Pension changes could be part of payroll deal

This story has been updated.

Federal employees could end up paying more for their retirement benefits as part of a tentative deal to extend the payroll tax holiday, according to sources familiar with the negotiations and news reports.

An official with a federal employee advocacy group said government workers might have to contribute a total of 1.2 percent more to their pensions to help finance a $160 billion deal extending the payroll tax holiday and unemployment insurance and averting cuts in Medicare reimbursement fees to physicians through 2012. House Republicans earlier this week agreed to extend the provisions past February without offsetting their costs with budget cuts. Lawmakers announced Tuesday evening that they’d reached a tentative agreement on the package, but details of the deal have not yet been unveiled.

Lawmakers are expected to vote on the final bill Friday.

Various news outlets, including The Washington Post, are reporting that the increase in employees’ pension contribution rates could be in the final bill.

Federal employee unions voiced opposition to an increase in how much feds contribute to their pensions in any payroll tax cut extension deal. “As much as [the International Federation of Professional and Technical Engineers] supports [unemployment insurance] and payroll tax extensions, we will have to oppose [this bill],” said Matt Biggs, legislative and political director for the IFPTE. “In our view the appropriate pay-for is Casey's millionaires surtax bill.” Biggs was referring to a proposal introduced by Sen. Bob Casey, D-Pa., one of the payroll conference committee members, which would help finance the deal through a tax on individuals earning more than $1 million annually.

The American Federation of Government Employees and National Treasury Employees Union held a conference call with reporters Wednesday afternoon to discuss proposed changes to federal pensions.

AFGE President John Gage and NTEU President Colleen Kelley said lawmakers want to use the money from the increase in feds’ contributions to their pensions to pay for half the $30 billion it will cost to extend unemployment insurance through 2012.

“If anyone should pay for extending unemployment benefits, it’s the big banks whose shady lending practices kicked millions of people out of their homes, and the millionaires and billionaires who continue to profit while millions of Americans are out of work,” Gage said. “Federal employees should not be asked to clean up their mess.”

Kelley said the proposal would mean more financial pain for federal workers, most of whom are middle class. “Coupled with the two-year pay freeze,” said Kelley, “proposed changes in the federal pension system would result in real, permanent and meaningful declines in employee take-home pay and standards of living for federal employees.”

Gage said there were “a couple of formulas floating around” related to how much more feds might be asked to contribute to their pensions, citing a 0.8 percent immediate increase as one possibility.

“We haven’t really seen the numbers, but it’s some percentage that would equal $15 billion,” Kelley said.

The unions seemed taken aback by the turn of events.

“I was not expecting this to happen the way it occurred,” Kelley said of the tentative agreement to include the federal pension offsets in the payroll tax cut extension bill. “There are lots of other places they can look for that money.”

During the past few months, legislative efforts to increase the amount government workers contribute to their pensions have ramped up. The House Oversight and Government Reform Committee last week approved a bill (H.R. 3813) that would modify the federal pension system. That bill, introduced by Rep. Dennis Ross, R-Fla., would require federal workers and members of Congress to contribute a total of 1.5 percent extra over three years beginning in 2013 to their defined retirement benefits, among other provisions. The GOP leadership tucked H.R. 3813 into the massive highway bill; on Tuesday, the House Rules Committee decided to break out H.R. 3813 into a separate piece of legislation again.

It’s unclear what will become of H.R. 3813 if federal pension-related provisions are included in the payroll tax cut deal.

Whether it is part of the payroll tax holiday extension or the transportation funding bill, Ross “will be opposed to its use as a pay for, other than for debt reduction,” Ross Chief of Staff Fred Piccolo said.

The increase in the amount feds contribute to their defined benefit plans at this point seems like a foregone conclusion, since it’s one major proposal affecting government workers that Republicans and Democrats can agree on. President Obama on Monday in his fiscal 2013 budget proposed raising federal employees’ pension contribution rates by 1.2 percent over three years beginning next year -- a recommendation included in his September 2011 deficit reduction plan.

House and Senate conferees had a difficult time coming to a consensus over how to pay for an extension of the payroll tax holiday and the other provisions included in the package. The original bill, passed by the House late last year, included an extended federal pay freeze.