Allowing partial retirements could save $427 million

A House proposal that would allow federal employees to continue working part time while partially retired would save $427 million between 2013 and 2022, according to a recent Congressional Budget Office estimate.

The House Oversight and Government Reform Committee unanimously approved the bill in April, and it awaits consideration in the full House. The measure calls for a phased retirement program that would allow eligible employees to draw a partial salary and partial retirement annuity, and to roll unused annual leave into their Thrift Savings Plan accounts.

The bill’s sponsor, Rep. Darrell Issa, R-Calif., heralded the measure in committee debate last month, saying the legislation could save taxpayers approximately $465 million within 10 years, since agencies would be replacing fewer retirees with part-time employees.

CBO estimates the legislation would decrease direct spending by $427 million and increase revenues by $24 million between 2013 and 2022. The bill would decrease employer contributions to retirement accounts of those choosing the phased-in annuity plan, so reductions in spending would be subject to changes in future legislation.

The savings estimate was based on the assumption that about 1,000 employees in the Civil Service Retirement System and the Federal Employees Retirement System would phase in their annuities for three years prior to full retirement. CBO also notes the bill would not impose costs on state, local or tribal governments.

The budget office calculated the bill could increase revenue because employees in the program would have otherwise fully retired and would be replaced by FERS employees, who contribute only 0.8 percent of their pay toward retirement. Most CSRS employees put 7 percent of their salary toward retirement.

“As a result, more contributions would be collected from a CSRS employees remaining employed while in phased retirement than would have been collected from a replacement employee covered by FERS,” CBO explains.

Contributions collected from FERS participants who remain employed in phased retirement would be the same rate as what would have been collected from a replacement employee in the FERS system, except for employees hired after January 2013, whose contributions will be higher because of a congressionally approved pension hike to fund the payroll tax cut extension.

The bill passed in committee with deep divisions over pay and benefits for federal employees, but some Democrats and labor unions still expressed hesitation. The committee’s ranking minority member Rep. Elijah Cummings, D-Md., supported the measure but wanted to ensure the savings from the program would not be used for programs that do not relate to federal employees. Union representatives had similar concerns.