Your retirement plan: when more buys you less

It might be a good idea if legislators, lawmakers, solons, members of the House and Senate adopted the first-do-no-harm rule as they return, briefly, to the business of making the nation’s laws. Or not. There hasn’t been much accomplished this year which, for a lot of people including members of the federal family, is a good thing. But there is still time between now and the end of the fiscal year (September 30th) and the last day of Congress, in December to mess up.

The threat of a government shutdown seems to have diminished as the nation looks on in horror and sorrow at the impact of the thousand year hurricane that hit Texas and what could be a decades long cleanup and rebuilding effort. Seems to. But anything—including the stupidity and hypocrisy of a government shutdown now—is possible, especially with the political bile level (on both sides) in Washington.

While there is lots on the political agenda with little time left to act, federal and postal workers and retirees are watching a half dozen proposals that have major support, especially among House Republicans.

They range from proposals to limit and/or eliminate cost of living adjustments for government retirees. Under that plan CSRS workers (who already get more generous annuities) would have future COLAs limited to 0.5 percent less than the actual rise in living costs as determined by the government. FERS retirees would lose any future COLA increases. Over time those changes would leave retirees—especially under the FERS system—floundering in their golden years as their pensions’ buying power shrunk. The fact that most private sector pension plans don’t have any inflation-catchup mechanism is of little comfort. Many feds believe that when they started their careers they expected to make less than they could have outside government in return for a more generous annuity. If that rug is yanked out from under them many would feel it’s a breach of contract. But Congress makes the laws.


There is also a plan to gradually increase employee contributions to the FERS retirement plan by one percentage point a year over a six year period. If that happened and COLAs were eliminated as well people would be paying more to buy an annuity that would decrease in value every year.

Congress has also revived one of the oldest monsters-in-the-closet for federal workers. That is a plan to base their retirement benefits on time in government and their highest five-year-average salary. Feds annuities are now based on length of service and their highest three-year-average salary. While the dollar difference is relatively slight, especially when feds get small annual raises or pay is frozen, the high-five is one of the nightmares of many workers.

Yet another proposal will eliminate a financial Social Security safety net for FERS employees who retire early. Currently FERS retirees don’t get inflation-catchups until reaching age 62. And many retire (some are forced to by their jobs) before they are eligible to draw even minimum Social Security benefits. To compensate for that the FERS retirees now get a special gap payment each year until they are eligible to draw Social Security. In some cases that can be worth thousands of dollars a year. Eliminating it would be a financial hardship and could further harden Uncle Sam’s arteries by forcing employee who are old enough to retire to hang on for another three to five years.

So what’s going to happen? Nobody knows, of course. But lots of people have been tracking the situation and have been in this situation before. Today at 10 a.m. I’ll be talking with FederalNewsRadio reporter Nicole Ogrysko. She’s been following the legislative twists and turns and recently explained a Congressional Budget Office report that talked about the savings to the government—which translates into a $$$ loss for you—if any, or all, of the proposed changes becomes law. That’s 10 a.m. today (EDT) here on, or in the DC area at 1500 AM. If you have questions for Nicole, or me, send them to:

Nearly Useless Factoid

By David Thornton

Woodrow Wilson is the only U.S. President to have held a Ph.D.

Source: Wikipedia