TESTIMONY OF MOE BILLER PRESIDENT AMERICAN POSTAL WORKERS UNION AFL-CIA ON LEGISLATION TO PROVIDE A SUPPLEMENTAL RETIREMENT PLAN FOR POSTAL AND FEDERAL EMPLOYEES HIRED SINCE DECEMBER 31, 1983

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP89-00066R000200040010-8
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 23
• Document Creation Date: December 22, 2016
• Document Release Date: May 19, 2010
• Sequence Number: 10
• Publication Date: September 9, 1985
• Content Type: MISC

1. _ _ I III 1 lit 11[1111 _ 6 I 1AAL IL_
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American Postal Workers Union., AFL-CIO
81714th Street, N.W., Wash ngtcn. D.C. 2000S
Moe Biller, President
)202) 842-4246
Testimony of Moe Biller
President
American Postal Workers Union
AFL-CIO
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Douglas C. HoL oor
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Director. Mat Hardier Con
Regional Coonflnmrs
Reim R. Moose
Western Region
James P. Witlam
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PhRp C. Fle,m*i , Jr.
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Neal Vaonro
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Southern Region
Legislation to Provide a Supplemental Retirement Plan
for Postal and Federal Employees
Hired Since December 31, 1983
Committee on Governmental Affairs
United States Senate
September 9, 1985
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Testimony of Moe Biller, President
American Postal Workers Union, AFL-CIO
Mr. Chairman, thank you for inviting me to testify before
you today on behalf of the 325,000 members of the American Postal
Workers Union.
The subject of the hearing today, the design of a retirement
program for postal and federal workers hired since December 31,
1983, is of fundamental importance to all our members. Enrollees
in the current retirement plan are concerned because they believe
that there should be comparable benefits for all employees and
that the current system should not be undermined.
New employees are concerned because they should have a good
retirement plan as part of their total compensation and they have
been kept in the dark as to what that plan will be. "Union"
means we stand together. That's why I'm here to speak on behalf
of all our members.
The American Postal Workers Union supports action in this
Congress on a.supplemental plan. We believe it is time to end
the uncertainty for the new hires. Most of this spring and
summer, postal and federal employees and retirees have felt that
their retirement program was in the hands of budget hijackers who
were threatening, over and over, to do it harm. The completion
of action on this year's budget resolution has set the hostage
free--at least temporarily. Cooler heads now have an opportunity
to consider this legislation without the presence of a budget gun
at the head of employee benefit programs.
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If a supplemental plan is not enacted, new hires will
eventually have to pay the full payroll deductions for both Civil
Service Retirement and Social Security. We don't want to see that
happen any more than Members of Congress do. However, we will'
not accept a stingy, inadequate plan. It is the duty of this
Committee to stand up with us and oppose the shrill demagoguery
of the far right about the compensation of federal and postal
employees.
Administration's Hindrance of the Legislative Process
The Reagan Administration has been no help in developing an
adequate. retirement plan for new hires. Mr. Devine and Mr. Grace
may have high-sounding names but they took the low road on
policies for public service workers. Hiding behind the mantle of
authority and respectability given to them through appointment by
this Administration as the former Director of the Office of
Personnel Management and the former head of the President's
Private Sector Survey on Cost Control, Mr. Devine and Mr. Grace
continue to spread confusion and falsehoods about the Civil
Service Retirement program.
One of their most commonly made charges is that an unfunded
liability in Civil Service Retirement means the program is overly
expensive or unsound. A recent article in the National Journal
clearly demonstrated how much baloney there is in that false
charge. "Red herring" is the term used in the article to
describe the CSRS unfunded liability. Both Grace and Devine have
been throwing into the debate on Civil Service Retirement as many
red herrings as they can lay their hands on.
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The former OPM Director floated a proposal a few months ago
that would have meant severe reductions in the Civil Service
Retirement benefit. I am glad that Congress has not given it
serious consideration. It was a very unbalanced approach that
ignored the three-part approach of Social Security, a defined
benefit, and a thrift plan that is generally accepted as the
direction to take. This Administration's input has not been
constructive.
The only legislation from the Administration that has been
introduced in either house of Congress is the long list of budget
cuts drafted for the sole purpose of cutting the current
program. These are not mainstream proposals. They are radical,
right-wing and not worthy of consideration. Congress should
continue to look the other way when it comes to considering this
Administration's destructive proposals.
