OPTIONS TO IMPLEMENT AN INTERIM RETIREMENT PROGRAM FOR CIVIL SERVICE EMPLOYEES WHO WILL BE COVERED BY SOCIAL SECURITY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP89-00066R000100120001-0
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 69
• Document Creation Date: December 22, 2016
• Document Release Date: March 1, 2010
• Sequence Number: 1
• Publication Date: September 14, 1983
• Content Type: MISC

Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
S. HRG. 98-504
OPTIONS TO IMPLEMENT AN INTERIM RETIREMENT
PROGRAM FOR CIVIL SERVICE EMPLOYEES WHO
WILL BE COVERED BY SOCIAL SECURITY
HEARING
SUBCOMMITTEE ON CIVIL SERVICE,
POST OFFICE, AND GENERAL SERVICES
COMMITTEE ON
GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
NINETY-EIGHTH CONGRESS
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
COMMITTEE ON GOVERNMENTAL AFFAIRS
WILLIAM V. ROTH, JR., Deleware, Chairman
CHARLES H. PERCY, Illinois THOMAS F. EAGLETON, Missouri
TED STEVENS, Alaska LAWTON CHILES, Florida
CHARLES McC. MATHIAS, JR., Maryland SAM NUNN, Georgia
WILLIAM S. COHEN, Maine JOHN, GLENN, Ohio
DAVID DURENBERGER, Minnesota JIM SASSER, Tennessee
WARREN B. RUDMAN, New Hampshire CARL LEVIN, Michigan
JOHN C. DANFORTH, Missouri JEFF BINGAMAN, New Mexico
THAD COCHRAN, Mississippi
WILLIAM L. ARMSTRONG, Colorado
JOAN M. McENTEE, Staff Director and Chief Counsel
IRA S. SHAPIRO, Minority Staff Director and Chief Counsel
SUBCOMMITTEE ON CIVIL SERVICE, POST OFFICE, AND GENERAL SERVICES
TED STEVENS, Alaska, Chairman
CHARLES McC. MATHIAS, JR., Maryland JEFF BINGAMAN, New Mexico
WILLIAM L. ARMSTRONG, Colorado JIM SASSER, Tennessee
WAYNE L. SCHLEY, Staff Director
JAMIE CowEN, Special Counsel
EDWIN S. JAYNE, Minority Staff Director
PAT PHILUps, Chief Clerk
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
CONTENTS
Page
Opening statement of Senator Stevens ........................................................................
1
WITNESSES
WEDNESDAY, SEPTEMBER 14, 1983
Charles A. Bowsher, Comptroller General of the United States accompanied
by Robert Shelton, Project Manager, General Accounting Office ......................
2
Donald J. Devine, Director, Office of Personnel Management, accompanied by
James W. Morrison, Associate Director for Compensation, and Jean M.
Barber, Assistant Director for Financial Control and Management .................
18
George Gould, chairman, legislative committee, Fund for Assuring an Inde-
pendent Retirement (FAIR), accompanied by Kimberly C. Parker, secretary,
FAIR ...............................................................................................................................
27
G. Jerry Shaw, chairman, Federal Employees Coordinating Committee, ac-
companied by John W. Gregorits, Professional Engineers in Government;
Robert Beers, American Foreign Service Association; and Ronald J. Stern,
president, Patent Office Professional Association .................................................
29
ALPHABETICAL LIST OF WITNESSES
Barber, Jean M.: Testimony ...........................................................................................
18
Beers, Robert: Testimony ...............................................................................................
29
Bowsher, Charles A.:
Testimony ..................................................................................................................
2
Letter report to Congressman William D. Ford, chairman, Committee on
Post Office and Civil Service, House of Representatives, and Senator
William V. Roth, Jr., chairman, Committee on Governmental Affairs,
U.S. Senate, August 31, 1983 ..............................................................................
3
Devine, Donald J.:
Testimony ..................................................................................................................
18
Prepared statement .................................................................................................
23
Gould, George: Testimony ..............................................................................................
27
Gregorits, John W.:
Testimony ..................................................................................................................
29
Prepared statement .................................................................................................
42
Morrison, James W.: Testimony ....................................................................................
18
Parker, Kimberly C.: Testimony ...................................................................................
27
Shaw, G. Jerry:
Testimony .............................................................................................................
29
Prepared statement .................................................................................................
35
Shelton, Robert: Testimony ............................................................................................
2
Stern, Ronald J.: Testimony ...........................................................................................
29
ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD
Statements of:
American Federation of Government Employees ..............................................
45
National Association of ASCS County Office Employees .................................
54
National Association of Retired Federal Employees .........................................
56
National Federation of Federal Employees .........................................................
60
National Treasury Employees Union ...................................................................
63
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
OPTIONS TO IMPLEMENT AN INTERIM RETIRE-
MENT PROGRAM FOR CIVIL SERVICE EM-
PLOYEES WHO WILL BE COVERED BY
SOCIAL SECURITY
WEDNESDAY, SEPTEMBER 14, 1983
U.S. SENATE,
SUBCOMMITTEE ON CIVIL SERVICE,
POST OFFICE, AND GENERAL SERVICES,
COMMITTEE ON GOVERNMENTAL AFFAIRS,
Washington, D.C.
The subcommittee met, pursuant to notice, at 10:30 a.m., in room
138, Dirksen Senate Office Building, Hon. Ted Stevens (chairman
of the subcommittee) presiding.
Present: Senator Stevens.
Staff present: Wayne A. Schley, staff director; Jamie Cowen, spe-
cial counsel; Kay Frances Dolan, professional staff member; Patri-
cia A. Butler, acting chief clerk; and Edwin S. Jayne, minority staff
director.
OPENING STATEMENT OF SENATOR STEVENS
Senator STEVENS. We are holding a hearing on a report issued by
the General Accounting Office on August 31 of this year which dis-
cusses the effect of requiring new Federal employees to be covered
by both social security and civil service retirement.
Ever since consideration of the social security bill, I have been
warning people that something must be done to remedy what could
be a very serious recruitment problem for the Federal Government.
Requiring new Federal employees to contribute 14 percent toward
civil service retirement and social security will, in my opinion,
stymie recruitment for many Federal agencies.
