OhOh, Federal Pensions Getting Problematical

[haha]

"Retirement programs for former federal workers — civilian and military — are growing so fast they now face a multitrillion-dollar shortfall nearly as big as Social Security's, a USA TODAY analysis shows."

Federal retirement plans almost as costly as Social Security

 

[chinaco]

Looks like the situation with state and local government retirement plans.

 

[donheff]

I find the article hard to believe when it says "The federal government hasn't set aside money or created a revenue source similar to Social Security's payroll tax to help pay for the benefits, so the retirement costs must be paid every year through taxes and borrowing." The dollars they talk about ($7B paid into tax defferred accounts) are Thrift Savings Plan dollars. Those are like any other 401K plan. They exist in reality (unlike the SS Trust Fund) and they have no impact on future spending. They don't even discuss the 1% of employee pay that goes into the pension component of FERS. And, as I remember the discussion, the law established agency payments to fully cover the remainder of FERS. Those payments were to be transferred annually to OPM for the retirement fund. I suspect that if there is a problem with the FERS pension component it is along the lines of the SS trust fund. If excess money goes to OPM it would be spent in other areas and converted to IOUs in the same manner as SS funds.

But then I could be wrong in which case Feds will be paying more and/or getting less in the future. As for us old CSRS retirees and the few still in the pipeline, the Government has long understood that funding issue. No one is proposing to cut current benefits other than tweaks like the alternate COLA formula also proposed for current SS recipients. I'm not losing sleep over that. On funding for military retirement I haven't a clue.

 

[GregLee]

Looks like the situation with state and local government retirement plans.

With the significant difference that state and local plans have pension funds (though often underfunded).

 

[harley]

I find the article hard to believe when it says "The federal government hasn't set aside money or created a revenue source similar to Social Security's payroll tax to help pay for the benefits, so the retirement costs must be paid every year through taxes and borrowing." The dollars they talk about ($7B paid into tax defferred accounts) are Thrift Savings Plan dollars. Those are like any other 401K plan. They exist in reality (unlike the SS Trust Fund) and they have no impact on future spending. They don't even discuss the 1% of employee pay that goes into the pension component of FERS. And, as I remember the discussion, the law established agency payments to fully cover the remainder of FERS. Those payments were to be transferred annually to OPM for the retirement fund. I suspect that if there is a problem with the FERS pension component it is along the lines of the SS trust fund. If excess money goes to OPM it would be spent in other areas and converted to IOUs in the same manner as SS funds.

But then I could be wrong in which case Feds will be paying more and/or getting less in the future. As for us old CSRS retirees and the few still in the pipeline, the Government has long understood that funding issue. No one is proposing to cut current benefits other than tweaks like the alternate COLA formula also proposed for current SS recipients. I'm not losing sleep over that. On funding for military retirement I haven't a clue.

Well, something is out of whack. The article clearly states

Private employers are legally required to put money into pension funds to match retirement promises. Private pensions have $2.3 trillion in stocks, bonds, real estate and other assets. State and local governments have $3 trillion in retirement funds. The federal government has nothing set aside.

Where is the money then that you say is in the Thrift Savings Plan? I could see them running a big deficit

The retirement programs now have a $5.7 trillion unfunded liability, compared with a $6.5 trillion shortfall for Social Security. An unfunded liability is the difference between a program's projected costs and its projected revenues, both valued in today's dollars.

but there should at least be a mention of some money put aside. I don't know anything about the gov't retirement plan, but either they've been misleading gov't workers about it, or the USA Today article is a bunch of sensationalist crap. I give either option about a 100% chance of being right.

 

[donheff]

Well, it isn't easy to figure out. Googling I found documents about a Postal Service fight to get its contributions lowered because it argued OPM was charging it too much for FERS. I also found the Code of Federal Regs section that governs payments. Regs are difficult to decypher but as I read it, OPM calculates an actuarial cost basis to fully fund FERS obligations along the lines I described and bills agencies. So, to that extent FERS costs are fully funded by agencies. But that doesn't mean that funds are set aside today to pay benefits that will come due tomorrow - just that the rate agencies are paying is sufficient (if continued) to cover the payment stream. So it ultimately requires agencies to be appropriated funds to cover operations included FERS payments. It sounds like what would exist if SS payments (employee and employer) were raised 25% to cover the projected shortfall. I don't see that FERS situation as a crisis but others may.

 

[Tadpole]

donheff, You are essentially correct. Anyone who has had to budget payroll costs knows that FERS employees are expensive compared to the old system. The agency has to prefund the FERS pension out of current budget. The agency share to fully prefund is determined by OPM (each year I think but I don't remember).

This looks to me like a change where the future employees will face a share of the "current projected" shortfalls instead of all of this going to the agency share. I hope I am wrong because it means that current FERS employees, being the transition, will be hit with the most rapid increases while the earliest FERS retirees like me got a free pass.

 

[Bimmerbill]

There is already a proposal to increase employee payment into FERS from its current level to 6 or 8% I think.

 

[ziggy29]

How much of this is due to FERS and how much of this is the exploding legacy cost of CSRS? To the extent it's CSRS, at least the damage is contained and we won't be adding more fuel to that fire.

