Federal workers keep most retirement benefits under budget deal

Thursday , March 06, 2014 - 9:09 AM

Lisa Rein, The Washington Post

WASHINGTON — After a year of furloughs, budget cuts and uncertainty for federal workers, this much is clear in the congressional budget deal being considered by lawmakers: It could have been worse.

That may not offer consolation to future hires who would contribute more than their colleagues to their retirement accounts, or to working-age military retirees who would see their cost-of-living increases trimmed for the first time since the 1980s.

But the agreement between House and Senate negotiators to fund federal agencies through the fall of 2015 does not reflect the hikes Republicans or even President Obama had proposed federal employees pay toward retirement to help save federal dollars.

The House on Thursday passed the budget deal 332 to 94, and the Senate is expected to vote next week.

The compromise on pensions was reached at the 11th hour — the last piece of a deal that cancels half the sequestration spending cuts this fiscal year and restores some certainty to the budget process in the short term.

The agreement benefited from a bipartisan mood on Capitol Hill on fiscal matters — encouraged by hopes to avoid another government shutdown.

There was also consensus among Republicans and Democrats that some change to retirement benefits should be on the table and a willingness by Pentagon leaders to avoid deeper cuts from defense spending by finding savings in military pensions, according to lawmakers involved in the negotiations.

“This was looking for ‘Where do we have common ground where we agree?’ “ said Rep. James Lankford, R-Okla., a member of the budget conference committee.

The question was how much more federal employees should contribute to their retirement savings, and whether their counterparts in the military should share in any increase.

The agreement calls for civilian employees hired after Dec. 31 to pay an additional 1.3 percent of their salary toward their annuity, saving the government $6 billion over 10 years. The change affects new employees with less than five years of service.

Working-age military retirees will see their cost-of-living adjustment reduced by 1 percent starting in December 2015. When they reach 62, their retired pay will revert to the full rate of inflation. This change also will save $6 billion.

The deal would also allow federal workers to get their first cost-of-living increase in four years.

The president proposed a 1 percent raise for January 2014 in the spending plan he released in the spring. With no action in Congress to stop the increase — though Republicans pressed to continue the freeze during the budget negotiations that ended this week — Obama has announced that he plans to enact it by default with a presidential order by the end of December.

The compromise on retirement contributions was stitched together in the last 48 hours of talks, according to Lankford and Rep. Chris Van Hollen, D-Md., another committee member. Once higher taxes, tax loophole closures and cuts to entitlement programs were off the table, pension benefits became one of the few areas where Democrats and Republicans could negotiate.

Obama, with his own proposal for increasing federal worker contributions, had given House Republicans an opening. The GOP had wanted federal employees to pay an additional 5.5 percent toward retirement savings, or $130 billion over 10 years. The administration had proposed an increase of 1.2 percent for all federal employees, which it said would yield $20 billion in savings.

Senate Budget Committee Chairman Patty Murray, D-Wash., was prepared to accept the president’s proposal early on, Van Hollen said.

But $20 billion in a relatively modest budget package seemed excessive, he said, especially after federal employees have had their pay frozen and been forced under sequestration to take furloughs.

“The GOP argument was, ‘It’s the president’s number, so you should be willing to take it,’ “ Van Hollen said. “That’s where it sat for a long time.”

He and other Democrats with large federal worker constituencies pressed for a smaller hit, he said. They also insisted that only future hires would contribute more to their annuities. They suggested Congress look to farm subsidies for savings, but the GOP rejected that idea.

Democrats agreed to less relief from the sequester cuts and to extend by two years a formula in the sequester that lowers payments to Medicare providers. They also got an agreement that would lower the compensation level the government pays to some outside contractors. At the same time, they wanted parity in the treatment of civilian employees and military retirees, many of whom take early retirement and move onto other jobs while they receive full government pensions.

With the blessing of top Pentagon officials who have long pressed for relief from personnel-related costs for retirement and health care, Republicans agreed to reduce the retirees’ cost-of-living increase. The pensions are a liability that continues to spiral up as Defense spending enters an era of spiraling down, Pentagon leaders have said.

“Most every one of them are working another job,” Lankford said of officers and soldiers who retire in their early 40s. “The savings is obviously huge.”

As late as Thursday afternoon, groups representing military retirees were lobbying their members to urge lawmakers to vote against the provision.

Federal government union leaders, who have been highly critical of treatment of the federal workforce, also opposed the additional cost for new hires.

Colleen M. Kelley, president of the National Treasury Employees Union, said she was disappointed with the proposed increase, but “I am glad to see the numbers were significantly reduced from original proposals and that these retirement increases will not impact current employees.”

For civilians, the agreement would create a three-tiered system for pension contributions. Those hired before this year would pay 0.8 percent of their salary, those hired in 2013 would pay 3.1 percent and those hired after Jan. 1 would pay 4.4 percent under the budget agreement.

Lankford said it’s a start toward what he called much-needed pension reform.

“We have to strike a compromise to a level where we say we still want to have a great retirement system for our federal family,” Lankford said, “but we also have to make sure we can honor future promises.”

When the compromise was well underway, Van Hollen received a call from Obama on Air Force One as he traveled to South Africa for Nelson Mandela’s funeral. Van Hollen said he’d wanted the White House’s assurance that it would not propose additional pension contributions from federal employees in its next budget proposal.

Said Van Hollen: He got it.

Sign up for e-mail news updates.