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Going postal over federal pensions

By Barbara Whelehan · Bankrate.com
Friday, March 25, 2011
Posted: 3 pm ET

Not too long ago, if you had a job at the post office, you took job security for granted. But yesterday the postmaster general announced layoffs for 7,500 positions. Those who are age 50 with 20 years of service are eligible for early retirement packages -- $20,000 to be paid out over two years. A pittance, if you ask me.

Thank heavens postal workers participate in the federal retirement program. But if two senators have their way, future federal workers won't have cushy pension plans to rely on.

Last week Sen. Richard Burr, R-N.C., and Sen. Tom Coburn, R-Okla., introduced the Public-Private Employee Retirement Act of 2011 as a way to address the country's debt problems. While the legislation would end the defined benefit plan for future government workers beginning in 2013, it would not affect current employees and retirees. And it would leave in place the Thrift Savings Plan, which is the government version of the 401(k) plan -- only much better.

"Right now, federal government workers receive far more generous retirement benefits than private sector employees," said Burr in a press release posted on his website. "We cannot ask taxpayers to continue to foot the bill for public employee benefits that are far more generous than their own."

The federal retirement plan

You hear every day about the tremendous financial strain that state pension plans are under. But you don't hear much about the Federal Employees Retirement System, or FERS. Members of Congress have access to really good retirement bennies after only five years of service, though this would no longer be the case if this legislation actually passes. My bet is that it most assuredly will not.

But it does seem unfair that federal workers don't even have to do any retirement planning, compared to those in the private sector. The proverbial three-legged stool on which most Americans are supposed to base their retirements are wobbly at best. The legs consist of Social Security, pension benefits and savings. Since most Americans in the private sector don't have pensions, (or if they do, they are often inferior hybrids like cash-balance plans), their retirement plans are teetering on a two-legged stool.

But federal employees have stools with three legs made of solid mahogany. In the FERS, government employees contribute 0.8 percent of pay while their employing agencies put in 11 percent of pay (the amount may vary slightly from year to year). Members of Congress and their staff pay 1.3 percent toward FERS coverage, and "the Congress pays approximately 16 percent of payroll as the employer contribution," according to a CRS Report for Congress.

On top of that, federal employees can contribute to a Thrift Savings Plan and get a 5 percent matching contribution from their employing agency. This match is immediately vested to boot. According to the CRS report, "All participants in FERS are immediately vested in their own contributions and in government matching contributions to the TSP, as well as any investment earnings on these contributions."

And the third leg for most federal employees is Social Security. If it gives you any comfort, they contribute to FICA to the same extent that everyone else does.

Disgruntled government workers

As you can imagine, federal workers are all fired up about this bill, judging from the comments on various blog posts. Governmentexecutive.com quotes John Gage, national president of the American Federation of Government Employees, as saying the bill is "cruel and useless."

"Sen. Burr's bill is a mean-spirited attempt to deprive future employees of any hope of a dignified retirement after they have spent a lifetime in public service," Gage was quoted as saying.

It's interesting to read comments posted by government workers. On starnewsonline.com, William Shipman says he finds the bill appalling. "While there may be some disparity between public and private employees, is it the fault of those who serve the public good that private employers have mismanaged private pensions to leave them unfunded and force their employees to trade a secure retirement for the casino that is the stock market?"

That's the casino where I put my chips.

How do you feel about the federal retirement program? Are you envious? Angry? Unaffected?

***

Check out Bankrate's Retirement Realities series. We'll be adding stories to it throughout the year.

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226 Comments
dave perkins
May 10, 2011 at 3:47 pm

its time we cut the amount of people that do nothing or very little while sucking up big pay and benis from the private sector.

John
May 10, 2011 at 7:27 am

I'm a federal employee. I like my job, I like what I'm paid, I like the benefits, and I don't feel the least bit guilty about any of it.
I find rather strange this idea that because things increasingly stink for workers in the private sector, there must be a corresponding stinkiness imposed on federal workers. I mean, if the private job market can't deliver jobs with a reasonable level of security and reliable pension and other benefits, isn't that a failure of the private sector?

Don
May 09, 2011 at 5:42 pm

Just what I figured; you fed employees have nothing better to do than post the same old trash about being underpaid. I guess you're just preaching to yourselves because the rest of us know better. What a joke. Government employees make 8 to 23% more than people in the public sector doing the same jobs, not to mentioned the other excessive benefits. Very few people in the public sector have any retirement other than a 401k plan. If those of you who claim to have taken $10,000 pay cuts really did take those paycuts; how do I say this nicely.....you're really stupid. Why did you take that paycut. Your overwhelming sense of a need to serve the public. Sure you did. If you want to keep lying to yourselves, fine, but don't expect the rest of us to believe you garbage anymore.

