Public-Private Employee Retirement Parity Act Would Eliminate Pension Portion of the Federal Employees Retirement System
The Federal Employees Retirement System (FERS) requires federal employees to contribute only 0.8 percent of their paychecks toward their pensions; it requires taxpayers to cover the rest of the cost to avoid the accumulation of unfunded liabilities. That is why the government in fiscal 2011 hiked the amount taxpayers contributes to FERS pensions from 11.2 percent to 11.7 percent, and in October increased it further to 11.9 percent. [Source]The average public sector worker spends about 30 years in the workforce and 30 years retired, and the average private sector worker spends about 40 years in the workforce and 20 years retired. California public sector retirees, on average, receive a retirement pension equal to 66% of their average base pay after working 30 years while private sector retirees receive retirement benefits equal to 33% of their base pay after working 40 years (in California the average base pay of public servants is $68,000 while the average base pay of private workers is $41,500). Extrapolated to the United States as a whole, it is clear that the California model would mean that public sector retirees would cost taxpayers $862 billion per year, which is only 6% less than the entire bill for Ssocial Security for more than six times as many people. In other words, local and state public sector workers (16% of the workforce in California) retire 10 years earlier with retirement benefits 33% greater than private sector workers (84% of the workforce) — all at the expense of the taxpayers. - The Cost of Retirement Security in America, Free Republic, January 1, 2011
The average government worker’s retirement pension is equivalent to the average private sector worker’s base wages while still working! And government workers typically work from ages 25 to 55, then retire for 30 years, while private sector workers typically work from ages 25 to 65, then retire for 20 years. - How Much Do Pensions Really Cost?, CalWatchDog.com, March 11, 2011
The public sector employees in a pension plan get a total benefit some 25% better than the private sector employee. That is a pretty good incentive to work in the public sector. - Defined-benefit Public Sector Pensions: A Bad Habit Continues, The Economist, February 21, 2011
GOP Senators Reintroduce Public-Private Employee Retirement Parity Act S.1678
November 13, 2013Postal Reporter – Today, U.S. Senators Richard Burr (R-NC), Tom Coburn (R-OK), and Saxby Chambliss (R-GA) reintroduced the Public-Private Employee Retirement Parity Act to address long-term liabilities facing the federal government. The legislation would end the defined benefit pension portion of the Federal Employee Retirement System (FERS) for new federal government hires starting six months after enactment, leaving fully in place the Thrift Savings Plan with the current match (up to 5%) for both current and future federal workers. The bill would also apply to Members of Congress.
“Right now, federal government workers receive far more generous retirement benefits than private sector employees. The cost to taxpayers of these benefits is unsustainable and we simply cannot afford it,” said Sen. Burr. “We cannot ask taxpayers to continue to foot the bill for public employee benefits that are far more generous than their own.”Currently, federal workers enjoy both a defined benefit pension and a Thrift Savings Plan (equivalent to a 401(k)) with up to a 5% match, paid for by the taxpayers. The average private sector employee gets a 401(k) with a 3% employer match and no pension. Federal workers also continue to enjoy federal health care benefits (FEHBP) after they retire, a benefit that is becoming increasingly rare in the private sector.
“Generous pension plans for members of Congress have helped turn congressional service into a career rather than a calling,” said Dr. Coburn. “At the same time, federal workers enjoy a better benefits package and higher overall pay than most taxpayers – even at a time when many Americans are still simply looking for a job. This status quo is unsustainable and needs to be reformed.”
“With America now $17 trillion in debt, we simply cannot continue to commit to future government spending,” said Sen. Chambliss. “Americans have demanded their leaders make the necessary changes to our fiscal policies to put our nation on a track to sustain economic growth and real job creation. The Public-Private Employee Retirement Parity Act is a small change that will have a big impact on our debt and deficit.”
The legislation will require the Administration to make the annual report on the on the actuarial status of the federal retirement system publicaly available online by January 31st each year. According to the most recent Office of Personnel Management’s Civil Service Retirement and Disability Fund annual report, the FERS system is currently underfunded by $20.1 billion for fiscal year 2012. In the coming years, as more of the retirement burden falls on the FERS system, the required federal government contributions to FERS will skyrocket, especially in comparison to what federal workers will put into the system.
In 2012, the Federal government contributed about $22.2 billion to FERS. By 2065, those required contributions will rise to $239.5 billion, with the government paying out $415.3 billion in benefits.
