Shielding Benefits

A hand shot up from the audience at the National Postal Forum in Washington this week. A man wanted to know why, in December's postal reform law, Congress and the president didn't reduce health and pension benefits to make the U.S. Postal Service -- where labor costs account for 78 percent of expenses -- more competitive.

"The institution in question is really bigger than the USPS -- it's the U.S. government," said Thomas Day, senior vice president of government relations for the Postal Service. "Congress was not willing, nor was the administration, to remove that benefit from 800,000 federal employees."

The shield protecting federal employee benefits is powerful, and it is rare. In a Federal Register notice posted Tuesday, Energy Department officials made clear just how rare. They revived a process to reduce benefits where it is possible -- in Energy's contractor workforce of about 100,000 employees.

Here are the numbers: In fiscal 2006, the contractor-heavy Energy Department reimbursed 46 companies about $1.1 billion for retirement and medical benefits. Energy reports $11.9 billion in unfunded liabilities for these benefits. Both those numbers have grown tremendously since 2000, and Energy officials said they are "projected to grow over the next several years at a rate that significantly exceeds likely increases in the department's budget."

Energy Secretary Samuel Bodman first proposed benefits reductions for contractors in April of last year, only to suspend them in June after an outcry. Now the Federal Register notice asks for input on how to control costs, and the department has set up a Web site chock full of supporting evidence of its financial crisis.

Bodman's plan is to keep current contractors' benefits where they are, but change the rules for new employees. He would require companies working with the department to provide new employees only with a defined contribution plan -- a 401(k) retirement savings plan like the government's Thrift Savings Plan -- instead of a true pension. Right now, like participants in the Federal Employees Retirement System, Energy contractors have both.

There's also a vague proposal requiring companies to use "market-based medical plans for new employees."

Energy contract employees have a somewhat unusual defender on this one: Watson Wyatt Worldwide, a compensation consulting firm. Gene Wickes, Watson Wyatt's director of benefits consulting, said in a statement that the suggested policy switch "undermines contracting employers' ability to provide guaranteed retirement benefits" and that it "denies employers the flexibility they need to design retirement plans that best suit the needs of their workforce."

Energy officials argue that their contractors' retirement benefits are on average more generous than those offered by the government or elsewhere in the private sector. And they say that Energy contractors contributed less of their own money toward health insurance costs. Without the shield that protects federal employees, contractor benefits are likely to be zapped.