Deficit Subcommittee Proposes Significant Cuts to Federal Employees’ Retirement

The minority staff of the Subcommittee on Oversight of Government Management, the Federal Workforce, and the District of Columbia recently released a report detailing more than $1.4 trillion in savings over 10 years in areas under its jurisdiction. While many of the proposed cuts are not new, some of them would significantly impact federal employees if they were to be enacted.

The deficit “supercommittee” has been tasked with identifying between $1.2 and $1.5 trillion in cuts before its January 15, 2012 deadline. In support of this effort, the minority staff of the Subcommittee on Oversight of Government Management, the Federal Workforce, and the District of Columbia found more than $1.4 trillion in savings over 10 years in areas under the subcommittee’s jurisdiction. The report was prepared for Senator Ron Johnson (R-WI).

Some of the proposed cuts in the report are not new, but they would directly affect federal employees if they were to be enacted. And when it comes to federal employees’ retirement plans, some of the proposed cuts are significant. Bear in mind, these are just the latest in a series of similar proposals with no guarantee they will be enacted. will keep you updated with any future news about these proposals if they were to become law.

Here are the relevant proposals and their estimated savings exactly as written in the subcommittee’s report:

Cut workforce by 10% by 2015 (through attrition); freeze pay for civilian employees through 2015
Estimated savings: $248 billion
American taxpayers deserve a leaner, more efficient government, but the federal workforce has ballooned to over 2,137,000, adding 175,000 positions since President Obama took office. Federal workers enjoy 30% to 40% greater total compensation (in wages and benefits) than a comparable private sector worker. The Office of Personnel Management projects that about 400,000 federal employees are currently eligible for retirement. (National Commission on Fiscal Responsibility and Reform; the House budget resolution)

Cut the federal contracting workforce
Estimated savings: $233 billion
Cut by 15% the contractor workforce that the federal government manages in order to decrease the $100 billion spent annually on federal contractors. Of this contracting workforce, 80% of contract obligations made by civilian agencies in fiscal year 2010 were for service contracts. The National Commission on Fiscal Responsibility and Reform’s 2011 proposal recommended that all agencies, including Department of Defense, be required to provide an annual headcount of how many employees are working on federal contracts, and what specific jobs they are fulfilling. (Suggestion comes from Sen. Tom Coburn’s (R-OK) Back in Black)

Require employees to match federal contributions to FERS Defined Benefit Plan
Estimated savings: $133 billion
Currently, members of the federal workforce pay $1 for every $14 the federal government contributes toward the defined benefit portion of the FERS program. Social Security and the Thrift Savings Plan both operate on some version of a direct matching formula. Most federal employees contribute 0.8% of their base pay while the government pays 11.7% — a percentage to increase in October 2011 to 11.9%. Special categories including Members of Congress and their staff receive an even higher percentage of pay toward their basic benefit plan. This cut would institute a dollar-for-dollar match at the 7% level. (Suggestion comes from the think tank Third Way)

Phase out FERS Basic Benefit Plan
Estimated savings: $75 billion
The Federal Employees Retirement System Basic Benefit plan is no longer comparable to private sector retirement plans that afford greater flexibility and cost savings through 401(k) and stock option plans. As the Civil Service Retirement System was replaced by a more modern plan in 1983, current FERS can be closed off to new entrants, realizing savings immediately. The Public-Private Employee Retirement Parity Act of 2011 sponsored by Sen. Richard Burr (R-NC) and co-sponsored by Sen. Ron Johnson (R-WI) would close off eligibility to participate in FERS to new federal employees.    (Suggestion comes from Sen. Coburn’s Back in Black).

Freeze Senior Executive Service bonus pay for three years
Estimated savings: $50 billion
The Senior Executive Service represents the men and women who make up the executive management workforce of the federal government. Private sector CEOs and executives often must do without bonuses when the markets perform poorly; so should senior executives in the government. (Suggestion comes from Congressional Budget Office / Sen. Coburn’s Back in Black)

Cut civilian agencies’ travel budget by 75%
Estimated savings: $43 billion
Not only has the cost of civilian employee travel grown over the past few years, technology affords the opportunity for government employees to meet and perform business without the need for so much travel. Several states have taken advantage of this, as has much of the private sector. There is no reason federal employees should be exempt. (Suggestion comes from Sen. Coburn’s Back in Black)

Eliminate locality pay for rest of United States
Estimated savings: $40 billion
Through locality pay, employees living outside a metropolitan statistical area receive a 14.61% increase in base pay purely for being a federal employee. Given that locality pay was meant to offset the cost of living in more expensive urban and suburban areas, there is no reason why these employees need an additional boost. (Suggestion comes from Sen. Johnson’s subcommittee staff)

