Republicans Seek to Impose New Federal Employee Retirement Tax

Jun 15, 2011
Mark Butler

New Feredal Employee Tax - Matt Aiello, Florida, USA via stock.xchng

Federal employee retirement benefits are under attack. The move to make federal employees contribute more looks like a special tax on federal employees.

With budget talks and discussion regarding the debt ceiling thoroughly intermingled and seemingly destined to be tied one to the other, many US politicians, notably Republicans, have taken aim at the salary and retirement benefits of federal employees following the release of several studies from various think groups that proclaim that federal employees are overpaid. One idea that seems to be gaining traction among Republicans is to raise the federal employee’s retirement contribution level from its current 0.8 percent to about 6 percent.

Federal Employee Retirement Tax

Raising the contribution level for federal employees is tantamount to imposing a tax on federal employees and it is only natural that such a tax be called the Federal Employee Retirement Tax (FERT) as imposing this results in a 5.2 percent cut in pay. The American Federation of Government Employees (AFGE) has condemned increasing the retirement contribution and has correctly pointed out that this means federal employees would be making the same retirement contribution as their older CSRS covered federal employees but would only be receiving half the benefit.

This is possible because under the old Civil Service Retirement System, federal workers contributed about 6 percent of their pay in order to get about 2 percent of their pay for each year of service as long as it didn’t exceed 80 percent of their pay and these employees did not receive any social security benefits following retirement from federal service. With the introduction of the Federal Employee Retirement System (FERS), federal employees had to make social security contributions but only received 1 percent of their pay for each year served. With the imposition of FERT the cost to the federal employee goes up significantly with no added benefit.

Other ways to save

Several politicians have rightfully called for some sense of shared sacrifice. Asking (legislating actually) federal employee to bear this burden is a bit unfair but it has become very popular and easy to condemn federal employees lately. Some of the ways to save money on the federal level that have merit include:

Exclude those employees over 65 from participating in Medicare if they are still in the workforce and their employee offers healthcare benefits to those under 65. This would include federal workers and many others who work well past age 65 because they enjoy what they do and just can’t envision retirement.

Defer Social Security benefits to those who are still in the workforce beyond full retirement age. The current law allows social security recipients to draw full social security benefits without penalty for those who have reached full retirement age. Social Security was intended to be a safety net or a type of insurance and not an extra helping of gravy.

Make all employment wages subject to Social Security withholding because the growth in the highest wages has far outstripped the growth in general wages and everyone should pay their fair share.

Federal employee targets

For those politicians who must have a federal employee as targets to set their sights on, the following suggestions are offered because the current FERS system was based entirely too much on the old CSRS system and some changes are certainly long overdue:

Eliminate the Minimum Retirement Age (MRA) and make the earliest a federal employee can retire be the date at which they can draw some level of social security or has 30 years of service and is at least 60 years old. The old CSRS age of 55 and the new FERS age of 55 to 57 depending on the year of birth don’t reflect current life expectancies. Keeping the other years of service and milestones as adjusted for making minimum retirement age coincide with the ability to receive Social Security benefits allows the federal government to attract older employees who often have much different skill sets than those who have recently finished college.

Eliminate the FERS Retirement Supplement or payments for those federal employees who can retire prior to social security early retirement age because paying a person to retire early just doesn’t make financial sense from a business perspective.

Balancing the budget is a noble cause and a very necessary task. Bringing down the debt to a more manageable level is also necessary. Putting a disproportionate load on federal employees isn’t fair; but sharing the load among all citizens is fair.