COMMITTEE ON POST OFFICE AND CIVIL SERVICE CONTINUATION OF HEARINGS ON SUPPLEMENTAL RETIREMENT PLAN TUESDAY, APRIL 23, 1985 WITNESS LIST

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP89-00066R000100030001-0
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 48
• Document Creation Date: December 22, 2016
• Document Release Date: June 14, 2010
• Sequence Number: 1
• Publication Date: April 23, 1985
• Content Type: OPEN SOURCE

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V WILLIAM D. FORD, MICHIGAN, CHAIRMAN
WILLIAM (BILL) CLAY, MISSOURI GENE TAYLOR. MISSOURI
PATRICIA SCHROEDER, COLORADO BENJAMIN A. GILMAN, NEW YORK
STEPHEN J. SOLARZ, NEW YORK CHARLES PASHAYAN, JR., CALIFORNIA
ROBERT GARCIA, NEW YORK FRANK HORTON, NEW YORK
MICKEY LELAND, TEXAS S JOHN T. MYERS. INDIANA
GUS PATRON, PENNSYLVANIA DON YOUNG, ALASKA
MARY ROSE DAKAR. OHIO JAMES V. HANSEN. UTAH
GERRY SIKORSKI, MINNESOTA DAN BURTON. INDIANA
GARY L ACKERMAN, NEW YORK
? MERVYN M. DYMALLY, CALIFORNIA
RON do LUGO, VIRGIN ISLANDS
MORRIS K. UDALL. ARIZONA
Thoue of tepmentatibez F ,
Committee on Vogt office 0.t %
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Maoington, at 20515
COMMITTEE ON POST OFFICE AND CIVIL SERVICE
CONTINUATION OF HEARINGS ON SUPPLEMENTAL RETIREMENT PLAN
Tuesday, April 23, 1985
WITNESS LIST
Panel 1:
Moe Biller, President, American Postal Workers Union,
AFL-CIO;
George B. Gould, Legislative and Political Assistant to
the President, National Association of Letter Carriers,
AFL-CIO; and
Tom W. Griffith, President, National Rural Letter
Carriers Association.
Panel 2:
Kenneth T. Blaylock, National President, American
Federation of Government Employees, AFL-CIO;
Ed Murphy, Legislative Director, National Association of
Government Employees;
James Peirce, President, National Federation of Federal
Employees; and
Robert M. Tobias, National President, National Treasury
Employees Union.
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Panel 3:
Thomas P. Costin, Jr., President, National Association
of Postmasters of the U.S.; and
Rubin Handelman, Executive Vice President, National
Association of Postal Supervisors.
Panel 4:
Marie Argana, President, Federally Employed Women;
Michael E. Minahan, President, Federal Managers
Association;
Michael J. Riselli, General Counsel, Professional Managers
Association; and
G. Jerry Shaw, Jr., General Counsel, Senior Executives
Association.
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TESTIMONY
OF
TOM W. GRIFFITH, PRESIDENT
NATIONAL RURAL LETTER CARRIERS' ASSOCIATION
BEFORE THE
COMMITTEE ON POST OFFICE AND CIVIL SERVICE
U. S. HOUSE OF REPRESENTATIVES
ON
THE DEVELOPMENT OF A NEW RETIREMENT SYSTEM
FOR POSTAL/FEDERAL EMPLOYEES COVERED BY SOCIAL SECURITY
APRIL 23, 1985
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Mr. Chairman and Members of the Committee:
My name is Tom W. Griffith and I am the President of the
66,000-member National Rural Letter Carriers' Association. We
are honored to appear before the Committee on Post Office and
Civil Service, and to offer continuing testimony as you develop
a new retirement system for Federal employees hired after January
1, 1984.
Members of the National Rural Letter Carriers' Association
serve fifteen million American families by daily traveling
2,387,951 miles over 38,925 rural routes throughout the country.
We wish to compliment the Committee at its thoughtful approach
to developing a sound legislative proposal on an issue of vital
importance to present and future Federal and Postal employees.
Retirement is one of the critical factors in a total compensation
package for employees. For the sake of our discussion today,
we will presume and recommend this Committee adopt a three-tiered
approach to the supplemental retirement system.
The first tier would be Social Security. The second tier
would be a defined benefit plan, and the third tier would be
a before-tax individual savings account with a match by the
government.
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You have asked us to address six specific areas and we
will begin with the area of COST. We feel the cost of the new
system should be close to the cost of the existing Civil Service
Retirement system. This is because the Federal Government is
an employment leader. And, we feel they should continue to set
an example for other employers. The Hay Study, commissioned
by this Committee, shows that in the area of salary alone, Federal
workers lag behind the private sector. If we look at the total
compensation package, then some balance is restored, by the
current fair and adequate retirement plan.
I think it is important to remember that the Federal
Government, as an employer, is unique. Many of the recent studies
which Hay - - - and others have presented, have averaged all
employers together. We would question the inclusion of many
small firms in these studies. Would it not be more accurate
to simply look at the Fortune 200 or the largest private employers
in the land? I think this would substantially change your cost
comparisons.
Retirement is one part of a total compensation package.
It's goals are, as part of a compensation package, to attract
and retain qualified, dedicated individuals to be, in our case,
rural letter carriers. Therefore, a system which costs
approximately the same as the existing system is justified if
it will continue to attract and retain that type of people.
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We do not want two classes of employees. We cannot accept
substantially different benefits for the same work in any given
work place. Postal salaries are negotiated, and the amount
of a salary increase during negotiations is highly influenced
by the Postal Budget, the Federal Budget and the Economy. A
good retirement system should assure a constant, positive value
and create some stability in the workers' mind. A system which
achieves that will not be cheap.
The Social Security Tilt - we favor an add-on approach.
The tilt favoring lower salaried employees can be offset by
a voluntary supplemental capital accumulation plan. A voluntary
plan that is a before-tax contribution defers tax on the
contribution, and is linked to individual initiative. A complete
offset concentrates benefits on the higher paid workers in a
system to the detriment of the lower paid workers. By a simple
add-on plan, the Federal Government would be in compliance with
Employment Retirement Income Security Act (ERISA), even though
the Federal Government may not be bound by the law. The Federal
Government should be a moral force in the work place and set
a prime example. Therefore, when it conforms to the Internal
Revenue Code, it sets a strong example for other employers.
Finally, higher paid employee categories have much greater
current disposable income and, therefore, the discretion to
compensate for the Social Security tilt by individual initiative.
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Employee Contribution - Employee contribution level should
roughly equal current contributions. Current employees pay
7% of their salary, plus 1.35% Medicare. The new employees
will pay, by 1990, 6.2% Social Security, plus 1.35% Medicare.
Presuming this will be a three-tiered plan, the middle
tier being a defined benefit program, we recommend that employees
should contribute to the defined benefit program. There is
historical precedence for public employees' participation in
contributory staff retirement systems. We realize that private
sector retirement systems are largely non-contributory. However,
those corporations have an entirely different mission than
government. They are organized for, and have a responsibility
to their share-holders, to make money. That is not the
government's function. They also receive a tax deduction for
their contributions to a retirement plan. The government
obviously cannot. We think employee contributions give a certain
amount of budgetary flexibility to the rest of the Federal Budget
and may prevent the temptation to alter the plan after you adopt
it, by future Congresses. Simply stated, a plan in which the
employee has a direct stake in funding will discourage legislative
tampering.
Social Security and Medicare may be altered by future
Congresses. Therefore, this Committee should design some type
of automatic trigger to keep the contribution rates in the current
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Civil Service Retirement system and the new supplemental
retirement system substantially the same.
Finally, we would propose that employees covered by the
new plan have an optional program in which they may choose to
participate. This program would be a portion of the defined
benefit plan, and essentially, it would allow the employee the
continued ability to retire at 55 years of age with 30 years
of service without any penalties. However, to do that, the
employee would have to opt, early in their service career, to
pay an additional contribution with a government match to the
defined benefit plan to have the ability for early retirement.
In effect, the employee would have the option to purchase the
right for retirement at age 55 with 30 years of service.
Funding - We believe in the adequacy of the current system.
