Pay Raise? What Pay Raise? Why Some Will See a Decrease in Income in 2009
By Ralph Smith
Sunday, November 2, 2008
Most federal employees are undoubtedly looking forward to an average pay raise of 3.9% beginning in January. (Here are the estimated 2009 federal pay rates.) Some federal retirees are probably even happier about their 5.8% cost of living increase that will start in January.
But there are several factors that may take away this temporary euphoria for the majority of readers.
- A rise in the cost of living of about 5.8%
- An average rise in health insurance costs of about 8%,
- Rising property tax rates in many jurisdictions
- The fluctuating cost of gasoline
- A dramatic drop in the value of most TSP accounts.
For some federal employees, there is an even bigger hit. More than 7100 federal employees are under a pay cap. In 2008, this cap is $149,000. These folks are getting hit with more expenses but will not be getting a pay increase. The number impacted will go higher in January 2009 when the new pay raise is effective.
We occasionally see comments from readers to the effect of "What are they complaining about? I make a lot less than $149,000 and I get by so they can too."
That may be true. But that is not likely to have a calming affect on the higher graded employees who are at the pay cap. In theory, and generally in practice, those employees with a higher grade have more responsibility, have worked hard to get to where they are in the federal bureaucracy, and have demonstrated a combination of intelligence, hard work and political savvy to move to a job that pays at least $149,000. The fact that lower graded employees make less while the employee making more money sees his or her retirement income and purchasing power dwindling away is not going to make most of these folks feel better about the situation.
The pay cap is not new. Some federal employees in areas such as San Francisco have been feeling the impact of the pay cap going back several years now. Over the length of a typical lengthy of time in retirement for most federal employees, this will mean a loss of more than $100,000 in retirement income. That is because the pay cap also has an impact on computing retirement income as well as an employee's current salary.
In 2009, the pay cap will be just over $153,000. For example, in 2009, based on our projected pay raise for federal employees, an employee in the Washington, DC area will hit the pay cap as a GS-15, Step 10. In San Francisco, the pay cap will impact an employee as a GS 15, Step 6. In Houston, it will impact a GS-15, Step 8. With the median federal employee salary for the Washington, DC area now sitting at about $91,000, there will be a number of federal employees in Washington who may be eating out less, working longer, and getting more unhappy. Some in this situation are possibly wondering why they should take on the extra responsibility and the extra headaches of a higher graded job and not get paid for it.
Chances are, the problem will get worse. The Executive Pay Schedule is used to determine the GS pay cap. Under federal law, GS salaries are capped at Level IV of the Executive Schedule. Typical jobs at this level often include assistant secretaries and chief management officers among others.
This state of affairs has not gone unnoticed by impacted interest groups. The Federal Manager's Association recently expressed its dissatisfaction and its analysis of the situation this way: ""This unfortunate and unfair situation has the potential to deeply impact the federal government's ability to function and could lead to higher costs to taxpayers due to unnecessary inefficiencies. This system must be reformed so that we no longer punish our high-level managers. We must do what we can to retain these employees who possess needed experience and knowledge."
So far, there has not been an outcry of indignation in Congress over the plight of those impacted by the pay cap. But, it's an election year and anything can happen. If you have reached or are going to reach the pay cap this year, don't plan on a change coming in the near future. And, as pointed out above, the situation is likely to get worse before it gets better. Perhaps you can console yourself that some of our elected officials will consider you "wealthy" and, even more important, there is the security of knowing you still have a good-paying job (even if the pay is capped).
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