Less Than 1 Percent

Many federal employees and their advocates were less than thrilled by the news last week that President Obama wants to lift the pay freeze in 2013.

In fact, some readers were downright contemptuous of the proposed 0.5 percent salary bump. Our Jan. 6 story generated lots of reader reaction. Some sample commentary:

"I calculated after taxes that my 0.5 percent raise would equal $17 a month! Whee!! Now, let's calculate how much it takes in expenses in a bureaucracy to even raise salaries across-the-board even as little as this -- illogical. Please stop the nonsense and give us a raise or don't, but this is nonsensical."

"0.5 percent. I am glad they gave us advance notice so I won't think payroll has made an error -- that is, assuming we even notice the change in our net pay. When the man said 'change' he meant it."

"Oh WOW! A half percent raise! In the Washington, D.C., area, that won't even cover my utilities for one month. Man, I feel like I'm sitting on top of the world. Just call me a pampered Fed."

"For a family of employees in the lower grades that should just about cover the increase in the cost of toilet paper over three years."

And those reactions were among the more subdued. It's true that the proposed 0.5 percent raise -- assuming Congress approves it, which is far from certain -- won't amount to a windfall in employees' paychecks. Particularly if, as many readers pointed out, lawmakers decide to increase the amount feds contribute to their pensions this year. Remember, Obama himself has proposed such an increase and reducing government workers' retirement benefits has a lot of support on Capitol Hill.

Then again, some feds pointed out that something is better than nothing, especially after two years of nothing. The bottom line? Given the political and fiscal climate this year, federal workers will be lucky to get any sort of boost to their pay or benefits.

Buyout Bonanza

Federal agencies are continuing to make use of buyouts and early retirement packages in an effort to cut costs. Just this week, Agriculture Secretary Tom Vilsack announced that the department will continue to offer buyouts and early outs to employees to avoid furloughs, and the General Services Administration has requested authority from the Office of Personnel Management to offer voluntary early retirement authority and voluntary separation incentive payments to a select number of its employees. In addition, the Air Force has said it will offer a second round of buyouts to eligible employees.

Those workers who are eligible for a buyout need to weigh their options carefully. While the benefits of buyouts and early outs are clear for agencies, for employees, the best decision depends on individual circumstances. Most observers agree that the federal buyout maximum of $25,000 is not a lot of money, so the question becomes who can afford to take one? Some say employees covered under the older Civil Service Retirement System might be the best candidates for a buyout, as CSRS participants can receive up to 80 percent of their annuity. But as Tammy Flanagan who writes our weekly "Retirement Planning" column points out, buyouts and early outs could be a better incentive for feds enrolled in the Federal Employees Retirement System, which is the majority of the federal workforce.

FERS employees pay into Social Security; CSRS workers do not. So if FERS employees leave the government early and move on to another career, they will continue to pay into Social Security whereas, "a CSRS who leaves midcareer to move to private industry will have less than a full career of [Social Security Administration] coverage and will also be subject to the windfall elimination provision and government pension offset that will reduce or eliminate their SSA entitlement," Flanagan said. FERS is a more flexible, portable retirement system that encourages saving through its 401(k)-style portfolio (the Thrift Savings Plan) and was created to look more like private sector retirement plans. "One of the things that Congress was trying to accomplish in designing FERS was to create a workforce who was not bound by the 'golden handcuffs' of CSRS," she said. "FERS was made to allow employees to move from federal service to private sector more freely."

And many more FERS employees now are eligible for such incentives than in the 1990s when the government last offered a big round of buyouts and early outs to the federal workforce. "I think you have less to lose under FERS than CSRS if your plan is to move to a career in the private sector," Flanagan said.