Budget Proposal for Federal Retirees

[zinger1457]

Now how do we, as taxpayers and shareholders pay for that promise that was made by politicians and corporate boards alike? Both just wanted to kick the can down the road. And here we are approaching the end of the road.

I don't know the answers. My point is that Federal budgets and Private pensions alike are in trouble.

Unlike some private pensions the federal pension trust fund is well funded and is expected to be so for the foreseeable future based on current funding levels.

 

[donheff]

I really don't see much difference between Private or Federal pensions with respect to promises. What was promised, should be delivered on. Yeah, Fed pensions were 'better" than private pensions and the salaries were inversely related. If COLA was promised, it should be continued.

Now how do we, as taxpayers and shareholders pay for that promise that was made by politicians and corporate boards alike? Both just wanted to kick the can down the road. And here we are approaching the end of the road.

I don't know the answers. My point is that Federal budgets and Private pensions alike are in trouble.

As a general rule I agree. I don't know the rules that apply to corporate pensions but the impression I have gotten is that in cases where they dumped pension programs they were required to grandfather in earned benefits (this could be pretty bad for those effected but did not hit retirees). On the other hand, corporate bankruptcy (or municipal, etc.) could result in all bets being off. The Federal government is a different animal since it can't go bankrupt, thus the ultimate flexibility lies with the lawmakers to make changes as needed. Still, many years ago the law was changed to require agencies to make contributions to fully fund the retirement systems so, in addition to employee contributions, agencies make contributions to t he retirement trust funds that make them actuarially whole (i.e. able to pay the ongoing retirement benefits). Like with the social security trust fund I believe these amounts should be viewed as being as sacrosanct as any Treasury bill and earned obligations under them should be honored to the extent that the trust funds are sufficient to pay. But thinking that doesn't make it so.

I also agree with others that the general public perception of federal government benefits is often out of step with reality. As others mentioned above, many people believe Feds get retirement and health benefits without contributions. I read frequent ridiculous statements that Feds (or Congress members) get full salary for life, or free health care for life. There are almost incessant calls on social media to make Congress members participate in Obamacare - they already do! The bottom line is the electorate is angry at Congress and Feds take a bit of that anger. I guess we just need to HTFU.

 

[Amethyst]

The Federal benefits landscape is so incredibly complicated, it's no wonder people get things all mixed up. Just as a sample:

• Mr. A and I contributed 7% of our salary to Civil Service retirement in lieu of Social Security, so we don't get SS.
• FERS employees (hired since 1984) contribute to pension and SS. Their benefits are calculated differently from mine.
• There are separate (usually more generous) retirement plans for certain categories of Federal employees, e.g. foreign service, law enforcement, air traffic control.
• And then there's the military, a Federal entity, whose active-duty employees don't contribute to their pensions, but do contribute to SS.
• And I'm sure there are other categories.

As others mentioned above, many people believe Feds get retirement and health benefits without contributions.

 

[gerntz]

I have to disagree. Part of the "deal" with government employment is also that they (generally) accept a smaller income than private industry in exchange for employment stability and the pension.

DC Metro Area is the richest in the country, so the idea that "government employment is also that they (generally) accept a smaller income than private industry" rings totally false to me. And I doubt state & local government employees have below median incomes for their locales & states other than in places like Silicon Valley.

 

[Redbugdave]

I already emailed my two Senators and Representative. These guys will sell your benefits down the road if you don't stand up for them. A bunch of us old timers don't forget when we vote. Also remember that many of these Senators will also receive the Govt pensions they will be voting on.

 

[CRLLS]

Unlike some private pensions the federal pension trust fund is well funded and is expected to be so for the foreseeable future based on current funding levels.

I don't pretend to understand the ins and outs of various federal pension workings. I might just counter that if everything was/is fully funded and the future is rosy, why would the new budget propose to reduce those benefits? It doesn't meet the logic test IMO.

Whether the government can or can't declare bankruptcy doesn't change my position that both Fed and private pensions, in any of their various incarnations are a contract with the then current employees. As such those employees alike make their life-decisions based on those pensions as presented. " What will my financial situation be if I stay until retirement?", "Do I jump ship now and go to another company with better benefits?" are just a couple of those major life decisions. It appears to me that too-often lately, those promises are changing after you have made those decisions and there isn't much time left to change. You are just plain stuck.

That really sucks.

 

[Leon44]

I already emailed my two Senators and Representative. These guys will sell your benefits down the road if you don't stand up for them. A bunch of us old timers don't forget when we vote. Also remember that many of these Senators will also receive the Govt pensions they will be voting on.

+1.

If they think nobody notices or cares they may slip something through. I voiced my opinion and requested they keep their promises to retirees. They need to honor the contract with retirees just like they would honor any other contract. Retirees can't go back and change the terms of the agreement and they shouldn't be able to either.

 

[donheff]

I don't pretend to understand the ins and outs of various federal pension workings. I might just counter that if everything was/is fully funded and the future is rosy, why would the new budget propose to reduce those benefits? It doesn't meet the logic test IMO.

