Change from Hi-3 to Hi-5 Federal Pension Calculation

[winwonwin]

I saw this posted on another site. The original OP stated that they assumed the following article only applied to Federal employees who have not yet retired, but I don't know if that's true. Thoughts?


Proposed Bill Would Change "High-3" Average Salary to "High-5" in Federal Pension Calculation March 10, 2015

http://www.myfederalretirement.com/public/1341.cfm

 

[MikeWillRetire]

Who knows what will happen with the politics involved. Take comfort in knowing that most federal employees have a 3-legged stool for retirement. Pension, TSP (401k), and Social Security. The pension benefit will continue to be chipped away for feds just like it has for the private sector, unfortunately.

 

[winwonwin]

Who knows what will happen with the politics involved. Take comfort in knowing that most federal employees have a 3-legged stool for retirement. Pension, TSP (401k), and Social Security. The pension benefit will continue to be chipped away for feds just like it has for the private sector, unfortunately.

I'm CSRS so for me I have the pension, TSP and IRA account. No SS.

 

[samclem]

Thoughts?

There will be lots of belt-tightening going on, and it's likely federal employees will be affected at some point (again). We saw an attempt to whack military pensions 2 years ago. My major objection is to retroactive devaluation of pension benefits that employees have already earned--that is part of the compensation that the employees already worked for.
So, I'd be okay if the proposal is to have a formula that says "going forward--from now on--credits you accumulate will convert to a pension based on your top five earning years. But for the credits you've already earned--they'll by counted at the "top three year" rate, just like we promised". (It would be complex--but could probably be done fairly). That way, employees can make a decision whether they want to stay or leave, but what they've earned is secure.
As the TSP portion of the federal retirement program takes on more and more importance in comparison to the "Basic Benefit", federal employees will become more likely to leave federal service short of attaining full retirement age. The previous system offered a good means to keep GS/GG employees in the government traces for a long time as they didn't want to forfeit that pension. As that becomes less important, more of these people will jump ship earlier-- often to join the ranks of contractors they may have previously managed.

 

[martyb]

I'm CSRS so for me I have the pension, TSP and IRA account. No SS.

Same here. I retired under CSRS 8 months ago. Generally, when any discussion has come up about changing from hi 3 to hi 5, it's been targeted towards those who haven't yet retired.

Same as you, I have my pension & what I was able to accumulate in my TSP. I actually do have enough credits to get a small SS check at 62, just barely though. Will be at most $250 a month. I also retired from the AF Reserve, so that retired pay will start showing up in another 2 3/4 yrs.

Sent from my SAMSUNG-SM-G900A using Early Retirement Forum mobile app

 

[donheff]

All the proposals I have seen are to change the formula prospectively. not cut current pensioners. The more likely modification that could affect current Federal retirees will be a change in the cost of living index but that will merely echo the changes (if ever) in the social security COLA index. While that could save a lot in aggregate it is not so drastic for individuals as to be very scary for anyone not living right on the edge.

 

[Big_Hitter]

hey, as long as you don't get a pay raise those last 5 years it won't change your benefit

 

[W2R]

They have been talking about changing Hi-3 to Hi-5 for federal pension computations for as long as I can remember. When I was doing my retirement planning, that is one possibility that I included in my computations because so many articles were telling me that this change was imminent. I think there was a bill in Congress back then to do it, too, IIRC.

So basically if I was still planning a retirement, I'd take it into account as a possibility but I wouldn't fret too much about it.

 

[Greg V]

Most Hi-3 to Hi-5 proposals grandfathered current employees and proposed that new hires come under a new formula. Here a recent similar case that affected FERS retirement benefits. When legislation increased the employee contribution to their FERS annuity (done twice in the past 2 years) it applied only to employees hired after a certain date and not to current employees. It was not a small change...the contribution went from 0.8% of gross pay to 3.1% (first statute) and 4.4% ( second statute). I expect most proposals would have similar grandfathering provisions...but as always there's no guarantee.

 

[Tadpole]

I was thinking about something. Does this increase lead to a decrease in the agency responsibilities to the pre-pay or does it simply add to the total without changing the previous agency contribution? If it reduces the agency contribution by 4.4% then it effectively pays for the TSP match.

 

[Greg V]

I see where you're coming from, but I don't think there would be a direct connection between FERS Annuity funding and funding for the TSP match. They are two different programs and likely have different funding streams, total obligations and requirements for level of funding. Also, not all Feds get to collect either the annuity or the match depending on whether they have enough time in service to vest.

 

[winwonwin]

Most Hi-3 to Hi-5 proposals grandfathered current employees and proposed that new hires come under a new formula.

It doesn't sound like that is how this Bill will work. If you check this article out Steps to Reform Health Benefits, Cut Retirement Pay, Count Calories and More - Pay & Benefits Watch - Pay & Benefits - GovExec.com , you'll see that it states:

Rep. Bruce Westerman, R-Ark., introduced H.R. 1230, which would amend the federal employee pension system to base benefits on the highest five years of salary instead of the highest three years. ..... It would go into effect Jan. 1, 2017, and apply to all civilian feds currently working at that time—including members of Congress and their staffs.

 

[Tadpole]

Yea, but money is fungible. What I was thinking was total cost of a FERS employee each month to the agency budget. If the amount the agency contributes to the pension fund were reduced, it would be the same cost windfall to the budget as reducing the TSP match an equivalent amount. I won't quibble about exceptions to rules. Typical FERS employees have the three legged stool. To stay on the subject, just assume the employee fully makes use of all FERS retirement opportunities and that I, as a manager, has to prepay my share to the employee's retirement. I seem to remember that, when I was managing FERS employees, the agency provided the money for their share of the future benefits up front. So total amount impact on the agency's budget.

 

[Greg V]

If you broaden the horizon to the overall cost of a FERS employee to Uncle Sam, I agree. However, we don't have the data to know how it specifically affects OPM or an employing agency...who really "owns" what portion of the funding stream in their budget?

You'd think money is fungible, but all too often that's not the case when it comes to the Federal Gov't. As you know, Congress appropriates money for specific purposes and, unfortunately savings in one area can't always be used to help in another area of need without more Congressional approval for reprogramming. This results in a use it or lose it mentality and interesting purchases at the end of the fiscal year by gov't agencies.

Your main point is correct...this is a cost saving effort and meant to mitigate the overall cost of a FERS employee. Who knows, maybe in the future, the TSP match will get some "adjusting" as well as this effort continues. How/where the money actually moves to the benefit of which organization(s) is a mystery unless we're among those intimately involved in the programming and budgeting process.