Retirement ride: Will you be going 1st, 2nd or 3rd class?

Timing is everything.

Especially as in the date you sign on with Uncle Sam.

And especially like now, when nationally elected politicians (over half of whom are millionaires) are bitterly divided over how much to tax you and how they will spend it.

Thanks to political actions in 2013, federal and postal workers under the giant Federal Employees Retirement System now contribute different amounts to their retirement program based on when they were hired. FERS workers hired before 2013 put 0.8 percent of salary into the retirement fund. Those hired last year (2013) contribute (as in the government deducts it from your paycheck before you get it) 3.1 percent. Those hired this year and thereafter will “contribute” 4.4 percent of salary. The latter are officially known by the lab-rat handle of FERS-RAE (revised annuity employees). All get or will get the same benefit, based on salary and service time. But some will pay more — in some cases a lot more — than others for that benefit.


Whether it is 2.1 percent, 3.1 percent or 4.4 percent deducted from your pay, the FERS program (inferior in some ways to the old CSRS system) is still very good. Some would say excellent. Especially when compared to remaining private-sector pension plans.

FERS has an inflation-catchup component that is unknown in the private sector. Because they are backed by the “full faith and credit of the U.S. Government” (that used to sound a lot more impressive than it does now) CSRS and FERS are likely to be the last defined-benefit pension plans standing, as private companies stop their plans and state and local governments reduce or try to eliminate theirs.

Both the White House and Congress have agreed that federal and postal workers should finance more of their defined-contribution retirement plan. The only disagreement is how much more workers should be putting into the retirement bank.

Congress and the White House also agree that future benefits for federal, military and Social Security recipients should be shaved, ever so slightly, each time there is a cost-of-living adjustment. Although the reduction would hardly be noticeable to workers and retirees over time — especially because of its impact on future Social Security costs — the savings would be enormous.

It’s unlikely that politicians seeking reelection, which is most of them, will do anything this year to touch Social Security. But the federal retirement program could be another thing.

So what can federal retirees expect this year? It is unlikely that Congress and the White House will seek, yet again, to reduce future cost-of-living adjustments for retirees. But it is possible they will up the pension plan contribution rate for future hires and perhaps take yet another run at the formula used to compute federal annuities. Most are now based on the employees highest average three-year salary. There have been proposals (some dating back to the 1980s) to make that a high-five formula. Although it would have a minimal impact on most workers, especially when pay raises are suspended, just the thought of it has bothered workers for more than a decade.

While the switch from the high-three to the high-five system isn’t likely, anything as we’ve learned in recent years, is possible.


Compiled by Jack Moore

Where did the phrase “to eat humble pie” come from? In colonial times, deer entrails were called “the humbles,” and a pie filled with minced “humbles” would be a suitable dish for a servant.

(Source: Slate)


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