Because the retirement trust funds, like the social security trust fund are accounts on paper. The government borrows against them (just like it borrows directly from you when you buy Treasuries). If a line in the Federal budget can make $millions or $billions of those future obligations of the trust funds go away (say by eliminating .5% of the COLA) then the government never has to pay back the debt it owes to the trust fund and the projected budget outlays over the next decade are less. That allows them to cut taxes elsewhere. Somebody's axe always gets gored. That is why those of us getting gored in this case keep coming back to the basic fairness of not slashing earned pensions.

 

[Fedup]

DC Metro Area is the richest in the country, so the idea that "government employment is also that they (generally) accept a smaller income than private industry" rings totally false to me. And I doubt state & local government employees have below median incomes for their locales & states other than in places like Silicon Valley.

I think a top federal employee with a GS-15 max salary is $155k per year, at least that's the amount I looked when they had the furlough and stuff. Not a huge salary.

 

[Fedup]

Because the retirement trust funds, like the social security trust fund are accounts on paper. The government borrows against them (just like it borrows directly from you when you buy Treasuries). If a line in the Federal budget can make $millions or $billions of those future obligations of the trust funds go away (say by eliminating .5% of the COLA) then the government never has to pay back the debt it owes to the trust fund and the projected budget outlays over the next decade are less. That allows them to cut taxes elsewhere. Somebody's axe always gets gored. That is why those of us getting gored in this case keep coming back to the basic fairness of not slashing earned pensions.

I've read they can borrow from the G part of the TSP account, like the Stable Value of most $401k.

 

[Amethyst]

Currently it is $161,900. I know this because as a rehired annuitant, I receive a pro-rated per-hour wage which is this amount divided by 2087 hours. A senior GS-15 can manage billions of dollars and thousands of employees (although to be fair, most don't have anything like that much responsibility - I never managed more than a hundred people).

I think a top federal employee with a GS-15 max salary is $155k per year, at least that's the amount I looked when they had the furlough and stuff. Not a huge salary.

 

[Johanson]

Yes and no.... I had 2 pensions through private employers. The first was a traditional pension - defined benefit... When my mega corp (fortune 500) was acquired by mega-mega corp (fortune 100) - that defined benefit was frozen. If you had 5+ years of service... you would still qualify for whatever years you worked. I started collecting it 6 months ago at age 55 - and get a whoppin' $136/month. No COLA. It was not retroactively changed - just frozen with no increases due to tenure or age from the date we were acquired.

The second pension was the crappier form - defined contribution... They tauted it was better because it was portable (could be rolled as a lump sum into an IRA once you separated.) I say crappier because it never was going to pay out much... That pension was frozen in 2009 because of the market decline. I collect a whoppin' $330/month from that one.

Neither pension was retroactively reduced... just frozen in time with small benefits - no opportunity to grow the benefit.

Retiree healthcare is a different thing... Since there were no ERISA rules - companies reduced, eliminated, and generally trashed the retiree healthcare.

The Mega Corp I started with in 1988 had a really good DB pension with medical at least until age 65. In about 1998, they offered everyone a chance to jump into a new pension that was cash and carry (lump sum) or could be taken as an annuity. I opted for the latter because I hated where I was working and wasn't planning on sticking around. Turns out, I switched jobs within the company and everything has been great since.

Anyhoo, that old DB plan was changed about 7 years ago. It was probably in May where they said that anyone who wanted medical coverage in retirement had to retire by September. They also had to meet the rule of 85, which was always the case. Then at the end of 2015, they announced that the salary formula used for the pension was going to be frozen at the level it was at in November of 2015. The only thing increasing the old pension now for people is years of service.

At 55 I'm eligible to take the first 10 years under the old plan and when I model my pension, the amount I would get under it never increases. But, under the "new" plan, it does. So, in hindsight, I'm glad I went with the new.

 

[zinger1457]

I don't pretend to understand the ins and outs of various federal pension workings. I might just counter that if everything was/is fully funded and the future is rosy, why would the new budget propose to reduce those benefits? It doesn't meet the logic test IMO.

Couldn't figure out how to copy/paste just the table but can look at Table 2 on page 12 of the pdf linked below to see current (from 2015 report) and projected balances of the retirement fund out to 2095.

https://fas.org/sgp/crs/misc/RL30023.pdf

 

[CRLLS]

donheff, Thanks for clearing that up. If I get it right, you are saying they are reducing benefits so they can re-allocate funds to other projects not that the pension plan can't sustain at the current level of income and benefits. Essentially, changing the ratio of personal contribution vs g'nmt contributions by reducing the government's share. Still, that shouldn't be done to those in, or near retirement IMO.

My DF had a private pension which also covered retiree's medical (basically paid for Medicare premiums and maybe a bit more. I'm not sure of the details.) Then, maybe 10 years into retirement, the company said they would no longer pay for retiree's medical. I know nothing is cast in stone and things change. I have been trained in the corporate mantra "The only thing constant is Change". Reducing benefits to those already collecting, or very near retirement should be illegal.

