RETIREMENT SYSTEM FOR NEW EMPLOYEES

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP89-00066R000800070006-4
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 6
• Document Creation Date: December 27, 2016
• Document Release Date: July 26, 2012
• Sequence Number: 6
• Publication Date: November 28, 1984
• Content Type: MEMO

Declassified in Part - Sanitized Copy Approved for Release 2012/07/26: CIA-RDP89-00066R000800070006-4 .1
28 November 1984
MEMORANDUM FOR:
SUBJECT: Retirement System for New Employees
This will supplement our exchange of views and the comments I made in
our meeting of 5 November 1984.
A. Ideally, a retirement system should be designed to serve the
personnel management needs of the Agency. It should help the Agency to
recruit the numbers of employees it needs, with the qualifications to carry
out the mission. It should help to retain needed skills through the peak
years of employee effectiveness, and it should facilitate retirements at
times and in numbers that best serve the interests of the Agency.
B. A retirement system also serves as a fringe benefit for employees.
From an employee viewpoint, the ideal retirement system would be one that
permitted retirement at an early age, with an annuity replacing most of
final pay and fully protected from inflation after retirement, but at the
same time would not retire employees involuntarily or at inconvenient
times. Elliott Kaplan, who was appointed by President Truman to head a
Retirement Study Group, said the ideal retirement system from an employee
perspective would be one that permitted retirement on full pay effective the
day before the date of initial appointment.
C. We need to design a retirement system that will best serve Agency
needs and at the same time provide a generous fringe benefit for employees.
This means providing retirement benefits that will replace a percentage of
pay high enough to make it economically feasible for employees to retire
when the Agency would like for them to retire, but without being so high or
available at ages so early that employees are induced to retire with their
most productive years still ahead of them.
D. In 1964 the idea of a special retirement system for certain Agency
employees was sold to the Congress primarily on two justifications:
1. The need to retire certain employees (whose services are
essential to carrying out the mission of the Agency) before
their effectiveness is diminished or destroyed; and,
for Employee Benefits and
Deputy Director o ersonnel
STAT
STAT
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SUBJECT: Retirement System for New Employees
2. The need to induce enough 20 and 25 year employees to retire to
permit a steady intake of new young employees in order to keep
a young and vital workforce rather than one with an ever-
increasing average age.
For the past twenty years the CIA Retirement Act of 1964 has served its
original objectives well. Retirements under CIARDS in Fiscal Year 1984 were
at an average age of 54.1 years; four years younger than the average age of
58.1 years for Agency employees retiring under Civil Service Retirement.
E. The retirement annuity of CIARDS participants is now less generous
than the benefits provided by CSR to other kinds of special employees.
While CIARDS has a straight 2 percent of Hi-3 computation formula, CSR gives:
a. 2 1/2 percent of Hi-3 to members of Congress and
Congressional employees.
b. 2 1/2 percent for the first 20 years and 2 percent for
years over 20 to law enforcement officers including
FBI agents.
c. Fifty percent of Hi-3 to air traffic controllers with
20 to 27 years of service plus 2 percent of Hi 3 for
additional service. This is a 2 1/2 percent computa-
tion for controllers with 20 years of service and
2 percent for employees with 25 years.
D.C. Policemen and Firemen had a formula of 2 1/2 percent of final pay
times years of service for optional retirement after 20 years. This
resulted in the loss of personnel at ages of peak performance, so the
D.C. Government sought and obtained a formula of 3 percent for years between
20 and 30, with a maximum annuity of 80 percent, to provide an inducement to
stay beyond 20 years. Note that the inducement to stay stops abruptly after
30 years of service.
The lack of equity between CIARDS participants and other special
employees makes the thought of liberalization very attractive.
F. While I agree that a strong offense is often the best defense, I
think 1985 may well be the most difficult year we have ever seen for
obtaining liberalized retirement benefits. Over the years, the major
liberalization (1926, 1930, 1942, 1948, 1956) have all been actively
sponsored by whatever administration was in power. Most other
liberalizations have been adopted with either luke-warm approval or mild
opposition from the Administration. Very few changes beneficial to any
sizeable groups of employees have been enacted over all-out active
opposition from the Administration.
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SUBJECT: Retirement System for New Employees
The paragraph above would indicate that if the Agency, as a matter of
policy, decides to go for more generous benefits, it will be essential to
have active support from the Administration.
In the past there has not been any active opposition to retirement
liberalization outside Government. Now we have organizations such as the
National Taxpayers Union, the U.S. Chamber of Commerce, the Heritage
Foundation, and the newly formed Citizens Against Waste. Each is well
organized and will financed, and enthusiastically urging reductions in
fringe benefits for Government employees. One of the publicly announced
goals of organizations such as these is that the supplemental retirement
system for new Government employees be considerably less generous than the
present CSR system.
G. I agree that the supplemental retirement system for new CSR
employees will be Social Security plus a defined benefit retirement system
and an employee savings plan of some kind. I foresee the possibility that
the appropriate Congressional Committees will go for one system for all
employees, and then possibly agree to one set of special provisions for all
special employees (not different special provisions for each separate group
of special employees). If this possible course of action is anywhere close
to what actually happens, it will be essential that the House and Senate
Intelligence Committees stake out their turf and insist on retaining their
jurisdiction over retirement benefits for Agency employees who are CIARDS
types. I believe the Agency does not have a chance realistically of getting
one special retirement system for all Agency employees without the all-out
active backing of the Intelligence Committees.