We are now in the process of working with the full committee
and with congressional support agencies in developing a major new
retirement system for these new Federal employees. However, that
work cannot be completed until late next year and the enactment
of final legislation would probably not occur until 1985.
Therefore, there is a 2-year hiatus remaining for these new Fed-
eral employees.
During the consideration of the social security bill, I tried to get
this matter dealt with. Unfortunately that was not possible. We
did, however, ask the General Accounting Office to analyze the
problem. It has done so, and has recommended something be done
temporarily to remedy this situation.
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
I compliment you, Mr. Comptroller General, for involving your-
self personally in this matter. It is my hope that we will be able to
form a consensus, hopefully coming out of this hearing, on an ap-
proach to remedy this problem.
It would be my desire to attach whatever solution we arrive at to
the reconciliation bill if that bill is considered. If not, it would be
my intention to try to put it as a rider on one of the appropriations
bills.
I do welcome you, and we would be happy to have your state-
ment, Mr. Bowsher.
TESTIMONY OF CHARLES A. BOWSHER, COMPTROLLER, GEN-
ERAL OF THE UNITED STATES, ACCOMPANIED BY ROBERT
SHELTON, PROJECT MANAGER, GENERAL ACCOUNTING OFFICE
Mr. BoWSHER. Thank you, Mr. Chairman.
I appreciate the opportunity to appear today to present our views
on the effects of temporarily requiring new Federal employees to
contribute to both social security and the civil service retirement
system.
We are pleased that your subcommittee has undertaken these
hearings to remedy this situation. We have been concerned that
the extra contributions would place the Government at a competi-
tive disadvantage in recruiting and retaining employees, because
they would result in a substantial reduction in take-home pay.
While employees in the private sector must pay social security
taxes, few are required to contribute to their employer-sponsored
retirement programs.
Most employees in the civil service system must pay 7 percent of
their salary into the retirement fund. Some participants contribute
even higher amounts, and all employees pay an additional 1.3 per-
cent medicare tax.
Beginning in January 1984, newly hired Federal employees and
former employees rehired after a break in service of 1 year or more
will also be covered by social security. Therefore, in addition to re-
tirement fund contributions and the medicare tax, they will be re-
quired to pay social security taxes of 5.4 percent in 1984, and 5.7
percent in 1985. While medicare and social security taxes currently
apply only to the first $35,700 of the annual salary, nearly all new
employees will receive salaries below this level. Thus, they will be
contributing a total of about 14 percent of their salary to these pro-
grams until a new retirement system to supplement social security
is established.
It is anticipated that the new system will not be in place until
sometime in 1985.
We issued a letter report to the Senate Committee on Govern-
mental Affairs on August 31, 1983, which highlights our concerns
and discusses some options for dealing with this problem. I would
like to submit a copy of this report for the record, and now summa-
rize the options.
Senator STEVENS. We will print it in full.
[The material referred to follows:]
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
COMPTROLLER GENERAL OF THE UNITED STATES
WASHINGTON D.C. 20548
The Honorable William D. Ford
Chairman, Committee on Post Office and
Civil Service
House of Representatives
The Honorable William V. Roth, Jr.
Chairman, Committee on Governmental
Affairs
United States Senate
Subject: Effect Of Requiring New Federal Employees
To Be Temporarily Covered By Both Social
Security And Civil Service Retirement
(GAO/OCG-83-1)
We have analyzed the potential effects of requiring Federal
employees hired on or after January 1, 1984, to be temporarily
covered by both social security and the civil service retirement
system. This situation is the result of the April 1983 social
security amendments (Public Law 98-21) which provided social
security coverage for all newly hired Federal employees, includ-
ing former employees who are rehired after a break in service of
1 year or more.
A new retirement system to supplement social security
coverage for these employees is not expected to be in place by
the January 1, 1984, effective date. Therefore, under current
law until the new system is established, the employees must also
participate in the civil service retirement system (CSRS) and
pay the required employee contributions to both systems.
Most employees in the civil service system must pay 7 per-
cent of their salary into the retirement fund. Members of
Congress pay 8 percent, and congressional staff, law enforcement
and firefighter personnel pay 7.5 percent. All employees are
also required to pay the 1.3-percent medicare tax. Employees
hired after January 1, 1984, will also be required to pay social
security taxes of 5.4 percent in 1984 and 5.7 percent in 1985.
While both social security and medicare taxes currently apply
only to the first $35,700 of annual salary, nearly all new
employees will receive salaries below this level. Thus, they
will be contributinc a total of about 14 percent to these
programs.
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
By contrast, while employees in the private sector must pay
social security taxes, few are required to contribute to their
employer-sponsored retirement plans. A 1982 survey by the
Bureau of Labor Statistics of plans covering 17 million workers
showed that 93 percent were in plans fully paid for by their
employer.
For purposes of our analysis, we assumed the new
supplemental retirement system will retroactively cover all
periods of service by new employees subsequent to January 1,
1984. However, it is difficult to speculate at this time on
what the new system will provide or how it will be implemented.
For example, it might not require any employee contributions
other than social security taxes. Presumably, any contributions
employees make to the civil service system during the period of
temporary coverage that are greater than the amount required by
the new system would be refunded. In any event, it is clear
that, if, as is anticipated, the new supplemental retirement
system is not established until the end of 1985, employees hired
after January 1, 1984, will receive little or no benefits from
the civil service system for their retirement contributions.
Five years of civilian service is required for vesting under the
civil service system, and the only benefits available before 5
years is a survivor annuity payable to the spouse and children
of an employee who dies after at least 18 months of service.
The Office of Personnel Management (OPM) estimates that
385,000 employees would be affected by the dual contribution
requirement by the end of 1985.
The extra contributions to be required of new employees
would place the Government at a competitive disadvantage because
of the substantial reduction in take-home pay thus adversely
affecting recruitment and retention efforts. Officials in the
five departments and agencies we visited told us that the higher
retirement contributions would make recruiting more difficult
particularly in those occupations where the Government pays
special salary rates.
