FERS Fact Check

Federal retirement benefits -- and whether they are too generous -- are the subject of much discussion right now on Capitol Hill and within the Obama administration. It's likely the joint congressional committee on deficit reduction will include in its savings plan a recommendation to increase the amount federal employees contribute to their pensions, or defined benefit plans. The president has proposed raising feds' pension contributions by 1.2 percent over three years beginning in 2013 -- a rate of 0.4 percent each year during that time.

We've published many stories and columns discussing this proposal and similar ideas in detail, including a Nov. 8 story in which Sen. Ben Cardin, D-Md., talked about the recommended pension contribution increase. Some readers have taken issue with how we've characterized employees' contribution rate under the Federal Employees Retirement System. For example, that story stated, "Most government workers who are covered by the Federal Employees Retirement System currently contribute 0.8 percent of their basic pay each pay period to their pensions."

That is correct. FERS employees contribute 0.8 of their basic pay to their pensions, which in this sense refers expressly to the defined benefit portion of FERS. Agencies contribute 11.9 percent to federal employees' pensions, or defined benefit plan. There are two other components of FERS retirement benefits to which employees contribute: Social Security and the Thrift Savings Plan, or the government's 401(k)-style program. FERS employees contribute 6.2 percent to Social Security and varying percentages to their TSP accounts. So most FERS employees contribute at least 7 percent -- and likely more when the TSP contribution is factored in -- to their retirement benefits overall. In 2010, however, Congress passed the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act, which temporarily dropped the 2011 Social Security employee tax rate from 6.2 percent to 4.2 percent, also benefiting FERS employees. Employees covered under the Civil Service Retirement System contribute 7 percent of their basic salary to their pensions and do not pay Social Security payroll taxes.

FEHBP Debate

Experts on the Federal Employees Health Benefits Program on Wednesday critiqued the Obama administration's proposal to put the Office of Personnel Management in charge of negotiating drug prices for federal enrollees. Currently, health plans participating in FEHBP contract with pharmacy benefits managers, who negotiate with drug manufacturers and pharmacies on behalf of their enrollees. The administration says the proposed change would streamline pharmacy benefits available under FEHBP and lower prescription drug costs for federal workers, resulting in a $1.6 billion savings over the next decade.

Not necessarily, said the group appearing at the American Enterprise Institute for Public Policy Research in Washington. "They started with a solution in search of a problem," Walton Francis, a self-employed economist and policy analyst, said of the administration's proposal. Francis authors Consumers' Checkbook Guide to Health Plans for Federal Employees. He joined Joseph Antos of AEI, who is also a member of the panel of health advisers for the Congressional Budget Office and a member of the Maryland Health Services Cost Review Commission, and James W. Morrison Jr., a health care consultant and former OPM official who served as FEHBP administrator, in the discussion. The competition that the current FEHBP structure allows is vital to its success, the panelists said. "The things that have made FEHBP successful are consumer choice and, I might add, informed consumer choice. I am absolutely dumbfounded as to how this idea has gotten such legs, as they say in Washington, and gotten so far," Morrison said, referring to the administration's proposal.

Francis, who said the $1.6 billion figure "can't be real," put the issue in this context: "What happens when it's all in one contract? Who's going to decide whether Lipitor is a preferred drug or not and if so, at what price? Well, I guess it's going to be all these pharmacists that OPM is going to hire. Who else is it going to be? Who's going to decide what the drug deductible is going to be? What about the people who go up on the Hill and say it's too high or too low? And then we're going to have OMB looking at this contract and saying, 'Gee, if we reduce the government share of this we could save money in next year's budget cycle, so let's raise that deductible X hundred bucks.' Then it goes to the Congress, which will decide. Is that really the way we want your drug benefit to be decided?"