A coalition of 25 groups sent letters to President Obama and House and Senate leaders July 1, criticizing a plan negotiators are considering that would require federal workers to contribute more of their salaries to their pension plans, calling the proposed increase a "payroll tax." Federal employee advocates argue such an increase in worker contributions could exceed 5 percent of employees' income.
"Federal civil servants are already subject to a two-year pay freeze, despite the fact the nation's debt crisis did not arise out of exorbitant federal civil service pay or benefits," the letters stated.
The Federal-Postal Coalition is made up of organizations including the American Federation of State, County and Municipal Employees, the National Association of Letter Carriers, and the Senior Executives Association. The group sent a similar letter in June to Vice President Biden, who is leading the debt ceiling negotiations.
Bruce Moyer, chairman of the Federal-Postal Coalition, said in an email that the group has not received a response to its July 1 letter.
The future of government employees' contributions to the Federal Employees Retirement System is uncertain. In addition to discussions to increase workers' share as part of debt ceiling negotiations, the House-passed version of the fiscal 2012 budget resolution included a recommendation that would require federal employees to pay for half the defined benefit they receive with their pensions at retirement. Most employees currently contribute 0.8 percent of their salaries and agencies pay 11.7 percent, with agencies' contribution set to increase to 11.9 percent in October.
In June, the U.S. Postal Service halted employer contributions to the FERS-defined benefit plan, which the agency estimates will free up $800 million in cash this fiscal year.
The Treasury Department in May suspended investments into federal employees' pensions, when the government officially hit its debt ceiling of $14.3 trillion. Once the debt issue is resolved, the Treasury by law will be required to restore federal pensions and the Thrift Savings Plan's stable government securities (G) fund to their full balance, along with any interest lost during the suspension. The government expects to default on its obligations on Aug. 2, unless negotiators can come to an agreement.
Current and former lawmakers have jumped in on the pension debate. Sen. Barbara Mikulski, D-Md., last month urged Treasury Secretary Timothy Geithner to protect federal pensions during budget negotiations. She also criticized the idea that government workers should contribute more to their retirement plans in an effort to cut spending. 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.
Failure to raise the government's debt ceiling could lead to cuts in pay and benefits for federal civilian employees, military members and veterans, according to an analysis from the Bipartisan Policy Center. In a report published in June, the center found that unless the debt ceiling is raised, federal spending would be cut by 44 percent in August. Under several scenarios, Geithner could prioritize spending to include reductions in pay for government workers, the group said.
A February report from the Congressional Research Service, however, found that exceeding the debt ceiling carries less risk for federal workers than a government shutdown. "Failing to raise the debt ceiling would not bring the government to a screeching halt the way that not passing appropriations bills would," CRS wrote, quoting a 1995 report from the Congressional Budget Office. "Employees would not be sent home and checks would continue to be issued."