With the significant difference that state and local plans have pension funds (though often underfunded).

And the additional significant difference that state and local governments can't print money.

 

[Midpack]

FWIW...

 

[W2R]

FWIW...

USAJOBS - The Federal Government's Official Jobs Site

FWIW - - - Plenty of federal jobs going unfilled, even now, and this has been the case for as long as I can remember. I would encourage anyone to apply who wishes to do so.

 

[ERD50]

FWIW...

People can make the argument that those jobs are not comparable, that the fed & state have higher requirements on average.

But the ratios of salary to benefits is interesting.

-ERD50

 

[donheff]

People can make the argument that those jobs are not comparable, that the fed & state have higher requirements on average.

But the ratios of salary to benefits is interesting.

-ERD50

I can't pretend to document how exactly the job mixes differ but I can point to a reason that they would. Since 1980 the Feds have contracted out vast numbers of jobs. Almost all blue collar workers have been shifted to the private sector as well as routine white collar jobs. As an example, when I started at GSA we had 35,000 employees. When I left we had about 13,000. The mission was essentially the same but the missing 22,000 employees were shifted to private sector contracts. The remaining workforce skewed to more costly professional and administrative white collar categories. This happened all over the Federal Government.

That said, I never agreed with the argument that most Feds are underpaid. Pay plus benefits = a nice deal, especially in today's environment.

 

[Texas Proud]

USAJOBS - The Federal Government's Official Jobs Site

FWIW - - - Plenty of federal jobs going unfilled, even now, and this has been the case for as long as I can remember. I would encourage anyone to apply who wishes to do so.

Heck, lots of jobs going unfilled everywhere....

Here is one from BofA (since we have been talking about them in another thread)... and they have more jobs in Houston than the Fed does...

Bank of America | Careers | Overview

I would encourage anyone to apply who wishes to do so.... but your benefits will not be as good the gvmt... to bad....

 

[harley]

USAJOBS - The Federal Government's Official Jobs Site

FWIW - - - Plenty of federal jobs going unfilled, even now, and this has been the case for as long as I can remember. I would encourage anyone to apply who wishes to do so.

Well, I looked but there's only one job in my area. USAJOBS - Search Jobs

I might be qualified for it, though. It's pretty much what I did while working, and pretty much what I do here every day

cleaning equipment and shoveling sludge

 

[W2R]

Well, I looked but there's only one job in my area.

Ah! You mean you might have to lower yourself to actually MOVE for a job in your field?

As I recall there are maybe 20,000 - 30,000 jobs on the usajobs website, many of which are never filled due to lack of qualified applicants. Supply and demand, y'know. They aren't hard to get if you have the qualifications. I applied for only one, which I got, and moved here for the job.

 

[harley]

I've been retired for 5 years. Thus I have no field. I actually wouldn't mind working for the National Park Service, especially at Assateague Island, but I'm not sure Water and Sewage Control is what I would choose.

 

[REWahoo]

I've been retired for 5 years. Thus I have no field. I actually wouldn't mind working for the National Park Service, especially at Assateague Island, but I'm not sure Water and Sewage Control is what I would choose.

C'mon harley, you control that every day - at least I hope you do...

 

[Tadpole]

http://www.whitehouse.gov/sites/default/files/omb/assets/a11_current_year/s32.pdf

So here are the sources of the agency share, federal government for regular employees:

OASDIHI 7.65%
FERS 11.9%
TSP 5% of salary match max
Most expensive FEHB plan (2011) $875.29 biweekly (56% of $ 1558.25)

Which gives $42,706 in benefits if the employee maxes out TSP and selects a health plan with the highest cost to the government for a salary of $81,258.

Employee deductions:

OASDIHI 7.65%
FERS 0.8%
TSP 5% of salary to get the 5% match
Most expensive FEHB plan $682.96 biweekly

Gives the employee contribution to benefits of $28,686

(Brief note for anyone confused by the health plan (FEHB) - the number you usually hear for the government share is about 72% but this is an average. Plans above the average are lower than this.)

That's pretty close to the numbers in Midpack's post.

For comparison, the agency and employee cost for CSRS (the old system) is 7% each. There is no OASDI but the HI costs is 1.45% each. There is no TSP match. CSRS pensions are a little less than twice FERS pensions.

The employee share was set to create employee equity between the deductions of CSRS (7+1.45=8.45) and FERS (0.8+7.65=8.45). This is probably becoming less important as the last CSRS employees retire. Essentially you really have a retirement fund and any increases that have been needed have been expressed as agency share for FERS employee increases since this can float and the CSRS agency share is set. So to the extent that shortfalls due to CSRS occur, the agencies have covered these as FERS shortfalls. It didn't matter because the money is really going into the same pot from the same pot - government budgets to government retirement trust fund.

What is confusing to me is how a pension trust fund that operates this way could ever have unfunded liabilities. It could be that the future cost of retiree health care has not been properly accounted for in the prepay. How could the actuaries let that happen?

 

[GregLee]

It didn't matter because the money is really going into the same pot from the same pot - government budgets to government retirement trust fund.