In view of the very limited benefits that employees will
derive from temporarily contributing to the civil service system
and the problems the increased contributions may cause, we eval-
uated several alternatives to the current law that could allevi-
ate this situation.
OBJECTIVES, SCOPE, AND METHODOLOGY
Our objectives were to identify personnel management and
financial impacts resulting from the requirement for new
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
employees to contribute to both retirement systems and evaluate
possible alternatives to that requirement.
At OPM, we obtained data on estimated accessions and pay
rates. We obtained the views of responsible officials on the
effects of higher retirement contributions on recruiting and
retention. We also obtained data on recruiting, retention, and
special pays at the Veterans Administration (VA), the National
Aeronautics and Space Administration (NASA), and the Departments
of the Army, the Navy, and the Air Force. These departments and
agencies were selected because they are the largest users of
special pay due to current recruiting and retention problems.
We also obtained views of,responsible officials in those
agencies on the effects of the higher retirement contributions
on recruiting and retention. At the Bureau of Labor Statistics,
Department of Labor, we obtained data on private sector pension
plans.
To determine financial impacts in fiscal years 1984 and
1985, we estimated the contributions to CSRS for the new employ-
ees. We also analyzed social security and CSRS programs to
identify potential benefits for these employees during the
2-year period.
This report focuses on CSRS as it covers most Federal
employees. However, some Federal employees are covered under
other retirement systems, and they will also have to temporarily
contribute to social security and their retirement system.
These systems include the Foreign Service, the Central Intel-
ligence Agency, the District of Columbia, and the Federal
Reserve Board.
We estimate that contributions to the civil service retire-
ment trust fund for individuals having dual coverage will be as
follows:
Fiscal
year
Employee
contributions
Employing
agency
contributions
Total
1984
$ 82,040,000
$ 82,040,000
$164,080,000
1985
387,520,000
387,520,000
775,040,000
Total
$469,560,000
$469,560,000
$939,120,000
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
6
The above estimates are based on 178,000 accessions in 1984
with a related payroll of $1,172,000,000 and a total of 385,000
accessions at the end of 1985 with a payroll of $5,536,000,000.
Any changes to the contribution requirements would reduce
these receipts accordingly.
POTENTIAL CSRS BENEFITS FOR NEW EMPLOYEES
We reviewed the eligibility requirements of CSRS to esti-
mate the potential benefits that could be paid to the affected
employees during the 2 years of temporary coverage. We found
that most of the 385,000 new or rehired employees will receive
no CSRS benefits. Although these employees will have contri-
buted about $470 million to CSRS, OPM estimates that disability
or death benefits will be paid in 750 instances. OPM estimates
such benefit payments will be $500,000 in 1984 and $2,900,000 in
1985. (As previously indicated, we would assume that any
employee contributions to CSRS during the 2-year period that
were greater than the contributions eventually required by the
new supplemental retirement system would be refunded to the
employees.)
None of the newly hired employees would have the necessary
5 years of service to be eligible for civil service disability
benefits. However, on the basis of its mortality rate
estimates, OPM estimates that, during the 2-year period, civil
service death benefits would be paid in about 100 instances to
survivors of newly hired employees.
Rehired employees could be eligible for civil service disa-
bility benefits and their survivors for death benefits, but the
precise number of instances cannot be estimated because data is
lacking on their prior Federal service. However, if all rehired
employees had 5 years of prior Federal civilian service, OPM
estimates that 450 individuals could receive disability benefits
and there could be 200 instances of death benefits during the
2-year period.
Prior employment covered by social security and current
Federal employment would be considered in determining whether
these employees or their survivors were eligible for social
security benefits. Lacking data on prior employment, a precise
estimate of the number of instances where such benefits would be
paid cannot be made.
A comparison of the disability and death benefit eligibil-
ity requirements and benefit provisions of these systems is
shown in the enclosure.
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
PROBLEMS IN RECRUITING AND
RETAINING QUALIFIED PERSONNEL
The requirement for new employees to contribute to two re-
tirement systems could make it more difficult to recruit and
retain qualified individuals for the Federal service,
particularly those in special pay categories because the dual
contributions will cause a substantial reduction in employees'
take-home pay.
The Government over the years has experienced difficulty in
recruiting and retaining people in particular occupations
because of the difficulty in competing with the private sector.
Consequently, the Government has the authority to pay salaries
over and above the normal amounts when vacancies occur and when
adjustments to salaries are needed to make them competitive with
the private sector. These adjusted salaries are referred to as
special pay rates. In 1982, agencies were paying about $93
million annually in supplements over and above regular rates to
about 34,300 employees.
The following examples of occupations with recruitment
and/or retention problems are based upon situations in Federal
agencies. In our opinion, they are illustrative of the problems
which could result if the requirement for contributions to both
systems is not eliminated.
Clerks and secretaries
Clerical and secretarial positions in certain geographic
areas are designated for special pay rates. For example, the
Air Force in Los Angeles has been paying special rates to indi-
viduals in these occupations. The reason for the pay differen-
tial, according to the Air Force, is to alleviate the recruiting
and turnover problems caused by industry recruiting these indi-
viduals at more than the regular Government salary rates.
Requiring employees to contribute to two systems could aggravate
an already serious turnover problem according to the Air Force.
According to an OPM representative responsible for managing
the special pay program as well as several agency officials, it
is not unusual for individuals at the lower grade levels to
change jobs for as little as a $5 to $10 increase in their pay-
checks. The contribution to the two retirement systems would
cost an additional $22 every payday for individuals at the cur-
rent GS-3 entry level. And, for entry level GS-5s and GS-7s,
the additional cost each payday would be $28 and $34, resoec-
tively. Since lower salary differentials than these may
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
influence the decision to leave an existing job, it is likely
that reductions of the foregoing magnitude will increase future
recruitment and retention problems and possibly cause the
payment of special pay rates to even more employees.
