President Obama on Monday released a deficit reduction proposal that recommends increasing the amount federal employees contribute to their pensions beginning in 2013.
The plan proposes raising the employee contribution rate by 1.2 percent over three years beginning in 2013 -- a rate of 0.4 percent each year during that time. "While federal agency contributions for currently accruing costs of employee pensions would decline, these employers would pay an additional amount toward unfunded liabilities of the retirement system that would leave total agency contributions unchanged over the 10-year budget window," the plan stated. The policy change in the contribution level would be permanent and would affect all federal civilian employees. The president also recommended eliminating the Federal Employees Retirement System Annuity Supplement for newly hired employees.
"The administration is proposing a group of reforms to better align these retirement programs with the private sector while still preserving the federal government's ability to recruit and retain the personnel that the American people need," said the report, which the White House sent to the congressional super committee charged with deficit reduction. The White House expects those proposals will save $21 billion over a decade. The plan is also expected to save about $20 billion from proposals that would modify the health care costs to military service members.
"The administration does not anticipate this policy change will negatively affect its human capital planning and management nor inhibit the government's ability to serve the American people," the plan noted. During a briefing at the White House, Obama called the changes "modest adjustments to federal retirement programs."
But federal employee unions did not agree with that assessment. "Under the President's Plan for Economic Growth and Deficit Reduction, federal employees will have their paychecks reduced by 1.2 percent to pay into a federal retirement system that is already fully funded," the American Federation of Government Employees said in a statement. "For a GS-9, Step 1 employee in the Rest of U.S. locality zone, who earns about $47,500, this equates to a $570 annual pay cut." AFGE Chief of Staff Brian DeWyngaert said the president's recommendation would place an additional tax on federal employees.
"Federal employees are already under a two-year pay freeze -- which amounts to a $60 billion contribution from federal workers over the next 10 years -- and now they are being asked to contribute additional money to their retirement without an increase in benefits," said Colleen M. Kelley, president of the National Treasury Employees Union. "NTEU strongly opposes these proposals and will continue to make our opposition known to the super committee and Congress."
National Active and Retired Federal Employees Association President Joseph A. Beaudoin said federal employees have been willing to pay their fair share, and questioned the need for what he called "an additional 1.2 percent payroll tax to a retirement system that is fully funded."
Maryland Democratic Sen. Ben Cardin praised Obama's overall plan, but said federal employees already had sacrificed a lot as a result of the pay freeze. "They did not create the federal deficits now plaguing the nation and I will continue to fight to ensure that they not be asked to shoulder an unfair burden for reducing the deficit," he said. Many federal employees reside in Maryland.
During a background briefing Monday, senior administration officials emphasized that the proposed change would not alter federal employees' benefits. "Federal employees both current and future will receive the same defined benefit," said a senior administration official. "What we are asking for is a slightly larger contribution." The official added that while the administration recognizes that it's a sacrifice for federal employees on top of a two-year pay freeze, it's a "fraction" of what others, particularly in Congress, have demanded.
Most employees currently contribute 0.8 percent of their salaries to their pensions, but at least one proposal reportedly under consideration during debt ceiling negotiations called for raising that to 1.2 percent for current employees and 4 percent for future hires. Agencies contribute 11.7 percent to employees' pensions, with that level set to increase to 11.9 percent in October.
The president also recommended capping the reimbursement for contractor salaries to the Executive Schedule Level 1 pay, currently about $200,000. "Setting the cap at this level would result in estimated savings of at least $300 million annually, and would bring greater parity between federal and contractor executives' compensation," the draft summary said. Last year, the Office of Management and Budget set at nearly $700,000 the reimbursement ceiling for contractors. The government sets the benchmark figure by using commercially available surveys to determine the median amount of compensation provided to the top five highest paid senior executives of publicly traded companies with annual sales of more than $50 million. The White House proposal would abolish that formula.
Military members and retirees could see increases in health care costs. The plan would mandate annual fees under TRICARE-for-Life, which pays beneficiaries' out-of-pocket Medicare costs. Fees would start at $200 in 2013 and increase annually to align with those paid by all TRICARE enrollees. The proposal also would raise pharmacy co-payments for certain TRICARE beneficiaries to bring drug benefits in line with those available to all federal workers. The plan would eliminate co-pays for generic mail-order drugs while shifting retail co-pays from a dollar figure to a percentage. The change would affect military families and retirees, but would not apply to active-duty service members.
The plan also would streamline pharmacy benefits available under the Federal Employees Health Benefits Program by allowing the Office of Personnel Management to negotiate prices for all program participants. Currently, health plans participating in FEHBP contract with pharmacy benefits managers, who negotiate with drug manufacturers and pharmacies on behalf of their enrollees. OPM Director John Berry has said that streamlining this process would lower prescription drug costs for federal workers.
In addition, the White House is calling on Congress to create a Commission on Federal Public Service Reform to come up with recommendations to modernize federal personnel policies and practices, including reforms to pay, mobility and performance, and a separate panel that would look at military retirement benefits.
The president's deficit reduction proposal calls for $3 trillion in savings over the next decade, including $580 billion in cuts and reforms across a range of mandatory spending programs and $1.5 trillion in new tax revenue increases. Overall, the president's plan will total $4.4 trillion when combined with the $1.2 trillion in discretionary spending cuts that are part of the 2011 Budget Control Act, senior administration officials said. The officials held a conference call Sunday evening with reporters broadly outlining the administration's plan.
The White House is emphasizing the theme of shared sacrifice and ensuring that everyone bears some of the fiscal burden. To that end, Obama is proposing increasing taxes on the wealthiest Americans -- a recommendation that already is drawing fire from some quarters.
But Carl Goldman, executive director of the American Federation of State, County and Municipal Employees Council 26, said the president's proposal to raise employees' retirement contribution rates was "not only unreasonable but is inconsistent with the spirit of his initiative to raise taxes on the wealthy."
"Federal employees are working people who have already contributed to deficit reduction through a pay freeze and the taxes they pay," Goldman said in an email. "It is not 'shared sacrifice' to make them give more."
The president has said he will veto any bill that does not include a balance of spending cuts and tax increases. "We can't just cut our way out of this hole. It's going to take a balanced approach," Obama said Monday.
Emily Long contributed to this story.