I'm having some difficulty following all this. The article claims that there is no "government retirement trust fund" -- are you saying there is one? As I interpret what you've said, the current estimated pension and health payouts for its employees and retirees are included in each department's yearly budget. Is that budgetary allocation what you're calling a "trust fund"?

 

[donheff]

I'm having some difficulty following all this. The article claims that there is no "government retirement trust fund" -- are you saying there is one? As I interpret what you've said, the current estimated pension and health payouts for its employees and retirees are included in each department's yearly budget. Is that budgetary allocation what you're calling a "trust fund"?

As I understand it there is a Civil Service Retirement and Disability Fund into which agency and employee contributions for both FERS and CSRS are dumped. CSRS was never fully funded so the retirement fund was never able to fully pay those costs - the general funds had to be hit up for that. The FERS contributions are calculated to be actuarialy correct and the agency contributions are adjusted by OPM when the calculations change. BUT the retirement fund doesn't necessarily hold enough funds to cover all the expected FERS expenses for two reasons. 1) It pays pensions under the CSRS which isn't fully funded, and 2) Just like with Social Security, the Treasury can and does borrow from the retirement fund. But, FERS itself is fully funded. It is not in financial trouble, the Federal Government is in financial trouble

On a spearate but related issue, The treasury also borrows from the Thrift Savings Program. We were all warned during the budget crisis that our funds were being raided but not to worry...


Edit: thanks for those precise figures Tadpole.

 

[Tadpole]

I'm having some difficulty following all this. The article claims that there is no "government retirement trust fund" -- are you saying there is one? As I interpret what you've said, the current estimated pension and health payouts for its employees and retirees are included in each department's yearly budget. Is that budgetary allocation what you're calling a "trust fund"?

Yes, it's all put into the original trust fund, the "Civil Service Retirement and Disability Fund". You can Google it. But, since you asked I thought I'd try to find the actual financial/actuarial reports on it. I failed but will keep trying. Meanwhile, I ran into this summary of a Congressional Research Service report:
Federal Employee Retirement Programs: Budget and Trust Fund Issues - PolicyArchive

Civil service retirement annuities are paid from the same trust fund regardless of whether the benefits were accrued under CSRS or FERS. FERS pension benefits are fully funded as they are earned, and the full cost of funding retirement benefits under FERS is recognized in each government agency's annual budget. CSRS is not fully funded, and the full costs of pension benefits earned by workers under CSRS are not accounted for in the budgets of individual federal agencies. Although the two programs are financed differently, the ultimate source of the money from which benefits are paid is the same for both programs: revenue collected by the government through taxes and by borrowing from the public.

So I was wrong on one point. They apparently do not even try to prefund CSRS so I guess that might be where the shortfall comes from when you fungiblize the funds. If so (am I'm not saying it is so), then it looks like CSRS is (in an accounting sense) partially paid for out of money people thought was being prefunded for FERS actuarial balance. So, again, where are the sane actuaries I know a few years ago some people were whining about CSRS retirees dipping into the FERS retirement savings. I wasn't very interested so I largely shook my head in the appropriate direction to avoid a long discussion. This may been about the consequences of the above quote.

 

[Tadpole]

Edit: thanks for those precise figures Tadpole.

donheff, Sorry I duplicated your excellent explanation (better than mine). I was drafting it as you posted so I didn't see the question was already answered.

 

[donheff]

... it looks like CSRS is (in an accounting sense) partially paid for out of money people thought was being prefunded for FERS actuarial balance. So, again, where are the sane actuaries I know a few years ago some people were whining about CSRS retirees dipping into the FERS retirement savings. I wasn't very interested so I largely shook my head in the appropriate direction to avoid a long discussion. This may been about the consequences of the above quote.

This is no different than dipping into the Social Security Trust fund to pay for wars. The taxpayer is borrowing from the fund to cover current expenses and the taxpayer owes the money back. In the FERS case it is clear that the retirement benefits are FULLY covered unlike SS which is about 25% short. It would be a travesty to short change FERS employees in any way because we borrowed their contributions to pay other expenses but I don't see any likelihood of that happening. Prospective changes to the relative employee/agency percentages on the other hand could happen.

 

[GregLee]

So, again, where are the sane actuaries

I think it's rather peculiar to call (part of) the system "fully funded" when evidently all this means is that there is provision in the budget for paying out current obligations. Compare this to the state of the Hawaii state pension fund which was reckoned a year ago to have $7 billion in unfunded liabilities. But that doesn't mean that there is no provision in the state budget to make current pension payments to retirees -- there is. What they've done, among other things, is increase the "matching" payments in the budgets of the various state departments that are made into the fund, as required year by year to find enough money to make the pension payments. Something like what the feds are doing. No one here, though, is trying to pretend that this counts as full funding of the pension system, which is still presumably billions in the hole. The Hawaii pension fund is not just a budgetary device, but a bunch of actual securities and other investments, and it's underfunded because there won't be enough in it in the future to meet the obligations of the pension system. But for the federal system, it seems to me, comparing apples to apples, just as the article claims, there is no actual pension fund there at all.