NASA, the Army, the Navy, and the Air Force all recruit
engineers with special pay rates. NASA recruits many engineers
while they are still in school under what is known as the co-op
program. For example, an individual could attend school for two
semesters, then work a semester, repeating the cycle until
graduation. According to NASA, this program not only helps
instill a sense of loyalty to NASA but helps the co-ops pay for
their tuition and books when they return to college. Normally
hired at a GS-3 level, the co-ops' contributions to the two
retirement systems will be $51 of their $410 biweekly salary
(about $29 to civil service retirement and $22 to social
security). The potential effect on NASA's permanent engineering
staff is illustrated by the following. At any one time, NASA
has about 1,000 co-ops of whom about 60 percent continue through
graduation and become permanent employees. If the program were
to suffer, NASA would have to be more successful in its
recruiting of engineering graduates. However, one reason NASA
relies on this program is its need to supplement its recruiting
of engineering school graduates. NASA questions the likelihood
of as many quality individuals applying for the co-op program in
light of this retirement contribution, particularly in an
improving economy.
The Army Corps of Engineers also anticipates that the
double contribution for a retirement program will have an
adverse effect on recruiting of new graduates who, in the past,
have already found Federal employees' benefits to be less
attractive than those offered by many private organizations.
Physicians
VA has had a difficult time recruiting enough physicians to
fill its needs. To help meet its demand, VA pays physicians an
amount over and above their basic salary. For example,
physicians hired by VA can be paid a basic salary of $50,000 and
a supplement of $25,000. The entire $75,000 is a special salary
rate and is included in the employee's salary base for civil
service retirement purposes. Consequently, the contribution to
both systems will be about $7,200 -- about $2,000 more than the
amount paid by employees hired before January 1, 1984.
According to VA, this will likely make it more difficult to
recruit and retain new physicians.
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
ALTE?iATIVES TO DUAL CONTRIBUTIONS
we evaluated several alternatives which would alleviate
adverse impacts on recruiting and retention which could result
from the requirement for greater retirement contributions.
1. Provide a temporary tax credit to Federal employees
covered by the social security system for the amount of
their contribution to the CSRS.
2. Provide no CSRS coverage; therefore, no contributions
to CSRS would be required.
3. Provide temporary CSRS coverage without requiring
employee contributions but with a 100-percent social
security offset against any civil service benefits
received.
4. Voluntary temporary participation in CSRS by new
employees.
Under each of these alternatives, employees' service
credits would be transferred to the new supplemental system when
it is established.
The alternatives are discussed in more detail below along
with the advantages and disadvantages of each one.
Tax credit
One way to alleviate the impact of greater retirement
contributions would be to provide the new employees an income
tax credit for their CSRS contributions during the 2-year
period. Bills have been introduced in the House of Representa-
tives (H.R. 3371) and the Senate (S. 1522) to permit such
credits. However, timing of the tax credit could be a
disadvantage, inasmuch as the employees may not benefit from the
credit until the following year when they file their tax
returns.
This alternative would continue full employee and employer
contributions to the civil service trust fund. Employees would
have greater disability and death benefits than those hired
prior to 1984 because of the dual coverage but would have con-
tributed less. Since the proposed bills do not change the
refund provisions of CSRS, employees could receive not only the
tax credit but also a refund of their contributions if they
later left Government service.
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
10
No CSRS coverage
Under this alternative, the social security program would
provide disability and survivor benefit coverage for new
employees but, depending on individual circumstances, benefits
could be greater or less than CSRS benefits. No employee or
employer contributions to CSRS would be required.
This alternative avoids any duplicated benefits and the
potential administrative burden of refunding employee contribu-
tions if a noncontributory supplemental plan is later estab-
lished or the contribution rate under the new plan is lower.
Recruiting may be more difficult than under other alterna-
tives because of the uncertainty about the level of future
retirement benefits. Also, this alternative would generally
provide less disability and death benefits, especially for
rehired employees who might otherwise qualify for civil service
benefits because of prior Federal service but who may not have
sufficient service to qualify for social security benefits.
Social security offset
This alternative would provide employees coverage under
both systems, but civil service benefits would be reduced by the
amount of any benefits received from social security. While
employee contributions to CSRS would not be required, agencies
would continue to make CSRS contributions which would be used to
finance CSRS benefits for these employees.
The alternative assures disability and death benefit cover-
age comparable to coverage provided employees hired before 1984
but creates some administrative burden in computing the social
security offset. It does, however, avoid the potential adminis-
trative burden of refunding employee contributions if a noncon-
tributory supplemental plan is later established or the contri-
bution rate under the new plan is lower.
Voluntary participation
While all new employees would have social security cover-
age, this alternative would permit those employees who desired
greater coverage to participate in CSRS. Participating employ-
ees and their agencies would each be required to contribute 7
percent of pay to CSRS.
This alternative would give participating employees more
coverage than that provided employees hired prior to 1984.
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
While it would give the individual the responsibility for deter-
mining the adequacy of coverage, it would be very costly for the
limited additional coverage most employees would receive.
Although current law requires all new employees as of
January 1, 1984, to contribute to dual retirement systems, it
seems likely that only a very small number of those employees
would receive any benefits from the civil service system before
the supplemental system is established. This being the case,
requiring them to temporarily contribute to both systems appears
to be an inequity. The dual contribution will reduce employees'
take-home pay if the situation is not remedied by the Congress.
We believe the Federal Government could experience difficulties
in recruiting and/or retaining quality individuals particularly
in those occupations where the individuals receive special pay
rates because the Government has difficulty in competing with
private industry. In some cases, special pay rates might have
to be increased or paid to even more employees if the dual
contribution requirement is not changed.
Resolution of this problem prior to January 1, 1984, would
relieve new employees from the burden of contributing to both
social security and the CSRS.
Copies of this report are being sent to the Director,
Office of Management and Budget; Director, OPM; and other
interested parties.
Cl. ord I. Gould
AS`s?istant to the Comptroller
General for Federal
Retirement Matters
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
COMPARISON OF ELIGIBILITY REQUIREMENTS
AND DISABILITY AND SURVIVOR BENEFITS
Civil service
Disability benefits
Employees must have completed
5 years of creditable civilian
service and, because of a
disease or injury, cannot
provide useful and efficient
service in positions at their
current grade in the same
agency and commuting area.
Social security
An individual must be unable
to engage in any substantial
gainful activity by reason of
any physical or mental
impairment which can be
expected to result in death or
last more than 12 months. The
individual also must have at
least 20 quarters of coverage
in the last 40 quarters unless
disabled prior to age 31, in
which case, fewer quarters are
required.