Peter Grace constitutes another arm for this Administra-
tion's attacks on federal and postal workers and retirees. The
so-called Grace Commission, otherwise known as the President's
Private Sector Survey on Cost Control (PPSSCC), operated between
June 1982 and January 1984. Shortly after its reports were
released, the quality and credibility of many of the Grace
recommendations came under question.
A joint study by the non-partisan General Accounting Office
and the Congressional Budget Office found that the Commission
greatly overstated the cost savings attainable under its
recommendations. Even without considering the merits of the
proposals, the CBO-GAO review found that the savings Grace
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claimed were three times the level of savings actually possible.
GAO further stated that it "does not find the package of PPSSCC
recommendations a sound basis for restructuring Civil Service
Retirement."
I am appalled that, despite these findings by non-partisan
experts, he is still flying around the country with a taxpayer
subsidy spreading his misinformation and sowing seeds of
prejudice against public service employees.
The CBO-GAO report made an additional recommendation that
the Senate Budget and Governmental Affairs Committees apparently
chose to ignore this year. The report stated that changes in
retirement would be "consistent and complementary" ... "if the
Congress deferred action until the legislative committees acted
on the changes for newly hired workers."
Despite this recommendation, some members of both the Budget
Committee and this committee worked actively during this year's
budget negotiations to try to use the budget process to force
large cuts in Civil Service Retirement. Postal workers are
thankful that, in the end, the conferees saw the wisdom of
agreeing with the House position in this area.-
APWU Participation in Supplemental Plan Design
The APWU has been preparing itself to participate fully in
the development of a supplemental plan. That preparation dates
all the way back to the first proposal by Senator Stevens for a
new defined contribution plan in 1982. We opposed the Stevens
proposal at that time because we felt strongly that a federal
retirement system based solely on a defined contribution plan was
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the wrong route to go and would provide an inferior retirement
plan for our members. We shared our views with the Committee
even though formal hearings were not held.
Last year, this Committee sponsored a series of policy
forums on Civil Service Retirement. We participated fully in
each of those seminars. We were pleased with the educational
process that resulted from the forums and are especially pleased
with one of the main results: namely, that the Stevens/Roth
legislation incorporates a defined benefit as an important,
integral part of the supplemental plan.
Earlier this year, it was rumored in the press that Senator
Stevens had a bill that was going to be introduced. Draft
legislation was in fact circulated by staff, and we began to
prepare ourselves to comment on that plan. We expected to
testify in favor of certain aspects of the plan and to offer
recommendations for improvement of other aspects. However, that
legislation was never introduced, so we were not able to offer
our reactions through testimony on its specifics. We are pleased
that the process is now finally underway.
Cost of Civil Service Retirement
I want to begin my specific testimony on the Stevens/Roth
bill by asking a fundamental question. Why do you want to cut
Civil Service Retirement? It is a good program. We'll be the
first to admit that. But it's definitely not the best in the
country, and if Congress keeps chipping at it, it will get worse.
The Hay/Huggins study conducted for the House Post Office
and Civil Service Committee brings out two facts that we believe
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are definitive in answering the question of whether the new hire
supplemental program should be made better or worse than the
existing retirement program.
The Hay/Huggins study looked at the cash compensation of
1,249 medium and large companies and the benefits compensation of
854 of the same organizations. It found that total average
federal compensation lagged behind the average for those
companies by 7.2 percent. The greatest contributing factor to
this lag is federal pay, which the study found to be 10.3 percent
behind the private sector.
This lag in pay was made up partially by the fact that Civil
Service Retirement and other benefits are worth 2.8 percent of
pay more than the average fringe benefits in the private
sector. That's 2.8 percentage points above average. That's not
overly generous, or way out of line like Peter Grace would have
us believe. It's just a little above average. The retirement
plan is a good plan; it should not be trimmed down every time the
budget season rolls around.
Members of this Committee should be aware that, when
Hay/Huggins looked at the retirement plans of the 854 companies
in its study,_it found that over 10 percent of the group had
retirement benefits that were better than Civil Service
Retirement. That means that there are at least 85 companies out
there that have a better retirement program than Civil Service
Retirement. Let me repeat that. There are at least 85 companies
out there that have a better retirement program than Civil
Service Retirement.
