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Federal Compensation Exceeds Private Sector



February 1, 2012

"Retirement Readiness: Strengthening the Federal Pension System”, a hearing held by the Subcommittee on Federal Workforce, U.S. Postal Service and Labor Policy, helped shed light on the current flaws of the federal pension system. The disparity between federal and private-sector workers’ compensation discussed at this hearing is something the National Taxpayers Union has long drawn attention to. NTU’s Pete Sepp testified on behalf of the organization’s 362,000 members at the hearing last Wednesday.

As a panel participant at the hearing, Sepp pointed out that “the large majority of federal retirees are at least not under-compensated.” The Congressional Budget Office (CBO) reported that federal employees receive an average 16 percent more compensation than private-sector workers. The issue of fairness comes up again when considering the amount federal employees contribute to their own fund compared to what is required of private sector workers. The combined individual and agency contribution rate of federal workers is 12.7 percent, with the employee contributing at a fixed rate of 0.8 percent. Meanwhile, the combined contribution for private-sector workers is, on average, only 2.2 percent.

Rep. Sean Duffy (R-Wis.) sponsored a bill, to be voted on this week, which would extend the two-year pay freeze for federal civilian workers through 2013. NTU believes ending the defined benefit pension section of the system (for new entrants) and focusing on the Thrift Savings Plan would be a step in the right direction. The topic is likely to fuel tensions between Republicans and Democrats but both private sector and federal workers would benefit from a sound solution to the pension issue. There is no quick fix, but the sooner steps are taken the better. In 2010, the Congressional Research Service study reported that US government pension programs already had a shortfall of $674.2 billion.


 

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