Benefit is equal to the larger
of amounts derived from the
general retirement benefit
formula or a guaranteed minimum
which is generally 40 percent
of the high-3 year average
pay.
Death benefits
The deceased employee must have
completed 18 months of
creditable civilian service.
Spouse's benefit is equal to
55 percent of the deceased
employee's earned annuity or a
guaranteed minimum. Generally,
the minimum would be 55 percent
of 40 percent of high-3 year
average pay. A children's
benefit is also payable.
Benefit is equal to the
worker's basic benefit
computed as though the
worker had attained age 62.
The deceased employee must
have at least 6 quarters of
coverage during the last 13
quarters.
If spouse is caring for an
eligible child, the spouse's
benefit is generally equal to
75 percent of the deceased
employee's basic benefit. The
child is also entitled to the
same benefit as the spouse.
Also a lump-sum benefit of
$255 is payable.
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
Mr. BOWSHER. Thank you, Mr. Chairman. It's difficult to predict
at this time what a supplemental retirement system will provide or
how it will be implemented. Presumably, it will retroactively cover
all service by new employees after January 1, 1984. We also
assume that any contributions new employees will make to the
civil service system during the period of temporary coverage that
are greater than the amount required by the new system would be
refunded.
The Office of Personnel Management estimates that by the end
of 1985, a total of 385,000 Federal employees would be affected by
the dual contribution requirement. OPM estimates that these em-
ployees will have contributed about $470 million to the civil service
retirement fund during this 2-year period, but only a very few of
them are expected to receive any civil service benefits from their
contribution.
This is because new employees must have 5 years of civilian serv-
ice to be eligible for disability benefits and must have been em-
ployed at least 18 months before their survivors could receive death
benefits.
Social security requires coverage of up to 5 years, depending on
an employee's age, for disability benefits, and 18 months for death
benefits.
Thus, none of the new employees would be eligible for disability
benefits from the civil service system, and only those hired in 1984
would be eligible for civil service death benefits.
Rehired employees could be eligible for more benefits because of
their prior Federal service.
Overall OPM estimates that civil service disability and death
benefits will be paid in about 750 instances and such payments are
estimated to be about $500,000 in 1984, and about $2.9 million in
1985.
The extra contributions to be required of new employees will
cause a substantial reduction in their take-home pay. This could
adversely affect the Government's recruitment and retention
effort.
Officials in the five departments and the agencies that we visited
were very concerned that the higher retirement contributions
would place the Government at a competitive disadvantage, espe-
cially in those occupations where the Government already has to
pay special salary rates to compete with the private sector.
In 1982, agencies were paying about $93 million annually in
salary supplements over and above the regular rates for 34,300
such employees.
Now, in view of the limited benefits employees will derive from
temporarily contributing to this civil service system, and the prob-
lems the increased contributions may cause, we evaluated several
alternatives that could resolve this situation.
These alternatives were, one, provide a temporary tax credit to
Federal employees covered by the social security system for the
amount of their contribution to the civil service system. Two, pro-
vide no civil service coverage; therefore, no contribution to the civil
service system would be required.
Three, provide temporary civil service coverage without requir-
ing employee contributions, but with 100 percent social security
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
offset against any civil service benefits received. And, four, provide
for voluntary temporary participation in the civil service system by
new employees.
Under each of these alternatives, employees' service credits
would be transferred to the new supplemental system when it is
established.
I would like to discuss the alternatives a little more in detail
along with the advantages and the disadvantages of each one.
First, the tax credit alternative. One way to alleviate the impact of
greater retirement contributions would be to provide the new em-
ployees an income tax credit for their civil service contributions
during the 2-year period. Bills have been introduced in the House
of Representatives, H.R. 3371, and the Senate, S. 1522, to permit
such credits.
However, timing of the tax credit could be a disadvantage inas-
much as the employees may not benefit from the credit until the
following year when they file their tax return.
This alternative would continue full employee and employer con-
tributions to the civil service trust fund. Employees would have
greater disability and death benefits than those hired prior to 1984
because of the dual coverage, but would have contributed less be-
cause of the tax credit.
Since the proposed bills do not change the refund provisions of
the civil service system, employees could receive not only the tax
credit, but also a refund of their contributions if they later left
Government service.
Now, let me speak to what I call the no civil service coverage al-
ternative. Under this alternative, the social security program
would provide disability and survivor benefit coverage for new em-
ployees, but, depending on individual circumstances, benefits could
be more or less than civil service benefits.
No employee or employer contributions to the civil service
system would be required. This alternative avoids any duplicate
benefits, and the potential administrative burden of refunding em-
ployee contributions if a noncontributory supplemental plan is
later established, or the contribution rate under the new plan is
lower.
Recruiting may be more difficult than under the other alterna-
tives because of the uncertainty about the level of future retire-
ment benefits. Also, this alternative would generally provide lower
disability and death benefits, especially for rehired employees, who
might otherwise qualify for civil service benefits because of prior
Federal service, but who may not have sufficient service to qualify
for social security benefits.
Now, the social security offset alternative. This alternative would
provide employee coverage under both systems, but civil service
benefits would be reduced by the amount of any benefits received
from social security. While employee contributions to the civil serv-
ice system would not be required, agencies would continue to make
civil service contributions which would be used to finance civil
service benefits for these employees.
The alternative assures disability and death benefit coverage
comparable to that provided employees hired before 1984, but at
less cost to the new employee. However, it creates some adminis-
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
trative burden, not large, but some, in computing the social secu-
rity offset.
It does avoid the potential administrative burden of refunding
the employee contributions if a noncontributory supplemental plan
is later established or the contribution rate under that new plan is
lower.
The last alternative is what we refer to as voluntary participa-
tion. While all new employees will have social security coverage,
this alternative would permit those employees who desire greater
coverage to participate in the civil service system. Participating
employees and their agencies would each be required to make the
regular contributions to the civil service system.
This alternative would give participating employees more cover-
age than that provided employees hired prior to 1984. While it
would give the individual the responsibility for determining the
adequacy of coverage, it would be very costly for the limited addi-
tional coverage most employees would receive.