We would hope that the Funding mechanism of a future system
would protect it from political manipulations. We would endorse
the system as proposed by Senator Stevens, in the Bill he
introduced earlier in the year, in which all funds from the
defined benefit plan would flow into the existing Civil Service
Retirement system. Since government is here to stay, there
is no need for ERISA guaranteed protections; i.e., there is
no need for absolute, 100% funding of the system in any given
year.
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While we are on funding, we feel compelled to talk about
the United States Postal Service Retirement funding. The Postal
Reorganization Act of 1970 states very clearly that the Postal
Service is a branch of the Executive Department of the Federal
Government. In 1970, the U. S. Postal Service was created to
grant to them a certain degree of financial flexibility. However,
the U. S. Postal Service wasn't designed to be a private
enterprise in business to make money for the stockholders. We
feel strongly that the funding of the retirement plan for Postal
employees be treated the same as all other agencies of the Federal
Government.
Earlier, we advocated the creation of some type of a savings
plan. For that savings plan, we think employees should be allowed
a choice of investments and the government's matching contribution
should be funded immediately. However, there should be created
by this or accompanying legislation, a Federal Insurance Savings
Corporation (FISC) to act as the FDIC does for employees'
investment savings in their individual savings accounts. Firms
offering investment potential to the employees should be
scrutinized by the new FISC, so the investment of these people's
retirement monies could be, after it is funded, guaranteed and
secure.
When should an employee become vested in the new system?
The new system will be a three-part program. Social Security,
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a defined benefit plan and some type of individual savings.
The first part is Social Security and that is totally portable.
So, vesting is not really the issue. Social Security is a
Sl eo.UA
society-wide program. The t] rd part of the package is a savings
or thrift program. We assume that this part will have a
relatively short vesting time of under five years, maybe as
short as one year, because that plan is strictly related to
individual behavior and individual initiative.
The third part is a more traditional retirement plan. Under
such plans, the longer an employee is required to work to be
eligible, the lower cost to the employer. It obviously promotes
employment longevity by dedicated, qualified personnel and creates
a bond between the employer and the employee, which we think
is a necessary goal. ERISA requires 10 years, the current law
requires 5 years. We think something in between there is very
acceptable and desirable.
Again, Mr. Chairman and Members of the Committee, we are
appreciative that you are willing to hold these hearings on
this complicated issue, and appreciate your interest in and
concern about an adequate retirement program for new employees.
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STATEMENT BY
THE NATIONAL FEDERATION OF FEDERAL EMPLOYEES
BEFORE
THE HOUSE COMMITTEE ON POST OFFICE AND CIVIL SERVICE
ON
A SUPPLEMENTAL RETIREMENT PROGRAM FOR FEDERAL EMPLOYEES
HIRED AFTER 1983
APRIL 23, 1985
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Mr. Chairman and Committee Members: My name is Jim Peirce and I am
the President of The National Federation of Federal Employees
(NFFE). I want to thank you for the opportunity to testify today
on the design of a new retirement program for employees hired by
the Federal Government after 1983. The issue is extremely impor-
tant to our membership and we welcome the chance to discuss our
position.
Civil service employees hired on or after January 1, 1984 are fully
covered by social security and civil service retirement. The re-
quired payroll contribution for this dual coverage would normally
be 14 percent (7 percent for social security and 7 percent for
civil service retirement). But Congress recognized the serious
financial hardship this would place on employees and approved
Public Law 98-168, which reduces the total salary deduction to 8.3
percent while still maintaining full coverage under the two
systems. The law expires January 1, 1986, at which point the 14
percent salary deduction goes into effect. In the meantime,
Congress gave itself two years to design a new civil service
retirement system which, when combined with social security, would
meet the financial needs of Federal workers upon retirement.
Unlike the current system, which is intended to be the major source
of income for civil service annuitants, the new system would be a
supplemental plan that would use social security as a base. Hence,
it would be more modest than the current program, and require a
smaller payroll contribution from employees.
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There are now less than eight months remaining before P.L. 98-168
expires. But, this amount of time still affords Congress the
opportunity to exercise caution in developing the supplemental
civil service retirement program. Caution, we believe, which is
essential for designing a program that. will eventually provide for
the financial security of millions of Federal employees and their
families. This is a complex, sensitive area where potent-al
disasters lurk at every turn, and I hope that the Subcommittee can
prevent an endless, and possibly futile process of trying to patch
together a decent program.
A retirement annuity is the most important job benefit for both
workers and management. With average life expectancy and length of
retirement increasing, it gives employees peace of mind during
their careers and financial security following them. For the
employer, pension benefits help to manage the workforce, defer
compensation obligations, and enhance labor-management relations.
This fact is especially true in the Federal Government. Retirement
is probably the only major benefit earned by civil servants which
compares favorably with similar programs in the private sector. In
fact, with pay rates and total compensation so low in comparison
to the private sector, retirement is one of the few remaining in-
centives to stay in the Federal workforce. According to the
Bureau of Labor Statistics, Federal pay rates are far below indus-
try standards, and our health and life insurance plans are poor
imitations of those in the private sector. Annual and sick leave
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benefits may be about the same, but Federal workers do not receive
stock options, generous bonuses, and other perquisites offered by
large corporations to attract and retain talented employees. The
sorry state of civil service compensation has also been confirmed
by a recent study by the Hay-Huggins Company (commissioned by the
Committee) showing Federal pay and benefits lagging 7.2 percent
below that of private industry. Civil service retirement, there-
fore, is the cornerstone of the Federal compensation system. It
is the primary incentive for individuals to enter Government ser-
vice and to pursue Government careers.
In order to fully consider a new supplemental plan, it is impor-
tant to look first to the current system as a reference point.
And this is why I believe OPM Director. Donald Devine and the Ad-
ministration have initiated a campaign to discredit the current
Civil Service Retirement System. Despite its importance to
individual employees and to the overall quality of the Federal
workforce, the CSRS is a constant target of benefit reductions.
Opponents of the system, including the present Administration,
claim the system is too generous as well as too costly to the
Government.
With respect to the system being "too generous," our opponents
almost always forget to compare CSRS benefits with the total pack-
age of social security and private pension benefits earned by most
workers in the private sector. A Federal employee retiring at age
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55 with 30 years of service will receive an initial pension equal
to 56.25 percent of his High-3 salary years. Studies show that
private sector employees receive approximately the same size annu-
ity from the combination of social security and a private pension
plan. Studies also show that Federal workers retire at almost
exactly the same age as employees in the private sector. Finally,
social security, the annuity base for virtually all employees in
the private industry, is fully indexed against inflation, just
like CSRS.
With respect to the charge that CSRS is "too costly," we refer to
two recent studies of the system, one by the actuarial firm of
Hay-Huggins, which was mentioned earlier, and the other by the
Congressional Research Service. The groups produced almost iden-
tical results in comparing the cost of the CSRS to typical private
sector plans. As a percentage of pay, the current civil service
retirement system costs the Government approximately 6.4 percent
more than the average pension plan in private industry. While the
difference is measurable, it disappears when other elements of the
Federal compensation package are factored in. In short, Federal
compensation would be completely ineffective as a recruitment and
retention tool if it were not for the fact the CSRS is a solid
pension program.
The debate over civil service retirement is riddled with erroneous
facts and absurd myths. Indeed, there are so many mistaken ideas
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that last year Congressman Michael Barnes (D-MD) thought it was
about time to put an end to many of them. He put together a
report entitled, "The Ten Most Common Myths About Federal Retire-
ment." The report's highlights are summarized below.
* Many companies provide better pensions, and most private plans
require no employee contribution, while Federal workers must
contribute 7 percent of their salaries to the pension fund.
Further, private sector employees can benefit from thrift and
stock- incentive plans, as well as other benefits such as
profit-sharing, while Federal workers cannot.
* Federal pensions are fully taxed.
* Both private and Federal workers retire, on average, at age 61.
Virtually all private pensions permit retirement at age 55 with
10 years of service.
* The solvency of a retirement system is based upon its ability
to meet all obligations when they become due. The Civil
Service Retirement System (CSRS) currently has five times the
reserves it needs to pay Federal annuities as they become due.
