U.S. Government to Cut Benefits for Hundreds of Thousands of Retirees Covered by Underfunded Multi-employer Private Pension Plans, But It Will Not Cut Benefits for Retirees and Surviving Spouses of the U.S. Government Even Though the Civil Service Retirement and Disability Fund is Underfunded by $800 Billion
June 16, 2015
AP - The government is preparing
to cut benefits over the next few years for hundreds of thousands of
retirees covered by underfunded multi-employer private pension plans.
The
Obama administration announced on Wednesday that well-known mediator
Kenneth Feinberg review applications from pension plans under a law
passed last year. The law would cut benefits as a last ditch means to
stave off insolvency of troubled plans such as the huge Teamsters
Central State Fund.
The new law earned mixed reviews from the
unions whose members are covered by such defined benefit plans,
including construction workers, Teamster truckers and food service
workers.
The Teamsters and
AARP opposed the law when it passed last year as part of a
government-wide spending bill. But other unions saw it as a solution that
was preferable to plans becoming insolvent and getting a federal
bailout.
Treasury Secretary Jacob Lew named Feinberg, an attorney,
to review applications for fairness. Feinberg has administered the
compensation funds for claims from the Deepwater Horizon oil spill and
from families of victims of the 9/11 terrorist attacks.
Feinberg said the job is a "very, very difficult, challenging assignment" and said he won't accept compensation for the task.
More
than 10 million people are covered by 1,400 or so multi-employer plans,
but about 1 million of those are covered by plans expected to run out
of money in coming years. They would be eligible under the new system
that would cut benefits to people already in retirement.
People 80 years old and over are protected from any upcoming cuts, while those over 75 are partially protected.
The Federal Office of Personnel Management has estimated the normal cost
of the FERS
basic retirement annuity at 12.7% of payroll.
Employee contributions for FERS employees first hired before 2013 are
set in law at 0.8% of pay,
so the contributions of federal agencies [taxpayers] are equal to 11.9%
of basic pay for these employees [taxpayers contribute 11.9% and the
federal employee contributes only 0.8% toward his/her pension]. For
employees first hired (or rehired with less than five years of FERS
service) in calendar year 2013,
employee contributions are set in law at 3.1% of pay, so the agencies’
contributions [taxpayers] for these
employees are equal to 9.6% of basic pay [taxpayers contribute 9.6% and
the federal employee contributes only 3.1% toward his/her pension]. If
the assumptions underlying these cost estimates
prove to be accurate, FERS will be “fully funded.”
March 24, 2014
Congressional Research Service -
Most of the civilian federal workforce is covered by one of two retirement systems [additionally, they have a Thrift Savings Plan, which is similar to a 401k, and has about $250 billion in combined accounts]:
(1) the Civil
Service Retirement System (CSRS) for individuals hired before 1984 or
(2) the Federal
Employees’ Retirement System (FERS) for individua
ls hired in 1984 or later.
FERS annuities are
fully funded by the sum of employee [whose income comes from taxpayers] and employer
contributions [taxpayers are the employers] and interest earned by the
Treasury bonds held by the Civil Service Retirement and Disability Fund (CSRDF).
The federal
government makes supplemental payments [from taxpayers] into the CSRDF on behalf of employees covered by
the CSRS because employee and agency contributions [from taxpayers] and interest earnings do not meet the full
cost of the benefits earned by employees covered by that system.
The Office of Personnel Management (OPM) estimated that
in FY2014, obligations from the
CSRDF would total $80.0 billion, of which $79.4 billion will represent annuity payments to
retirees and survivors. Other outlays consist of refunds, payments to estates, and administrative
expenses.
Obligations from the fund are projected to increase by 3.4% to $82.7 billion in
FY2015, of which $82.1 billion will represent annuity payments. OPM estimated that receipts to
the CSRDF from all sources would be $95.3 billion in FY2014 and $98.5 billion in FY2015. The
year-end balance of the CSRDF was projected to increase from $848.5 billion at the end of
FY2014 to $861.8 billion at the end of FY2015.