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The federal and postal services are large organizations.
They have to compete for good employees like any other organiza-
tion. The Congressional budget has recommended a freeze on
federal pay for 1986, so the 10.3 percent salary lag identified
by Hay/Huggins will grow larger. The APWU believes that now is
not the time for the Congress to make any cuts in retirement and
thereby further undermine the competitive position of the federal
employer.
Major Issues in the Stevens/Roth Bill
The APWU believes that the Stevens/Roth bill, S. 1527,
offers a framework on which to draft a supplemental plan.
However, the APWU also believes that the bill proposes a system
that is inadequate in several important ways:
o The estimated cost of 20.8 percent of payroll implies
that the value of the retirement plan to the employee
will be one-sixth less than that of the current system.
We favor a supplemental that has a total value
comparable to the current Civil Service Retirement
program or 25.0 percent of payroll.
o The proposed COLA of CPI minus 2 will work a serious
financial hardship on retirees. For example, if you
retired on a CPI minus 2 COLA and lived 20 more years--
not an unrealistic expectation--the real value of your
retirement pension would be one third less. A pension
should be as good at age 82 as it was at age 62. COLA
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cuts of this type have been tried repeatedly in recent
years, and all of them have ultimately been defeated.
This proposal should meet the same fate.
o We cannot accept the proposal to reduce the benefit for
the 30-year employee who is eligible to retire at age
55. The average employee retires at age 61. This
proposal would affect only the minority who began
government careers at early ages and loyally remained in
their jobs. An adequate retirement after such a long
career is essential to our members. Furthermore, the
analysis of the Congressional Research Service shows
that continued full benefits at age 55 would add little
to the cost of S.1527.
o The proposed matching.rate on employee contributions to
the capital accumulation plan (or CAP) is far in excess
of typical private sector practice. We favor less
matching for the CAP. Instead, a higher accrual rate
for the defined benefit supplemental should be offered
so that the average worker can be assured of a decent
retirement whether or not he or she has been able to put
money into the CAP.
o The defined benefit plan as proposed would be totally
financed by the agencies. We favor keeping the same
total employee contribution that new hires now pay.
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o The disability and survivor benefits proposed need
several improvements to prevent situations in which
those in need of these benefits would find themselves in
dire straits financially.
o The proposal would allow employees now covered by Civil
Service Retirement to opt into the supplemental and
Social Security. We are troubled by this proposal and
feel that no election period should be allowed until
considerable analysis of the possible problems have been
completed. Considerable testimony was presented last
spring before the House committee on the problems which
have been experienced when similar elections were
allowed by new state retirement plans for enrollees in a
former plan. Those mistakes should not be repeated in
this legislation.
o The proposed CAP would permit employee funds to be
invested in a broad range of securities. We favor
limiting the investment to government or government-
guaranteed securities to better protect the employee's
assets and to avoid some serious political and
administrative problems.
A complete discussion of these issues and APWU's
recommendations is attached to this testimony as Appendix A.
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Thank you again for inviting me to present to the Committee
the American Postal Workers Union's views on this complicated but
crucial legislation. The Union stands ready to work closely with
the Committee to formulate a good and fair plan for recent and
future federal and postal hires.
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Appendix A: Comments of American Postal Workers
Union on Issues Raised by Stevens-Roth Bill (5.1527)
The American Postal Workers Union supports the basic 3-part
structure for the supplemental retirement plan proposed in
S.1527. After reviewing the details of the plan, we have three
major recommendations for change:
(1) The cost of the system should be close to that of the
Civil Service Retirement system;
(2) The added cost is justified by needed improvements in
the defined benefit supplement;
(3) A part of this added cost can be funded by reducing an
overly generous government matching of employee savings
that S.1527 proposes.
These three issue areas are discussed below.
1. Cost
The entry age normal cost of the Civil Service Retirement
system has been estimated at 32.0 percent of payroll in a recent
Congressional Research Service (CRS) analysis. The employees
contribute 7.0 percent for this plan, with government paying the
remaining 25.0 percent.
