Many Republicans have been calling for reform of the Federal Employee Retirement System (FERS) for quite some time. Consequently it was of little surprise that President Obama has included in The President’s Plan for Economic Growth and Budget Deficit Reduction is the proposal to increase federal employee’s pension contribution. His proposal, increasing the current 0.8 percent of regular pay to 2.0 percent, represents a 150 percent increase in cost to a federal employee. The average federal employee will see nearly $600 less in the check each year due to this retirement tax while saving the government $21 billion over the next ten years.
Comparing Congressional Pensions to Federal Employee’s Pensions
While many congressional republicans have successfully cast federal employees as overpaid with fat pensions funded by the American taxpayers, the facts tell a slightly different story. The average federal employee earns about $75,000 in regular pay while the average congressional salary is $174,000 annually. Regular federal employees earn a pension equal to 1 percent of their pay for each year of service and this is increased to 1.1 percent for those employees who have over 20 years of service and retire at age 62 or later. Congressional pensions are much different! Congressional employees, Representatives and Senators earn 1.7 percent of their annual salary for the first 20 years of service and then 1 percent for each additional year of service. Another difference is that congressional employees pay 1.3 percent of their salary to the pension fund compared to the current 0.8 percent that regular federal employees pay.
So just how fat are federal employee pensions compared to a congressional pension? To do a proper comparison we’ll compare a federal employee (The Fed) with 20 years of service who just turned 62 and is eligible to retire with a congressman or woman (The Con)who has been in office for 20 years. Average annual pay for the Fed is about $75,000 annually compared to the Con’s $174,000 annually. Since the Fed has 20 years of service and is age 62, the pension multiple is 1.1 percent for each year of service and the Con’s pension multiple is 1.7 percent for each year of service. Doing the math yields the Fed a pension of $16,500 annually before deductions for taxes and health care benefits. The pension for the Con is $59,160 annually before deductions for taxes and health care benefits.
Comparing Congressional and Federal Employee Pension Contributions
Looking at the raw numbers doesn’t reveal much more than Congress contributes 1.3 percent of their pay and the proposed contribution for feds will be 2 percent, up from the current 0.8 percent. A closer look at what the contribution buys is actually much more revealing. If the Fed’s contribution of 0.8 percent buys a pension of 1.1 percent (provide the Fed has 20 years and is age 62) then a similar ratio for a member of Congress should have them paying about 1.8 percent of their pay vice the 1.3 percent they pay now. If the President’s proposal to increase Feds contribution to 2 percent then a similar increase for members of Congress should be to increase their contribution by 150 percent to 3.25 percent of their pay.
Economic Impact
The economic impact of increasing the federal employee’s pension contribution has been estimated to save the federal government $21 billion over the next 10 years. This is in addition to the current 2 year pay freeze on federal salaries that is estimated save the government another $60 billion over 10 years. This totals over $81 billion saved at the expense of federal workers. This also means that federal workers will have more than $8 billion less to spend and invest in the economy each year. Such a cut will likely have a minor negative impact on many communities.
There may be many more federal employees than members of Congress but by increasing Congress’ contribution to 3.25 percent, this will result in a savings of $18 million over the next ten years. That is a small amount compared to what is saved by balancing the budget on the backs of federal employees but certainly seems fair.
The Likely Outcome
One thing is a sure bet for federal employees: Their pension contribution is going up! The only question left is how much? While expecting Congress to bite from the same apple or at least bite the bullet in the same manner is reasonable, don’t expect it to happen. Just as sure as federal employees’ pension contribution is going up, Congress will keep their good deal pension with its generous benefits and continue to claim that federal employees are getting fat pensions. Many people will believe the rhetoric as long as they don’t look too closely at Congressional pensions.
Increasing the pension contribution for members of Congress should be welcomed by republicans because it shows that they don’t consider themselves above the same standard they hold others to and it saves the government money. On the other hand, republicans are still politicians and the vast majority of politicians are generally pretty good about telling the people what to do with their money but resent anyone telling the politician what to do with theirs. The bottom line: Congress will take care of their pocketbook, much like politicians everywhere take care of themselves.
Mark Butler - Mark Butler is a Navy veteran and the author of The Coffee Break Guide for Veterans Seeking Federal Employment.