Reserves continue to grow at a healthy rate and now exceed $100
billion.
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* The CSRS's unfunded liability is not a budgetary obligation.
It is simply an estimate, based upon abstract assumptions. It
answers the question, "What would happen if the value of all
Federal employee pension benefits had to be paid at once on
some future date?" The Federal Government would never find
itself in such a situation.
* More than half of all Federal annuitants receive less than
$1000 per month. The average Federal annuity in fiscal year
1982 was only $12,500 a year.
The arguments about generosity and cost have been used repeatedly
by the system's detractors in pushing benefit cutbacks. Since
1976, numerous reductions have been made to CSRS annuities,
including: the elimination of the so-called 1 percent add-on and
semi-annual COLAs; an increase in taxes on disability pensions; a
reduction in benefits for Federal retirees eligible for a social
security spouse's benefits; the elimination of the "lookback"
formula; a cutback in initial COLAs for new retirees; COLA delays;
and more restrictive rules for redepositing contribution with-
drawals. How much more does the system have to be weakened before
these arguments are recognized for what they really are - merely
excuses for trying to balance the Federal budget on the backs of
civil service retirees.
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In the past, the Committee has demonstrated an excellent record of
fighting these cutbacks. I hope you will continue to defend the
system as you develop a new retirement plan.
For these reasons, the new supplemental civil service retirement
system, when combined with social security, must provide benefit
levels comparable to those of the current system. You simply
cannot ignore the fact that other aspects of Federal compensation
are worth less than their counterparts in private industry.
Should civil service retirement also fall below private sector
standards, the Government would find it virtually impossible to
recruit and retain talented employees.
By comparable benefits, we refer to age and service requirements,
including those that apply to Section 8335 (mandatory separation)
employees of Title 5 U.S.C. As you know, most Federal employees
may currently retire at age 55 with 30 years of service; at age 60
with 20 years of service, and at age 62 with 5 years of service.
These requirements are often attacked as being too liberal,
particularly by those who do not know or who choose to disregard
their real impact. The current age and service requirements are
responsible for an average Federal employee retirement age that is
almost exactly the same as the average in private industry.
According to the General Accounting Office, Federal workers retire
at an average age of 61.1; private sector employees retire on the
average age of 61.8.
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Now, if I may, I would like to address some of the specific ques-
tions which the Committee intends to consider in its evaluation of
a new supplemental retirement system.
I firmly believe that the funding of the new supplemental plan
should not endanger benefits to either current or future employ-
ees. The new system should provide a level of benefits comparable
to the current program. We also strongly advocate a flexible
retirement age policy that encourages and rewards long term ser-
vice. It would be a disaster to create a new retirement program
that did not protect the Government's expertise and institutional
knowledge. In other words, cost savings should not be the primary
factor in establishing a new system - the last thing we want is a
cheap retirement system.
Equity between present employees and those hired after this year
should also be achieved in the area of payroll contributions.
Current civil service workers pay 7 percent of salary toward Fed-
eral retirement and 1.3 percent toward Medicare, for a total pay-
roll deduction of 8.3 percent. In order to avoid dissension
between present and new employees, and to ensure a certain degree
of fairness between the two groups, the new system should not
require civil servants hired after 1983 to contribute more than
this amount.
Inflation protection should also be a part of the retirement sys-
tem. It is neither wise nor fair to design a program which pro-
vides a certain level of benefits upon retirement but does not
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regularly adjust the value of these benefits in relation to the
cost-of-living. The reduction in purchasing power which would
inevitably ensue would place a burden not just on the retirees,
but on all of society.
We recognize that retirement plans in private industry do not, as
a rule, provide full yearly COLAs, although most plans are
integrated with social security which is adjusted annually for
increases in cost-of-living. Instead of eliminating regular COLAs
in the new supplemental retirement system, private industry should
move to provide full inflation protection in their annuity
programs. In other words, private industry plans in this specific
area should be improved; we should not weaken the existing civil
service provisions. This would be in the best interests of
society as well as Federal and private sector workers.
This concludes my statement. I will be happy to answer any ques-
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Finally in conclusion we would like to thank the Chair,
and the Committee for it's continued leadership on this
important issue. We thank the Committee for the opportunity
to express our views on this topic. We look forward toward
working with the Committee in developing a fair supplemental
plan.
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April 23, 1985
STATEMENT OF
THOMAS P. COSTIN, JR., PRESIDENT
NATIONAL ASSOCIATION OF POSTMASTERS OF THE UNITED STATES
Mr. Chairman, members of the the Committee -- my name is
Thomas P. Costin. I am President of the National Association of
Postmasters of the United States.
We greatly appreciate this opportunity to testify on be-
half of the nation's 29,700 Postmasters on the critically impor-
tant issue of developing a new retirement system for Postal em-
ployees and other Federal employees covered by Social Security.
We are especially grateful to the Chairman for his leadership in
framing the relevant issues and assuring the performance of the
background and analytical work necessary for the Committee's de-
liberations. In this connection, we acknowledge the Congression-
al Research Service's (CRS) expert report on designing a retire-
ment system for Federal workers. We agree with the Chairman that
this study clearly meets the objective of providing, for all in-
terested parties, the conceptual and analytical tools necessary
to analyze the numerous issues involved in the development of a
supplemental retirement plan.
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Even a casual reading of the CRS report reveals how com-
plicated and detailed the matter of pension plan design can be.
It is very easy to become engrossed in the technical details of
the CRS analysis and lose sight of our main purpose here today,
which is to communicate the Postmasters' view on the major fea-
tures of the new complementary pension plan. To this end, we
shall be guided in my testimony by the specific questions raised
in the Chairman's correspondence of March 18, 1985.
Appropriate Cost of the New Program:
When Congress debated and enacted Social Security cover-
age for Federal workers hired after 1983, almost everyone recog-
nized that it would be necessary to establish a new Federal pen-
sion program designed to complement Social Security benefit lev-
els. It is apparent, from our perspective, that most of the in-
dividual members of this Committee favor the development of a new
retirement plan which, when added to Social Security, would pro-
vide benefits comparable to those under the current Civil Service
Retirement System.
This approach, of course, assumes that the present CSRS
is adequate. We do not believe this to be the case and have con-
sistently advocated improvements in the system which would enable
postal workers to keep abreast of the progressive change which
has characterized private sector pension plan development over
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the past decade. The CSRS, once a model for non-Federal employ-
ment practice, has had no improvement in over 16 years. While
the CSRS is a good basic plan, it fails to provide income after
retirement sufficient to enable employees to maintain their pre-
retirement standard of living -- in our view, the central objec-
tive of any retirement system.
Nevertheless, we understand full well that the status of
incumbent Postal Workers is beyond the scope of these proceed-
ings, which are confined to the terms of the retirement system
applicable to post-1983 hirees. Under these circumstances, it is
appropriate to start with the objective of equalizing pension
compensation for all Postmasters and other Postal Workers. This
is accomplished by designing a pension for Social Security cover-
ed employees a ual to the value of CSRS, less the value of Social
Security. In determining the "equal value," we endorse the em-
ployer normal cost approach developed by the CRS. Accordingly,
the new supplemental plan (exclusive of Social Security) should
carry a normal cost to the employer of approximately 18.64 per-
cent of payroll. Under the CRS actuarial cost model, this equals
the employer's normal cost of CSRS, net of administrative expen-
ses (.05%) and the cost of unique provisions for special groups
(.45%), less the employer's normal cost for Social Security
(6.06%).
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We wish to emphasize that this figure is intended only
to preserve that portion of total compensation presently devoted
to retirement income. It simply reaffirms the principle of
equal-pay-for-equal-work among all postmasters, regardless of
their date of appointment. It goes without saying that we are
unalterably opposed to the Administration's proposal, or any
other, which seeks to cut pension compensation for new employess
through the establishment of a supplemental plan which, when add-
ed to Social Security, falls below the present Civil Service
standard. There are no grounds, in fact or equity, for further
gutting the benefit compensation of Federal workers who have al-
ready borne a disproportionate share of the Administration's
austerity measures.
