Analysis: Will the pension contribution hike pass?

By Jolie Lee
Federal News Radio

Lawmakers are considering increasing federal employees’ retirement contributions from 0.8 percent to about 6 percent as part of a deficit reduction compromise. That amounts to about a 5 percent pay cut.

Currently, the proposal is included in the 2012 budget plan by House Republicans. The pension change originated from nonprofit Third Way and was included in the President’s bipartisan deficit commission report.

Now the White House is “warming up to” the idea, said Dan Adcock, legislative director of the National Active and Retired Federal Employees Association (NARFE).


The Washington Post reports that Vice President Joe Biden and lawmakers discussed changing feds’ pension contributions in closed door talks last week.

If such a proposal does pass Congress, it’s likely to be included as part of a larger budget package, Adcock said.

“The problem is that whatever ends up in that deal is basically an up or down type of vote for Congress,” said Steve Watkins, editor of the Federal Times, in an interview on Your Turn with Mike Causey.

Typically, a piece of legislation is debated and voted on. “Here there’s a lot less opportunity for folks like Dan Adcock and other unions and federal employee advocates to really work their efforts on the Hill and mitigate the problems,” Watkins said.

The Senate is expected to take up the House GOP budget proposal next week. Passing a budget will also be “contingent of Congress voting on the debt limit,” Adcock said.

But the debt limit decision may not happen for another 11 weeks, despite the government reaching its official $14.3 trillion borrowing limit this week. Through “creative accounting,” as Adcock describes it, the Treasury Department will have until the first week of August before it defaults on its debt.

These accounting maneuvers include Treasury halting investments in two government pensions. Treasury has stopped issuing securities to the Thrift Savings Plan’s G Fund and is borrowing from the Civil Service Retirement and Disability Fund.

“Members of Congress are kind of like college students. They put off writing their term paper until the day it’s due,” Adcock said. “It could very well be a deal is not reached until it has to be.”

“Until then, we’re going to hear a lot more about these kinds of proposals,” Adcock said. “Unfortunately, what the reality is right now, feds are taking a disproportionate hit.”

Paying more for less

The pension change would apply to feds who are in the Federal Employees Retirement System, accounting for about 80 percent of the federal workforce.

Annuity is calculated based on the highest three years’ salary, usually the last three years of federal employment. That annuity will be less because federal employees currently face a two-year pay freeze – possibly longer if Congress passes proposed legislation that calls for extending the pay freeze.

Should the pension contribution proposal pass, “The bottom line is, they’re going to have to pay more for a smaller retirement,” Adcock said.

The political environment has turned unfavorably toward federal employees. Proposals targeting feds’ pay and benefits are now politically “low-hanging fruit,” Adcock said.

Also, reports from conservative thinktanks such as the Cato Institute and Heritage Foundation characterize feds as overpaid.

“Those kinds of reports and that kind of demonization of federal workers picks up traction,” Adcock said.

Members of NARFE have told him they are willing to make sacrifices for the country’s economic health, Adcock said. But feds feel like they are targeted in cost-cutting measures, particularly with this latest pension contribution proposal, he said.

“I think it has a huge demoralizing effect on federal workers,” Adcock said. “There’s a lot of people who have just had it, and this becomes the straw that breaks the camel’s back.”


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