Current federal government employees and retirees would not be impacted by the changes in the Burr-Coburn-Chambliss bill.
Senator Proposes Cuts to Federal Annuity Benefits
S.644, Public-Private Employee Retirement Parity Act, is a bill to amend subchapter II of chapter 84 of title 5, United States Code, to prohibit coverage for annuity purposes for any individual hired as a Federal employee after 2012.GovExec.com - New legislation aims to cut federal pensions for all new employees hired after 2012, citing a need to bring benefits in line with those in the private sector.
Sen. Richard Burr, R-N.C., on Thursday introduced a bill (S. 644) that would eliminate the pension portion of the Federal Employees Retirement System for all new government hires beginning in 2013. The legislation would not affect Thrift Savings Plan benefits and agency-matching contributions. Nor would it affect FERS pensions for current federal employees and retirees. It would, however, apply to members of Congress.
"Right now, 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."Federal employees are eligible for pensions, retirement savings plans with up to 5 percent in matching contribution. and retiree health care benefits above and beyond those available to private sector workers, according to Burr.
He also asserted that FERS is underfunded by almost $1 billion and the Civil Service Retirement System by $673 billion.
According to Tom Trabucco, director of external affairs for the Federal Retirement Thrift Investment Board, the agency match for FERS participants is dollar for dollar on the first 3 percent of pay contributed to the TSP, and 50 cents on the fourth and fifth percentage points contributed. Agencies [taxpayers] automatically put in 1 percent of basic pay for all new FERS enrollees regardless of the employee contribution. He noted, however, that the arrangement is not equal to a 5 percent total match.
The assertion that federal pension programs are underfunded is rejected by John Gage, national president of the American Federation of Government Employees, who called the bill "cruel and useless."
"Sen. Burr is wrong on the facts and wrong on morals," Gage said. "Eliminating pensions for future employees would do absolutely nothing for the fictional unfunded liabilities that the fact-challenged senator imagines he is resolving. Worse, Sen. Burr's bill is a mean-spirited attempt to deprive future employees of any hope of a dignified retirement after they have spent a lifetime in public service."
Bill Takes Aim at Retirement Benefits
Defined-benefit portion of 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 [taxpayers] 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.
Defusing the Pension Bomb: How to Curb Public Retirement Costs in New York State
November 2003The Manhattan Institute for Policy Research - Skyrocketing state and local employee pension costs have been a major factor in the fiscal crisis affecting every level of government in New York State. Taxpayer financed public pension contributions have soared by more than $2.3 billion dollars over the past two years—and are projected to rise even more in 2004. In New York City alone, the rise in pension costs will consume every dollar raised by Mayor Bloomberg’s record property tax increase.
The defined benefit (DB) pension plans used by state and local governments guarantee employees a fixed percentage of retirement income based on their peak salaries and career longevity. This requires those governments to invest money each year to cover future pension payments. But their contributions vary depending on complex actuarial assumptions and market fluctuations. As a result, the DB system is crisis prone because earnings during bull markets cover employer contributions, while losses during bear markets force governments to drastically increase contributions. Since bear markets usually coincide with recessions, DB pension plans force governments to spend more when they are least able to afford it.
This study shows how greater fairness for New York taxpayers and better retirement benefits for the majority of government employees can be achieved by switching from the current defined benefit (DB) pension plan to the defined contribution (DC) model used by the vast majority of private companies.
This study shows how greater fairness for New York taxpayers and better retirement benefits for the majority of government employees can be achieved by switching from the current defined benefit (DB) pension plan to the defined contribution (DC) model used by the vast majority of private companies.
A DC plan differs from a DB plan by requiring employers to contribute the same amount in bear and bull markets and by giving employees ownership of, and investment responsibility for, their own pension funds. A DC plan offers increased retirement equity and flexibility for the majority of public employees while providing predictable costs for taxpayers and government employers.
Under the plan proposed here, employees would be required to contribute at least 3 percent of their salaries to a retirement account. The government [taxpayers] would match this with a minimum contribution of 5 percent, bringing the total minimum retirement savings to 8 percent of salary per year. Employers would match up to 2 percent of additional employee contributions, so that retirement savings of up to 12 percent of salary would consist of up to 7 percent from the employer and 5 percent from the employee. The recommended DC plan would effectively cap costs at 7 percent of pay, just over half the fiscal 2004-05 employer contributions for the New York State and Local Retirement System.
