NTU writes in support of H.R. 423; Congressional Pension Reform.

The Honorable Mike Coffman
U.S. House of Representatives
Washington, DC 20515

Dear Congressman Coffman:

On behalf of the 362,000-member National Taxpayers Union (NTU), I write to offer our support for H.R. 423, which would repeal the defined-benefit pension portion of the Congressional retirement package while allowing Social Security and federal Thrift Savings Plan (TSP) participation to continue. Your bill, introduced with seven cosponsors, remains the most comprehensive legislative attempt to reform what is the single most generous perquisite available to lawmakers.

As you know, for the better part of four decades NTU has served as the leading advocate of a more responsible retirement system for Members of Congress. Our organization has long reported on the indefensibly large payouts that are the result of benefit structures which, while administered under the government’s two main pension systems, have stood out for their excesses. As a Congressional Research Service (CRS) report from 1993 demonstrated, better accrual rates, lower retirement ages, and other rules allow lawmakers, under some circumstances, to enjoy a replacement rate of “high-three” salary averages that bested those for similarly-salaried executive branch employees by 50 percent.

While Congress took the welcome step last year of harmonizing its benefit formula with that of rank-and-file federal workers, this decision currently only covers a small cross-section of lawmakers, primarily those who were elected for the first time in 2012. Additionally, as NTU testimony last year pointed out, the entire federal pension system will be an increasing concern for taxpayers:

The Civil Service Retirement and Disability Trust Fund [CSRDF] is indeed perpetually solvent under current projections from the Office of Management and Budget, reaching an estimated income of nearly $1.4 trillion by 2080. This is a praiseworthy development compared to the fiascoes associated with previous federal pension financing.

Still, as [a] Congressional Research Service report noted, the assets in this Trust Fund (by law, held in U.S. Treasury bonds), are ‘not a store of wealth for the government’ or for taxpayers: ‘When the CSRDF redeems the Treasury bonds that it holds, the Treasury must raise an equivalent amount of cash by collecting taxes or borrowing from the public.’

Furthermore, higher contribution rates for lawmakers still come nowhere close to offsetting the huge subsidy that taxpayers provide.  Even though our efforts have been hampered by poor (and in recent decades nonexistent) disclosure of actual Congressional pension amounts, NTU’s estimates – which remain the most accurate available – frequently show lifetime amounts running into the millions of dollars. Though these are likely to be somewhat smaller as more Members are covered under the Federal Employees’ Retirement System (and others are subject to the new benefit arrangement designed in 2012) , ultimately they will continue to outstrip what similarly-salaried private-sector workers (not to mention average earners) can expect to receive. This is the primary reason why, despite the fact that lawmakers have long been required to participate in Social Security, the general public continues to regard Congress’ retirement system with concern (and often contempt).

Thus, as both a fiscal and ethical matter, the approach taken in H.R. 423 makes sense. Unlike the Thrift Savings Plan element of the retirement package, whose costs (in the form of the federal matching contribution) are relatively stable and incurred upfront, the defined benefit can generate unpredictable liabilities that shift upon economic and demographic tides. Also unlike TSP, Congress’s pension (prior to 2013) confers a special benefit above that offered to rank-and-file federal employees. Furthermore, the current package allows lawmakers to reap rewards from surging markets (through TSP) and protect themselves from sagging ones (through the defined benefit). H.R. 423 would end this “heads we win, tails taxpayers lose” situation, by giving Members a retirement structure that more closely resembles what their taxpaying constituents might face.

Finally, H.R. 423 would result in salutary effects on the policymaking process itself. For one, by becoming more dependent on the Thrift Savings Plan for their retirement income, Members will gain a more direct, real-world appreciation for the effects that their own legislating can have on the economy as a whole and financial markets in particular. Equally important, lawmakers will have clearly demonstrated the personal sacrifice and leadership necessary to amplify the vitally-needed national conversation over issues such as government-wide pension benefit limitations and reforms to entitlement programs like Social Security. Passage of the bill would likewise serve as an example for any effort aimed at reducing federal expenditures or eliminating unnecessary programs.

Citing a 1946 report on legislation that permanently brought Congress under a defined benefit system, the Congressional Research Service observed that the intent of the plan was to:

[C]ontribute to independence of thought and action, [be] an inducement for retirement for those of retiring age or with other infirmities, [and] bring into the legislative service a larger number of younger Members with fresh energy and new viewpoints concerning the economic, social, and political problems of the Nation.

By these standards alone, the Congressional pension arrangement has been a failure. Combined with the other factors described above, this failure has been compounded to the point where repeal of the defined benefit scheme is the best option. Regardless of whether they share all of these motivations, all Members of Congress should recognize the importance of correcting one of the most visible flaws of our representative government’s system of compensation by cosponsoring your bill.

Any roll call vote in favor of H.R. 423 will be regarded as the pro-taxpayer position in NTU’s annual Rating of Congress.  Our members eagerly look forward to helping you enact your legislation in this session.

Pete Sepp
Executive Vice President