Federal pensions are not much better than private plans, Congress told

June 08, 1995|By John B. O'Donnell | John B. O'Donnell,Washington Bureau of The Sun

WASHINGTON -- Providing fresh support for congressional defenders of federal employees, a new nonpartisan study challenges the conventional wisdom that federal pensions are much more generous than private retirement plans.

The yearlong Congressional Research Service study found that the federal pension plan that covers half the 2.8 million-member civilian work force and about 97 percent of retirees is actually less generous than private pension plans.

The report, however, did find that a second system -- which covers the other half of the work force -- is more generous. All new employees have been required to use the second plan since 1984.

The report "attacks the mind-set, particularly in my party, that public employees have it good vis-a-vis the private sector," said Rep. Robert L. Ehrlich Jr., a Baltimore County Republican. "I think this is really ammunition for those of us . . . who do not beat up on federal employees."

Added Sen. Barbara A. Mikulski, a Maryland Democrat: "This report makes the case for not attacking federal employees."

The House has approved legislation that would raise the pension contributions of federal workers by nearly 36 percent and reduce benefits for future retirees by basing their pensions on their five highest years of earnings rather than the three highest years.

The Senate has gone along with the benefit reduction but not the increase in contributions.

The House included the pension changes in its budget resolution and in the tax cut adopted in April, prompting charges that the GOP is taxing federal workers to give tax breaks to the wealthy.

"It sure looks like a tax increase in a tax-cut bill," said Rep. Constance A. Morella, the Montgomery County Republican who represents many of the 300,000 federal workers who live in Maryland.

The pension changes accounted for about $11 billion of the $189 billion needed to offset the cost of the House tax cut.

The Senate included less-sweeping pension changes in its budget resolution. Negotiators for the House and Senate have yet to meet to work out differences in the two resolutions.

Mr. Ehrlich predicted that deficit-reduction and tax-cutting, more than retirement issues, will drive the debate over pension changes.

Sen. Paul S. Sarbanes of Maryland said he hoped the new study would help turn back the House proposal. But, added the Maryland Democrat: "One of the difficulties we confront is that people don't want to be confused by the facts."

Saying that "it is hard to find a simple, conclusive way to compare the relative generosity of the systems," the Congressional Research Service nevertheless compared the Civil Service Retirement System (CSRS) and the newer Federal Employee Retirement System (FERS) to two private plans, using what it considered typical workers who retire after 30-year careers.

The study concluded that the older CSRS plan is less generous than private plans, largely because federal workers contribute more to their retirement than those in private plans. The FERS plan, created when new government workers were covered by Social Security beginning in 1984, is more generous because the retirement system's savings plan provides more employer funds than comparable 401(k) plans in private industry.

The older system is a "stand-alone" plan that covers all but 40,000 of the 1.6 million federal retirees. It does not include a thrift element and its members are not covered by Social Security.

Workers put 7 percent of their pay into the plan. About 97 percent of private pension plans do not require an employee contribution, although members of those plans pay a 6.2 percent Social Security payroll tax on the first $61,200 of earnings.

The new federal pension system provides Social Security coverage for employees and a smaller retirement benefit. In addition to the 6.2 percent that workers pay into Social Security, they put 0.8 percent of their pay into the pension plan.

They also are eligible for a tax-deferred savings plan much like the 401(k) plans offered by private industry. While most private employers give workers up to an additional 3 percent of pay for the thrift plan, the government provides up to 5 percent.

The House legislation would increase the federal worker

contribution to both pension plans by 2.5 percent of pay, making their contributions to the older plan 9.5 percent and to the newer plan 3.3 percent.

Citing a 1994 study that said federal pay is 27 percent lower than private industry pay, the research study concluded that "combining pay and other benefits -- federal workers could be viewed as being compensated less for their work than their private-sector counterparts."

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