John Plana
May 09, 2011 at 7:13 am

It's very simple. Give them their pension. Any new pension is capped at $100,000. Federal contribution 10% of every dollar they save. Place a term limit on their employment 12 -years and they served. Term limits for legislators Congress 4-terms and Senate two terms and their out. Start with the legislators cut their pay by 20%, have them pay 50% of there medical insurance and pensions are capped at $100,000.00 Federal contribution 10% of every dollar they save. Pensions, no life time pensions, 12-years max out. Now that is a deficit reduction, I can live with.

Charles Robinson
May 08, 2011 at 8:43 pm

Federal Employees get paid less that their counterparts in the Civilian sector. For this they get a pension and job security. If you remove the pension then you have to increase their pay to equal the civilian sector. If you do not do this then you get what you pay for. People that could not get a job anywhere else. Do you really want low quality people working the Federal Jobs that are in effect working for you? Is everyone that is railing against Federal Pensions about ready to cut there nose off to spite their face? Don't complain when the Government starts providing you less than what you deserve if you go ahead with this plan. It will be what you asked for.

ANGRY AT THE MEDIA
May 08, 2011 at 10:28 am

BEATEN UP FED, you are right on. As a federal employee's wife I wish the media would stop lying to the public. I am tired of people thinking a federal employee has it made; the pay stinks. My husband also took a $10,000 pay cut to work for the government, given the fact I stay home I did not like it, but having been through four layoffs in five years security and low pay looked better. Oh, the pay cut was from $40,000 to $30,000, so do not get the idea his salary was or is large, we live on a budget.

Tom Sheehy
May 08, 2011 at 7:25 am

I take exception to the terms used. The "agency contributes" is not an accurate. The TAXPAYER contributes! The agency has no money nor does the government. the "employer" contribution comes from the taxpaying citizens of this country and we can no longer afford the lavish retirement plans the federal employees get.

The system must change!

Barbara Whelehan
May 07, 2011 at 5:53 pm

Beaten Up Fed --

Just want to let you know that my blog post is not misleading. On page 7 of the CSR report titled, "Federal Employees' Retirement System: Benefits and Financing," it says, "TSP participants are immediately vested in their contributions to the plan, all federal matching contributions, and any interest, dividends, or capital gains attributable to those contributions. Participants are fully vested in the 1 percent agency automatic contribution to the TSP after three years (two years for congressional employees and executive branch political appointees)."

So for whatever reason, the federal government distinguishes its 1 percent agency automatic contribution from its 4 percent matching contributions. Employees who contribute to the TSP should receive the 4 percent match from the federal government and it should be immediately vested, according to that report by the Congressional Research Service, which I linked to in a subsequent blog: http://www.bankrate.com/financing/retirement/do-you-have-pension-envy/

I did not expect this blog post to elicit such rancor from both the public and private sectors. Let's all do the best we can with whatever path we have chosen. Something has to be done about the federal debt, and fortunately this is a topic that Congress is finally addressing. I hope it doesn't get swept under the rug because it represents a real threat to our economy. But that issue is separate from federal pensions. Federal employees should not be regarded with contempt just because they have a good retirement plan. They earned it, after all.

allie542
May 07, 2011 at 4:15 pm

It's amazing they talk about cushy pensions. These people worked there whole life to get. But the senators and congressmen that would love to take this away feel that it's OK for them to put in 4 years and have a cushy pension the rest of there lives. Is there something wrong with this picture?

BEATEN UP FED
May 06, 2011 at 4:42 pm

Oh, for Pete's sake, I'm so TIRED of these MISLEADING articles! Every FERS Fed knows that you cannot survive in retirement on what is now the Federal pension. The only real difference b/w Fed and private employee retirement plans that is justifiable to even discuss is that we do still have some semblance of a pension under FERS, but NOTHING like what people got/will get under the former CSRS (Civil Service) plan. FERS has three legs, too, and the other two are the SAME as most private plans. Social Security is the same whether Fed or private. The TSP IS THE SAME as a private plan; my private sector employee husband has the same matching benefits in his company plan as I do, and BY THE WAY, you have to have THREE YEARS OF SERVICE (Federal employment) in order to vest in the matching contributions; they do NOT vest automatically as stated in this article. And yes, as stated by another commenter, WE pay for private employee pensions via subsidization/increased prices for private sector goods and services. We also subsidize our own pensions BECAUSE WE PAY THE SAME TAXES THAT EVERYONE ELSE DOES. However, I took a $10,000 pay cut to go work for the government, and even now, in a higher position, there are tons of private sector kids fresh out of graduate school making more money than me as new entrants to my profession than I am making 15 YEARS OUT. However, I love what I do, and in my area, I am serving a public that really needs government assistance. I live paycheck to paycheck, too, by the way. I have a mortgage for an average house, a non-luxury car payment, daycare payments, a large student loan payment, and a gazillion other bills to pay every month. I am not rich, and my family doesn't live extravagantly. Why don't you all just give us a break already???