Benefit Distribution:
We know that under the present CSRS the relationship be-
tween pension income and preretirement earnings is the same
across all income levels. Social Security, on the other hand,
replaces a higher proportion of preretirement earnings for those
at the lower end of the income scale. This poses a major design
question for pension planners, that is, "How much of this Social
Security 'tilt' should be eliminated by the supplemental plan?"
This is a particularly vexing problem for NAPUS. Our
organization represents Postmasters with an average annual salary
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of approximately $30,000. Salaries range, however, from under
$4,500 to over $60,000. We represent part-time Postmasters in
the rural areas whose salaries are predicated on 2 to 6 hours of
work per day, together with some of the highest paid postal mana-
gers, responsible for the entire operators of the largest postal
installations in New York, Washington, Chicago and other major
metropolitan areas.
This sprawling range of salaries leads me to conclude
that the costs and benefits of the new retirement system should
be distributed equally across the salary scale. We are convinced
that the fairest and most equitable treatment of all Federal
workers, respecting the distribution of benefits, requires the
duplication of the current CSRS structure to the maximum possible
degree.
This, of course, dictates a new supplemental plan which
incorporates an offset of 100 percent of the primary Social
Security benefit. The objective is to design a program which re-
places the same percentage of preretirement earnings, regardless
of job classification and rate of pay.
The Level of Employee Contributions:
From our viewpoint, the issue in these proceedings con-
cerns the employer's obligation to finance retirement income. If
the employees, individually or through their organization, wished
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to purchase greater retirement security by deferring personal in-
come through insurance annuities, Individual Retirement Accounts
or other forms of retirement income outside the employment rela-
tionship, the employer does not have an interest. For example,
NAPUS sponsors an Individual Retirement Account program for its
membership. Similarly, employee contributions to the pension
fund, while having a direct impact on the size of the pension, do
not influence total compensation or employment costs in one di-
rection or the other. Retirement income attributable to employee
contributions, therefore, should not be included in an evaluation
of pension adequacy any more than savings accounts, life insur-
ance, stocks, or other personal assets which affect retirement
security.
Whether employees should contribute to the new plan,
thereby enabling them to reach higher pension levels than are ob-
tainable under a noncontributory plan, will be a basic policy
matter for the respective employee organizations to decide. Some
unions encourage employee-financed additions because they have
little confidence in the employee's ability to manage money in a
way which permits voluntary savings outside of payroll deduc-
tions. On the other hand, we know that the vast majority of pri-
vate sector plans are noncontributory. This practice reflects
the reality that it is cheaper for the employer to finance pen-
sions than for the employees. First of all, employee contribu-
tions are loaded for the cost of returning employee contributions
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at resignation or discharge, while employer contributions are
nonrefundable. So, for example, if pension planners wished to
add a pension increment worth 1.0% of payroll, it would require
approximately 1.25% of pay if the obligation was to be financed
by employee contributions. The extra contribution is necessary
to cover the cost of refunded contributions.
Secondly, employee contributions are paid with after-tax
wages and are thus subject to income taxes and payroll taxes in
the nature of Social Security and pension contributions. Employ-
er contributions are completely tax sheltered. Under these cir-
cumstances, the only economically sensible approach is to design
the new retirement system in a fashion which does not require
direct employee contributions beyond those required under social
security.
We are aware of the prospect of sheltering employee con-
tributions from Federal income tax by establishing a capital ac-
cumulation plan. By design, such a program would enable employ-
ees to capture additional employer matching contributions (i.e.,
extra compensation) by making voluntary contributions of their
own. While we are not dogmatically opposed to these programs, we
regard them as a third and separate tier of pension development
which should be secured only after a solid core of employer-paid
benefits is obtained.
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In summary, the capital accumulation plan approach
should be considered the next generation of pension plan provi-
sions -- the kind which might, for instance, eventually supple-
ment the CSRS benefits of incumbent Federal workers. At this
stage, however, we oppose the capital accumulation approach as a
substitute for cost-equivalent basic pension benefits. Assessing
the value of the pension compensation represented by a capital
accumulation program requires speculation over employee partici-
pation rates. On this, we have no firm judgment. It is likely,
however, that participation rates will increase with salary, thus
allocating a disproportionate share of the value to the highest
paid classifications. For the same employer contribution, we
prefer to allocate more pension compensation to basic benefits
which are evenly distributed among all income levels and which
are not contingent on the employees' ability to generate addi-
tional savings.
The Proper Level of Funding:
As the Committee knows, pensions for postal employees
are financed through the Civil Service Retirement and Disability
Fund, which is part of the Unified Budget of the Federal govern-
ment. The Fund serves as an accounting mechanism into which var-
ious payments are deposited as income and from which benefits and
administrative expenses are paid. As a practical matter, the
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trust fund exists mainly for bookkeeping purposes -- to identify
and allocate cost within the Federal budget.
Civil Service Retirement System income, collected on be-
half of postal employees, comes from four main sources:
1. Employees contribute 7.0 percent of basic pay which
excludes COLA, overtime, bonuses, premium pay and
other allowances.
2. The Postal Service makes two separate contributions
a. An amount matching the amount contributed by
postal employees.
b. An annual amount representing the estimated
increase in the unfunded liability attribut-
able to increases in pay on which benefits are
computed. The estimated increase in the un-
funded liability as determined by the office
of Personnel Management is paid in 30 equal
annual installments with interest (computed at
the rate used in the most recent valuation of
the CSRS -- currently 5%), with the first pay-
ment due at the end of the fiscal year in
which an increase in basic pay becomes effec-
tive.
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3. The U.S. Treasury makes two separate transfers from
a. Annual payments equal to:
1) interest on the total amount of obliga-
tion in excess of current assets, as if
that amount represented revenue actually
appropriated and invested, and
2) those portions of annuities paid during
the year attributable to credit allowed
for military service.
b. Appropriations in 30 equal annual installments
to finance any increased liability resulting
from legislation which authorizes new or lib-
eralized benefits except cost-of-living ad-
justments.
4. The Fund earns interest by investing revenue re-
ceived from the first three sources. Money in the
Fund can, by law, only be invested in interest-
bearing U.S. Government securities.
In these proceedings, we are concerned with determining
the appropriate level of funding for the new supplemental plan.
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Some observers are advocating the "full funding" of pension obli-
gations. We assume that this means the regular annual payment of
normal cost contributions which, under. the CRS actuarial model,
will equal 24.7 percent, including Social Security (but excluding
administrative expenses and the cost of unique provisions for
special groups), if the new plan equals the cost of the present
CSRS. This rate of contribution is over twice the actual rate
presently being paid by the Postal Service on behalf of Postmas-
ters, under the formula described earlier. We estimate this con-
tribution rate to be 11.0 percent of gross pay.
We are reminded by the CRS and other independent ana-
lysts that the CSRS Fund is a part of the Unified Federal Budget
of the Federal government. Consequently, all payments to the
Fund from the Treasury, and all money invested by the Fund in
Treasury-held securities, are merely intergovernmental transfers.
If Congress appropriated additional revenue from the Treasury to
the Fund for the purpose of establishing credit against accruing
future liabilities, this additional revenue would immediately re-
turn to the Treasury in the form of bonds. The transactions
would cancel each other, although the Fund, as a government ac-
count, would show an improved financial condition. This credit
would, however, be reflected in a corresponding increase in the
national debt. Therefore, there would be no effect on CS RS par-
ticipants, nor on taxpayers, if amounts were credited to the Fund
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beyond revenue needed for operating expenses, i.e., benefit pay-
ments, refunds, and other administrative expenses. In other
words, there is no practical advantage to "fully-funding" or "ad-
vance-funding," to any degree, over paying the pension on a cur-
rent disbursement or "pay-as-you-go" basis.
Under the circumstances, we see no real purpose in adop-
ting a funding standard which would require off-budget agencies
such as the Postal Service to double their current per capita
outlay and aggravate an already strained financial position. We
support a level of funding which would require current cash out-
lays by the Postal Service equal to the per capita contributions
for the pre-1984 workforce. Certainly, this position would be
different if we were dealing in an industry where bankruptcy and
plan termination rates were high. But, we are satisfied that
pensions backed by the Federal government taxing authority will
be financially secure without full advance funding.
