Federal Employees' Retirement Changes and Union Demands in Event of Government Shutdown

Bill Seeks to End FERS Pension for New Hires Beginning in 2013

Private sector defined benefit (DB) plans, private sector defined contribution (DC) plans, and state and local pension plans have all suffered declines of over 25 percent of their 2007 values, but that is simply another way of stating that the three types of plans (in aggregate) had basically the same portfolio composition at the end of 2007. The one exception is the federal government's civilian retirement plan, which (for the DB portion) is similar to Social Security insofar as the investments are completely in non-marketable government debt issues... To date, the most immediate effects of the stock market crash have been on DC participants planning to retire in the next few years. However, all DC participants observe, when reading their quarterly statements or checking on-line balances, that they have incurred dramatic losses... The extent to which the 2008 stock market crash affected pension participants obviously depends on the extent to which those participants were invested in the stock market before the crash. We use data from the Federal Reserve Board's Flow of Funds Accounts to measure the aggregate change in pension assets across the four broad categories of plans: private sector DB, private sector DC, state and local, and federal civilian. Of these, all but the federal civilian employee plan were greatly exposed to the drop in equity prices. This distinction is reflected in the approach to funding pensions before 2008; all but the federal civilian plan relied on equity exposure to achieve funding targets, which allowed lower contribution rates. - How will the stock market crash affect the choice of pension plans?, National Tax Journal, September 1, 2009

March 22, 2011

Federal Times - Sens. Tom Coburn, R-Okla., and Richard Burr, R-N.C., last week introduced a bill that would end the Federal Employees Retirement System's defined benefit pension for new employees beginning in 2013.

The Public-Private Employee Retirement Parity Act would leave the other two components of FERS — Social Security and access to the Thrift Savings Plan with matching funds — in place.

Current employees hired under FERS, as well as new hires in 2011 and 2012, would be unaffected. New members of Congress also would be affected by the bill.

Coburn said the bill is necessary because federal employees receive more generous benefits — and up to 20 percent more pay — than their private-sector counterparts. The federal government disputes pay studies showing feds are overcompensated.

"Defined benefit pension plans are going belly-up across the nation because politicians and employers continue to make promises they cannot keep," Coburn said in a statement. "When American families across the country are being asked to sacrifice in order to meet their basic needs, federal employees and members of Congress should not be the exception."

But the National Federation of Federal Employees said the bill unfairly targets federal workers, and challenged the senators' claims that federal retirement benefits are excessive. A federal employee who earned an average of $50,000 in his three highest-earning years and had 30 years of service will receive an annual pension of $15,000 — "hardly an exorbitant figure by any measure."

NFFE also said that FERS pensions are less generous than those offered under the Civil Service Retirement System, and pledged to defeat the bill.

"These senators think they can pit young federal employees against the old," NFFE Legislative Director Randy Erwin said. "An attack on one is an attack on all. We are going to make sure that this divisive piece of legislation goes down in flames."

Burr said the current cost of federal retirement benefits is unsustainable. He and Coburn cited statistics from the Office of Personnel Management that showed FERS is underfunded by about $900 million and CSRS is underfunded by $673 billion. Unfunded liabilities are the present value of future benefits, minus the net assets in the fund and the present value of future cost contributions.

But the Congressional Research Service said in a report in September that the government's retirement funds aren't in danger of becoming insolvent, and will be able to meet their obligations "in perpetuity." CRS said OPM actuaries expect the fund assets will continue to grow over the next several decades until they reach $15.3 trillion in 2080, and CSRS and FERS assets in the future will far exceed annual benefit outlays.

Bill Takes Aim at Federal Employees Retirement Benefits

Defined-benefit portion of Federal Employees Retirement System (FERS) is at stake

March 22, 2011

Federal Computer Week - Two Republican senators introduced a bill that would end the defined-benefit portion of the Federal Employees Retirement System for new federal hires, starting in 2013. The bill would not affect benefits for current feds.

Sens. Richard Burr (R-N.C.) and Tom Coburn (R-Okla.) introduced the Public-Private Employee Retirement Parity Act March 17. The bill would apply to future federal employees, including members of Congress. FERS employees now receive a defined-benefit pension and also may participate in the Thrift Savings Plan, which is equivalent to a private-sector 401(k) retirement plan.

In a joint statement, the senators said FERS is underfunded by nearly a billion dollars already, and as FERS accounts for more of the retirement burden in the future, required federal contributions to the FERS annuity will skyrocket.

The bill would not affect the TSP portion of the FERS retirement benefit. Like a 401(k), TSP is a defined-contribution plan that depends on employee and employer contributions. TSP participants receive matching contributions from agencies on as much as 5 percent of the pay that an employee contributes. Employees receive a dollar-for-dollar agency match for the first 3 percent of pay contributed, and a 50 percent match for the next 2 percent of pay contributed. Employee contributions above 5 percent are not matched.

“Federal government workers receive far more generous retirement benefits than private-sector employees,” Burr said. "The cost to taxpayers of these benefits is unsustainable, and we simply cannot afford it. We cannot ask taxpayers to continue to foot the bill for public-employee benefits that are far more generous than their own.”

Rising Rate of Retirement Among Public Employees

March 25, 2011

Federal Computer Week - We read an article this week that detailed the rising rate of retirements among public employees. State and local, that is. In some states, workers are knocking down the doors to get out.

Although the Wall Street Journal article describes this phenomenon at the state and local level, a lot of the material in the story echoes the same anxieties that have become familiar to feds in recent months. Example: “Some workers have been required to take unpaid furlough days, and many fear they’ll lose benefits at the center of political battles.”

