Taxpayer's Tab: NTUF highlights H.R. 3813, the Securing Annuities for Federal Employees Act of 2012

Legislative Spotlight: Pension Reform

The Bill: H.R. 3813, Securing Annuities for Federal Employees Act of 2012

Annualized Savings: $3.2 billion ($15.9 billion over five years)

Number of Cosponsors: None

In Fiscal Year 2010, an estimated 2.8 million federal employees paid into one of the federal government’s two defined benefit pension systems.  That same year those two systems – the Civil Service Retirement System (CSRS) and the Federal Employee Retirement System (FERS) – had substantial unfunded liabilities totaling nearly $673 billion.  H.R. 3813, the Securing Annuities for Federal Employees Act of 2012, introduced by Congressman Dennis Ross (R-FL), aims to restructure the federal pension system and thereby reduce taxpayers’ exposure for future benefit payments.

CSRS is the larger of the two systems with almost double the number of participants.  Since the system was established in 1920, before the creation of Social Security, contributors do not pay Social Security or Survivor and Disability withholding taxes.  They are required, however, to pay into the Medicare system.  Benefits are adjusted for inflation, and upon the death of the plan participant only the spouse is eligible to continue receiving benefits.

FERS, which was created in 1986, offers federal employees three choices: a plan similar to CSRS, an option where beneficiaries supplement their payments with Social Security funds, and a Thrift Savings Plan (TSP).  The government matches a minimum of one percent contributed to a TSP.  FERS participants, unlike those in CSRS, are required to pay Social Security, Survivor and Disability, and Medicare withholding taxes.  Benefit payments are adjusted for inflation but the adjustments are less generous than those offered under CSRS.  Unlike CSRS, dependents – not just spouses – are eligible to receive benefits upon the death of the retiree.

The table below highlights the structure of CSRS and FERS.

While FERS is more cost-effective than CSRS, both systems are potentially costly to taxpayers.  H.R. 3813 would change the way these systems are funded.  Participants would be divided into two groups depending on how long they have been working for the government.  Those who have worked for the government for five or more years would be required to contribute an additional 1.5 percent toward their pension. Those participants who have been in either system for less than five years, would be required to pay an additional four percent increase in contributions.  Both increases would be phased in over three years.

Employees who are scheduled to receive higher than average pension benefits and who have not yet worked for the federal government for five years would be required to pay 4.5 percent more. This group includes higher risk occupations like law enforcement and air traffic controllers.

H.R. 3813 would also make the following reforms:

• Eliminate the FERS Annuity Supplement that pays retirees before the age of 62, before they are eligible to receive Social Security benefits;
• Change how retirement payments are calculated by changing the multiplier involved in the Retirement Annuity Formula, and;
• Allow all government employees to make TSP contributions for any payment that would have been received for accumulated annual leave.

The higher rates paid by workers would lead to greater offsets within the federal retirement systems.  The Congressional Budget Office estimates that the Securing Annuities for Federal Employees Act would save taxpayers $15.9 billion in the first five years.

To learn more or discuss this bill visit WashingtonWatch.com.

Photo credit: The Olympia Report

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