Deficit reduction pain for federal employees could be worse, some say

It could be worse.

That's the argument the Obama administration is making in the face of criticism from federal employee groups over the president's decision to recommend that government workers contribute more money to their pensions to help reduce the budget deficit.

Unions and other employee advocates have lashed out at the proposal -- which recommends raising the individual contribution rate by 1.2 percent over three years beginning in 2013 -- calling it an additional payroll tax on employees. Federal employees already are working under a two-year pay freeze, and further targeting their pay and benefits is unfair, they said. Senior administration officials, however, argued that the increase is a fraction of what others, particularly Republicans, have demanded federal employees sacrifice.

For example, the version of the fiscal 2012 budget resolution the House passed included a recommendation that would require federal employees to pay for half the defined benefit they receive with their pensions at retirement. Sens. Richard Burr, R-N.C., and Tom Coburn, R-Okla., have introduced legislation that would end the Federal Employees Retirement System-defined benefit plan for new government employees, including new members of Congress, starting in 2013. Other proposals floating around include reducing the federal salary used to calculate annuities from an average of the highest three years of federal service to the highest five years, and lowering the multiplier used to calculate annuities from 1.7 percent to 0.7 percent, not to mention several other stand-alone measures that call for further federal pay and hiring freezes. The super committee could choose to incorporate any of those ideas into its final recommendations.

"Of course there are worse proposals concerning federal employees, but I don't think we should be involved in a race to the bottom," said Carl Goldman, executive director of the American Federation of State, County and Municipal Employees Council 26. "That is not fair to federal employees or any working people, and it is not good for the economy. The president made a good start with his proposals to increase taxes on the rich and corporations, but with the increasing concentration of wealth at the top, there are additional initiatives that should be seriously considered."

Colleen Kelley, president of the National Treasury Employees Union, said that the White House proposal "is clearly not as onerous as some of the proposals coming from Congress" but still called it "disappointing." She also expressed concern over what she said was the administration's lack of communication on issues affecting federal employees. "It is clear these deficit reduction proposals have been under consideration for some time, but the administration chose not to discuss them with employee representatives," she said.

During a Monday briefing with reporters, a senior administration official emphasized that the proposed change would not alter an employee's total pension. "What we are asking for is a slightly larger contribution" from employees, the official said. All federal civilian employees would begin contributing 0.4 percent more a year for three years beginning in 2013, and the policy change in the contribution level would be permanent, according to the proposal. Another official on the conference call pointed out that FERS "includes a very generous contribution of over 11 percent" from agencies.

"The question is, what is the level of the taxpayer contribution that we can afford right now?" the official asked. Most employees currently contribute 0.8 percent of their salaries to their pensions; agencies contribute 11.7 percent to the majority of employees' pensions, with that level set to increase to 11.9 percent in October. In fact, the employee contribution rate has not been raised permanently since 1970. During the Clinton administration, the rate was raised temporarily as part of the 1997 Balanced Budget Act, but then rolled back a few years later.

A temporary increase on employees' contribution levels similar to the one that went into effect during the Clinton administration would make the proposal more palatable, said Dan Adcock, legislative director of the National Active and Retired Federal Employees Association. Obama's proposal, however, calls for a permanent increase, and his endorsement makes it easier for others to support it -- or go even further, Adcock said.

"I would say that the proposal in the president's plan is the lesser of many proposed evils that have been floating around," Adcock said. But, he added, it also is at odds with Obama's stated purpose of sharing the financial burden. "If the president is concerned about protecting the middle class from tax increases, then adding a 1.2 percent payroll tax for middle-class federal workers seems contradictory to his proposal," Adcock said. He said NARFE is doing more outreach by telling feds' stories to heighten the public's awareness of the work they do and the important contributions they make.

The administration estimates the savings from the increases in employee pension contributions as well as the elimination of the FERS annuity supplement for new hires will save $21 billion over a decade, which would go toward paying off unfunded liabilities in the federal retirement programs.

But the proposal to raise employees' contributions has some wondering whether it's more of a public relations campaign rather than a genuine attempt to reduce spending. After all, according to a new United Technologies/National Journal poll, 50 percent of respondents said they would somewhat or strongly support a proposal backed by the GOP to fill only half of federal jobs and to reduce wages and benefits for Uncle Sam's employees. Even the president's deficit reduction proposal alluded to this optics problem regarding federal retirement packages.

"Organizations of all sizes have had to reform and alter the retirement benefits they give in order to remain competitive and, in some cases, solvent," the president's plan stated. "As a result, compared to the private sector, the federal retirement program can seem generous."