Taxpayers would no longer bear the risks associated with market downturns. Public pension costs for the first time would become both predictable and easily understandable, and the real costs of proposed benefit increases would be completely transparent, rather than obscured by complex actuarial calculations.
Under the plan proposed here, employees would be required to contribute at least 3 percent of their salaries to a retirement account. The government [taxpayers] would match this with a minimum contribution of 5 percent, bringing the total minimum retirement savings to 8 percent of salary per year. Employers would match up to 2 percent of additional employee contributions, so that retirement savings of up to 12 percent of salary would consist of up to 7 percent from the employer and 5 percent from the employee. The recommended DC plan would effectively cap costs at 7 percent of pay, just over half the fiscal 2004-05 employer contributions for the New York State and Local Retirement System.
Taxpayers would no longer bear the risks associated with market downturns. Public pension costs for the first time would become both predictable and easily understandable, and the real costs of proposed benefit increases would be completely transparent, rather than obscured by complex actuarial calculations.
Federal Employees Retirement System (FERS)
Federal employees have stools with three legs made of solid mahogany. In the FERS, government employees contribute 0.8 percent of pay while their employing agencies [taxpayers] put in 11 percent of pay. On top of that, federal employees can contribute to a Thrift Savings Plan and get a 5 percent matching contribution from their employing agency [taxpayers]. This match is immediately vested to boot. According to the CRS report, "All participants in FERS are immediately vested in their own contributions and in government matching contributions to the TSP, as well as any investment earnings on these contributions." And the third leg for most federal employees is Social Security. If it gives you any comfort, they contribute to FICA to the same extent that everyone else does. - Going postal over federal pensions, Bankrate.com, March 25, 2011
According to the Bureau of Economic Analysis for 2008, the average federal employee made $79,197 [the average private sector employee made $49,935]. The pension for the average employee can be calculated as follows:
$79,197 x 30 Years x 1% = $23,759
$79,197 x 40 Years x 1% = $31,678
$79,197 x 40 Years x 1% = $31,678
Understanding the FERS Retirement
When we talk about your FERS Retirement, we're really talking about several different benefits. FERS (Federal Employees Retirement System) has three main components:
- Basic FERS Pension
- Social Security
- Thrift Savings Plan (TSP)
As a FERS, you have a chance to take a more active role in managing your own retirement than CSRS do. But, that means you need to stay up-to-date on your benefits.
Here are some important things you need to know about each part of your FERS retirement...
Reductions to Your FERS Pension
There are some choices you can make that will reduce the amount of your FERS pension:
- Retiring Before Age 62 with MRA+10If you retire before age 62 on an Early FERS Retirement (MRA+10), your pension will be reduced. Your FERS pension will be PERMANENTLY reduced by 5% for every year you are under age 62. Click here to see an example of this reduction and how it might affect you
- Survivor BenefitsYour FERS Pension could also be reduced if you choose survivor benefits. Will my survivor still get my pension when I die?
The TSP allows you to save pre-tax dollars in a special personal account. You can choose how to invest those dollars -- although your choices are limited.
With your FERS retirement pension and Social Security, you will receive fixed amounts. But with your TSP, the amount you receive depends on how much you put in and how well you managed the money.
Your TSP contributions are optional and separate from your FERS pension.
You may also be able to get your Federal Agency [taxpayers] to contribute money to your TSP.
Click here to learn more about the match the government gives FERS employees.
Social Security for FERSEmployees covered under the Federal Employee Retirement System (FERS) are typically eligible to receive Social Security benefits when they retire. Every pay period, the Federal Government takes out 6.2% of your basic pay to put towards Social Security. But just like your FERS pension, your Social Security benefit is not based on your contributions - it is based on other factors.
According to the U.S. Social Security Administration, the Social Security taxes you and other workers pay into the system are used to pay for Social Security benefits.
You pay Social Security taxes on your earnings up to a certain amount. That amount increases each year to keep pace with wages. In 2011, that amount is $106,800.
You pay Medicare taxes on all of your wages or net earnings from self-employment. These taxes are used for Medicare coverage.
| If you work for someone else | 2011 Social Security tax | Medicare tax |
|---|---|---|
| You pay | 4.2%* | 1.45% |
| Your employer pays | 6.2% | 1.45% |
| If you are self-employed | ||
| You pay | 10.4% | 2.9% |
Currently, U.S. citizens cannot collect Social Security benefits until age 62. The maximum Social Security benefit is $23,500 per individual.
* The employee contribution was temporary lowered from 6.2% to 4.2% on January 1, 2011.
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