 

[Proteus126]

Been a fed since 2001. Private industry for 9 years prior to then. Total FERS contributions 2001-2016 = $250,000. Most of that was employer contribution. I could probably earn more outside of the Fed (research engineer, but not a PHD). Anyway, I am from a Fed/military family and found the pension attractive. Actually what really got me was the 5% match on the TSP.

Anyway, that contribution scheme was part of my compensation, so of course I'd feel very put upon if it were stolen. Especially if the trust fund and backing entity were healthy and this was just politics. Which it is.

I'll tell you what - if they want to cut me a lump sump I'll take it and happily fund my own pension. If I resigned today, my FERS pension would be about $17k (today's dollars) starting in 2032, assuming 2-3% inflation from now until 2032. I'm sure that if given $250k to invest and 15 years in which to grow it, I could do just as well. $17k * 30 years (age 62-92) = $510k. Could I double $250k in 15 years? With 5% real return, I could.

 

[Fedup]

Somehow I don't think the $250k FERs contribution is a correct number. Right now, as the current employee, it should only be 1%, especially since the FERS stated before 2010, it should be $1550 for a GS-15 per year times 15 years. So maybe around $30k contribution at best. Are you mix it up with TSP?

 

[samclem]

The source of the pension contribution (employer or employee) is immaterial. Whether it was made by the employer or the employee, it was compensation for work that was already performed, as was the agreed-upon conditions under which it would be paid out.
Make any changes desired affecting pensions being earned >from here on out<, but the previously banked credits should be off the table because it is pay for work that has already been performed (not some sort of public entitlement/discretionary spending).

 

[Fedup]

Interesting, I don't remember seeing the portion of employer's contribution to FERS pension. Maybe I need to look at the paycheck again.

 

[Cobra9777]

DC Metro Area is the richest in the country, so the idea that "government employment is also that they (generally) accept a smaller income than private industry" rings totally false to me. And I doubt state & local government employees have below median incomes for their locales & states other than in places like Silicon Valley.

I seem to recall a CBO study a few years ago that found base pay for federal employees was about the same as private sector... higher in some cases, lower in others. But total compensation for federal employees was considerably higher than their private sector counterparts when factoring in benefits including retirement.

OTOH, I can personally attest that 3 members of my immediate family have held professional positions in the private sector and same position at the state/local level here in Texas. In every case, the base pay was considerably lower in the public sector position. Whether the pension and retiree health care balanced that out... I don't know. But the CBO study makes me think it probably did.

 

[ABQ2015]

Somehow I don't think the $250k FERs contribution is a correct number. Right now, as the current employee, it should only be 1%, especially since the FERS stated before 2010, it should be $1550 for a GS-15 per year times 15 years. So maybe around $30k contribution at best. Are you mix it up with TSP?

For those under the original FERS who are not Law Enforcement (LEO), the employee contribution is 0.8% and the agency contribution is 13.5%. For LEO, the agency contribution increases to about 25% of salary - Law Enforcement, Air Traffic Controller, and Customs and Border Protection. Those work categories are eligible to retire at a younger age and get a larger pension multiplier (1.7%).

 

[Fedup]

For those under the original FERS who are not Law Enforcement (LEO), the employee contribution is 0.08% and the agency contribution is 13.5%. For LEO, the agency contribution increases to about 25% of salary - Law Enforcement, Air Traffic Controller, and Customs and Border Protection. Those work categories are eligible to retire at a younger age and get a larger pension multiplier (1.7%).

Is this new? Because I thought my husband paid about 1%, so maybe .80%. But he has since retired.

 

[donheff]

donheff, Thanks for clearing that up. If I get it right, you are saying they are reducing benefits so they can re-allocate funds to other projects not that the pension plan can't sustain at the current leval. .

Close. It is all accounting legerdemain. They can't literally re-allocate the funds. But, if they can eliminate the obligation to spend them out in the future they can take those savings as a credit so they can score the budget as improving the deficit over a ten year period. If they made the change I assume they could re-evaluate the government contribution required to make the trust fund healthy and could reduce the amount commensurate with the reduced out year obligations thus freeing some current year funds to spend elsewhere. Budgeteers are like wizards.

 

[ABQ2015]

Is this new? Because I thought my husband paid about 1%, so maybe .80%. But he has since retired.

Yes, it is 0.8%. Second time I have quoted FedWeek and it was incorrect. The 13.5% government contribution is correct - I verified it against my payslip.

 

[gerntz]

I think a top federal employee with a GS-15 max salary is $155k per year, at least that's the amount I looked when they had the furlough and stuff. Not a huge salary.

No doubt the average worker across the USA would be way more than happy with that & it raises even DC Metro wealth average. And the benefits associated being so great make that salary more more discretionary than for average folks.

 

[MichaelB]

No doubt the average worker across the USA would be way more than happy with that & it raises even DC Metro wealth average. And the benefits associated being so great make that salary more more discretionary than for average folks.

The GS-15 is position that is highly skilled and has substantial responsibility. Not really comparable with the average worker across the US. This is also not really relevant to the thread topic.