In summary, Mr. Chairman, unless the current law is changed,
new employees will contribute about $500 million to the civil serv-
ice system, but only a very small number will receive any benefits
from those contributions before the new system is established.
Moreover, the dual contributions will reduce employees take-
home pay, making recruiting and retention of quality individuals
much more difficult. In some cases, special pay rates might have to
be increased or paid to more employees.
Resolution of this problem prior to January 1, 1984, would re-
lieve new employees from the burden of contributing to both social
security and the civil service system.
We would be pleased to answer any questions.
Senator STEVENS. Thank you very much.
What is the situation in the private sector as far as such contri-
butions?
Mr. BOWSRER. Most private sector employees, of course, are con-
tributing to the social security system, but their supplemental
plans, you might say, are generally employer financed.
There's a recent study by the Bureau of Labor Statistics. This
study covered 17 million private sector employees, and that showed
that 93 percent were in retirement plans fully paid by their em-
ployers. The other 7 percent had to contribute about 4 percent of
their salary for the supplemental retirement plans.
You can see 93 percent was employer paid.
Senator STEVENS. Do you have any idea what the impact of the
current situation would be on your agency if we don't make any
changes in the existing law?
Mr. BOWSHER. Well, I think it would be difficult. It would add to
our problem.
We have enough problems, really, in hiring good quality people
and competing against the big accounting firms and the big man-
agement consulting firms and the law firms for the top people
coming out of school, and this would be just one more burden that
we would have to explain away, to tell the people that come a year
from now that it might be resolved.
But I think it would be an unnecessary burden if it can be avoid-
ed at all.
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
16
Senator STEVENS. There's another option. We can require that
the Federal Government as an employer make the employer's con-
tribution, and that it make the net contributions that employees
would have made that would not have been withdrawn by depart-
ing employees.
Have you got any idea what that would cost?
Mr. BOWSHER. It would be somewhat less than 14 percent, but we
don't have a good figure. Our general feeling would be that it
would be better to wait until the new system is developed and
figure out the funding, of how it should be funded and everything
like that.
I think if you get into some of these alternatives where you're
taking in money and then having to handle it later and things like
that makes it fairly complicated.
Senator STEVENS. But clearly, the employer contribution could be
made.
Mr. BOWSHER. Yes.
Senator STEVENS. The employee contribution could be made by
the Federal Government at a later date based upon actual experi-
ence as to how many stay.
Mr. BowSHER. A lot would depend on how the new system is de-
signed, and we just don't have right now any figure on that. We
could do some additional study on that if you would like.
Senator STEVENS. But your assumption was that if the contribu-
tions for the new system were less than that required for the civil
service retirement system, there would be a refund in any event
even for those who stayed. I think that's a valid assumption.
Mr. BowsHER. Yes, sir.
Senator STEVENS. Based upon just equity. Did you determine
how-well, you have no way to determine how much that would be.
Mr. BOWSHER. No.
Senator STEVENS. There seems to be a fear that if the new em-
ployees don't contribute to the existing civil service retirement
system, the fund will be even more in jeopardy. Did you examine
that?
Mr. BOWSHER. Well, I don't think there's any question that the
fund is going to be probably more in jeopardy. But the Congress
and the Government are going to have to provide for that retire-
ment program if they make this change, as they're planning to, to
have the new people under social security and then some supple-
mental. I think that that is a problem that is just going to have to
be dealt with.
Senator STEVENS. Have you studied this action that was taken in
Maryland where there was a refund to the employees who went
into the new system?
Mr. BOWSHER. No, we haven't, Mr. Chairman.
Senator STEVENS. That has actually taken place now. Would it be
possible for you to examine that for us to see what the experience
was under that approach?
Mr. BOWSHER. Yes, sir.
Senator STEVENS. As I understand it, they did devise a new
system and it was based on social security. There was a refund to
those people who agreed to move into the new system who had
rights existing under the prior plan in Maryland.
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
17
Mr. BowsHER. I see. Let us take a look at that.
[The information follows:]
COMPTROLLER GENERAL OF THE UNITED STATES,
Washington, D.C., September 20, 1983.
Hon. TED STEVENS,
Chairman, Subcommittee on Civil Service, Post Office, and General Services, Com-
mittee on Governmental Affairs, U.S. Senate.
DEAR MR. CHAIRMAN: At the September 14, 1983, hearing on options to implement
an interim retirement program for Federal employees, you asked how employee con-
tributions were handled when the State of Maryland established its new retirement
system.
In 1979, the State of Maryland established a new retirement system for teachers
and regular employees hired after December 31, 1979. Because both the prior retire-
ment system and the new system included social security coverage, there was no
transition period. The new system required employee contributions only on salaries
above the social security tax base; thus, the new system was essentially noncontri-
butory for newly hired employees.
Employees covered by the prior retirement system, which required employee con-
tributions on all earnings, were permitted to transfer to the new system. The trans-
ferring employees received a refund of past contributions on earnings below the
social security tax base. Employee contributions on earnings above the tax base
were transferred to the new retirement system along with all employer contribu-
tions for these employees. As of August 31, 1983, about 52,000 employees have elect-
ed to transfer to the new system and have received contribution refunds of $196 mil-
lion.
Sincerely yours,
ROBERT E. SHELTON
(For Clifford I. Gould,
Assistant to the Comptroller General
for Federal Retirement Matters).
Senator STEVENS. We could cover new hires with the disability
and survivorship portions of the civil service retirement system, ex-
clude them from further participation in the existing system, and
give them credit in the new system without contribution. Did you
examine that option?
Mr. BowSHER. We can. We have not, no.
Senator STEVENS. We could specify that anyone who came in
after 1984 would be given credit for their service prior to the adop-
tion of the new system without contribution.
In the meantime, the only benefits that could be derived under
the current system are disability and survivor benefits. Do you
agree with that?
Mr. BowSHER. That's correct. Yes.
Senator STEVENS. I would like to have your report as to how that
would affect this from a financial point of view.
Mr. BOWSHER. We'd be happy to do that.