H. In light of this Administration's budgetary approach to entitlement
programs, plus the active opposition of non-governmental groups to even
present levels of retirement benefits, I believe it nearly impossible to
sell Congress on a package of improved retirement benefits.
This leaves the possibility of making a case that certain changes are
essential or highly desirable to meet management needs of the Agency. Let
us look at some of the possibilities with this criteria in mind.
1. It won't be easy to make a case that CIA needs to
administer a separate retirement system for all its
employees. Perhaps there have been security breakdowns
over the years of a sort that would argue that none of the
Agency's employees should be under a general CSR system
administered by OPM. On the other hand, economy of scale
would appear to raise questions of operating efficiency
not easily resolved.
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SUBJECT: Retirement System for New Employees
2. A retirement benefit is not an appropriate reward for
dangerous service. For one thing, the retirement benefit
is enjoyed only by those employees who survive the
hazard. Increased pay or allowances during performance of
hazardous duty recognizes all employees assigned to such
duty, and if included in Hi-3 average salary will also
show up in retirement annuity. Early retirement is
justified where the danger increases with age, and a
higher annuity can be justified if needed to make the
earlier retirement economically feasible for the employee.
3. A thrift plan (employee savings supplemented by employer
contributions) can be used effectively to shift more
responsibility for the amount of retirement income to the
employee. However, the supplemental system should be
designed so that Social Security plus a defined retirement
benefit provide a high percentage of the income needed for
a standard of living after retirement that compares
favorably with that immediately before retirement. Less
reliance should be placed on the savings plan because:
a. It is very difficult for employees in lower salary
brackets to opt to lay aside the necessary savings.
Thus a thrift plan on a optional basis is not the best
way to assure adequate retirement income in later
years for those who need it most.
b. A thrift plan is not as effective for assuring
retirement income for relatively short career CIARDS
types as it is for employees who retire at higher ages
with longer years of participation. It is a very
strong disincentive to early retirement, because an
employee can see that the greatest growth in the
accumulation in a thrift plan occurs in the later
years of a career.
4. I am disturbed by any suggestion that a basic benefit be
available only after 25 years of service. In F.Y. 1984
one out of every six employees who retired under CIARDS
had less than 25 years of service. It would appear these
retirements are essential to keeping the service, as a
whole, young and vigorous.
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SUBJECT: Retirement System for New Employees
5. Whether we use a Hi-3 or a Hi-5 average salary for annuity
computation is not as important as many other elements.
There is some logic behind use of the Hi-3. It was
adopted to bring the amount of retirement income closer to
final pay, with standard of living in mind. Social
Security uses a career average, but this method got so
far out of whack they had to adopt a system of indexing
earnings in prior years to avoid inadequacy of benefits.
The only real argument in favor of a Hi-5 is that it is
cheaper.
6. The idea of a computation formula applicable to all
employees which would include a higher percentage for
overseas service (and for domestic qualifying service) is
very appealing. Each year of overseas service could get
1/2 percent, or 3/4 percent, or one percent, higher than
the percentage for regular domestic service. It wouldn't
take much to make the CIARDS computation more generous
that at present. To illustrate, the maximum difference
now for an employee retiring under CIARDS as compared with
CSR is 3 3/4 percent of Hi-3. If annuity under the
regular CSR formula were increased by one percent of Hi-3
for each year of overseas service, an employee with just
the 60 months overseas now needed to qualify for CIARDS
would get 1.25 percent of Hi-3 more than the present
CIARDS formula. More than one-third of CIARDS retirees
have more than 10 years of qualifying service.
Domestic service that would qualify for the extra
benefit would have to be defined quite precisely. The
task of the Retirement Board would be made more difficult
because now they only have to consider enough domestic
service to bring the total of qualifying service to 60
months.
7. I doubt that the Agency wants most non-CIARDS types to
retire after 25 years of service regardless of age. The
trend in private industry in recent years has been one of
encouraging longer work careers - even to the extent of a
future change in retirement age for Social Security.
However, if as a matter of policy the Agency wants careers
to be generally limited to 25 years, this can be
accomplished in a number of ways:
Declassified in Part - Sanitized Copy Approved for Release 2012/07/26: CIA-RDP89-00066R000800070006-4
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SUBJECT: Retirement System for New Employees
a. No retirement accruals after 25 years of service, or
b. A maximum annuity equal to that earned after 25 years,
or
c. A greatly reduced formula applicable to years after
25, or
d. Mandatory retirement after 25 years unless the Agency
exempts the employee.
1. Brief Do's and Don'ts
1. Do design a supplemental retirement system that will
best serve Agency needs.
2. Do keep it simple.
3. Do try to get Administration support.
4. Do line up the Intelligence Committees to protect
their turf and retain jurisdiction over CIARDS.
5. Do make retention of the early retirement features of
CIARDS top priority.
6. Do sell any proposed changes on the basis of Agency
needs.
7. Do not try to sell changes as desirable improvements
in employees' fringe benefits. This won't fly in the
present climate.
8. Do not expect to sell the idea that regular Agency
employees (not CIARDS types) are more deserving of
liberal fringe benefits than are regular employees of
other agencies.
-6-
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