Budget Deal Asks New Feds to Contribute More to Pensions

New federal employees and military retirees would have to contribute more to their pensions under the bipartisan deal the congressional budget conference committee unveiled Tuesday evening.

Federal workers hired on or after Jan. 1, 2014, with less than five years of service would have to pay 4.4 percent toward their defined retirement benefit -- 1.3 percent more than the current 3.1 percent that employees hired after 2012 contribute.

Military retirees under the age of 62 would see a decrease, phased-in over the next two years, to the calculation of their cost-of-living adjustment, equal to inflation minus 1 percent. “This change would be gradually phased in, with no change for the current year, a 0.25 percent decrease in December 2014, and a 0.5 percent decrease in December 2015,” according to a summary of the deal. The change would not affect service members who retired because of injury or disability.

The proposal also caps the amount the government can reimburse contractors for executive compensation at $487,000. The current cap is more than $900,000.

The deal requires new civilian federal workers and military retirees to contribute $12 billion in savings overall -- $6 billion from each group -- to help partially repeal the sequester for fiscal 2014 and fiscal 2015. That $12 billion figure is part of the total proposed $63 billion in savings to offset the automatic spending cuts for two years.

Current federal employees managed to emerge unscathed. Initial reports of the deal said current federal workers would have to contribute $20 billion overall to the budget savings, prompting federal employee unions and other advocacy organizations, as well as the Washington-area congressional delegation, to push back hard against such a proposal.

“One of the most difficult challenges we faced as we worked through this, was the issue of federal employees and military,” said Sen. Patty Murray, D-Wash., during a press conference with Rep. Paul Ryan, R-Wis., on Tuesday. The two led the budget conference negotiations. “And Congressman Ryan and I have worked on this a lot,” she added. “He is a tough negotiator…and it started out very high at $20 billion; it is now down to $6 billion for federal employees, and $6 billion for military.”

Rep. Chris Van Hollen, D-Md., ranking member of the House Budget Committee and a member of the conference committee, reportedly played a major role in reducing the amount federal workers had to sacrifice. Van Hollen has a large federal employee constituency.

Workers in the Federal Employees Retirement System hired in or before 2012 contribute 0.8 percent to their defined retirement benefit, or pension; those in the Civil Service Retirement System now contribute 7 percent. A 2011 law requires feds hired after 2012 and those with fewer than five years of previous federal service to contribute 3.1 percent toward their pensions. CBO has estimated that the change to post-2012 hires’ pension contributions will save the government approximately $15.5 billion from 2012 through 2022; those savings are separate from the savings unveiled by Ryan and Murray on Tuesday.

If Congress approves the budget deal, then federal workers will have contributed roughly $120 billion to deficit reduction, which includes the three-year pay freeze.

Ryan said it was “only fair” to taxpayers who help subsidize federal employees’ pensions to ask feds to contribute more. “So, what we are asking here, is that the people who work for the federal government -- and we thank them for their work, they are hardworking dedicated people that we respect -- but we think it’s only right and fair that they pay something more toward their pensions just like the hardworking taxpayer that pays for those pensions in the first place,” said Ryan.

The $85 billion savings package announced by Murray and Ryan would fund the government past Jan. 15, 2014, averting another shutdown and setting spending levels for the next two years.

“If Chairman Ryan and I did not reach an agreement, we would be at sequester level very shortly, and many of these same people [federal employees] would be facing furloughs, layoffs and uncertainty,” Murray said. “We have brought certainty back to all those people.”

The deal’s future remains uncertain in Congress, especially given many Democrats’ opposition to increasing the amount federal workers pay toward their pensions as well as the aversion from Republican and Democratic lawmakers to tinkering with the military retirement system.

“This agreement isn’t perfect, but it is certainly better than no agreement at all,” Van Hollen said in a statement. “This difficult negotiation has gone through many phases. The final product replaces part of the job-killing sequester without disproportionally hitting working families, including hundreds of thousands of public servants.”

National Treasury Employees Union President Colleen Kelley offered tempered praise for the deal.

“While we think federal employees continue to contribute a disproportionate amount to deficit reduction and should not be included in this package, there is recognition in this deal that current federal employees already sacrificed again and again,” she said in a statement. “I am disappointed that the budget deal announced today proposes increases to federal employee retirement contributions for new hires; however, I am glad to see the numbers were significantly reduced from original proposals and that these retirement increases will not impact current employees.”