Agency contributions to federal pension plans will rise in October

By Kellie Lunney

June 9, 2011

The government will contribute more to the pension plans of federal employees, including lawmakers, in fiscal 2012, according to new figures published in the Federal Register.

For most federal employees, the amount agencies will contribute to their pensions under the Federal Employees Retirement System will increase from 11.7 percent to 11.9 percent, beginning in fiscal 2012. The amount the government contributes to congressional members' pension plans will increase from the current rate of 17.9 percent to 18.3 percent as of Oct. 1. Individual contribution rates -- 0.8 percent of their wages for most of the federal workforce and 1.3 percent of wages for lawmakers -- will remain the same. The total cost of FERS pensions, adding individual and agency contributions, for most federal employees will be 12.7 percent in fiscal 2012; for lawmakers, the total is 19.6 percent. The changes will take effect at the beginning of the first pay period on or after Oct. 1.

"If the agencies' required contribution to FERS rises, as it will next year, and Congress does not appropriate more money to meet the increased expense, agencies have to reduce spending elsewhere," said Patrick Purcell, a former analyst for federal retirement programs at the Congressional Research Service, in an email. Purcell has worked on these issues for more than two decades.

Individual contributions to FERS are fixed in law. The law requires the rate of the government contributions to be equal to the cost of the FERS pension as estimated by the Office of Personnel Management minus the individual contribution. OPM computes the total amount of funding required for FERS plans, known as the "normal cost," based on economic and demographic data for the following categories of federal employees:

Category FERS Agency Contribution Rate (%)
Current Oct. 2011
Regular Federal Employees 11.7 11.9
Members 17.9 18.3
Congressional Employees 16.4 16.7
Law Enforcement Officers 25.7 26.3
Air Traffic Controllers 25.5 26.0
Military Reserve Technicians 14.5 14.9
Employees Under Section 303 of the 1964 CIA Act for Certain Employees (When Serving Abroad) 16.8 17.2

The amount of money allocated for FERS plans -- and the portion federal employees contribute -- has been at the center of the debate over deficit reduction.

The version of the fiscal 2012 budget resolution the House passed included a recommendation that would require federal employees to pay for half the defined benefit they receive with their pensions at retirement. The White House and lawmakers reportedly are discussing increasing federal employees' contributions to their pensions as part of their debt ceiling negotiations. And The Third Way, a centrist Democratic think tank, also has proposed government workers pay for more of their retirement plans, phasing in hikes over time.

Even presidential contenders are jumping into the fray: Republican Tim Pawlenty, the former governor of Minnesota, wants to transition federal employees' retirement plans from the current system to include only a defined contribution plan, similar to private workers' 401(k) plans. Currently, most federal retirees receive a pension, or defined benefit plan, through FERS, as well as money from their Thrift Savings Plan accounts, the government's defined contribution version of the 401(k).

There has not been much talk, however, of requiring lawmakers to contribute more to their pension plans than they currently do.

"Once a concrete proposal is on the table, if they [lawmakers] are omitted, I think it would be a problem," said David Kendall, senior fellow for health and fiscal policy at The Third Way. Kendall said it's important for federal employees to know that they aren't unfairly shouldering the burden of sacrifice.

Lawmakers typically become eligible for retirement annuities at an earlier age and with fewer years of service than most other federal employees, but also pay more of their salary for retirement benefits. Sen. Sherrod Brown, D-Ohio, in April, introduced a bill that would make congressional lawmakers wait until they reach the Social Security retirement age to access their federal annuity benefits. Under FERS, lawmakers are eligible for an immediate, full pension at age 62 or older, if they have completed at least five years of service; they are eligible at age 50 or older if they've served 20 years, or at any age after completing 25 years of federal service.

Sens. Richard Burr, R-N.C., and Tom Coburn, R-Okla., have introduced legislation that would end the FERS defined benefit plan for new federal employees, including new members of Congress, starting in 2013.

Purcell said that studying the current FERS system and the level of contributions from employees and agencies is "a reasonable debate to have." But he added that the real issue is how to make changes, how much to modify contributions and determining the time frame in which all that takes place.

CORRECTION: The original version of this story misstated the pension contributions of employees under Section 303 of the 1964 CIA Act for certain employees (when serving abroad). The erroneous figures were based on original government documents that were later corrected.


By Kellie Lunney

June 9, 2011

http://www.govexec.com/pay-benefits/2011/06/agency-contributions-to-federal-pension-plans-will-rise-in-october/34132/