The CRS cost analysis of S.1527 shows its total cost as 29.7
percent of payroll, of which 8.9 percent is paid by the employees
and 20.8 percent by government. The 8.9-percent employee share
consists of 5.9 percent for the Social Security tax and an
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estimated 3.0-percent average contribution to a capital
accumulation plan (CAP).
Using these CRS figures, we see that the average employee
would pay 1.9 percentage points more under S.1527 than under the
current system, an increase in retirement contributions of over
one fourth. The value of the program S.1527 would establish is
worth 2.3 percentage points less than the current plan, or a 7-
percent cut in plan value.
This treatment of new hires would be wrong for two
reasons. First, it would establish a serious inequity between
the new hires and their fellow employees. Second, it is grounded
in an unsupported theory that the current federal retirement
program is unreasonably generous.
Retirement, together with cash wages, health insurance, and
several other fringe benefits, make up the compensation package
an employer offers to attract the quality and quantity of labor
needed. The federal government competes with private sector
employers in both national and local labor markets to hire and
retain its staff. Since there is little differentiation of wages
and benefits by type of employee within the U.S. Civil Service,
the government's compensation package must be designed to compete
in the toughest labor markets. Otherwise, the government could
wind up with an adequate supply of some types of labor but fall
far short of needed labor in positions that require skills in
short supply.
Fortunately, an excellent study was completed last year for
the House Post Office and Civil Service Committee that compares
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federal compensation with that in a large number of private
firms. Thus, we know whether or not federal pay and benefits are
out of line compared to the compensation offered by private
competitors.
The study, by Hay/Huggins, compared federal compensation to
the pay levels of 1,249 medium and large firms and the benefit
plans of 854 firms. Comparing federal compensation to the
average figures for the firms disclosed the following:
%
Component of
Compensation
Amount Federal Compensation is
Over (+)/Under (-) Average for
Private Firms
(Percent of Payroll)
Pay
-10.3
Retirement
+6.4
Health
-2.2
Other benefits
-1.4
A 7.2 percent increase in federal compensation would be needed to
equate the federal package to that of the average firm.
This comparison shows that Civil Service Retirement is the
only program keeping the federal government reasonably competi-
tive in compensation with the average firm. However, even the
retirement program lags when the comparison is drawn with only
the top firms. The Hay/Huggins study found that all of the top
one-tenth of the 854 firms had retirement plans that are more
valuable than the federal plan as a percent of payroll.
In summary, a cheap plan for new hires will hurt government
personnel policy in two ways. It will drive a wedge of inequity
between employee groups based on hiring date, and it will harm
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the government's ability to compete for a properly skilled
workforce.
2. The Defined Benefit Plan
The defined benefit supplemental proposed in S.1527 would be
an add-on to Social Security for retirees. We support the
general structure of the proposed plan. However, the supplement
to Social Security would not be adequate for the employee with an
average or below-average salary. There are a number of factors
that lead us to this conclusion, which we discuss below.
a. The Benefit Formula. The proposed plan would
accrue benefits at a rate of 1.0 percent of the base salary per
year of service. The base salary would be the average annual
salary for the highest five years. We estimate that this
formula, when applied to an age-62 employee with 30 years of
service, would produce a total benefit, including Social
Security, that is equivalent to what the current system provides
for a person earning less than $20,000. Everyone over this
"breakeven" salary would be better off under the current
system. We feel that this breakeven level is too low. An
employee with below-average pay should not have to rely on his or
her ability to save substantial sums and invest wisely to
maintain the level of retirement income now provided to those
hired before 1984. Also, use of the high-5 average salary
instead of the current high-3 would create a difference in
treatment of new hires vs. pre-1984 employees that should be
avoided.
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b. The COLA. The Stevens-Roth bill would limit cost-
of-living adjustments (COLAs) to the annual increase in the
Consumer Price Index (CPI) less two percentage points. Congress
has considered such COLA reduction proposals over the past few
years and has refused to approve permanent reductions. The
reason for this refusal is simply that COLA reductions are bad
policy. The longer a retiree lives, the smaller the real value
of the benefit becomes and the lower the standard of living falls
if a partial COLA is used. The supplement for a person who lives
20 years in retirement would fall by one third in real value
under the "CPI minus 2" provision. This COLA reduction would
work a particular hardship on those with average and below-
average pay who would start out with inadequate benefits at
retirement.
c. Retirement Age. S.1527 proposes a penalty (a 2
percent reduction per year) for retirement prior to age 62. It
would permit retirement at age 55 with as few as 10 years of
service, but with a larger penalty applied (5 percent per year).
