Federal agencies would have to make retroactive contributions to the Thrift Savings Plan for employees who were placed in the wrong retirement system, under a fix proposed by a House subcommittee.
The House Government Reform and Oversight Committee Subcommittee on the Civil Service marked up a bill Tuesday that would correct retirement plan snafus for thousands of civil service employees, as well as foreign service employees and intelligence agency personnel. Under the subcommittee plan, known as the Federal Retirement Coverage Correction Act, agencies would be responsible for incurring all the costs of adjusting affected employees' pension benefits, Social Security benefits and TSP contributions so that employees placed in the wrong retirement system receive the full retirement benefits the employees thought they would get.
"Private-sector employers who have erred in like fashion are held accountable to make employees' 401(K) accounts whole at no cost to the employee," said subcommittee chairman John Mica, R-Fla. "We propose to do the same for affected federal employees."
Since 1984, when the federal government adopted the Federal Employees Retirement System (FERS), a plan that mixes a modest annuity, Social Security benefits and TSP investments, and began phasing out the Civil Service Retirement System (CSRS), a pension-only plan, up to 10,000 federal employees have been mistakenly placed in CSRS or CSRS-Offset. CSRS-Offset was a plan used from 1984 to 1986, before FERS became the required plan for all new federal hires.
In addition, some foreign service personnel and employees at intelligence agencies, who are covered by separate retirement plans, have also been placed in the wrong systems.
Under the subcommittee's plan:
- Employees may either remain in the retirement system they were mistakenly placed in (unless they were placed in CSRS), or they may switch to the correct system.
- Agencies would bear the cost of makeup contributions to employees' TSP accounts based on a model adapted from the private sector.
- Agencies would also have to cover the costs of adjusting pension funds, Social Security trust funds, and financial and legal advice for affected employees.
- Employees would be spared tax penalties that would be applied under current law.
- Employees could seek further damages under special administrative and judicial review procedures.
William Flynn, associate director for retirement and insurance at the Office of Personnel Management, said the administration is against several provisions of the subcommittee plan.
"We believe a number of unintended, but nonetheless, real inequities, costs and administrative problems will result under the subcommittee's proposal," Flynn testified at a hearing Tuesday.
Flynn said the formula the subcommittee created for deciding how to make retroactive contributions to the TSP would shortchange some employees and overpay others.
The bill will next be taken up by the full Government Reform and Oversight Committee.