Archive for month: May, 2023

It’s May 1986. The Cosby Show and Family Ties are the top-rated TV shows. Top Gun starring Tom Cruise and Cobra starring Sylvester Stallone are boffo box office. Addicted to Love by Robert Palmer and Kiss by Prince top the pop music charts.

In federal offices, while the Macintosh computer has been on the market for two years, the technology focus is on the new fax machines that can also scan and print on plain paper. Besides, for those relatively few employees who need a computer at work, there’s the next generation of the IBM PC featuring slots for two 5 ¼ inch floppy disks, each capable of storing an astonishing 160 kilobytes per side!

And in Washington, the Republican Reagan administration and the Democrats controlling Congress are casually making decisions affecting the financial futures of millions of future federal employees and their family members.

That’s when the Federal Employees Retirement System was enacted into law. Up until then, FERS existed only in theory. The Social Security reforms of several years earlier had ordered that all federal employees hired after 1983 be put under that system as a way of getting more money paid into it. That was done on the premise that those employees would fall under a new system to include Social Security, a 401(k)-type program to be called the Thrift Savings Plan, and civil service annuity benefits less generous than those of the only federal retirement program existing at the time, the Civil Service Retirement System. Filling out the details had been left for later.

Among the details emerging as the concept was fleshed out were several provisions making FERS less valuable to employees than CSRS. The main one, of course, was that the basic benefits formula yields civil service annuities worth only about half of a CSRS annuity for employees with the same time of service and high-3 salary level. That was justified as an offset to the benefits that FERS employees would receive from Social Security–compared with the CSRS system that doesn’t include Social Security—plus the value of employer contributions into the TSP for FERS employees.

Fair enough. But that wasn’t all. For example, there were several provisions whose origins never were made clear, such as denying FERS employees the kind of credit toward years of service that CSRS employees received for unused sick leave in their retirement calculation. Another was denying FERS employees the right to make payments to recapture prior service time if they had withdrawn their retirement contributions at a break in service.

Both of those eventually were repealed. Another involved cost of living adjustments to those annuities. Where CSRS retirees receive full COLAs as indicated by an inflation measure regardless of their age at retirement, FERS generally pays no COLA before age 62, and even then, there is a reduction the indicated figure is above 2 percent. Specifically, the FERS COLA is capped at 2 percent if the figure is between 2 and 3 percent, and is 1 percentage lower than an indicated figure of 3 percent or more.

In some years that doesn’t matter but in others the partial reduction hits and in yet others—as in 2022 and 2023—the full reduction applies. That has led to calls to repeal that provision, as well, with bills having been reintroduced in each Congress for a number of years.

The origin of that provision, too, seemed to have been lost to history. However, in a recent report examining the repeal proposal, the Congressional Research Service unearthed a valuable find, in the form of statements from civil service leaders at the time.

For example, it found that then-Rep. Michael Barnes, D-Md., had said that the FERS COLA provisions might be interpreted as a “capitulation on the commitment we’ve maintained to federal retirees to protect their benefits from inflation.”

But he insisted that “In the context of the overall retirement plan, an indexed Social Security program, coupled with interest earning, tax-sheltered savings [in the TSP], can provide annuity growth more than capable to keeping place with rising costs.”

Sen. Thomas Eagleton, D-Mo., said this:

“The federal unions, who exhibited statesmanship throughout the entire process, receded on some highly important points, such as a cost equivalent to the civil service retirement system and a guaranteed full COLA for retirees. The unions fully support today’s conference report. The administration, which had hoped for a lower over-all cost than the bill achieved, an increase in the federal retirement age, and an accrual formula based on high-5 salary, rather than high-3, also swallowed hard and it, too, fully supports the report.”

So there you have it, FERS employees and retirees. Your retirement inflation protection was traded away like a backup running back in a fantasy football league.

One last point. The law creating FERS also included a provision allowing employees under CSRS to switch to it voluntarily. In that window and one that followed several years later, only low single-digit percentages did so.

Eagleton, though, said at the time the bill was moving through Congress that “my reading from staffers and colleagues is they can’t wait to join the new system.”

Looking back, that produces a bigger laugh than does a rerun of The Cosby Show or Family Ties.

Citation: FedWeek Published: May 1, 2023