Federal Benefits Could Be Under Scrutiny Again

A shakeup of the U.S. Congress in the wake of the 2014 mid-term elections could put federal workers’ pension benefits under the microscope again. Pensions and Investments, a money management publication, and other mainstream media outlets have been reporting on this issue since well before the election that turned the tide on Capitol Hill. In a recent article, the website reviewed potential outcomes in light of Republican gains and Democrat loses in the Senate and House of Representatives. If past experience is any indication, federal retirement programs, it seems, are one of the most pressing items when it comes to reducing federal spending. The House approved the spending plan proposed by Budget Committee Chairman Paul Ryan (R-Wisconsin) in April, but it was defeated by Senate Democrats. Under the Ryan plan, the contribution of most federal employees toward their pension plan would increase by 5.5 percentage points with no increase in benefits — effectively a pay cut. He estimated his proposal would save the government $125 billion over 10 years. The budget did not advance to the Senate for final enactment. Last month, Ryan and fellow representative Darrell Issa (R-California) wrote a letter to Douglas Elmendorf, director of the Congressional Budget Office, asking the office to develop projections of the long-term impact of the federal retirement system on the federal budget. They asked for the CBO report to study “different options for reforming FERS, based on changes made in recent years to other large pension plans, both public and private.” “The report should include, but not limit itself to, adjusting the retirement contributions of federal employees, altering the formula for computing pension benefit payments, and expanding the defined contribution component while reducing the defined benefit component,” their letter read. Come January, Ryan is expected to become chairman of the House Committee on Ways & Means—the chief tax-writing committee of the House of Representatives. Government employees hired before 2013 currently contribute 0.8 percent of their salaries to the pension fund. However, in recent years, Congress passed laws that set new contribution rates for workers hired in 2013 — 3.1 percent — and workers hired during and after 2014 — 4.4 percent. While increasing the pension contribution is, of course, a pay cut for federal workers, nothing is ever certain with Washington. We will continue to monitor the situation and keep you up-to-date with the latest from Capitol Hill.