In budget talks, federal employee benefits on the block
12/10/2013 12:16 PM
12/13/2013 1:25 PM
Federal workers had a target on their paychecks as Congress reached a new budget deal Tuesday.
As Congress looked to restore some spending to defense and federal agencies ordered cut two years ago, it needed other ways to offset that. While few want to raise taxes or cut popular programs such as Medicare, there’s seemingly broad support to cut pay or benefits for federal workers.
A majority of Americans, 55 percent, supports cutting federal pay and benefits, according to a McClatchy-Marist Poll this week. The top budget man for the Republicans wanted federal workers to contribute more toward their pensions. President Barack Obama also has proposed making them pay more to their pensions. Their pay already has been frozen for three years.
The pact announced Tuesday evening would require federal workers to contribute more from their paychecks for their defined-benefit pensions. After looking at a total of $17 billion over 10 years, the pact settled on $12 billion.
“We think it’s only right and fair that they pay something more toward their pensions just like the hardworking taxpayer that pays for those pensions in the first place,” said House Budget Chairman Paul Ryan, R-Wis.
“It is down to $6 billion for federal employees and $6 billion for military,” said Senate Budget Committee Chairwoman Patty Murray, D-Wash.
So how do federal workers compare with the private sector in pension benefits?
First, they have both defined-benefit and defined-contribution plans, a rarity these days.
Defined-benefit plans, which guarantee a worker a fixed pension in retirement, have been largely phased out in the private sector. Beginning in the 1980s, defined-benefit plans began being replaced by defined-contribution plans, which require the worker to contribute a portion of their income into a 401(k) retirement account or some similar tax-deferred investment plan.
By 2011, just 3 percent of private sector employees had defined-benefit pensions alone, and just 11 percent had both a defined-benefit plan and a defined-contribution plan, compared with most federal employees. More than half have no pensions.
Federal employees hired in the mid-1980s through 2012 contribute slightly less than 1 percent of their pay to their defined-benefit pensions. Those hired since Jan. 1, 2013, pay 3.1 percent of their salary toward their defined-benefit pension.
Ryan had proposed that federal workers pay as much as 5.5 percent of their salary into their defined-benefit pensions.
That would save about $130 billion over 10 years and was supported by the conservative Heritage Foundation, which has long maintained that federal workers enjoy benefits that far exceed the average private-sector employee.
In his own budget blueprint earlier this year, Obama proposed increasing the contribution, over a three-year period, by another 1.2 percent of salary. This proposal would save about $20 billion over 10 years.
The American Federation of Government Employees, the union for government workers, opposed the talk of a $17 billion hit on federal workers, calling that a backdoor reduction of take-home pay.
“Federal employees have done more than anyone else to reduce the deficit. The well is dry,” J. David Cox, the union’s president, said in a statement.
Federal workers have had their pay frozen for three consecutive years, and many lost a week of pay over the summer thanks to the furloughs, he said, adding that lawmakers “need to take their shovels and dig elsewhere.”
In an interview, the union’s policy director, Jacqueline Simon, said one reason government benefits seem more generous is that private-sector benefits have been slashed and are reflected through the widening income inequality in American society.
“The administration is sort of following the private sector in a race to the bottom,” Simon said. “It’s generous compared to Wal-Mart, it’s not generous compared to other large corporations, but when Wal-Mart is the standard, that’s problematic.”
There’s also the question of the benefits federal workers get from their defined-benefit pensions.
Currently, workers who retire at the government’s retirement age of 62 get a pension that’s calculated on years of service times the average of the three highest earning years times a multiplier of 1 percent. If the worker averaged $100,000 in the three highest years and worked for 25 years, that’d be a pension of $2,083 a month, or $24,996 a year. For those retiring later than 62, the pension is higher.
“Clearly these are much more generous benefits than you see in the private sector,” said James Sherk, Heritage’s senior policy analyst for labor economics.
But comparing the private and public sectors is tantamount to comparing apples to oranges, warned Dallas Salisbury, who heads the Employee Benefit Research Institute, a research group.
“It’s like trying to compare IBM to your local Subway store,” he said. “You have very different job classifications, very different job tenures, and you have dramatic differences in training and what it takes to attract a worker and retain a worker.”
While the U.S. economy has largely become a services-driven economy, the federal government, which hires for more than 700 different civilian occupations across more than 100 departments and agencies, involves a greater degree of specialization, and the pension is viewed as a means of attracting and retaining these special skills.
“In what has largely become a service economy, far more government jobs now require benefit programs that meet that retirement objective than do high-turnover jobs in the private sector,” Salisbury said, pointing to the automotive and pharmaceutical sectors that similarly reward skilled workers with pensions.
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