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Editor's Note: Ned on Feds appears each Monday on GovExec.com. Ned Lynch brings to the column decades of experience in seven federal agencies and on Capitol Hill, most recently as a senior staffer on the House Government Reform Subcommittee on Civil Service. We don't expect that our readers will always agree with Ned's opinions, but we hope he'll encourage a broad debate on key issues of interest to federal employees, managers and executives.

Federal employees face a full menu of unpalatable options if their agencies mistakenly enrolled them in the Civil Service Retirement System when they should have been placed in the newer Federal Employees Retirement System.

Once such a mistake is discovered, the Office of Personnel Management - implementing current law - requires that the employee be transferred into FERS. Retirement contributions that had been directed to CSRS get shifted to create a Social Security account for the employee, and any balance is allocated to the defined benefit contribution that is part of the FERS benefit. Affected employees gain a Thrift Savings Plan account consisting of the agencies' automatic 1 percent contribution.

Employees who had invested in the TSP while in CSRS can claim matching funds for their savings. Affected federal employees without a TSP contribution history, however, wind up facing the prospect of annuities about 30 percent less than they expected. Worse, discovery of the retirement coverage error often comes late in an employee's career, sometimes when the first retirement check arrives in the mail. Affected employees face substantial adjustment of their spending and retirement plans, with little time to offset the long-term agency error that caused their problems.

Current law provides no adequate remedy for the harm done to affected employees. The House has passed legislation to correct these errors, (H.R. 416), and the Senate has also adopted a measure (S. 1232) that addresses major problems involved in these conversions. One crucial issue differentiates the two approaches: Who pays the costs associated with making the employees whole?

The House bill placed responsibility for correcting retirement coverage errors on the agencies that made them. Under H.R. 416, employees who have already been transferred into FERS would be provided the opportunity to be reinstated into CSRS-Offset, a hybrid of Social Security and the civil service pension plan that combines Social Security and a defined benefit so that employees who have a break in service can combine annuities, or, if they elect to remain in FERS, they would be provided TSP accounts that reflect their previous savings record, or one consistent with the average of other FERS employees. Employees would not be provided an opportunity to revisit the market performance of the C Fund and invest retrospectively. Funding for the payments would be drawn from the salaries and expense accounts of the agencies that made the errors - that is, the same source as would have been the case if agencies had done it right the first time. The mechanism follows closely the procedures that the Internal Revenue Service has established to remedy comparable mistakes that might have been made by private sector employers.

In contrast, S. 1232 would require employees to make up any TSP contributions retrospectively, before getting any matching funds or back earnings. The Senate bill would provide employees the opportunity to remain in CSRS-Offset - just as the House bill would allow - but the Senate perceived that the opportunity to receive back TSP contributions might provide incentives for employees to select the FERS option. OPM, which supports the Senate bill, claims the CSRS-Offset option would provide a benefit at least equivalent to what the employees would have expected from CSRS, making it unnecessary to impose additional payment burdens to provide employees the retirement income at least at the levels they expected.

Employees whose retirement coverage errors have not yet been discovered are unlikely to object to an equivalent benefit that imposes minimum disruption to their lives or their retirement plans. The Congressional Budget Office, however, reported that more than 8,000 retirement coverage errors have already been "corrected" under existing law. These employees, former employees, annuitants, survivors, and families have already experienced the disruption that results from forced transfer into FERS. Some have attempted repayment programs to develop TSP accounts. One even sold his house and tried to make a lump-sum contribution, only to learn that the TSP did not accept lump sums. No matter the source, any effort to make up for back contributions must compete against other family priorities - such as college tuitions or care of elderly parents - that face people in the middle of federal careers.

Affected employees face these conditions through no fault of their own. The Senate-OPM approach forces the victims to bear the expense of correcting their agencies' errors. Some employees will bear the expense by making retroactive payments to their TSP accounts. Others will be unable to make such payments, so they will bear the costs of their agencies' errors through the reduced annuities that they will experience the rest of their lives. This is a Hobson's choice that adds to the harm inflicted on employees. Before the Senate-OPM bill is adopted, affected employees should ask Sen. Thad Cochran, R-Miss., who chairs the Senate subcommittee that oversees the retirement system, to explain why he favors forcing the affected employees to bear the costs of their agencies' errors.

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