Pension promises broken, or at least delayed

Imagine this nightmare: You're one month from retirement, looking forward to a $30,000-a-year annuity after a long career in the public service. Then your agency informs you that you should have been placed in the Federal Employees Retirement System, not the Civil Service Retirement System. Under the law, you must be switched immediately into FERS. And under FERS, your annual annuity drops to $12,000.

That actually happened to one federal employee. Luckily for him, his lawyers figured out that he should have been in CSRS, contrary to his agency's opinion. The employee was able to retire with his $30,000-a-year pension.

But an estimated 18,000 other federal employees are still stuck in the nightmare.

The retirement glitch was created more than a decade ago, when Congress established FERS, which features the 401(k)-style Thrift Savings Plan, Social Security benefits and a scaled-back pension benefit. On January 1, 1984, CSRS, which consists primarily of a generous pension benefit, was closed to new enrollees. Those employed after this date were supposed to be placed in a special Civil Service Offset program until FERS took effect in 1987.

Unfortunately, thousands of employees were put in the wrong system. They lost retirement benefits, owed back taxes, and were denied the opportunity to invest in the TSP. When agencies discover such errors, they are required to immediately move employees to the right system. That leaves many employees reeling under the threat of a less comfortable retirement.

In 1994, Michael O'Hara Garcia, now the acting chief information officer at the Commerce Department's Minority Business Development Agency, learned he had been placed in the wrong retirement system after he was hired by the government in 1984. Because he thought he was in CSRS, Garcia did not contribute money to the Thrift Savings Plan. Without TSP contributions, FERS retirement benefits do not match up to CSRS pensions.

Under the law, Garcia cannot make a retroactive lump-sum payment to his TSP account and have it matched by the government. He can only make incremental make-up payments each pay period. But he doesn't have time to make up more than 10 years of missed opportunity.

Garcia's pension when he retires in a year or two will be $1,400 less per month because of the retirement snafu, he estimates. After exhausting administrative avenues for a correction, Garcia, a combat veteran of the Vietnam War and an Army reservist, feels wronged by the government to whom he has devoted his professional career. He and other employees in the same situation have joined forces to fight for a fix.

"If our group was in the private sector there would be no question; we would prevail in court and no doubt receive punitive damages," Garcia said.

But Garcia works in the federal sector. A lawsuit filed upon the group's behalf by attorney Thomas O'Rourke was thrown out. The judge said no statutory framework exists to address the problem.

That means Congress must pass a legislative solution.

In July 1997, the House Government Reform and Oversight Subcommittee on the Civil Service held a hearing on the retirement errors. Civil Service Chairman John Mica, R-Fla., asked the Office of Personnel Management to come up with a solution. When OPM did, Mica called it "wholly inadequate" because it did not provide for a "make-whole" solution through which the government would make up for the time employees weren't able to contribute to their TSP accounts. The year ended without a bill to fix the problem.

Then in February 1998, the subcommittee marked up the Federal Retirement Coverage Correction Act, which offered a number of potential corrections, including a make-whole solution. William Flynn, associate director for retirement and insurance at OPM, opposed the bill, saying it would result in "a number of unintended, but nonetheless, real inequities, costs and administrative problems." The Congressional Budget Office estimated the bill would cost agencies $121 million, mostly due to make-up contributions to the Thrift Savings Plan.

Nevertheless, the full House passed the bill in July. It was then referred to the Senate Finance Committee. A second version of the bill, which the administration developed and backs, was also introduced last year in the Senate. But the 105th Congress closed before the Finance Committee took the bills up.

The affected employees have spent years wading through the possibilities of judicial or administrative fixes, none of which have panned out. It's now been a year and a half since the civil service subcommittee's first hearing into the problem, but the employees are still waiting for a solution.

"There's general agreement that the problem has to be fixed," said Ned Lynch, a staffer on the civil service subcommittee. "It can't be allowed to continue uncorrected. The problem doesn't get easier over time-it gets more expensive."

Either Mica or Rep. Joe Scarborough, R-Fla., the new head of the civil service panel, will introduce a retirement fix bill early in this session, Lynch said.

But disagreements remain between the House and OPM. While Lynch said the starting point for discussions on the retirement fix is the House-passed bill, OPM's Flynn said the administration's proposed version is easier to understand and less costly. The House version would overcompensate some employees while undercompensating others, Flynn said.

"We look forward to working with both the House and the Senate," Flynn said, adding that the administration's version is "eminently reasonable and fair to employees."

Until a fix is signed into law, the employees who ended up with broken pension promises are stuck in limbo.

"We can't get redress through the courts. We can't get redress through OPM. We haven't been able to get redress through Congress. We seem to be stuck with no avenue for redress," said Garcia, who favors the House-proposed fix over OPM's version.

Garcia also offers a piece of advice to fellow government managers and executives: Go to your personnel office and ask for a retirement audit.

If he hadn't asked his agency for a retirement audit in 1994, he would have had no idea that his retirement was imperiled until the very end of his career. Then again, maybe it would be best not to know until after Congress figures out how to end the nightmare.

COLA Notices

Federal retirees have been receiving their cost-of-living increase notices for 1999 later than usual because the Office of Personnel Management's contractor for the job experienced "a processing problem," OPM said. Normally the notices reach retirees by Dec. 30 each year. All the notices have been mailed.

Reader Suggestions

Thanks to everyone who has submitted ideas for Pay and Benefits Watch. For example, this week's look at the retirement glitch was suggested by a reader. To suggest topics or comment on this week's column, e-mail

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