Pon Hints at Major Changes Coming to Federal Compensation System

At a town hall discussion held this week, OPM director Jeff Pon hinted that there may be major changes in store for federal employee compensation.

In a town hall held by the Partnership for Public Service this week, Office of Personnel Management (OPM) director Dr. Jeff Pon alluded to more significant changes coming to the compensation system for federal employees.

Current Proposals to Change Federal Benefits are “Quite Modest”

Pon was asked about the letter he sent to Congress on May 4 that called for making reductions to federal employees’ benefits. “Why move forward with that proposal now when you are thinking about this more big picture?,” asked moderator Libby Casey, a reporter for the Washington Post.

Pon stressed in his response that the proposals OPM is proposing in his letter are “modest”.

“If you take a look at the ratio – we spend about $8.1 billion in retirement every month (not a year),” Pon said. “The total budget for salaries and expenses in the federal government is about $200 billion. If you think about $8.1 billion versus the $200 billion, you can make an argument for saying the cost model for defined benefits programs has to be looked at.”

Aligning Federal Compensation to Market Incentives

OPM’s Deputy Director for Management, Margaret Weichert, also noted that OPM is looking at a total compensation perspective, and not just salaries. In other words, OPM is considering the market environment in the battle for talent.

She noted this is why OPM has made a request to Congress for a billion dollar workforce fund and is looking at the “real competitive market for talent.” People look at a total compensation perspective, including retirement, and not just pay. “We are not talking about freezing pay. We are talking about aligning to market incentives.”

She also noted that people do not get paid as much working for a non-profit organization or public relations because there is great demand for these jobs and the satisfaction in “making a difference”.

Long-Term Vision for Federal Employee Compensation

As for his long-term vision of restructuring the overall compensation system for the federal workforce, Pon said:

We’d like to have defined contribution programs; I want to make sure that the federal employee can actually own their investment.

I don’t believe that we should look at a federal job for 30 years and then retire and have lifetime retirement anymore. I really want them [federal employees] to start investing in the TSP more and make sure the government can be a little bit more generous in the TSP and go up to the $18,500 [the current maximum annual contribution limit] and use that as a very good vehicle for them to take with them if they go outside the federal government and take that back.

I also want people to get rehired in the federal government non-competitively after they have had a rotation in the private sector because most people know that the workers that are joining the workforce in the last 10 or 15 years are jumping from job to job and place to place because jobs are no longer just jobs, they are more projects that are cyclical.

“Grandfathering” Current Federal Employees

One question we are often asked by our readers when these changes have been proposed is a variation of, “How will this affect me in my situation?”

What the person asking the question really wants to know is, “Will I be grandfathered in, or will I have to forego the benefits I was promised under the current system?”

Our answer is always the same: until (or if) anything is actually passed into law, it is not possible to know how the changes might actually be implemented.

Revamping FERS

While these proposals are still a long way from being enacted by Congress, Pon provided a glimpse into his vision for how major changes to the current benefits system would be handled.

He implied that any changes made in the future would grandfather existing federal workers and also hinted that even bigger changes may be coming, like revamping the Federal Employees Retirement System (FERS) entirely:

The things that we announced in terms of moving from high-3s to high-5s; those are very, very modest proposals. You should see some other conversations that we will have in the future for restructuring the whole compensation for the federal government. I think that there are going to be a lot of people that are going to be relieved that we are going to be grandfathering a lot of different types of things. But it’s just like CSRS and FERS; we had a cutoff time, and FERS was designed to make enhancements for people to go inside and outside government, but that was a long time ago too. I think it’s high time that we actually did it again.

The video above contains the entire town hall discussion and you can watch Pon’s remarks about the proposals to reform the federal workforce compensation system. The question and his responses cited above begin at approximately 21:44.

About the Author

Ralph Smith has several decades of experience working with federal human resources issues. He has written extensively on a full range of human resources topics in books and newsletters and is a co-founder of two companies and several newsletters on federal human resources. Follow Ralph on Twitter: @RalphSmith47