Going postal over federal pensions

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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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Written by
Barbara Whelehan
Contributing writer
Barbara Whelehan is a contributing writer for Bankrate. Barbara writes about a range of subjects, including homebuying, real estate, retirement, taxes and banking.