Federal Pensions and the Meaning of Fully Funded

With the 2012 presidential election over (finally!), the threat of the so-called fiscal cliff takes center stage. Congress and President Obama, reelected to a second term, will start negotiating in earnest over how to avoid the looming perfect storm of expiring tax cuts, sequestration and the debt ceiling. Any serious discussion of debt reduction and spending cuts almost always involves proposals to restructure federal compensation.

The Obama administration and lawmakers from both parties generally favor increasing the amount government workers contribute to their pensions. Federal employee unions, including the American Federation of Government Employees and the National Treasury Employees Union, are poised to do battle to protect retirement benefits and pay as the lame-duck session gets under way and the new Congress convenes in January 2013. During a conference call with reporters Wednesday morning, AFGE President J. David Cox argued against increasing feds’ pension contributions in part by claiming that “federal employee retirement is fully funded.” In other words, why change a system that’s working fine as it is and not breaking the bank? It’s an argument others have made before. But what does it mean?

Most federal workers fall under the Federal Employees Retirement System or the Civil Service Retirement System; both contain a mix of employee- and employer-financed contributions to the Civil Service Retirement and Disability Fund. FERS annuities are fully funded by the sum of employee and employer contributions and interest earned by the Treasury bonds held by the CSRDF, but that is not the case with CSRS retirement benefits. “The federal government makes supplemental payments into the CSRDF on behalf of employees covered by the CSRS because employee and agency contributions and interest earnings do not meet the full cost of the benefits earned by employees covered by that system,” a September Congressional Research Service report stated.

Because of this, the CSRDF has an unfunded liability of $622.3 billion in fiscal 2010. This will rise to about $684.8 billion in 2023. But, and this is an important point, in 2023 that unfunded liability will decline and turn into a surplus of $716.7 billion by 2085, according to the Congressional Research Service. Why? Well, basically because at that point, there won’t be any more CSRS employees. CSRS covers employees hired before 1984 when FERS came into existence and feds starting contributing to Social Security. Under CSRS, employees do not pay Social Security taxes. In 2011, according to CRS, less than one-sixth of federal employees were enrolled in CSRS.

“Actuarial estimates indicate that the unfunded liability of the CSRS does not pose a threat to the solvency of the trust fund,” the CRS report stated. In addition, the report said, “unlike the Social Security trust fund, there is no point over the next 70 years at which the assets of the Civil Service Retirement and Disability Fund are projected to run out.”

Current FERS employees contribute 0.8 percent of each paycheck to their pensions, in addition to contributing to Social Security and their Thrift Savings Plan accounts. The government contributes 11.9 percent of payroll to feds’ pensions. Under CSRS, employees and the government each contribute 7 percent per paycheck toward retirement benefits.

Fallen Heroes and Travel Expenses

The government now will pay certain transportation and relocation expenses for the family members of some feds killed in the line of duty, according to a final rule the General Services Administration published in the Federal Register earlier this week.

“This final rule incorporates language based on the Special Agent Samuel Hicks Families of Fallen Heroes Act, to allow agencies to provide for relocation of dependents and the household effects of a ‘covered employee’ whose death occurred as a result of personal injury sustained while in the performance of the employee's duty as defined by the agency,” the rule stated. Covered employees are federal law enforcement officers, FBI employees who are not law enforcement officers, and Customs and Border Protection officers.

The rule applies to travel relating to employees who died on or after June 9, 2010.

The government will cover expenses for the transportation of the immediate family, household goods, personal effects and one privately owned vehicle of a covered employee whose death occurred as a result of personal injury on the job.