[The information follows:]
COMPTROLLER GENERAL OF THE UNITED STATES,
Washington, D.C., September 16, 1983.
Hon. TED STEVENS,
Chairman, Subcommittee on Civil Service, Post Office, and General Services, Com-
mittee on Governmental Affairs, U.S. Senate.
DEAR MR. CHAIRMAN: During the September 14, 1983, hearing on options to imple-
ment an interim retirement program for Federal employees, you asked us to provide
additional data on the total cost of providing interim civil service death and disabil-
ity coverage for employees who will also be covered by social security.
The Office of Personnel Management (OPM) estimates that during the 2-year in-
terim period, death benefits could be paid in 300 instances and 450 individuals could
receive disability benefits. Civil service trust fund outlays for these benefits are esti-
mated to be $500,000 in 1984 and $2,900,000 in 1985. The present value of the total
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
18
civil service outlays for these benefits over the lifetimes of the employees and their
survivors are estimated by OPM to be $100 million. This amount is equal to 1.5 per-
cent of the $6.7 billion payroll for the covered employees during the 2-year period.
We want to point out that these outlays would be reduced by any social security
benefits received if that option is adopted. However, because of the lack of data, the
amount of social security benefit payments cannot be calculated.
Sincerely yours,
THOMAS A. EICKMEYER
(For Clifford I. Gould,
Assistant to the Comptroller General
for Federal Retirement Matters).
Senator STEVENS. Again I congratulate you and I thank you for
the promptness of your report. I think it is a very difficult problem
that we ought to address before the first of the year, and I appreci-
ate your cooperation.
Mr. BoWSHER. Thank you very much, Mr. Chairman.
Senator STEVENS. We now have the Director of the Office of Per-
sonnel Management, Mr. Devine, who is accompanied by Mr. Mor-
rison and Ms. Barber.
TESTIMONY OF DONALD J. DEVINE, DIRECTOR, OFFICE OF PER-
SONNEL MANAGEMENT, ACCOMPANIED BY JAMES W. MORRI-
SON, ASSOCIATE DIRECTOR FOR COMPENSATION, AND JEAN M.
BARBER, ASSISTANT DIRECTOR FOR FINANCIAL CONTROL AND
MANAGEMENT
Mr. DEVINE. Good morning. I appreciate the opportunity to
appear this morning to discuss the problem of double coverage of
new Federal employees under both social security and the civil
service retirement system.
Federal employees first hired after December 31, 1983, and cer-
tain other categories of employees hired before that date will be
covered under social security as a result of the 1983 Social Security
Amendments.
When those amendments were enacted, it was recognized by all
involved that the Congress would soon have to establish a new re-
tirement system for those employees in order to supplement the
social security benefits they will be earning.
Legislation will not be enacted by January to establish a supple-
mental retirement system. Therefore, these employees will end up
being covered under and paying for both a very expensive existing
civil service retirement system and social security.
As a result, they'll have to pay a total of 14 percent of their sala-
ries for expensive, inappropriate, and dual retirement coverage. It's
important that the present law be amended to correct potential
dual retirement deductions and coverage. It would be inappropriate
to provide full, present civil service retirement coverage, even tem-
porarily, to Federal employees who are also covered under social
security.
This is particularly true if we remind ourselves that the civil
service retirement system is an extraordinarily generous system.
The excessive retirement coverage that would be provided by con-
currently placing employees under social security and the civil
service retirement system can only confuse and demoralize those
employees by creating false expectations regarding their future
benefits.
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
The Comptroller General, as you just heard, has identified four
possible approaches to the double coverage problem. The adminis-
tration strongly opposes granting Federal employees a special tax
credit for the amount of their retirement contribution. Such a tax
credit has no parallel in the treatment of private sector employee
retirement contributions. As a matter of equity, we object to prefer-
ential tax treatment for Federal employees.
Also, as the Comptroller General points out, this option would
unfairly enable employees to receive both a tax credit for their
civil service retirement contributions and the refund of those con-
tributions should they leave the Government.
Finally, this alternative would provide immediate relief from
double coverage only if the employees adjusted their salary with-
holdings for income tax.
We also find the second option objectionable. This remedy would
provide civil service retirement coverage, but with no employee
contributions, and would require the individual's civil service re-
tirement benefits to be offset by his or her entire social security
benefit.
Since the supplemental retirement system that may eventually
be enacted is likely to differ substantially from the current civil
service retirement system, temporary civil service retirement cov-
erage would be of questionable value to employees.
The third option the Comptroller General mentioned, voluntary
participation in the civil service retirement system, would be at-
tractive only to employees with high incomes. Civil service retire-
ment coverage would be of only limited value during this transition
period.
Double contributions would discourage contribution by lower
income employees who are likely to be relatively young and less
concerned about preparing for their financial security in retire-
ment.
This brings us to the last of the four possibilities discussed by the
Comptroller General, covering post-1983 employees solely under
social security until the new supplemental plan is in place.
Excluding the affected employees from civil service retirement
coverage and covering them under social security alone would not
significantly endanger the financial security of employees in the in-
terim period before establishment of the new supplemental retire-
ment plan.
This is true because, even if they were covered under the civil
service retirement system, former employees rehired by the Gov-
ernment after a break in service would have to work for at least 1
year before they would be entitled to an annuity. New employees
would have to work at least 5 years before gaining title to an annu-
ity.
New employees would have to work at least 18 months before
their spouses would even be entitled to survivor annuities based on
the employee's death in service. In any event, when a supplemental
plan is created, we would hope and recommend that employees be
allowed to purchase retroactive credit for the period preceding en-
actment of the supplemental plan.
We recognize that this option may create some concern that loss
of income would result to the civil service retirement fund. Frank-
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
20
ly, we think this concern is misdirected, since any financial prob-
lems for the fund would arise only many years in the future.
Nevertheless, we would be willing to consider a requirement that
the Government continue to make contributions to the civil service
retirement fund during the transition period in the same amount
that would have been made had new employees been covered.
Concerns have also been raised that employees might be denied
certain benefits, such as disability annuities and survivor annuities
for themselves or their dependents which they might otherwise be
eligible for during the period while the new plan is being devel-
oped.
