Situation Facing US Federal Employees Today – by the AFGE (American Federation of Government Employees) trade union.
‘THE current political climate for all public employees, including federal employees, is harsh.
Efforts are under way throughout the country to eliminate pensions, severely curtail health insurance benefits, cut or freeze pay levels, contract out government work, and eliminate long-standing collective bargaining rights.
In particular for federal employees, the two-year pay freeze proposed by the President and enacted by the Congress is effective this year and next, but there are those who advocate a five-year pay freeze, including freezing all performance-based step increases and bonuses.
Federal Employees Health Benefits Programme (FEHBP)
One of the proposals included in the Simpson-Bowles deficit reduction plan advocated turning the Federal Employees Health Benefits Programme (FEHBP) into a voucher system, with astonishing cuts to the government’s contribution to premiums. Based on AFGE’s conservative calculations, if that particular proposal were to become law, by the year 2030 federal employees and retirees would, on average, pay 63% of health insurance premiums, rather than the 33% they pay today.
In addition, the Simpson-Bowles proposal recommended reducing the government’s share of health insurance premiums for federal retirees. This proposal is presented as an effort to follow the private sector in the race to the bottom. While it is true that many private firms have broken promises to employees to provide health insurance support in retirement, that is behaviour that a Presidential commission should deplore, not seek to emulate.
There are good ways to save money by reforming the FEHBP without taking away benefits from federal retirees, all of whom were promised that the government’s share of their health insurance costs in retirement would continue on par with those still in the federal workforce.
FEHBP is an inefficient and poorly structured programme with high overhead costs, and high profits guaranteed to the health insurance plans that participate. The US government OPM (Office of Personnel Management) has also refused to take advantage of rebates for prescription drug costs available to employers that provide such coverage to their retirees.
If the true goal of Simpson-Bowles is budget savings, that can be achieved without reducing health insurance benefits or shifting costs onto employees and retirees.
Federal Retirement
Further, the Simpson-Bowles report recommended numerous cuts to federal retirement, including:
• changing the benefit formula from a high-3 basis to a high-5 basis, which we estimate will cut retirees’ annuities by three to five per cent;
• vastly increasing the amount that employees enrolled in the Federal Employees Retirement System (FERS) would be required to pay for these reduced annuities;
• reducing cost of living adjustments for FERS and Civil Service Retirement System (CSRS) retirees; and
• raising the retirement age for Social Security.
According to the most recent Congressional Research Service (CRS) report, while CSRS can be described as having an unfunded liability of $674 billion, FERS has a deficit of just $0.9 billion.
Even these “deficits” are irrelevant, according to CRS, as the trust fund out of which benefits are paid “is not in danger of becoming insolvent.”
None of the proposed cuts to FERS or CSRS is necessary to close a funding gap because both systems are on sound financial footing. The CRS report quotes OPM on the ability of the retirement trust fund to cover all benefits under promised current law: “the total assets of the CSRDF, including both CSRS and FERS, continue to grow throughout the term of the projection, and ultimately reach a level of about 4.1 times payroll, or about 19 times the level of annual benefit outlays.”
Because these systems face no financial problem or risks, there is no reason to cut benefits or change the financing formula.
High 3 to High 5
The proposed change from “high 3” to “high 5” as a basis for calculating annuities would mean a cut in retirement benefits of anywhere from three to five per cent a year, depending on length of service.
Combined with the impact of the two-year pay freeze – threatened by some to be extended to five years, this proposal represents a significant lifetime cut in compensation that will only drag down morale, recruitment, and retention for an entire generation.
Increasing Employee Contributions to Retirement
When the 1983 Social Security amendments mandated inclusion of federal employees into the system, Congress and President Reagan replaced CSRS with FERS.
FERS was designed to be less costly to the government and to require a greater contribution from employees if they aimed for a retirement benefit equivalent to CSRS.
Employees pay 0.8 per cent of salary for their annuity, another 6.2 per cent of salary for Social Security, and five per cent of salary in order to obtain the government’s full match to the Thrift Savings Plan (TSP).