Vested Benefits:
The vesting period should not emerge as a major issue in
developing the new retirement plan. The present 5-year rule, ap-
plicable to voluntary and disability benefits, is a reasonable
compromise between those who seek to reduce employee turnover by
encouraging longer service and those who wish to provide some mo-
bility between the Federal and non-Federal sectors. We endorse
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the inclusion of a 5-year "cliff" vesting provision which would
operate under the same rules as the present CSRS. If an employee
works beyond the 5-year period, then the accrued benefit at the
time of resignation is payable at age 62. However, in lieu of
deferred benefits, the employees may divest themselves of the
employer contribution by accepting a return of their own contri-
bution without interest.
Although the 5-year rule appears to be more liberal than
the 10-year ERISA standard typical of the private sector, the ac-
tual cost differences are marginal. ERISA does not permit the
forfeiture of vested benefits based upon the employer's contri-
butions, even if the employee withdraws his own contributions.
Moreover, all employee contributions must be returned with in-
terest under ERISA standards.
Summary:
We have commented briefly on the five specific issues on
which the Committee intended to focus today. There are, of
course, several other important provisions of the new retirement
system which have not been specifically discussed, such as the
postretirement escalator clause and eligibility requirements for
early retirement. The Postmasters' position on these, and the
issues treated hereinabove, is expressed in the following outline
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which sets forth the details of the supplemental retirement plan
which we are willing to support:
? Pension Benefit Formula
? Social Security Coor-
dination
? Post-retirement
Adjustments
? Eligibility Require-
ments for Unreduced
Benefits
? Social Security
Supplement
? Vesting
? Disability
1.78 percent of high-3 x years
of service.
Less 100 percent of Social
Security.
100 percent of the CPI in-
crease.
Age
55
with
30
years,
or
Age
60
with
20
years,
or
Age
62
with
5
years.
Payable between ages 55 and
62; equal to the Social
Security benefit payable at
age 62.
5 years, payable beginning at
age 62.
Applicable to any person who is
unable to perform in position
during first 24 months; after
24 months, payable if totally
and permanently disabled for
any occupation; benefit equal
to 60 percent of predisability
pay less Social Security, or
accrued retirement benefit,
whichever is greater.
For preretirement death, 55
percent of accrued retirement
benefits. For postretirement
death, if elected, a reduction
in the retirement annuity of
2.5 percent of first $3,600
annually, plus 10 percent on
amounts over $3,600. Survivor
benefit is calculated at 55
percent of annuity before re-
duction.
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? Employee Contributions None.
? Capital
Accumulation Plan
A pension program containing these central ingredients
does not exceed the costs of the current CSRS and accomplishes
several objectives critical to our organization:
(1) It sets pension compensation for Social Security-
covered employees at the same level as non-Social
Security-covered employees by equalizing employer
pension costs between the two groups.
(2) It distributes the costs and benefits uniformly
across job classifications and salary levels,
thereby duplicating the structure of the present
CS RS.
(3) It places the weight of costs and benefits on the
basic benefit formula without the use of contingent
benefits associated with a voluntary capital accum-
ulation plan.
(4) It preserves the main features of the present CSRS
in the areas of postretirement adjustments, vest-
ing, and early retirement.
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We urge the Committee to give full and careful consider-
ation to these essential objectives. A retirement program de-
signed in conformance with these principles, while failing to
correct for the deficiencies in the current pension system, pro-
vides the fairest and most equitable adjustment of taxpayers' and
employees' interests at this point in time. Moreover, the pre-
servation of pension compensation is critically important to the
Postal Service if it is to continue to attract and retain quali-
fied and capable managerial personnel..
Thank you, Mr. Chairman, and members of the Committee,
for having provided this opportunity to express the views of the
National Association of Postmasters of the United States.
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federally employed women ? an organization for opportunity & equality for women in government
[phone] ? 1010 vermont avenue, northwest, washington, d.c. 20005
TESTIMONY
OF
FEDERALLY EMPLOYED WOMEN
BEFORE
THE COMMITTEE ON POST OFFICE AND CIVIL SERVICE
ON
THE DEVELOPMENT OF A SUPPLEMENTAL CIVIL SERVICE
RETIREMENT SYSTEM
APRIL 23, 1985
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TESTIMONY ON THE DEVELOPMENT OF A SUPPLEMENTAL CIVIL SERVICE RETIREMENT
SYSTEM FOR EMPLOYEES HIRED AFTER 1983 AND UNDER THE SOCIAL SECURITY SYSTEM
BEFORE THE COMMITTEE ON POST OFFICE AND CIVIL SERVICE, APRIL 23, 1985.
CHAIRPERSON FORD, THANK YOU FOR ASKING FEDERALLY EMPLOYED WOMEN TO
TESTIFY HERE TODAY. FEDERALLY EMPLOYED WOMEN (FEW) IS AN INTERNATIONAL
MEMBERSHIP ORGANIZATION REPRESENTING WOMEN IN THE FEDERAL GOVERNMENT
THROUGHOUT THE UNITED STATES AND FOREIGN NATIONS. FEW IS A PRIVATE, NON-
PROFIT, NON-PARTISAN ORGANIZATION AND WAS FOUNDED IN 1968 TO ADVOCATE
EQUAL OPPORTUNITY AND FOSTER FULL POTENTIAL FOR WORKING WOMEN IN THE
FEDERAL SECTOR.
THE DEVELOPMENT OF A NEW CIVIL SERVICE RETIREMENT SYSTEM FOR FEDERAL
WORKERS HIRED AFTER 1983 AND UNDER THE SOCIAL SECURITY SYSTEM IS AN ISSUE
OF PRIME IMPORTANCE. WE APPLAUD THIS COMMITTEE FOR CONTINUING TO PURSUE
THE DEVELOPMENT OF A NEW SUPPLEMENTAL RETIREMENT SYSTEM THAT WILL MEET
EVERYONE'S NEEDS.
1984, THERE WERE OVER 800,000 FEDERAL WOMEN WORKERS. WOMEN COMPRISED
NEARLY HALF OF THE TOTAL FEDERAL WORKFORCE. MANY OF THESE WOMEN ARE
DEPENDENT UPON THEIR RETIREMENT ANNUITY AS THEIR MAIN SOURCE OF INCOME
DURING THEIR RETIREMENT YEARS. IN 1980, THIRTY-SIX PERCENT OF ALL SINGLE
ELDERLY WOMEN RETIRED FROM THE FEDERAL SERVICE DEPENDED UPON THEIR GOVERNMENT
PENSION FOR OVER 50 PERCENT OF THEIR TOTAL INCOME. THE RETIREMENT INCOME
THAT WOMEN FEDERAL RETIREES DEPEND UPON IS USUALLY INADEQUATE To LIVE ON COMFORT-
ABLY. IN 1984, THE MEDIAN MONTHLY ANNUITY FOR RETIRED FEDERAL WOMEN
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WAS $740 AS COMPARED TO $1,081 FOR MEN. WOMEN RETIRED FROM THE GOVERNMENT
RECEIVE LOWER-ANNUAL ANNUITIES THAN THEIR MALE COUNTERPARTS IN LARGE PART
BECAUSE FEMALE FEDERAL WORKERS ARE CONCENTRATED IN THE LOWEST PAYING GRADE
LEVELS. SEVENTY-FIVE PERCENT OF ALL WOMEN WHO WORK FOR THE FEDERAL GOVERN-
MENT ARE IN GENERAL SCHEDULE (GS) GRADES ONE THROUGH EIGHT. THE MEDIAN
WAGES FOR FEDERALLY EMPLOYED WOMEN IN THE GENERAL SCHEDULE CLASSIFICATION
SYSTEM TOTALED $18,864 PER YEAR IN 1984. UNDER THE CURRENT RETIREMENT SYSTEM,
WOMEN REPLACE, ON THE AVERAGE, 46.5 PERCENT OF THEIR FINAL PAY AS COMPARED
TO 57.2 PERCENT FOR MEN. WHEN EXAMINING THE MEDIAN YEARS OF SERVICE FOR
FEDERAL EMPLOYEES, HOWEVER, IT IS SHOWN THAT WOMEN'S COMMITMENT TO THE
FEDERAL GOVERNMENT IS SIMILAR TO MEN EMPLOYED BY THE FEDERAL GOVERNMENT.