Use accurate COLA formula to estimate inflation
Estimated savings: $24 billion
The current cost of living adjustment formula for Civil Service Retirement System recipients is calculated under the Consumer Price Index – Wages (CPI-W), based on changes in wages, not on changes in the cost of living. A newer, more accurate model based on urban consumer prices, not wages (CPI-U), would more accurately link adjustments to retirees’ actual living costs by estimating COLA with CPI-U instead of CPI-W. (Suggestion comes from Congressional Budget Office)

Eliminate COLA on early retirement benefits paid to CSRS annuitants
Estimated savings: $17 billion
Early retirees (age 55-62) under the Civil Service Retirement System receive an annual cost of living adjustment that incentivizes early retirement and is unavailable to the federal workforce under the new Federal Employees Retirement System. Adjustments should be offered to CSRS annuitants only after they reach federal retirement age of 62. (Suggestion comes from National Commission on Fiscal Responsibility and Reform)

Cut federal vehicle fleet by 20%
Estimated savings: $5.6 billion
It is estimated that federal agencies own or lease more than 662,000 vehicles. These vehicles require maintenance and service, whether they are being driven or simply sitting on a parking lot, unused. The fleet should be reduced. (Suggestion comes from Sen. Coburn’s Back in Black)

Adjust FERS basic benefit to use highest five years of salary to calculate benefits
Estimated savings: $5 billion
The annuity paid to federal employees under the Federal Employees Retirement System basic benefit program and the Civil Service Retirement System defined benefit model is calculated on years of federal service and an employee’s highest three years of salary. Most state and local governments and private sector employers that offer comparable annuities calculate the benefit based on a five-year, not three-year, period. A longer time frame deters “spiking,” in which employees take positions to artificially inflate pension benefits. Defined benefit pensions (FERS and CSRS) should be calculated on highest five years of service to eliminate this practice. (Suggestion comes from National Commission on Fiscal Responsibility and Reform)

Privatize airport security at top 35 airports
Estimated savings: $2 billion
The Screening Partnership Program (SPP) allows airports to use private screeners under Transportation Security Administration’s oversight to perform aviation security screening activities. The Department of Homeland Security (DH
S) has halted the program. However, by requiring DHS to reinstate SPP and allow privatization of the screening workforce at the top 35 airports, the nation could save $2 billion over 10 years on salaries alone. These private screeners have also been found to be more efficient and more customer friendly than federal screeners. (Suggestion comes from Rep. Mica TSA Screening Partnership Program report)

End special supplement to early retirees under FERS
Estimated savings: $1.342 billion
Federal employees retiring before age 62 receive a government payment comparable to their Social Security benefit until they turn 62. Since early retirees are not eligible for Social Security, the government replaces that missing income until Social Security starts. This special supplement to early retirees should be eliminated to discourage early retirement. (Suggestion comes from Sen. Coburn’s Back in Black).

End the ability of rehired federal retirees to collect pensions while on payroll
Estimated savings: $611 million
Pay for federal retirees who are rehired is supposed to be reduced by the amount of their annuity income. For some rehires, however, agencies are exempted from this. This cut bars such exemptions. (Suggestion comes from Sen. Coburn’s Back in Black)

End direct subsidy to U.S. Postal Service for non-profit mail discounts
Estimated savings: $290 million
The Postal Service (USPS) has been ordered to grant non-profit mail discounts and received a direct federal appropriation in compensation. The appropriation was authorized to compensate USPS for lost revenues that occurred in the early 1990s and ended in 1998, and is not related to any current USPS activities. From a management standpoint, then, the appropriation makes little sense. President Obama’s 2012 budget proposed an end to appropriations to USPS for non-profit mail discounts. (Suggestion comes from President’s 2012 budget)

Three-year freeze on pay for members of Congress
Estimated savings: $6 million
Many Americans are enduring a freeze in their pay; members of Congress should as well. As Congress makes cuts, it is important to set an example for the rest of the government. (Suggestion comes from Sen. Coburn’s Back in Black)

About the Subcommittee
The Subcommittee on Oversight of Government Management, the Federal Workforce, and the District of Columbia has jurisdiction over the Federal Civil Service; authorizing matters related to the District of Columbia; studying the effectiveness of national security staffing; studying the intergovernmental relationships between the United States and the States and municipalities, and between the United States and international organizations of which the United States is a member; and studying the management, efficiency, effectiveness and economy of all agencies and departments of the Federal government, including the Management Directorate of the Department of Homeland Security.

Full report: $1.4 trillion in savings

About the Author

Ian Smith is one of the co-founders of He has over 20 years of combined experience in media and government services, having worked at two government contracting firms and an online news and web development company prior to his current role at FedSmith.