CSRS employees do not pay into Social Security, but pay a total of seven per cent of salary for their defined benefit pension. Thus, under current law, FERS employees must pay 12 per cent of salary to get a benefit as good as CSRS.
The draconian proposal suggested first by The Third Way, a conservative Democratic think-tank, would force FERS employees to contribute approximately seven per cent more to the defined benefit pension.
If enacted, FERS employees would thus have to pay 19 per cent of salary toward retirement.
Most AFGE members would be unable to afford this. In order to make ends meet for their living expenses and responsibilities to their families, they would have to eliminate their contributions to the TSP.
The result of that, of course, is that they would lose investment earnings from their own contributions as well as the government match.
If this proposal becomes law, FERS employees, who now constitute 88 per cent of the federal workforce, will be brought down to the level of many irresponsible private employers.
Providing inadequate or no retirement benefits in the private sector should not become normative for public sector employers.
The fact is that the FERS three-component plan, with Social Security, a defined benefit annuity, and a 401(k)–style savings plan is just like the responsible private sector standard, and the federal government should not aim to match what the worst employers in the private sector get away with. (It should be noted that recent legislation introduced in the Senate would eliminate completely the modest defined benefit for FERS employees.)
“Chained” CPI
AFGE also strongly opposes the Simpson-Bowles’ recommendation to substitute a new, inferior measure of inflation called the “chained” Consumer Price Index (CPI) in order to lower COLAs (cost of living allowances) for federal retirees. This proposal would hit FERS retirees twice, because the measure would reduce COLAs for both federal annuitants and Social Security recipients.
The so-called “chained CPI” is a highly controversial method for lowering the official measure of inflation. The current CPI measures increases in the prices of the goods and services the typical household buys.
The “chained” CPI says if the price of something goes up, instead of counting that increase, substitute the price of another good or service whose price either stayed the same or went up by less. For example, if the price of beef went up, the “chained” CPI would not include that price increase in its calculation. Instead, it would assume that people would be just as well off if they substituted a lower-priced animal protein in their market basket.
The chained CPI literally takes the inflation out of the formula for measuring inflation. This method “cooks the books” to pretend inflation is lower than it is, thereby depriving annuitants and other retirees of the inflation protection that cost of living adjustments are meant to provide.
Social Security Retirement Age
The Simpson-Bowles proposal also suggested gradually raising the age for eligibility for full Social Security benefits in retirement from 67 to 69.
The age for early eligibility with reduced benefits would rise from 62 to 64. This cut in Social Security benefits would disproportionately affect minorities and those in jobs that are physically demanding.
Today, 25 per cent of all workers age 60 and 61 report a health condition that limits their ability to work, yet this proposal would require then to work almost a decade beyond this age for full benefit eligibility.
Although the Commission says it would support a “hardship” exemption for some workers in particularly physically-demanding occupations, it would not cover all workers with health problems that limit their ability to continue working into old age.
Contracting Out Federal Government Work
Further, the increases in life expectancy that the Simpson-Bowles proposal uses for justification are hugely correlated with income. According to data from the Social Security Administration, the life expectancy of men in the bottom half of the income distribution has risen by just 1.1 years between 1982 and 2006, while those in the top half experienced a six-year increase in longevity.
During this period, the age for eligibility for all workers has risen by eight months, but the Simpson-Bowles proposal wants to make this problem worse. A hardship exemption will not apply to half of all workers, and half of all workers will have already had their increase in life expectancy accounted for when the full benefit eligibility age rises to 67 by 2027.
Finally, federal workers in the Department of Defence (DoD) are under attack because of Secretary Robert Gates’ controversial “Efficiency Initiative”.
It’s not that there shouldn’t be an ‘Efficiency Initiative’—of course, DoD should always be striving to become more efficient. It’s not that civilian employees shouldn’t be asked to sacrifice if the department’s budget is rationalised.
However, it is clearly wrong for the Pentagon to insist that civilian employees make additional sacrifices because service contractors aren’t actually being asked to make any meaningful sacrifices.’
It is obvious from the above report that federal trade unions and workers have got little option but to break with both the Republican and Democrat parties and to take the lead in establishing a Labour party to fight for the working class.
