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Key developments in the world of federal employee benefits: health, pay, and much more.

The 2003 pay raise

Congress this week approved a 4.6 percent average pay raise for federal workers effective in January 2002. All that's left now is for President Bush to sign the bill that provides for the raise and for the White House to divvy up the raise between an across-the-board increase and locality-based increases. Based on action taken in August, the across-the-board increase is likely to be 3.6 percent, with the remaining 1 percent targeted at city-by-city raises. With most of the mystery of the 2002 raise cleared up, it's already time to start figuring out how much the 2003 pay raise will be. The process started on Oct. 25, when the Bureau of Labor Statistics issued the Employment Cost Index for September 2001. Under the 1990 Federal Employees Pay Comparability Act, the base federal pay increase for 2003 is calculated by subtracting 0.5 percent from the change in the ECI's wages and salaries data from September 2000 to September 2001. The change in the ECI's wages and salaries data over the year was 3.6 percent. That means the base pay increase for 2003 would be 3.1 percent under the formula. Military raises are calculated by adding 0.5 percent to the ECI, so service members can expect a 4.1 percent raise in 2003 based on their pay formula. In addition to the base across-the-board increases, federal employees are entitled to city-by-city raises based on regional labor costs. The 1990 Federal Employees Pay Comparability Act set up a formula, based on Labor Department data, for giving higher increases to federal employees who live in pricey cities such as San Francisco, New York and Los Angeles, and lower raises to employees who live in less expensive cities such as Orlando, Fla., and Huntsville, Ala. President Clinton and President Bush have ignored the formula for locality-based increases every year, claiming that the Labor Department data is faulty. So instead of relying on the formula, which would now require double-digit raises for most federal workers, the Clinton and Bush administrations and Congress have typically tacked on an additional 1 percent raise to the base salary increase each year. Doing so brings the civilian raise in line with the military raise. Given that history, members of Congress would likely push for a 4.1 percent raise for civilian employees in 2003-- a 3.1 percent across-the-board increase and an average 1 percent locality-based increase. If President Bush opposes a 4.1 percent raise, arguing as he did this year that military and civilian raises should not necessarily be equal, then Congress could again force Bush to approve military-civilian pay parity as part of the 2003 Treasury-Postal appropriations bill. TSP Reminder The Thrift Savings Plan open season for civilian employees begins Nov. 15. Employees will be able to change how much money they contribute to their TSP accounts during that period. For the last half of 2001, the maximum contribution for employees in the Federal Employees Retirement System has been 11 percent of pay per pay period, up to the annual IRS limit of $10,500. In 2002, the maximum contribution will be 12 percent per pay period, up to the annual IRS limit of $11,000. For Civil Service Retirement System enrollees, the limit will rise from 6 percent to 7 percent. Catch-Up TSP Contributions Remember that tax rebate we got a few months ago? In the tax cut legislation that President Bush signed early this summer, one provision allowed private sector employees age 50 or older to make extra contributions to their employer-sponsored retirement savings programs of $1,000 in 2002, $2,000 in 2003, $3,000 in 2004, $4,000 in 2005 and $5,000 in 2006 and thereafter. The provision was designed for women who took time off from the workplace to raise families, but it's written to allow anyone who turns 50, man or woman, to put "catch-up" contributions into their retirement savings plans. Rep. Connie Morella, R-Md., wants the provision to also cover federal employees in the Thrift Savings Plan. If she gets her way before 2002, federal employees over the age of 50 would be able to contribute up to $12,000 to their TSP accounts next year. Right now, Morella's staff is drafting some legislation that would allow federal workers to make catch-up contributions to the TSP. A date hasn't been set, but Morella expects to introduce a bill sometime soon. Stay tuned. Healthy Ideas Next week, in preparation for the annual health insurance open season that begins on Nov. 12, Pay and Benefits Watch will review some of the ideas that Government Executive readers have for reforming the Federal Employees Health Benefits Program.

Brian Friel is founder of One Nation Analytics, an independent research, analytics and consulting firm for the federal market.

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