A new line item in the Trump administration’s fiscal 2020 budget request this year would establish a new retirement program for some federal workers, Government Executive has confirmed. Under the new program, those workers would be enrolled in the Thrift Savings Plan, which operates similarly to a private sector 401(k) retirement plan, but would not be eligible for a federal pension.
When the initial budget document was released Monday, one seemingly vague proposal raised eyebrows among federal employee groups and observers. Among a series of ideas that would cut federal employee retirement benefits was one provision that would increase spending: “Implement defined contribution system for term employees.”
A senior administration official confirmed to Government Executive Friday that the proposal would set up a new retirement system consisting solely of enrollment in the Thrift Savings Plan—a defined contribution plan—for all new hires through term appointments, positions with set contracts between one and four years, although in many cases those agreements can be extended or renewed.
Currently, term employees are all enrolled in the Federal Employees Retirement System, which consists of a defined benefit annuity, the TSP, and Social Security. An unrenewed term appointment caps at four years, one year shy of when a FERS participant vests and gains access to the annuity.
Under the proposed new system, all new employees hired to term appointments would receive access to the TSP with a more generous employer contribution, but they would not be able to benefit from the defined benefit portion of FERS.
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The Trump administration has long expressed a desire to make the federal non-salary compensation system more in line with private sector employers, who mostly have abandoned offering pensions to employees. And former Office of Personnel Management Director Jeff Pon testified before Congress last year that he wants federal benefits to be more “portable,” as young people change jobs more often than previous generations.
When told the details of the proposal, Jessica Klement, staff vice president for advocacy at the National Active and Retired Federal Employees Association, said she is concerned about what that means for employees who use term appointments as a spring board into a career in civil service.
“If you take this at face value, it sounds like a good idea, but when I look a little further ahead, I have concerns,” Klement said. “We should take a closer look at how this proposal impacts term employees who convert to permanent positions.”
Klement said that under the current system, anyone who renews their term employment could gain access to the FERS annuity after five years of federal service, but that would no longer be possible under the proposed change. And term employees who eventually join the competitive service get no credit toward retirement for the time they spent under contract.
The American Federation of Government Employees was far more critical of the proposal. AFGE Senior Policy Counsel Richard Loeb described it as the first move in a “race to the bottom” in federal workforce employment benefits.
“We believe it is the first step to eliminating any kind of defined benefit pension plan for federal employees,” Loeb said. “Despite [the administration’s] claims to the contrary, they’re not doing this to enhance retirement benefits. They’re doing it to reduce their costs.”