But it was the subhead above the top of the piece that caught our attention because it brought up an issue that seems to be missing from many of the “cut-cut-cut” arguments concerning the federal workforce floating around Washington these days. The subhead said: “Governments Save Money, but Lose Expertise.”

Seems simple enough, but we’ll bet that many of the budget-cutters in Congress advocating for a leaner, cheaper workforce are more concerned with running the numbers than examining the operational consequences.

The expertise issue was critical enough when, in the natural course of things, baby boomers began to retire at an increasing pace and take their institutional knowledge with them. But now all levels of government, including federal (think the U.S. Postal Service) are coming up with incentives to lure senior employees into retirement or introducing disincentives that make retirement appear to be the better option for those who are eligible to take it.

While we have heard for a long time about the impending brain drain as more boomers exit the federal workforce, the changing nature of public-sector employment might soon give even greater numbers of experienced senior employees a hard nudge toward the door.

Union Demands Concessions in the Event of a Government Shutdown

March 25, 2011

GovExec.com - If Congress fails to pass another spending bill and the government shuts down early next month, furloughed federal employees ought to receive retroactive administrative leave, continued health care benefits and the opportunity to seek temporary employment elsewhere, according to guidance a federal employee union issued on Thursday.

With the Obama administration officials remaining tight-lipped about their preparations for a potential shutdown, the American Federation of Government Employees is taking a proactive approach in its planning, offering its members a detailed explanation of what the union sees as their rights and protections. The 15-page guidance also serves as AFGE's opening salvo in its negotiations with the administration regarding the prospect of potentially deep furloughs across the federal workforce.

"AFGE has one of the most talented lobbying [teams] in Washington," the union wrote. "But AFGE's fight to prevent budget, pay, pension and other benefit cuts won't be won on Capitol Hill alone. It will be won by AFGE members, other union members and our allies who rally, walk a picket line, and call, write and visit their lawmakers back home."

The guidance sets out an ambitious wish list in the event of a shutdown, including demanding the right to collectively bargain on issues related to furloughs -- most of them requiring decisions typically made by only by agency leadership.

If furloughs are required, then the union suggests those workers be allowed to receive retroactive administrative leave once an appropriations bill is passed. Agencies currently are not required to grant leave during a shutdown.

The union would lobby for additional language "protecting against any lost differentials and premium pay that the employee would have normally earned if not for the shutdown." Benefits provided through the Federal Employees Health Benefit Program should also continue uninterrupted, and prepaid costs, such as parking fees, should be rebated to furloughed workers, the guidance said.

The government currently is operating under a three-week continuing resolution that funds agencies through April 8. Unlike previous showdowns over the budget, the current situation makes another short-term spending bill seem unlikely as several Republican senators have said they will block legislation that does not fund the Defense Department for the rest of the fiscal year.

Administration officials, for their part, have been reluctant to show their hand and offer details of their shutdown preparations, though they concede discussions have been ongoing for months. Thus far, only Defense has publicly outlined a furlough policy.

During a meeting of the National Council on Federal Labor-Management Relations earlier this month, labor unions decried the lack of information being shared about potential furloughs. "Tell them something," said National Treasury Employees Union President Colleen Kelley. "The silence is deafening."

According to Jeffrey Zients, Office of Management and Budget deputy director of management and council co-chairman, agency shutdown plans are not yet final. The process, he said, involves legal concerns that are not subject to union input, and labor would not be involved until a shutdown occurred and plans were implemented.

"We have every reason to believe this is not going to happen," Zients said at the council meeting. "If a shutdown becomes imminent, we'll advise and clearly communicate at that point."

But AFGE argued the administration should provide a list, well in advance of a shutdown, of all employees who will be deemed "essential" and therefore allowed to continue working. Federal law allows employees to challenge furloughs if less than 30 days' notice is provided, the union said.

On March 2, AFGE filed a Freedom of Information Act request with OMB requesting a copy of all agency shutdown plans. OMB has not responded to the request, said union spokesman Tim Kauffman.

The AFGE guidance lists a host of federal positions that potentially could be deemed essential, including jobs conducting foreign relations, providing for benefit payments and performing of contract obligations for which funding already has been allocated.

These essential employees would be allowed to work during a shutdown but are not guaranteed to receive payment for their services. Administration officials have not publicly stated whether essential employees will be reimbursed for the hours they are required to work during a shutdown. Complicating matters, essential employees likely would be deemed ineligible for unemployment compensation during this period.

The union argued these employees must be given assurances that they will be paid in a timely manner after a new appropriations bill is enacted. The administration also should consider allowing employees to rotate into shifts of essential workers, to alleviate the costs of travelling to and from work.

The union expects other major concessions to help compensate unpaid essential employees. For example, employees who are unable to obtain day care at an affordable price should be allowed to bring their children into the office, with the agency providing space for child care, the guidance stated.

No matter how negotiations proceed, observers agree there is little doubt that federal employees, both union members and nonmembers, will suffer financially in the event of a shutdown, at least in the short term.

AFGE suggested members could help collect charitable donations from within the community for those who are furloughed, assist with maintenance work such as car repairs and help those adversely affected to apply for unemployment assistance. The labor group also recommended asking utility companies to give furloughed employees a temporary reprieve from paying their bills until the shutdown has ended.

"We have no idea how long this will go on for," Kauffman said. "And a lot of our members are lower-wage-grade workers."