federal Employees to Pay More Towards Retirement

The House Republican Study Committee has released its 2014 budget blueprint which includes a number of proposed changes that would impact the federal workforce.

Back to Basics” calls for more limited government as well as rolling discretionary spending back to 2008 levels. It follows on the announcement of the House Budget Committee’s 2014 budget blueprint released last week.

In the realm of federal retirement, the budget proposal has a detailed write up of its suggestions, not the least of which would require all federal employees to contribute more towards their retirement.

From the budget proposal:

Equalize Contributions to Federal Employees’ Pension Plans

A recent CBO report found that, on average, federal civilian employees receive 48 percent more in benefits than the average private-sector employee with similar characteristics. Part of this excessive benefit structure is the retirement benefit system. Federal employees hired since 1984 are entitled to a hybrid pension, which includes a 401(k)- style plan that the government matches up to five percent in addition to a defined- benefit plan.

Private workers typically only get a 401(k) with a three percent match. The defined- benefit portion of the federal employee plan allows workers to retire at 62 and draw an annual income equal to 1.1 percent of the average of their three highest-salary years times the number of years they worked. For the average federal worker who earns $80,000 and retires after 30 years, this works out to $26,400 a year in guaranteed pension benefits.

Considering that federal workers contribute only 0.8 percent of their pay to the Federal Employees Retirement System, this is a recipe for a shortfall. Taxpayers now chip in 11.7 percent of employees’ salaries to keep the system solvent. The Middle Class Tax Relief and Job Creation Act of 2012 requires new federal employees to contribute more towards their retirement annuity. However, no changes were made for current federal employees. The RSC budget would require all federal employees to pay more towards their retirement. This saves $123 billion over ten years.

Adopt Accurate Inflation Measurement

Federal retirees currently receive inflation protection for their federal pensions based on the CPI-W (the consumer price index for urban wage earners and clerical workers) instead of chained CPI-U (the consumer price index for urban consumers). The CPI- W, according to most analysts, overstates the actual level of inflation in the economy, at a higher cost to taxpayers. The RSC budget would more accurately measure inflation for federal retirees by basing it on the chained CPI-U, resulting in a savings of $9.2 billion over ten years.

Adopt a Defined Contribution Plan and Slow the Growth of Federal Contributions for the Federal Employees Health Benefits Program

The Federal Employees Health Benefits Program (FEHB) provides health insurance coverage to approximately eight million people, including federal workers, Members of Congress, and their dependents. This is a consumer-driven program of competing private health plans. The federal government can pay up to 75 percent of the premiums, and participants pay, on average, 30 percent of the premium payment.

This budget would offer a premium support for the FEHB program that would cover the first $5,000 of an individual premium or the first $11,000 of a family premium beginning January 1, 2015. Since employees who select plans that cost more than the federal contribution would pay the additional cost in full, this policy would incentivize consumers to choose lower-priced plans. As a result, price competition among healthcare plans would be strengthened. This plan achieves $29.6 billion in savings over ten years.

Other proposals likely to be of interest to federal workers include the following:

  • Prohibit federal employees from conducting union business on official time
    Ending the federal government’s sanction of union activity at federal expense will make the federal workforce more effective and efficient (as proposed by the Federal Employee Accountability Act of 2013).
  • Eliminate the National Labor Relations Board
    The Department of Justice (DOJ) already oversees a wide variety of civil, criminal, and administrative issues, including anti-trust, voting rights, and major mergers and acquisitions. DOJ is certainly capable of handling claims of unfair labor practices, and could do so without the pro-big-labor bias and partisanship endemic to the NLRB.
  • Change Social Security COLA formula
    The RSC proposes adopting a more accurate formula for determining cost of living adjustments (COLAs) and gradually increasing the full retirement age.

The budget also proposes repealing ObamaCare, reforms to Medicare, and freezing discretionary spending.

The budget will be offered to the entire House of Representatives for consideration. Even if it were to pass the House, it’s unlikely to become law, at least in its current form. The RSC seems to acknowledge this, calling it a “conversation starter” for debate over ways to make cuts to what it describes as the “out of control spending” at the federal level.

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

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Ian Smith is one of the co-founders of FedSmith.com. He enjoys writing about current topics that affect the federal workforce. Ian also has a background in web development and does the technical work for the FedSmith.com web site and its sibling sites.

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