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Congressional Pensions - Ripe for Reform
March 10, 2011
By Pete Sepp
By far the single most personally valuable perk to a Member of Congress is his or her pension plan. Lawmakers began coverage under the government’s pension system in 1942, but suspended their participation until after World War II.
Members of Congress first elected before 1984 generally participate in the Civil Service Retirement System (CSRS), while those first elected in 1984 and thereafter generally participate in the Federal Employees’ Retirement System (FERS). Members do contribute a percentage of their salaries (varies with plan options selected) toward Congressional retirement benefits. Pensions are calculated using a formula based on years of Congressional and other federal service, the average of the three highest years’ salaries upon leaving office, and an “accrual rate.” Other adjustments are made for age at retirement and marital status.
Congressional pensions are typically 2-3 times more generous than those offered to similarly-salaried workers in the private sector, and are even more generous than pensions for most federal workers.
For example, Members of Congress under CSRS have a generous accrual rate of 2.5 percent for all years served, while most workers in the Executive Branch get a sliding rate of between 1.5 and 2.0 percent. For FERS, Members get a 1.7 percent initial rate, versus 1.1 percent or 1.0 percent for most rank-and-file federal employees. Also, lawmakers with longer careers in Congress can generally collect pension benefits at a far earlier age than their counterparts with similar service elsewhere in the government. Plus, the Congressional benefit is protected with Cost of Living Adjustments (COLAs), a feature that only about 1 in 10 private plans offer.
According to the Congressional Research Service, a lawmaker with 20 years of service under FERS could expect to receive a pension equivalent to 34.0 percent of his or her highest three years’ salary average. For other federal employees in the Executive Branch, the “replacement rate” would be just 20.0 percent. For CSRS participants, the gap between a Member of Congress and an Executive Branch employee is 50.0 percent versus 36.5 percent.
During the 1990s several comparisons were prepared by or for the media between Congressional and private-sector pensions. In 1995, the Wall Street Journal asked private-sector pension consultants to compare the first year’s pension benefit for a 60-year-old Member of Congress with 30 years of service to that of a similarly-salaried private-sector executive fitting the same profile. The Journal determined that the lawmaker’s benefit would start at $99,175, versus just $56,220 for the executive.
In 1996, Reader’s Digest cited a projection from a survey by the benefits firm Watson Wyatt Worldwide that compared pensions for a Member of Congress with a final salary of $136,000 (current salaries are $174,000) and 20 years of service to a corporate manager with the same tenure and pay. Ten years after retirement, the hypothetical lawmaker would enjoy a benefit of $104,290, while the comparable private-sector retiree would receive $62,500.
Furthermore, lawmakers enrolled in both Congressional pension plans (CSRS and FERS) can participate in the federal Thrift Savings Plan, a defined contribution arrangement that works like a 401 (k) retirement system. However, only lawmakers enrolled in the newer pension plan, FERS, can also obtain a generous government “match” of their salary contributions (up to 5 percent). This can add considerably to the total retirement package.
The face of American retirement planning has changed for the better with defined contribution plans, IRAs, and other tax-advantaged vehicles that rely on individual investment accumulations. Congress could join this trend by scrapping the defined benefit pension portion of its system (for new entrants), and relying instead on the Thrift Savings Plan. The size of the retirement benefit would therefore be based on the health of the economy overall, because part of the contributions themselves could be invested in bond and stock markets.
If they won’t take this step, then at the very least, lawmakers could equalize their own defined-benefit pension formulas to those of most other federal employees. In addition, ethics laws enacted in 2007 don’t go far enough in stripping the pension benefits of lawmakers who have committed serious crimes. Those laws pertain primarily to offenses such as bribery and conspiracy instead of most major felonies.
Congressional Research Service, “Brief Comparison of Retirement Eligibility and Benefits for Members of Congress and Executive Branch Personnel,” Report # 93-721 EPW, August 9, 1993. Referenced in Jane Norman, “Congress Yields ‘Pension Millionaires,’” Des Moines Register, December 17, 1997. “Ever Wonder Why They’re Against Term Limits?,” Reader’s Digest, January 1996, p.91.