August 13, 2001Agencies should be prepared to pay the full government share of all federal pensions and health benefits in fiscal 2003, according to new budget guidance from the Bush administration. Under current law, agencies and the Office of Personnel Management split the pension costs of employees in the Civil Service Retirement System (CSRS), which covers personnel hired before 1983. OPM pays about two-thirds of the government's contribution to an employee's CSRS pension, while the employee's home agency pays the other third. Agencies already pay the full government cost of pension benefits for employees covered by the Federal Employees Retirement System, which covers employees hired after 1983. OPM also picks up the full government tab for retirement health benefits earned by active employees in both retirement systems. The Bush administration will soon send legislation to Congress that will propose directly charging agencies for the full federal contribution to these benefit programs, according to the new version of Office of Management and Budget Circular A-11, which tells agencies how to compile their budgets. The legislation will not affect employee contributions to CSRS or change the portion of health insurance premiums that employees must pay. If the Bush legislation is passed, program managers will have better visibility of the personnel costs associated with their programs, according to Donald Kettl, a scholar at the La Follette School of Public Administration at the University of Wisconsin in Madison. "The most likely immediate effect will be to change the way managers think about their operations--and linking full-cost accounting to their programs," he said. OMB considered going a step further and requiring agencies to account for the support, overhead and other non-direct costs associated with their programs, but agencies resisted this proposal, according to Carl DeMaio, director of government redesign at the Reason Public Policy Institute. "There were some agencies that objected strenuously to a more rigorous proposal at this time," said DeMaio. "Nevertheless, this is a step in the right direction, because it starts to provide a more accurate picture of the costs associated with government activities." As it stands, the Bush legislative proposal will likely resemble the Clinton administration's efforts to directly charge agencies for health and pension benefits. The Clinton administration unsuccessfully tried to get Congress to approve such a change in 1995 and 1997, according to John Kamensky, former deputy director of the National Partnership for Reinventing Government and current director of the managing for results practice at the PricewaterhouseCoopers Endowment for the Business of Government. The Clinton reinventing effort proposed charging agencies for the full cost of benefits as early as 1993. The Bush administration should have better luck with its proposal, according to both DeMaio and Kamensky. "[The proposal] is not being done in the midst of a vast discussion on how to balance the budget," said Kamensky. "This idea has been out there for eight years, so it's not going away." The Office of Management and Budget has already told agencies to include full benefit costs in their preliminary budget submissions for fiscal 2003, which are due Sept. 10. "In addition to your agency's cost for current year health insurance premiums, you should include in your submission a separate and additional amount to reflect the post-retirement cost of health benefits for your current employees," said OMB in the new Circular A-11. Some federal program managers may fear that showing the full cost of their programs will expose them or their employees to outsourcing, Kettl said. "Lurking behind the scenes, though, is likely to be concern about whether this could threaten their jobs or those of their employees--will this increase the likelihood of contracting out?" asked Kettl. OMB Deputy Director Sean O'Keefe has described the legislation as a tool to promote more competition between the government and the private sector.
August 13, 2001