In 2006 the Director of OPM, Linda Springer, predicted a “retirement tsunami” that never materialized. The reason it never showed up was that, even though she was reading the demographics of the federal workforce correctly, she did not predict the financial meltdown that has since been christened the “Great Recession.” This puts her on a par with most U.S. economists of that time.
Since the time of her prediction, the world has had several devastating tsunamis, so I will avoid using that word in this article. Taking a cue from the Harry Potter series, I will call what might be approaching us the “Retirement Event That Shall Not Be Named.”
Not only did Springer’s prediction not come to pass, the opposite actually occurred. By the end of fiscal year 2008, retirement claims dropped dramatically.
According to Bill Zielinski, Associate Director for Retirement Services for OPM, this fall off in claims continued through fiscal year 2009 and into fiscal 2010. He further stated that in fiscal year 2011 claims have risen until they have reached the post 2008 level, representing a 22% increase over the same period in 2010.
Nothing has happened to change the demographics that Springer relied on in making her ill-fated prediction. In fact, a large percentage of the federal workforce is eligible to retire now or within five years.
Less than a year ago, in June 2010, Donald Sanders (Chief Human Capital Officer for the Department of Agriculture) made the statement that 50% of the government’s workforce is not eligible to, but slated to retire in the next ten years.
The economy is, for now at least, in recovery, allowing those who lost money in their TSP during the downturn to make up a lot of what they lost. Many pre-retirees are in a better financial position now than they were back in 2006, when Springer made her prediction.
Recently, another factor has appeared that might hasten the “retirement event that shall not be named.” This is the emergence of proposals that threaten the benefits of current federal employees.
A two-year salary freeze has already been implemented and there are additional items that have been put on the table by the National Commission on Fiscal Responsibility and Reform and others.
Some of the suggestions are:
- A longer pay freeze
- Doing away with the FERS retirement system and offering only the TSP as a retirement savings option
- Changing FEHB to a premium support plan
- Delaying all CSRS and FERS COLAs until the age of 62
- Basing retirement computations on a high-5, rather than a high-3
- Requiring CSRS Offset and FERS employees to contribute a higher percentage of their salary towards their retirement
- Limiting tax deferred contributions to the TSP and other retirement accounts (See Your Financial Future: Your Federal Employee Benefits and the Deficit Commission Recommendations)
Time marches on, and employees get older. Pretty soon they are going to start retiring in larger numbers. Another financial crisis might slow the exodus, but the exodus will come.
Questions that will be answered are:
- Will OPM be able to handle an increasingly larger number of retirees?
- Will any of the changes (threats) to federal retirement and benefits come to pass?
- Will individual agencies provide adequate financial and retirement training to employees nearing retirement? (See Agency Retirement Financial Education Plans)
- Will employees take the steps to inform themselves about their retirement benefits and other financial issues?
For more information on the number of federal employees who are eligible to retire and the aging of the federal workforce, see “Changes in Latitudes, Changes in Attitudes:” The Elusive Retirement Tsunami.
And, in support of Ms. Springer’s predictions about the retirement exodus among federal employees, in a recent fedsmith survey, 31% of those taking the survey and who are eligible to retire indicated they are planning to retire sooner than they had planned. And, as federal employees are under a retirement system that enables them to retire at a fairly young age if they choose to do so and can make the necessary adjustments in their level of spending, the implications for the future of the federal workforce are significant.