This latter liberalization of current law would provide benefit
amounts that would be quite small and, thus, of little
consequence to the overall system. The proposed early retirement
penalty for the career employee is a serious matter, however;
such a penalty would save little in plan cost and would be a
disservice to career workers and to the government's workforce
management.
Government needs both career employees and shorter-term
workers. A solid cadre of career staff is necessary to provide
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agencies with the stability, institutional memory and non-
partisan staff loyalty that government administration requires.
A major attraction to the government employee to make government
a career has been the opportunity to take full retirement and
take up other pursuits after 30 years of service and attainment
of age 55. A reduction of the supplemental benefit by as much as
14 percent compared to current practice would place a major
obstacle in the path of 30-year retirement for the most devoted
members of the government workforce.
This penalty would lead to an older government workforce
over time as some career employees delayed their retirement until
such time as their benefit entitlements reached adequate levels.
While later retirements can be justified based on national policy
on total withdrawal from the U.S. labor force, there is no just-
ification for delayed withdrawal from the federal government's
workforce. Total government employment has changed little since
the late 1960's. It is unlikely to change much over the fore-
seeable future. Private firms, when faced with such trends,
often take steps to encourage early retirement. Such actions are
needed to allow room for hiring new personnel and promoting
existing employees. Failure to make such allowances will
ultimately lead to a lower quality workforce and serious morale
problems. The U.S. government should not follow such a course
anymore than a private firm should.
d. Disability Benefits. We agree with the overall
structure and benefit levels proposed for the long-term
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disability plan. There are two technical problems with the bill
that we want to see corrected.
First, the method proposed to calculate retirement benefits
when a disabled beneficiary reaches age 62 is inadequate. The
high-5 salary base would be adjusted forward from time of
disability to age 62 by the "CPI minus 2" formula. We favor a
full CPI adjustment. Employees disabled for more than a few
years would have a major erosion of their salary bases if they
are not fully adjusted for inflation each year.
Second, the proposed definition of disability requires that
an employee disabled more than one year must be unable to perform
any federal job at the same grade level within the same commuting
area. This broadening of the current-law definition should not
be applied to postal workers who are subject to the labor
contract negotiated with the U.S. Postal Service.
e. Survivor Benefits. The survivor benefits proposed
by S.1527 would be inadequate in a number of circumstances and
should be redesigned. The most serious problems are discussed
below.
The bill proposes government-paid group life insurance worth
two times annual salary for employees under age 35, phasing down
to one times salary at age 45. This phasedown occurs too early,
as people in their 40s usually need significant insurance protec
tion. We favor carrying the higher level of protection out to a
later age (e.g., to age 50).
For surviving spouses of active employees, S.1527 would
authorize commencement of the annuity only when the deceased
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employee would have attained retirement age. We favor commence-
ment of survivor annuities at time of death, subject to current-
law policies regarding remarriage.
f. Employee Contributions. 5.1527 does not require an
employee contribution to the supplemental retirement plan. We
favor requiring a contribution from the new hires that would be
equal to the contribution required of pre-1984 employees. Such a
policy would mean that new hires initially contribute 1.3 percent
of salary to the defined benefit plan. This contribution rate
could be lowered automatically in future years as the Social
Security payroll tax rate rises in order to maintain equity
between the two employee groups. We recognize that exact
equality would not exist for employees with salaries above the
Social Security taxable wage ceiling. However, these highly paid
employees would need to make contributions to the CAP to obtain
total retirement benefits comparable to those available to their
counterparts under the existing system.
3. The Capital Accumulation Plan (CAP)
The CAP proposed -in S.1527 is too generous and should be
scaled back. The proposal also raises issues of investment
policy and management that should be considered.
Generosity of CAP. S.1527 proposes that the federal
government match employee contributions dollar for dollar up to 5
percent of salary. The contributions and the matching funds
would be exempt from current income taxation, and employees could
contribute another 5 percent of salary on a tax-deferred basis as
well.
