New federal employees face potentially large pension contribution payment

Federal government employees hired this year may have to pay a sizable back payment toward their retirement benefits because of a hitch in the government’s payroll processing systems.

Due to the Bipartisan Budget Act of 2013, federal government employees hired after Dec. 31, 2013 are required to contribute 4.4 percent of their salaries to the Federal Employees Retirement System (FERS). Most federal employees now make a pension contribution of 0.8 percent of their salaries.

Federal employees hired in 2013 contribute 3.1 percent.

However, the government’s payroll processing systems cannot account yet for the 1.3 percent pension withholding difference from 2013 to the new 4.4 percent rate that was set by Congress late last year.

Since their pension contribution is being “under-withheld,” affected employees will be forced later this year to retroactively make up the difference either by paying in full or at least $25 per pay period.

The government anticipates having the software hitch fixed by July 27. August pay periods and thereafter should reflect the proper pension contribution withholding for new government employees.

Because of the issue, the American Federation of Government Employees said thousands of federal government employees could find themselves up to $1,300 behind in payments to the FERS.

“It is wrong to treat this failure on the part of the employer to operationalize its payroll deduction system for as long as 17 pay periods a case where employees have incurred a ‘debt for underpayment’ to the government,” the union’s president, J. David Cox, Sr., wrote in a letter to the Office of Management and Budget (OMB). “This mistake is solely the responsibility of the agencies, and under the agencies’ announced plans, eight or nine months of unpaid taxes would have to be paid either in full or in installments of at least $25 per pay period.”

“This would be a heavy burden for newly hired federal employees who will already be struggling to make ends meet on inadequate salaries that were frozen for three years and adjusted by a mere one percent this year.”

The union’s president asked the OMB to waive the back payment requirement.

“The agencies’ inability to collect these retirement payments in a timely manner certainly constitutes a case that justifies waiver under this authority. The unpaid amounts should be treated as erroneous payments by the employer, not debts incurred by the employees,” he wrote.

Federal government workers paid through the Defense Civilian Pay System (DCPS) will receive a debt notification letter that will inform them of their total amount owed, due process rights and the debt collection process. The letter will explain repayment options and inform them about their right to request a waiver and a hearing.

“Depending on your payday schedule, we anticipate paydays in mid-to-late August to reflect correct retirement withholding amounts,” according to a post on the agency’s website. “At that time, DCPS will also compute each employee’s debt amount. DFAS (Defense Finance and Accounting Service) will send you a debt notification letter so you’ll know the total amount you owe, as well as your due process rights and what options are available for repayment.

“We encourage you to save a portion of your pay now to help lessen the impact of repayment.”

The issue also affects federal employees rehired in 2014, who are less than five years vested with the FERS.