THE MEDIAN YEARS OF SERVICE IN THE CIVILIAN FEDERAL WORKFORCE TOTALS 25.2
FOR WOMEN AS COMPARED TO 26.7 FOR MEN. FEDERAL WOMEN ALSO TEND TO RETIRE
AT A LATER AGE THAN MEN IN ORDER TO GAIN FULL RETIREMENT BENEFITS. THEREFORE,
WOMEN'S LOW RETIREMENT ANNUITIES CAN IN LARGE PART BE ATTRIBUTED TO THEIR
LOW EARNINGS.
OLDER WOMEN ARE THE FASTEST GROWING POVERTY POPULATION IN OUR NATION.
FEDERAL WOMEN RETIREES SHARE THE SAME BURDENS IN THEIR RETIREMENT YEARS AS
ALL OTHER WOMEN. THE GREAT MAJORITY OF ELDERLY WOMEN LIVE ALONE, DEPEND
ON THEIR RETIREMENT BENEFITS FOR THE MAJORITY OF THEIR INCOME, AND PAY
INCREASING SHARES OF THAT INCOME FOR MEDICAL BILLS. IN 1983, 52 PERCENT
OF ELDERLY WHITE SINGLE WOMEN AND 84 PERCENT OF ELDERLY BLACK SINGLE WOMEN
LIVED AT OR NEAR THE POVERTY LEVEL. TODAY, WORKING FOR THE FEDERAL GOVERNMENT
IS NO GUARANTEE THAT A FEDERAL WOMAN RETIREE WILL NOT JOIN THE INCREASING
RANKS OF ELDERLY WOMEN LIVING IN POVERTY. WOMEN WHO DEVOTE THEIR WORKING
LIVES TO THE CIVIL SERVICE SYSTEM MUST BE GUARANTEED A DECENT STANDARD
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OF LIVING UPON RETIREMENT.
THE PRESENT CIVIL SERVICE RETIREMENT SYSTEM
ALTHOUGH THE CURRENT CIVIL SERVICE RETIREMENT SYSTEM (CSRS) IS GENDER
NEUTRAL, IT HAS A DISPARATE IMPACT UPON WOMEN. THE PRESENT SYSTEM REWARDS
EMPLOYEES WITH HIGH EARNINGS AND LIFE-LONG FEDERAL CAREERS WITH HIGH RE-
TIREMENT ANNUITIES. WOMEN WHO DO NOT OCCUPY HIGH PAYING OCCUPATIONS IN THE
FEDERAL GOVERNMENT SUFFER UNDER THE CURRENT RETIREMENT SYSTEM. THE
BENEFIT CALCULATION THAT AVERAGES THE THREE YEARS OF HIGHEST EARNINGS
WITH AN INCREASED PERCENTAGE OF RETURN AS THE NUMBER OF YEARS OF SERVICE
INCREASES AFFORDS WOMEN LITTLE OPPORTUNITY TO BUILD A SUBSTANTIAL RETIREMENT
ANNUITY. ALTHOUGH THE QUESTION OF WOMEN'S CONCENTRATION IN THE LOWEST
GRADE LEVELS AND RESULTING LOW WAGES IS ANOTHER CONCERN, IT MUST BE TAKEN
INTO ACCOUNT WHEN LOOKING AT A RETIREMENT SYSTEM. THE NEW SUPPLEMENTAL
RETIREMENT SYSTEM CAN NOT IGNORE THESE FACTS AND CONTINUE TO DISCRIMINATE
AGAINST FEDERALLY EMPLOYED WOMEN. FEW URGES THIS COMMITTEE TO CLOSELY
EXAMINE WOMEN'S CURRENT STATUS IN THE FEDERAL WORKFORCE WHEN DESIGNING
THIS NEW SYSTEM.
BASIC STRUCTURE OF A NEW SUPPLEMENTAL CIVIL SERVICE RETIREMENT SYSTEM
FEW ENVISIONS A NEW RETIRMENT SYSTEM WITH EITHER TWO OR THREE LEVELS.
THE BASIC ANNUITY WOULD CONSIST OF THE SOCIAL SECURITY BENEFIT WITH A
DEFINED BENEFIT AS THE SECOND LEVEL AND POSSIBLY AN OPTIONAL CAPITAL
ACCUMULATION PLAN AS THE THIRD LEVEL. FEW URGES THE IMPLEMENTATION OF
A DEFINED BENEFIT PLAN AS THE SECOND LEVEL BENEFIT, RATHER THAN A DEFINED
CONTRIBUTION PLAN, BECAUSE A DEFINED BENEFIT PLAN TARGETS A SET OF
RETIREMENT ANNUITIES UNDER SPECIFIED CONDITIONS. THESE SPECIFIC BENEFITS
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ALLOW WORKERS TO BETTER PLAN FOR THEIR RETIREMENT YEARS. ALSO, A DEFINED
BENEFIT PLAN EASES THE ADDITION OF SUPPLEMENTAL BENEFITS (I.E. DISABILITY
AND SURVIVOR) AND CAN BE RETROACTIVE FOR EMPLOYEES HIRED PRIOR TO THE
ENACTMENT OF THE PLAN. THIS LATTER ASPECT IS IMPORTANT BECAUSE THE
FEDERAL WORKERS WHO WILL BE UNDER THE NEW SYSTEM ARE CURRENTLY ENTERING
THE WORKFORCE. DEFINED CONTRIBUTION PLANS, ON THE OTHER HAND, ARE NOT
USUALLY UTILIZED BY LARGE CORPORATIONS, BUT RATHER BY SMALL COMPANIES OR
FOR SHORT SERVICE EMPLOYEES. DEFINED CONTRIBUTION PLANS ARE MORE RISKY
AND DO NOT ALLOW WORKERS TO PLAN ADEQUATELY FOR THEIR RETIREMENT INCOME.
CAPITAL ACCUMULATION PLANS ARE BECOMING INCREASINGLY MORE POPULAR
AMONG PRIVATE SECTOR COMPANIES. UNDER A TYPICAL 401 (k) THRIFT PLAN,
EMPLOYEES CAN DEFER A PERCENTAGE OF THEIR YEARLY EARNINGS TO A RETIREMENT
ACCOUNT. A RANGE OF OPTIONS EXIST ON EMPLOYER MATCHINGS OF THIS DEFERRED
INCOME. RETIREMENT INCOME FROM A CAPITAL ACCUMULATION PLAN IS DIRECTLY
RELATED TO ONE'S INVESTMENT PARTICIPATION. MANY WOMEN WOULD BE UNABLE
TO TAKE ADVANTAGE OF A CAPITAL ACCUMULATION PLAN, DUE TO THEIR INABILITY
TO DECREASE THEIR MODEST TAKE-HOME PAY, BUT SUCH A PLAN WOULD AFFORD
HIGHER PAID EMPLOYEES THE OPTION OF HIGHER RETIREMENT BENEFITS WITH
IMMEDIATE TAX SAVINGS.
THERE ARE CERTAIN COMPONENTS OF THE PRESENT CIVIL SERVICE RETIREMENT
SYSTEM THAT SHOULD BE KEPT INTACT. FEW BELIEVES THAT THE CURRENT STRUCTURE
OF FULL BENEFITS AT AGE 55 WITH 30 YEARS OF SERVICE SHOULD BE CONTINUED.
