Retirement Blog

Finance Blogs » Retirement Blog » Going postal over federal pensions

Going postal over federal pensions

By Barbara Whelehan ·
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. 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, 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.

Follow me on Twitter: BWhelehan

Bankrate wants to hear from you and encourages comments. We ask that you stay on topic, respect other people's opinions, and avoid profanity, offensive statements, and illegal content. Please keep in mind that we reserve the right to (but are not obligated to) edit or delete your comments. Please avoid posting private or confidential information, and also keep in mind that anything you post may be disclosed, published, transmitted or reused.

By submitting a post, you agree to be bound by Bankrate's terms of use. Please refer to Bankrate's privacy policy for more information regarding Bankrate's privacy practices.
May 18, 2011 at 5:31 pm

All government workers should be on a defined contribution pension plan. The private sector has figured out that by defining its costs on the front end, there are no huge surprises on the back end. It is simply a fact that defined benefit plans are much more uncertain for the employer (the government), and they almost always are significantly more expensive for the employer.

But you can't just reduce the future benefits for current employees, because that isn't what they agreed to when they signed on. My understanding is that one of the largest incentives for government workers is the amount of retirement benefits they receive. So how about this: make the government's retirement plan defined contribution for all new employees starting July 1, 2011. You address the problem of uncertain future costs over the long term without penalizing current government employees in the near and medium term. There will be people that will complain that is not fair for the new employees, but life is not fair, and changes need to be made for the purposes of balancing the budget over the long term.

Gerald Spencer
May 17, 2011 at 10:01 am

The fed system underwent an extreme change in 1987, essentially putting new federal employees under Social Security with a very small percent under the federal retirement system. Old vested employees were paying 7 percent at that time to the federal system, the new approximately the same with the FERS option. Why is it that big business, banks including, like to lie through their teeth? Federal employees always put more into their system than private workers and they were not capped and didn't receive relief like private workers.

Barbara Whelehan
May 16, 2011 at 3:59 pm

Chris, In a subsequent blog I link to this CRS report (see link below) and explain that under FERS, the federal government now contributes 11.7 percent of pay, while employees still contribute 0.8 percent. Employees under FERS also contribute to Social Security to the same extent as people in the private sector. Minimum retirement age varies, depending on year of birth. Employees under FERS can retire with an unreduced pension at the age of 60 if they have 20 or more years of service; at 62 if they have five years of service. This is according to a highly reliable source. Read the details for yourself:

May 16, 2011 at 3:39 pm

Lot of false information here. I am not a federal employee. The amounts discussed as the government contribution is the total amount including SS contributions and the 1% TSP contribution. In fairness you have to add the .8% to the employees SS contribution to get the true employee contribution of 7%. Moreover, you can only retire at 20 years if you are 60 or over. The author is attempting to skew the facts to make his point, or he just doesn't know what he is talking about.

Arlene Smith
May 13, 2011 at 11:38 am

If congress is going to penalize the federal worker, are they going to do the same to congress' retirement plan? Whoever else in the private sector has a nice retirement plan?It's totally unfair to penalize the federal worker! It's just like they did to the Civil Service employees, they don't pay into social security while under Civil Service but if they worked a job in the private sector before or after their Civil Service job and paid into social security, the money they paid isn't given back to them in social security wages the same as anyone else that paid into social security, Civil Service employees are penalized 2/3 of their social security earnings. They call that double dipping but if someone in the private sector earns two nice penions, they aren't penalized.

May 13, 2011 at 9:55 am

I think everyone should have a good retirement/pension plan adn the answer to those in the private sector lagging behind is NOT to take it away from those who do have a better plan. It's wrong in every way to take away what was promised to any worker just so the bottom line can profit. This is another way in which Republicans want to screw us all out of what we have conribuited to, to what we have EARNED over the years: whine about how some particular group of union workers have it too good and how they're just greedy and need to have their benefits taken away instead of addressing the real picture.

The truth is that they have it good in part becasue they have a union-we shoudl all have that opportunity. Don't listen to people who tell you otherwise and want to blame union workers for economic problems which were in reality caused by greedy Wall Street bankers and corporations. That is just the divide-and-conquer plan conservative extremists want to use on us. Don't fall for it.

george s
May 12, 2011 at 10:11 pm

Its not the governments job to be in Business or to run companies(GM) privatize everything and it will be much smoother.
This is a free enterprise country not socialist (at least not officialy) ups and Fed Ex can do a better job, private schools turn out better students then public schools, get rid of the public unions,unions were made for private industrie not Government.

george s
May 12, 2011 at 10:02 pm

It becomes abvious that the Government workers and their union (not private sector unions)are bleeding the country dry,it is happening in Greece and other countries in Europe and it will happen here, it is the same problem.
First of all Public employees should not be union, FDR said so and he was a very liberal potus, the military is not union, unions were made for the private sector not Government.It's happening in Wisconsin with the teachers union, and the people(tax payers) are held hostage.UPS AND FED EX and DHL and Airborne can handle the post office problem and wont be a burden to the tax payers, the Government can also do away with the DMV, Put that also in private hands. we need to bring ourselves to the 21st century and be more efficient.

tony esposito sr.
May 12, 2011 at 5:10 pm

Mr. John Gage quote "spent a lifetime in public service"

I would be willing to BET that a large % retired after 20 years. Some taking other federal jobs & double dipping or working in the private sector. Retired Steelworker need i say any more. Tony

May 11, 2011 at 11:18 pm

Yup. Post Office is a private plan funded by agency and employee contributions and investments. The only money they get from the government (read: YOU) is what's required to cover the cost of federally mandated programs and subsidies. The rest comes in one stamp, one magazine, one package at a time. Where it gets confusing is, the plan is ADMINISTERED by the same federal agency that handles federal employee retirement plans. And the Post Office pays them to do it.

And yes, it IS a better plan than many in the private sector, but that's because they still have union representation. Even so, the average postal worker earns at best lower middle class wages, and are willing to settle for that due to the better benefits attached.

Just to set the record straight on Social Security - the only time a postal employee under the old retirement system qualifies for that is if they've earned credit from other employment. Even then, there IS a matching offset against their postal pension, so it's a no gain situation more times than not. Under the new system, it's social security and their version of a 401K based on their contributions ... no different than most decent private sector jobs, and once again, no federal dollars spent.