Budgeting Benefits

Congressional number crunchers have released their most recent ideas for decreasing the country's deficit. Reducing benefits for federal employees and retirees, not surprisingly, is on the list.

Many of the ideas from the Congressional Budget Office's February 2007 Budget Options book are recycled, and haven't made it anywhere near being enacted in the past. Still, with Iraq war costs ballooning, Social Security in crisis and a presidential election on the horizon, lawmakers may feel increased pressure.

Here are some of the ways CBO suggests reducing federal employee or retiree benefits:

• Instead of paying a percentage of premiums in the Federal Employees Health Benefits program, the government would pay a flat fee. To start, the government would cover the first $3,600 of premiums for individuals and the first $8,400 for families, which is about equal to the government's expected contribution this year. But from then on, those payments would rise according to inflation rather than premium hikes. CBO estimates that premiums would rise three times faster than inflation and save the government $9.7 billion over five years.
• Change the calculation of retirement benefits for new retirees from an average of the employees' highest paying three years of service to their highest four or five years. If changed to a High Four calculation, retirees in the older Civil Service Retirement System would each receive an average of $3,140 less over five years and retirees in the Federal Employee Retirement System would each receive about $1,060 less over five years. Overall, that would save the government $580 million in that time. If changed to a High Five calculation, CSRS retirees would receive $6,530 less and FERS retirees would receive $2,190 less in five years, saving $1.2 billion in total.
• Restructure the government's matching contribution to the Thrift Savings Plan, a 401(k)-style retirement investment program for federal employees. Right now, FERS employees receive an automatic investment equal to 1 percent of salary from the government, a dollar-for-dollar match on the next 3 percent of salary they invest and 50 cents per dollar on the next 2 percent. Instead, agencies could give the first 1 percent, match the next 2 percent dollar-for-dollar, and then match 25 cents per dollar for up to 10 percent of contributions. These changes would save the government $2.1 billion over five years, CBO estimates.
• Reduce workers' compensation for federal employees once they reach retirement age. Sometimes workers' compensation can be more than what employees would have received in retirement if they hadn't been injured. Once injured federal employees reach age 55, this proposal would reduce their payout to two-thirds of what they received up to that point. It would save $333 million over five years.
• Increase federal employees' contributions to their defined pensions. Right now, CSRS employees pay 7 percent of their salary into the CSRS pension plan. FERS employees pay 0.8 percent of their salary into their pension and 6.2 percent into Social Security. FERS employees also get the TSP match. This proposal would gradually increase the contributions to both pension plans by 0.5 percent by 2009. It would save $3.7 billion over five years.
• Change the formula for cost-of-living adjustments to retirees' pensions, which is currently based on the Labor Department's Consumer Price Index for urban wage earners and clerical workers. Instead, peg the increases to a chained cost-of-living adjustment, which takes into account changes in consumer spending patterns as well as costs. (Labor officials give the example of pork and beef. If the price of pork goes up, and the price of beef does not, consumers may start using beef instead of pork.) CBO calculates that CSRS retirees would receive about $1,230 less over five years and FERS retirees would take in about $300 less. The change would save a total of $6.3 billion in that time.