Future Federal Employees Will See Increased Pension Contributions Under Payroll Tax Cut Deal

February 15, 2012 7:08 PM
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Lawmakers have reached a final agreement on extending the payroll tax cut through the end of 2012. A vote on the deal is expected in Congress on Friday.

Part of the terms of the agreement will require future federal employees to contribute more toward their pensions to help offset the cost of extending unemployment benefits; current federal workers are exempt. According to reports, federal employees hired beginning in 2013 who have less than five years of service would have to pay 3.1% towards their pensions instead of the current 0.8%.

Congress will not be exempt from this agreement either. According to a spokesperson for Rep. Dennis Ross (R-FL), future members of Congress who begin their terms starting next January will get the same annuity as rank and file federal employees. Current members are exempt.

Speaking to Stuart Varney on Fox News, Ross said, “The American public demands that we do something that’s going to show that members of Congress and the federal workforce are not on these bonanza plans for retirement. What’s being proposed is a step in the right direction, but we need to make it apply to all of us. At least we are finally taking the argument to the American people that we need to do something about reducing our federal pensions, so in that regard it’s a step in the right direction.”

Ross said he is not going to vote for the legislation but believes it will pass.

Senator Ben Cardin (D-MD) said that while he is unhappy that future federal employees will have to bear some of the cost burden of the agreement, he is happy that current federal workers were exempt. “We are pleased that we were able to ensure that this agreement has no negative impact on current federal employees but we still strongly oppose the provision that raises $15 billion to help offset the cost of this package from future workers,” Cardin said in a statement.

He spoke to President Obama about his concerns with the deal and ultimately decided to sign it after it was changed to exempt current federal employees. “He [Obama] understands my concern about the federal workforce and how I want to make sure that we don’t repeat what’s going on in
this conference as we go through this Congress. The president was pretty strong on his commitment to helping us make sure that doesn’t happen,” said Cardin.

Rep. Steny Hoyer (D-MD) announced that he will vote against the agreement because of its provisions impacting federal workers. In a statement, Hoyer said, “When we work to protect the middle class, it is only right to protect them all, and federal workers are hardworking Americans who have already contributed $60 billion to deficit reduction over the next decade. Our deficit problems were not created by these men and women, and they will not be solved by only asking them to

Sen. Mark Warner (D-VA) announced he will vote against the package, citing concerns about the pension co-pays and the fact that the estimated $100 billion payroll tax cut was not paid for.

The agreement extends the payroll tax cut and unemployment benefits through the remainder of 2012. The payroll tax cut is a 2% reduction in the usual 6.2% Social Security payroll tax withheld from workers paychecks. It represents about a $1000 a year savings for families making $50,000 and would affect about 160 million workers. The cost of the tax cut extension is roughly $100 billion and would be added to the federal deficit since it’s not offset with other spending cuts.

Unemployment benefits would also be extended as part of the deal. Their cost accounts for about $30 billion of the total $160 billion deal, about $15 billion of which would be funded by the increased pension contributions for future employees.

We will continue to keep you updated as more information on this recent agreement becomes available.

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About the Author

Ian Smith is one of the co-founders of FedSmith.com. He enjoys writing about current topics that affect the federal workforce.