MANY EMPLOYEES HAVE ENTERED THE FEDERAL SERVICE WITH THE UNDERSTANDING
THAT THEY CAN EXERCISE THIS OPTION. ALTHOUGH WOMEN EMPLOYED BY THE
FEDERAL GOVERNMENT CURRENTLY RETIRE LATER THAN THEIR MALE COUNTERPARTS,
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THEY SHOULD RETAIN THE OPTION OF RETIREMENT AT AGE 55. ALSO, AS WE
SEE WOMEN'S LABOR FORCE ATTACHMENT GROW STRONGER AND MORE CONTINUOUS,
IT IS LIKELY THAT MORE WOMEN WILL HAVE ENOUGH YEARS OF SERVICE TO RETIRE
WITH FULL BENEFITS AT AGE 55. FEW WOULD ALSO LIKE TO SEE THE PRESENT
COMPUTATION OF THE THREE YEARS OF HIGHEST EARNINGS FOR BENEFIT CALCULATIONS
PRESERVED. ALTHOUGH WOMEN HAVE A RELATIVELY FLAT EARNINGS PROFILE AS
OPPOSED TO MALE WORKERS, WOMEN ARE BEGINNING TO MAKE INROADS INTO THE
HIGHER PAYING GRADE LEVELS. BECAUSE THIS MOVEMENT IS RELATIVELY RECENT,
EXPANDING THE COMPUTATION YEARS WILL ONLY SERVE TO LOWER WOMEN'S FINAL
ANNUITY. AVERAGING LIFE LONG EARNINGS, AS IN THE SOCIAL SECURITY SYSTEM,
WOULD DRASTICALLY LOWER THESE WOMEN'S RETIREMENT ANNUITIES. TO PROTECT
RETIREMENT BENEFITS FROM INFLATION, COST OF LIVING ADJUSTMENTS (COLAS)
MUST BE PAID ON AN ANNUAL BASIS. IF NO COLA PROVISION IS PROVIDED TO
FEDERAL RETIREMENT BENEFITS, THE BENEFITS ARE QUICKLY ERODED AWAY AND THE
PHILOSOPHY OF REPLACING A PERCENTAGE OF A RETIREE'S SALARY IS LOST. THE
MEDIAN REPLACEMENT RATE FOR FEDERAL RETIRED WOMEN IS 46.5 PERCENT (BASED
ON THE THREE YEARS OF HIGHEST EARNINGS). ANY REDUCTION IN THIS AMOUNT
IS INADEQUATE. TO.-LIVE ON. FOR EXAMPLE, AFTER 10 YEARS, WITH A 4 PERCENT
INFLATION RAGE, A BENEFIT ONLY HAS TWO-THIRDS OF ITS ORIGINAL PURCHASING
POWER. A WOMAN RETIRED FROM THE FEDERAL GOVERNMENT MUST BE ABLE TO KEEP
HER PURCHASING POWER IN PACE WITH INFLATION.
ALTHOUGH WE CONTEND THAT CERTAIN PROVISIONS OF THE CURRENT CIVIL
SERVICE RETIREMENT SYSTEM SHOULD BE PRESERVED AND IMPLEMENTED INTO THE
SUPPLEMENTAL SYSTEM, WE WILL ALSO OFFER SOME SUGGESTIONS ON HOW TO CHANGE
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THE SYSTEM TO BETTER ACCOMMODATE FEDERAL WOMEN. AS PREVIOUSLY MENTIONED,
THE PRESENT SYSTEM DOES NOT ADEQUATELY PROVIDE WOMEN RETIREES WITH A
DECENT STANDARD OF LIVING. IF WE BASE THE SUPPLEMENTAL SYSTEM ON THE
PRESENT CSRS, WOMEN WILL CONTINUE TO BE LOSERS. AT THE RETIREMENT HEARINGS
HELD IN THIS COMMITTEE ON APRIL 2, 1985, IT WAS STATED THAT FEDERAL
EMPLOYEES HAD TO REACH THE GENERAL SCHEDULE GRADE NINE BEFORE THEY RECEIVED
A FEDERAL ANNUITY AS LARGE AS THE SOCIAL SECURITY BENEFIT. BECAUSE MOST
WOMEN ARE CONCENTRATED IN GRADES BELOW GENERAL SCHEDULE NINE, THEY ARE
RECEIVING LOWER RETIREMENT ANNUITIES THAN THEIR PRIVATE SECTOR COUNTERPARTS.
SOCIAL SECURITY TILT
ALTHOUGH THE SOCIAL SECURITY SYSTEM IS NOT FREE FROM INEQUITIES FOR
WOMEN, THE SOCIAL SECURITY TILT BUILT INTO THIS SYSTEM GUARANTEES LOW
WAGE EARNERS A HIGHER REPLACEMENT RATE OF THIER EARNINGS UPON RETIREMENT
THAN HIGH WAGE EARNERS. DUE TO THE FACT THAT WOMEN MAKE UP A LARGE
PART OF THE LOW PAID LONG TERM FEDERAL EMPLOYEES, FEW RECOMMENDS MAINTAINING
THE SOCIAL SECURITY TILT BY SIMPLY ADDING ON THE SUPPLEMENTAL CIVIL
SERVICE BENEFIT. THE HAY-HUGGINS COMPANY HAS REPORTED THAT THIS PRO-
CEDURE WOULD BE SIMPLE TO ADMINISTER. THEY OFFER AN EXAMPLE OF A BENEFIT
CALCULATION OF 1 PERCENT OF BASE PAY FOR EACH YEAR OF SERVICED ADDED
TO THE SOCIAL SECURITY BENEFIT. THIS CALCULATION WOULD FULLY PRESERVE THE
TILT INCORPORATED IN SOCIAL SECURITY BENEFITS. THIS SYSTEM IS USED BY
SEVERAL STATE RETIREMENT PLANS. THE HAY GROUP ALSO POINTS OUT THAT UNDER
THIS PLAN THERE WOULD BE LOSERS AND GAINERS. SHORT TERM, LOW-PAID EMPLOYEES
AND MARRIED EMPLOYEES WOULD GAIN AS COMPARED TO THE PRESENT SYSTEM AND
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HIGH-PAID CAREER EMPLOYEES WOULD LOSE RELATIVE TO THE PRESENT SYSTEM.
SOME OF THESE RESULTS COULD BE PARTIALLY OFFSET BY USING A BENEFIT
CALCULATION THAT DOES NOT GIVE A STRAIGHT PERCENTAGE OF BASE PAY FOR
EACH YEAR OF SERVICE, BUT RATHER INCREASES THE PERCENTAGE OF BASE PAY
AS`THE NUMBER OF YEARS OF SERVICE INCREASES (SIMILAR TO THE CURRENT SYSTEM'S
PRESENT BENEFIT CALCULATION). USING THIS METHOD WOULD INCREASE THE RE-
PLACEMENT RATE FOR THE HIGHER-EARNING LONG TERM EMPLOYEES. IN ADDITION,
IF A CAPITAL ACCUMULATION PLAN WAS ADOPTED, IT IS LIKELY THAT HIGHER-
EARNING EMPLOYEES WOULD BE MORE LIKELY TO PARTICIPATE AND FURTHER INCREASE
THEIR REPLACEMENT RATE OF THEIR FINAL SALARY. THE CONGRESSIONAL RESEARCH
SERVICE HAS PROVIDED A MODEL OF SUCH A SYSTEM THAT INCLUDES AN ADD-ON
SUPPLEMENTAL-BENEFIT AND A CAPITAL ACCUMULATION PLAN THAT ALLOWS A MAXIMUM
6 PERCENT EMPLOYEE CONTRIBUTION WITH A 3 PERCENT EMPLOYER MATCH. THE
SOCIAL SECURITY TILT IS MAINTAINED FOR THE LOWER PAID EARNER, YET THE
HIGHER PAID LONG TERM EMPLOYEE DOES NOT SUFFER. THE PRESIDENT'S COMMISSION
ON PENSION POLICY REPORTED IN 1981 THAT 51 TO 86 PERCENT OF BEFORE TAX
FINAL EARNINGS WAS NEEDED FOR RETIREES TO MAINTAIN A CONSTANT STANDARD
OF LIVING UPON RETIREMENT IN 1980. THEY ALSO SHOWED THAT LOWER-EARNERS
NEEDED A HIGHER REPLACEMENT RATE OF THEIR FINAL SALARY THAN HIGHER-EARNERS
TO ACCOMPLISH A PRE-RETIREMENT STANDARD OF LIVING. BY MAINTAINING THE
SOCIAL SECURITY TILT, PART OF THIS GOAL IS ACCOMPLISHED.
