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How Federal Pensions Might Be Targeted

Washington Post Reporter Ed O’Keefe discusses how federal pensions might be targeted by a bipartisan fiscal commission:

After years of fighting for and against it, the White House and congressional negotiators are seriously discussing the possibility of forcing at least some federal employees to pay more towards their retirement pension.

As colleague Lori Montgomerywrote in Sunday’s Post, “The generous pension system enjoyed by millions of federal workers from clerks to senators and judges has emerged as a key target in negotiations between Vice President Biden and congressional leaders looking to restrain the growing national debt.”

How would it happen? Both sides are tight-lipped on specifics, but President Obama’s bipartisan fiscal commission, Republicans and outside groups are pushing at least five substantive proposals. Here are the basic details:

1.) The president’s fiscal commission recommended using a federal employee’s highest five years of earnings to calculate benefits for new retirees — whether they’re in the older Civil Service Retirement System or the Federal Employee Retirement System, which is used for federal employees who joined after 1986. Currently both systems use the highest three years of earnings, but the commission said using the top five years would bring benefits calculations in line with the standards used by private sector employers. Savings would total $500 million in 2015 and $5 billion through 2020.

2.) The fiscal commission also suggested defering Cost of Living Adjustments (COLA) for retirees in the current system until age 62. This would also apply to civilian and military retirees who retire at an earlier age. In place of COLA, the system would provide a one-time catch-up adjustment at age 62 to bring benefits on par with the amount that would have been paid if full COLAs had been in effect. Taxpayers would save $5 billion in 2015 and $17 billion through 2020.

3.) Finally, the commission recommends adjusting the ratio of employer/employee contributions to federal employee pension plans to equalize contributions. The government would save $4 billion in 2015 and $51 billion through 2020.

4.) The cenrist think tank Third Way also believes feds and the government should contribute equally to FERS, arguing the government is far more generous than private-sector companies. The government contributes 12.7 percent of payroll to retirement accounts while private employers contribute about 5.3 percent. Evening the payments would save $114 billion over ten years, $271 billion over 20 years, and $702 billion by 2050, according to the group.

House Republicans are pushing a modified version of Third Way’s plan, suggesting employees and the government should contribute equally — 6 percent each. But because federal workers currently contribute 0.8 percent, the change would amount to more than a 5 percent pay cut.

5.) Sens. Tom Coburn (R-Okla.) and Richard Burr (R-N.C.) in March introduced a bill that would end FERS’s defined benefit pension for new employees beginning in 2013. The bill would still give federal workers Social Security payments and access to the Thrift Savings Plan with matching funds intact. Current feds and retirees would not be affected, but the changes also would apply to future lawmakers and their staffers.

Coburn and Burr argue that FERS is currently underfunded by nearly a billion dollars and CSRS by $673 billion, but the Congressional Research Service said last fall that the funds will be able to meet their obligations “in perpetuity.”

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