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This plan would be much more generous than the typical
private-sector plan. The data reported by the GAO in their 1984
study ("Features of Nonfederal Retirement Programs") showed that
the most common private plan matches employee contributions at 50
cents on the dollar up to 6 percent of pay. Even among the 50
largest firms, only one third offer dollar for dollar matching.
There are two problems with this level of generosity. The
first is that a deficient defined benefit plan coupled with a
generous CAP would make up a retirement system that treats high-
salaried employees very well but leaves the average and below-
average employees worse off than they would be if under the
current system. Also, it would make the variable, unpredictable
portion of retirement income a rather large part of the total.
For example, a 30-year, age-62 retiree who participated fully in
the CAP would receive benefits in the proportions shown below
according to the CRS analysis of S.1527:
Proportion of Total Benefit by Source if
Final Salary Is:
$15r000
$30,000
4$ 5,000
$60j000
Social Security
33%
30%
22%
18%
Defined Benefit
39
42
45
48
CAP 28
28
30
32
34
A system that requires a $15,000 employee to depend on an ability
to save regularly and on financial market performance for over a
fourth of his/her retirement income is clearly unbalanced.
A second problem is that the Administration's tax policies
are now directed at limiting tax-deferred saving, and Congress
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may decide this year to accept some of these proposals. The most
stringent proposal would limit an individual's combined contribu-
tions to a 401(k) plan and an IRA to $8,000 per year. Under
S.1527, this limit could be breached by anyone making at least
$40,000 a year and making a maximum contribution to the CAP. (A
$40,000 employee could have a total contribution of $6,000 to the
CAP and $2,000 to an IRA.) It would be unwise to rest a key plan
design feature on a policy that might well be changed before the
CAP could be started.
Investment Policy. The bill permits individuals to
choose from among several investment funds, including a fund
based on a major stock market index and other funds that the CAP
Board may establish. The Governmental Affairs Committee should
review this policy carefully and consider as an alternative that
funds be invested only in government or government guaranteed
securities. ?
Allowing private-sector investing raises several potential
problems. First, it may be politically impossible to limit the
investment options to a manageable number, and the program may
wind up with a large number of private vendors'and inadequate
oversight by the government. Second, permitting risky invest-.
ments will create a greater divergence in the retirement income
available to federal and postal employees and increase the
chances that some employees will suffer capital losses. Third,
taxpayers may resent their tax money being used for federal
workers to invest on Wall Street, a resentment that would
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probably not arise if the funds were used instead to purchase
government debt.
Management of the CAP. S.1527 proposes a Thrift
Investment Board consisting of the Federal Reserve Board
Chairman, the Treasury Secretary, the OPM Director, and two
federal employee representatives appointed by the President, one
from labor and one from management.
We believe the mix of the Board should be changed, perhaps
by expanding the membership, to allow majority representation by
professional investment experts. The members who are not
officials should be named by the President with the advice and
consent of the Senate.
4. Summary
The Stevens-Roth bill is a starting point for the Senate's
debate on the supplemental retirement plan for new hires. The
defined benefit portion of the system must be strengthened,
however. The cost of the needed improvement can be covered by:
(1) requiring employee contributions; (2) reducing the generosity
of the federal matching for the CAP; and (3) accepting the notion
that federal retirement benefits should not be'cut below those of
the present system in terms of long-run cost. These changes will
yield a plan that gives the average employee the security needed
in old age and gives the government the tools it needs to compete
for a well-qualified workforce.
A final issue raised by S.1527 is whether to allow employees
now covered by Civil Service Retirement to elect coverage under
the new system. We feel that enactment of the proposed option to
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elect such coverage would be a mistake. Congress would have to
amend the Social Security Act to allow voluntary election of
coverage, and the whole issue of universal coverage may again
arise. The election process itself would require complex choices
by individuals who are not prepared with the information needed
to make such decisions. If large numbers of employees did choose
the new system, the political support for the existing system
would be threatened, and the livelihood of current retirees could
be placed in jeopardy. If the decision to switch corresponded
with employee ages and income levels, a corrosive split between
management and labor and between older and younger employees
might result. Those who chose the new system might later regret
their decisions should Congress change the CAP unfavorably as a
result of shifts in overall tax policy. For all of these
reasons, it would be foolish to write an option to switch into
the new plan.
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