A last-minute and very real pension threat

Could feds get a major surprise hit as Congress flounders toward a solution to the looming fiscal cliff problem? Could inflation-protected Social Security and federal retirement benefits be part of the solution?


Like people in the popular TV series, Doomsday Preppers, individual feds and groups representing them have been stockpiling political ammo to fend off a batch of worst-case scenario cuts in the federal benefits package.

For many, if not most employees, the sum of all fears is focused on a decades-old plan that would base their retirement benefits on length of service and their highest five-year average salary. Currently, those benefits are based on time served and the employees’ highest three-year average salary. The high-three to high-five changes come up almost every year but have never come close to becoming law.


For unions and organizations that represent workers and retirees, the two most dangerous threats to benefits come from two under the radar proposals:

  • A voucher system for the federal health benefits program. Under it, the government (which now pays an average of 70 percent of the premium of workers and retirees) would give them a fixed amount to buy their own insurance. Unless changed, that amount would remain the same year after year despite the fact that premiums go up every year. In time, critics say, feds could wind up paying half or more of their ever-growing premiums.
  • Pro-fed experts are even more concerned about the adoption of the so-called chained CPI, which would produce huge future savings in Social Security and Civil Service retirement outlays. Currently, the Bureau of Labor Statistics determines the consumer-price index by measuring the cost of goods and services and translating it into a percentage that determines if retirees get January cost-of-living adjustments. Under the current plan, Social Security and civil-service retirement benefits will rise 1.7 percent in January.

Some critics say the current CPI overstates inflation and means that retirees get larger COLAs than they are due. Others say just the opposite, that the current CPI understates inflation robbing retirees of their just deserts.

A number of prominent groups, blue-ribbon commissions and congressional panels have endorsed the chained CPI concept. It is estimated the system would reduce future COLAs by about 0.3 percent. Over time, that would take a major bite out of inflation-related retirement benefits that individuals would never see, but would definitely feel — especially in times of high inflation.

Opponents of the chained CPI got a jolt last week when The Washington Post editorially endorsed the chained CPI. It laid out a case that said it would be a fairer system on which to base future COLAs for 62 million Social Security recipients and federal and postal retirees. The Post has major clout on Capitol Hill, especially on the Democratic side, which, more often than not, has opposed any change in the CPI.

The Federal-Postal Coalition, representing more than 20 pro-worker groups, immediately reacted. The Post ran a piece written by NARFE President Joseph Beaudoin defending the current system and pointing out that feds — through two-plus years of pay freezes — have done their share toward deficit reduction.

Coalition leaders fear that in the frantic next few weeks — when both sides are scrambling to avoid sequestration — proposals like the chained COLA might become part of any compromise cobbled together by panicky politicians.


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