BY'INTEGRATING THE SOCIAL SECURITY BENEFIT WITH A PENSION ANNUITY,
THE LONG TERM LOW-PAID EMPLOYEE WILL RECEIVE A LOWER BENEFIT. A 100
PERCENT SOCIAL SECURITY OFFSET WOULD ELIMINATE THE TILT ALTOGETHER AND
CONTINUE THE PHILOSOPHY OF THE PRESENT CIVIL. SERVICE RETIREMENT SYSTEM
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EMPLOYEE CONTRIBUTIONS
UNDER THE CURRENT SYSTEM, FEDERAL EMPLOYEES CONTRIBUTE 7 PERCENT OF
THEIR INCOME TOWARD THEIR RETIREMENT BENEFIT. UNDER THE SOCIAL SECURITY
SYSTEM, EMPLOYEES NOW CONTRIBUTE 5.7 PERCENT OF THEIR INCOME TOWARD THE
SOCIAL SECURITY BENEFIT. FEW SUGGESTS THAT THE SUPPLEMENTAL RETIREMENT
SYSTEM NOT REQUIRE AN EMPLOYEE CONTRIBUTION BEYOND THE SOCIAL SECURITY
CONTRIBUTION. ACCORDING TO THE GOVERNMENT ACCOUNTING OFFICE (GAO),
93 PERCENT OF ALL WORKERS IN THE PRIVATE SECTOR DO NOT CONTRIBUTE TO
THEIR RETIREMENT PLANS. FEW WOULD LIKE TO SEE THIS PRACTICE TRANSLATE
INTO THE SUPPLEMENTAL RETIREMENT SYSTEM. HOWEVER, WE REALIZE THAT PRESENT
FEDERAL WORKERS COULD PERCEIVE AN INEQUITY SINCE THEIR CONTRIBUTIONS
WILL BE HIGHER OR THAT FINANCING A NEW SYSTEM MAY NOT BE POSSIBLE WITHOUT
AN EMPLOYEE CONTRIBUTION. IN THESE CASES, FEW RECOMMENDS NO MORE THAN
A 2 PERCENT EMPLOYEE CONTRIBUTION AS A FLAT PERCENTAGE OF TOTAL EARNINGS.
WE WOULD ALSO RECOMMEND THAT THIS COMMITTEE EXAMINE THE POSSIBILITY OF
LEGISLATING A COMPANION PROPOSAL TO TAX DEFER THIS CONTRIBUTION SIMILAR
TO 414 (h)(2) STATE PLANS.
VESTING
WHEN DISCUSSING THE QUESTION OF VESTING PERIODS, IT IS IMPORTANT TO
NOTE THAT MOST FEDERAL EMPLOYEES WHO LEAVE THE GOVERNMENT PRIOR TO TEN
YEARS OF SERVICE ELECT TO REMOVE THEIR RETIREMENT MONEY RATHER THAN SELECT
A DEFERRED ANNUITY. FOR THIS REASON, FEW SUPPORTS A TEN YEAR VESTING
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PERIOD FOR THE SUPPLEMENTAL RETIREMENT SYSTEM IN ORDER FOR THE SYSTEM
TO BE COMPATIBLE WITH SOCIAL SECURITY VESTING REQUIREMENTS. THE HAY
GROUP HAS ESTIMATED THAT ONLY 1 PERCENT OF EMPLOYEES WOULD RECEIVE A
BENEFIT UNDER A 5 YEAR VESTING PERIOD WHO WOULD NOT RECEIVE BENEFITS
UNDER A 10 YEAR VESTING PERIOD.
FUNDING
THE CIVIL SERVICE BENEFITS MUST BE PROTECTED FROM FLUCTUATIONS IN
THE ECONOMY, CHANGING POLITICAL ATMOSPHERES, AND INFLATION. UNDER THE
CURRENT RETIREMENT SYSTEM, FEDERAL AGENCIES MATCH THE EMPLOYEE'S
CONTRIBUTION AND THE REMAINING FUNDS COME FROM THE FEDERAL TREASURY. FEW
ENCOURAGES THE COMMITTEE TO SET UP A SYSTEM THAT BETTER SEGREGATES THE
RETIREMENT FUNDS FROM OTHER TREASURY FUNDS. EACH AGENCY SHOULD BE REQUIRED
TO SET ASIDE FUNDS FOR THIS PURPOSE IN A SIMILAR MANNER TO SEGREGATING
FUNDS FOR SOCIAL SECURITY BENEFITS. YEARLY CONGRESSIONAL APPROPRIATIONS
TO THE RETIREMENT FUND SHOULD BE ELIMINATED AND REPLACED BY A FUNDING
FORMULA. IT IS THE ULTIMATE RESPONSIBILITY OF THE EMPLOYER TO ENSURE
THAT RETIREMENT FUNDS ARE SOLVENT.
A COST DECISION MUST BE MADE WHETHER TO APPROXIMATE BENEFIT LEVELS
IN THE PRESENT CSRS OR RETIREMENT SYSTEMS IN THE PRIVATE SECTOR IN
COMPARABLE COMPANIES. WE DO NOT FEEL THAT THE LEVEL OF BENEFITS AFFORDED
FEDERAL EMPLOYEES SHOULD BE UNDULY HAMPERED BY STRICT COST CONSTRAINTS.
DESIRED BENEFIT LEVELS SHOULD BE CALCULATED FOR COST AND ADJUSTED
ACCORDING TO FUNDING CONSTRAINTS.
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CONCLUSION
THE SUPPLEMENTAL CIVIL SERVICE RETIREMENT SYSTEM SHOULD MAINTAIN
THE INTEGRITY OF A FEDERAL RETIREMENT SYSTEM AND PROVIDE ADEQUATE BENEFITS
TO EMPLOYEES OF ALL INCOME LEVELS WHILE ATTRACTING A QUALIFIED FEDERAL
WORKFORCE AND NOT PENALIZING LOW EARNERS. THIS TASK IS NO SMALL JOB.
IN TODAY'S ATMOSPHERE OF CONSTANT ATTACKS ON FEDERAL WORKERS, IT IS EVEN
MORE IMPORTANT THAT A NEW RETIREMENT SYSTEM BE DESIGNED THAT WILL REWARD
HARD WORKING CIVIL SERVANTS AND ATTRACT TALENTED NEW EMPLOYEES. FEW
URGES THIS COMMITTEE TO LOOK AT THE CURRENT STATUS OF WOMEN EMPLOYED BY
THE FEDERAL GOVERNMENT AND TO INCORPORATE YOUR FINDINGS INTO A NEW SYSTEM
THAT DOES NOT PENALIZE LOW WAGE EARNERS. WE WOULD SUGGEST TAKING CIVIL
SERVICE WOMENS' EMPLOYMENT DATA AND INPUTING IT INTO A RETIREMENT
COMPUTER MODEL TO DETERMINE HOW WOMEN WILL FARE UNDER THE VARIETY OF
PROPOSED RETIREMENT SYSTEMS. EVEN THOUGH THERE IS A WEALTH OF EXCELLENT
INFORMATION ON SUPPLEMENTAL CIVIL SERVICE RETIREMENT PLANS (I.E. GAO,
CRS, HAY), THERE IS LITTLE DATA ON HOW THESE PROPOSALS WOULD IMPACT
WOMEN RETIRED FROM THE FEDERAL GOVERNMENT. ALTHOUGH WOMEN ARE MOVING
INTO HIGHER_GRADE.POSITIONS, THE FACT THAT MOST FEDERALLY EMPLOYED WOMEN
ARE CONCENTRATED IN THE LOWEST GENERAL SCHEDULE GRADE LEVELS WILL NOT
SUBSTANTIALLY CHANGE IN THE NEAR FUTURE. THESE HARD WORKING, DEVOTED
FEDERAL EMPLOYEES CAN NOT BE IGNORED IN THE DEVELOPMENT OF A NEW
SUPPLEMENTAL CIVIL SERVICE RETIREMENT SYSTEM.
THANK YOU FOR ASKING FEDERALLY EMPLOYED WOMEN TO TESTIFY BEFORE
THE COMMITTEE TODAY. I WILL BE HAPPY TO ANSWER ANY QUESTIONS THE
COMMITTEE HAS.
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