Office of Personnel Management Director Jeff Pon defended the Trump administration's proposal to cut retirement benefits for federal workers before a House panel Wednesday, arguing the government should shift from pensions toward a defined contribution program.
Pon, answering questions from the House Oversight and Government Reform Committee during a hearing on the workforce implications of President Trump’s management agenda, described the Federal Employees Retirement System and the Civil Service Retirement System as “a bit out of whack.”
Among the OPM director’s requests for legislative changes to retirement programs are proposals to eliminate FERS cost of living adjustments for current and future retirees, and to reduce CSRS COLAs by 0.5 percent. Pon reiterated an argument he made last week that retirees should be treated separately from current federal employees, and implied that the amount of a federal retiree’s annual cost of living adjustment is based on where he or she lives.
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“I don’t know of any other retirement system that actually pays COLAs for annuitants, and we’re talking about annuitants, not federal workers,” Pon said. “When federal workers become annuitants, it’s not up to the federal government to determine where they move in retirement and pay for where they live.”
Pon stressed he believes that cost of living adjustments are important for federal employees while they are in the workforce, though the administration has proposed a pay freeze for civilians next year.
“I do think that COLAs serve a very important purpose for having as a federal worker,” he said. “But when you are an annuitant, the government doesn’t control where an annuitant’s residence [is]. So you’re paying them a COLA based upon their choice of where they live, versus [when they were in the workforce] where they work.”
OPM did not respond immediately to a request for a fuller explanation of Pon's views.
According to OPM, COLAs for federal retirees are based on the annual change in the Labor Department’s third quarter Consumer Price Index for urban wage earners and clerical workers. For CSRS retirees, the percentage change in CPI is applied to the monthly annuity. FERS retirees will receive a COLA up to the change in CPI, provided it is 2 percent or less. If CPI changes between 2 percent and 3 percent, the COLA is 2 percent, and if CPI increases more than 3 percent, the COLA is the CPI increase minus 1 percent.
Neither COLA calculation takes into account a retiree’s region or place of residence.
OPM officials have said that the proposed changes to federal employee retirement programs will save more than $143 billion over the next decade. Rep. Elijah Cummings, D-Md., the committee’s ranking member, asked where in government those savings would be directed.
“I can kind of understand if you take out that money and say, ‘Things are not working here, and now we’re going to make sure we put money into training and things of that nature, to see if we can get better effectiveness and efficiency,' ” Cummings said. “So where is that money going to go?”
Pon said, if approved by Congress, part of the money would go toward the White House’s proposed interagency workforce fund to develop alternative performance and compensation programs and provide professional development.
“We’re trying to use the workforce fund for those reasons,” he said. “We want to use the types of training that we have so that we can upskill federal workers to preserve and retain those jobs in the future.”
“So you say that the $143 billion is going into training, to lift up other employees?” Cummings asked.
“The workforce fund would actually be $1 billion in the GSA Office of Governmentwide Policy,” Pon said.
“Well, what happened to the $142 billion?” Cummings responded. “Come on, man!”
“We’re supporting the president’s budget, which has puts and takes across the entire federal government,” Pon said.
Office of Management and Budget Director Margaret Weichert cited a data point in the 2017 Federal Employee Viewpoint Survey that found 61 percent of respondents said they were “satisfied” with their level of compensation. "That's actually above levels you would see in the private sector around pay, for example," she said. She also provided additional details about how the $1 billion workforce fund might work in practice.
“The workforce fund would allow us to spread across agencies, in consultation with Congress, and provide greater incentives around retention and recruitment in high skill areas,” she said.
Weichert and Pon both expressed a desire for a more open dialogue between the administration and federal employee unions. But Rep. John Sarbanes, D-Md., questioned the tactics of simultaneously demanding significant cuts to federal employee compensation, from Trump’s planned 2019 pay freeze to the retirement program changes, ahead of a major effort to reform the civil service.
“What you guys proposed [in the management agenda] sounds pretty good, focusing on mission, service and stewardship, rewarding the best, managing scarce resources, and I understand money doesn’t grow on trees,” he said. “But then you come in with what is, in my view, a scandalously irresponsible budget proposal in terms of a cut of more than $140 billion in terms of salaries, pensions and other benefits as you look over time . . . It seems to me that it’s not a good operating premise to go into the room with unions or with the workforce as a whole and say, ‘We’re going to take a baseball bat, a meat cleaver, to the budget supporting your operations, and after we do that let’s have a constructive discussion about all the ways to find new efficiencies and streamline things and so forth.' ”
Weichert said it’s all part of the administration’s holistic approach to tackling a 40-year-old civil service system in need of an update.
“That’s precisely the set of problems we’re trying to square—we’re trying to square the issues of mission, service and stewardship,” Weichert said. “I think the key thing in all of this is actually looking at, ‘What are the out of the box ways of doing this,’ taking best learnings from players and folks in the private sector who have been there and done this. Many private sector organizations faced with fiscal challenges have gotten together with unions, figured out how to energize the workforce, and we’re going to the workforce itself.”