Copyright 1983 The National Journal, Inc.
The National Journal
September 10, 1983
SECTION: BUREAUCRACY; Vol. 15, No. 37; Pg. 1834
LENGTH: 1522 words

For Federal Employees, Two Pension Systems Are Not Better Than One

BODY: It sounds, at first, like an embarrassment of riches. Federal civil service employees who start work after Jan. 1 will be covered not just by one pension plan but by two: social security and the civil service retirement system.

But it may prove instead to be an embarrassment to the politicians that let it happen. The new civil service employees will also have to contribute to two pension systems, and that means that fully 14 per cent of their salary will be involuntarily set aside for future benefits.

The snafu stems from a provision of this year's social security rescue law that mandates that all federal employees hired after next Jan. 1 be included, for the first time, in the social security system. The money kicked into social security by the new federal workers, Congress reasoned, will help stave off the collapse of the federal government's single biggest program. (See NJ, 3/5/83, p. 493.)

Federal workers fought that provision fiercely, arguing that it would jeopardize the pension system that covers current federal workers and mean less generous benefits for future ones. But they probably could not have foreseen the tangle that has developed in the absence of expected follow-up measures.

Congress realized at the time it passed the social security rescue package that it would have to do something about new federal workers. But now committees in both the House and Senate have decided to delay for at least a year consideration of a plan to replace the current civil service retirement system with a system that would merely supplement social security for new employees.

Furthermore, legislation to provide temporary relief for these workers faces an uncertain future during the rest of 1983. If nothing is done, new civil service employees--and, according to the law, the President, Vice President, Members of Congress, federal judges and top political appointees--will find themselves paying the full freight into two pension systems.

A WEIGHTY JOB

Those four million people form a mighty political force, and arrayed against them is the Reagan Administration's Office of Personnel Management (OPM), which has been arguing for huge cost savings in the system. In addition to the 7 per cent of payroll that employees pay toward their retirement, OPM estimates that the government will ultimately have to contribute 29.5 per cent of payroll to make their benefit payments. Outlays for the program in fiscal 1983 are estimated at about $21 billion from all sources. (For a comparison of civil service and social security benefts, see box, this page.)

Most federal employees now pay not only 7 per cent of their salaries to the civil service retirement system but another 1.3 per cent to medicare, which is part of social security. With mandatory social security retirement coverage, new employees will have to pay an additional 5.7 per cent, the amount required for the old age, survivor and disability insurance components of social security.

"Leaving it alone would really be a disaster," said a CBO analyst. "It will be awfully difficult to recruit," added Joseph Oglesby, spokesman for the National Association of Retired Federal Employees.

Even OPM agrees. "Something is going to have to be done," said Patrick S. Korten, an executive assistant director for policy and communications.

But neither the federal employee groups nor OPM have participated heavily in the discussion of solutions.

"We warned them that this was going to be a problem," said George Gould of the Fund for Assuring an Independent Retirement (FAIR), which led the fight against including civil servants in social security. "We didn't want this in the first place."

Korten said the Administration was not going to be involved in the short-term problem either. "We tried to take a broad approach that would reform the system for both past and future employees," he explained. "But Congress does not seem to be in the mood."

Rep. William D. Ford, D-Mich., chairman of the Post Office and Civil Service Committee, has introduced a bill (HR 3371) that would provide new government workers a $1 tax credit for every $1 they paid into the civil service retirement fund.

Ford's office cites an informal CBO estimate that sets the cost of the bill, which would expire after Dec. 31, 1985, at $80 million in fiscal 1984, $230 million in 1985 and $100 million in 1986. Some critics call the cost too great and complain about the indirect infusion of general revenue into the civil service retirement system via the tax credit.

Sen. Ted Stevens, R-Alaska, chairman of the Governmental Affairs Subcommittee on Civil Service, Post Office and General Services, introduced Ford's bill (S 1522) in the Senate, but an aide conceded, "It doesn't look like it's going to go anywhere." He said a more reasonable solution would be simply to exempt new employees from paying anything into the old system and give them a free credit in the new system that will presumably be developed to supplement the social security system for federal workers. "The system is probably going to be non-contributory anyway," he said.

But employee and retiree groups are not happy with that suggestion, insisting that money continue to flow into the civil service retirement system. And at OPM, Korten called the tax credit proposal "crazy" and attacked the exemption proposal as "starting off the new system with an immediate unfunded liability."

DELAYS

The House Post Office Committee, at an estimated cost of $345,000, has commissioned a Washington-based consulting organization, the Hay Group, to develop and study alternatives for the supplemental program. Its final report is due in December 1984. The Senate Governmental Affairs Committee has asked the CBO, the General Accounting Office and the Congressional Research Service to study the issue in advance of hearings that it hopes to hold late next year.

Employee groups are happy with the delay. "We're very concerned that it not be put together in haste," said Gould.

But according to some other observers, the delay is unnecessary. "What's going on is an inordinately long way of going about it," said a CBO source.

Rep. John N. Erlenborn, R-Ill., has proposed a supplemental plan that could go into effect as of Jan. 1, but it has drawn little support from any quarter and is expected to go nowhere. "Another study is just an excuse for inaction," he said in an interview. "What we need now is action."

What is causing the delays, the critics say, is politics. Sylvester Schieber, a specialist on employee benefits for the Wyatt Co., said employee groups and some House Members felt that if a Democrat were elected in 1984, he might support a more generous program than would President Reagan. In the Senate, Stevens is up for reelection in 1984 and reportedly wants to avoid a major battle during his campaign.

OPM insists that the supplemental plan be considered along with the basic plan for current employees and that both be made significantly less costly than today's retirement system. "We cannot afford the system for current employees," Korten said. But OPM lost a battle in its war against the "luxurious" civil service retirement system earlier this year when Congress rejected most of the reforms that the office had wanted attached to the fiscal 1984 budget.

OPM says that for the work force in place as of the end of fiscal 1981, expected payments out of the civil service retirement fund will surpass expected receipts by $184.9 billion to $498.9 billion, depending on the economlc assumptions that are used. The system is in no danger of becoming insolvent because receipts from current workers are more than sufficient to cover payments to current retirees--as will be the case for the forseeable future.

Federal employee and retiree groups argue that exclusion of new employees from the civil service retirement system, not the level of benefits, constitutes the greatest threat to the system because the number of persons paying into it will drop long before the number of beneficiaries falls off.

"We want a sound financial base for our existing retirement system," Oglesby said. "If you cut off the flow of contributions from new hires, the fund's assets would be depleted in 18 to 20 years."

But he also said his organization is adamant that the supplemental program be generous. The bottom line, he said, is that the government must "assure an income in retirement that is adequate" for all federal employees, past, present and future.

GRAPHIC: Pictures 1 and 2, Patrick S. Korten of the Office of Personnel Management and Joseph Oglesby of the National Association of Retired Federal Employeesd agree that it will be difficult to recruit federal workers if they have to contribute to two pension systems. Richard A. Bloom

LANGUAGE: ENGLISH

Source: Dan Froomkin.