Here again, we would be willing to consider some arrangement
to insure protection for these individuals.
In summary, we believe that exclusion from civil service retire-
ment coverage of Federal employees who will be covered by social
security is the most appropriate solution to the double coverage
problem.
We are hopeful that a new supplemental retirement system will
be enacted soon for those Federal employees who will be covered by
social security starting in 1984.
The administration hopes that this new supplemental retirement
plan will be in place by 1985. We are eager to assist the Members
and committees of Congress with technical support for legislation
to reform this important item of public business.
Thank you for the opportunity to discuss this problem, and I will
be happy to answer any of you questions.
Senator STEVENS. Thank you. Your complete prepared statement
will be made a part of the record.
We're talking about, according to the figures, 385,000 people for
a period of not more than 2 years, really. That's our anticipation.
Mr. DEVINE. That would be our expectation if that's the period of
time we're talking about.
Senator STEVENS. A comment you made about being able to pur-
chase retroactive credit for the period preceding enacting the sup-
plemental plan-is my memory correct that we had a position from
the administration that there would be a willingness to give them
credit in the new plan if that plan was put into effect prior to Octo-
ber 1, 1985?
Mr. DEVINE. Our position was that they should be able to pur-
chase retroactive coverage or not, at their option and their ex-
pense.
Senator STEVENS. Well, the employer would be contributing to
the old plan, and the employee wouldn't be contributing to either
plan.
Mr. DEVINE. Yes, sir, that would be the real effect.
Senator STEVENS. If the employee contributes to the old plan,
why would the employee have to be able to buy into the new plan?
I thought we had an understanding that if we relieved the new
employees of contributing to the old plan, the employer would con-
tinue to contribute to the old plan, but the employees would be cov-
ered under the new plan if it was adopted, made effective by Octo-
ber 1, 1985, without contributions from the employee. Have you
costed that out?
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
Mr. DEVINE. That depends on what the new plan is, so we can't
really cost it out.
As I understood the concern that was raised at the meeting that
you talked about, it was a concern about the stability and the fi-
nancial support the old system got, that we agreed to be responsive
to that concern and to contribute the employer's contribution to
the old system.
It's our expectation that the new system should start off without
any unfunded liability, without any encumbrances-to try to start
the new system off without some of the serious problems that we
have in the old system so we can begin a new program.
This might involve retroactive payments, both by the Govern-
ment and the employee, although--
Senator STEVENS. Well, the testimony is some 90 percent plus of
similar plans in the private sector are noncontributory by the em-
ployee anyway.
Mr. DEVINE. Well, that's certainly one--
Senator STEVENS. It may be that there will be a requirement of a
redundant payment by the employer to the new plan. But it would
seem to me that the compromise area that we ought to seek is to
assure those who are fearful that the old plan might be jeopardized
that the employer will continue to make contributions to the old
plan for the new employees until the new employees are actually
participants in the new plan.
In the meanwhile, we should accept the fact since 90 plus per-
cent of the similar systems in the private sector are noncontribu-
tory by their employees, that we should just say right now that
they'll not have to contribute in any event and they will be covered
into the new plan at the employer's expense if there is an employ-
ee contribution required.
And it may be that we'll end up with employee contribution of a
small amount. I don't know.
Mr. DEVINE. Well, as you say, this is all dependent on what the
shape of the new plan is. It is even conceivable that there wouldn't
be an employee contribution under the new plan, depending on
what the level of coverage would be.
Senator STEVENS. That was my suggestion. We introduced a bill 2
years ago to accomplish that.
Mr. DEVINE. Well, as I said in the past, I think there are a lot of
positive things about your bill. I was mainly concerned about the
financing aspects of it.
But that's certainly one alternative.
Senator STEVENS. I'll be willing to bet we're sitting here 2 years
from now and we're not more than 5 or 10 percent off of that bill
we introduced 2 years ago.
Mr. DEVINE. Maybe.
Senator STEVENS. I don't know that there are any takers.
Well, I appreciate your position, and I think we understand the
situation. I do appreciate particularly the willingness to work this
out, and I think that that's essential.
It's apparent that the original suggestion that I and my good
friend from the House had on the tax credit has run into difficulty
in more than one quarter.
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
So I think we have to find a new approach, and we're going to
try and do that and see if we can present it to the Senate here
fairly soon.
I do appreciate your appearance.
Mr. DEViNE. Well, thank you very much, Senator, and we, as I
said in my statement, are very interested in working with you to
do something about this problem, and we do consider it a serious
problem in terms of possible recruiting efforts, as the Comptroller
General said, especially in the special pay rate area.
So I think it is something we have to do something about.
Senator STEVENS. I appreciate that very much. Thank you.
[The prepared statement of Mr. Devine follows:]
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
23
STATEMENT OF
HONORABLE DONALD J. DEVINE
DIRECTOR, OFFICE OF PERSONNEL MANAGEMENT
SUBCOMMITTEE ON CIVIL SERVICE, POST OFFICE, AND GENERAL SERVICES
COMMITTEE ON GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
CIVIL SERVICE RETIREMENT COVERAGE FOR FEDERAL EMPLOYEES
WHO WILL BECOME-COVERED BY SOCIAL SECURITY AFTER DECEMBER 31, 1983
I APPRECIATE THE OPPORTUNITY TO APPEAR THIS MORNING TO DISCUSS THE PROBLEM
OF DOUBLE COVERAGE OF NEW FEDERAL EMPLOYEES UNDER BOTH THE SOCIAL SECURITY
AND CIVIL SERVICE RETIREMENT SYSTEMS. I AM ACCOMPANIED BY JAMES MORRISON,
OUR ASSOCIATE DIRECTOR FOR COMPENSATION, AND JEAN BARBER, ASSISTANT DIRECTOR
FOR FINANCIAL CONTROL AND MANAGEMENT.
FEDERAL EMPLOYEES FIRST HIRED AFTER DECEMBER 31, 1983, AND CERTAIN CATEGORIES
OF EMPLOYEES HIRED BY THE GOVERNMENT BEFORE THAT DATE, WILL BE COVERED UNDER
SOCIAL SECURITY AS A RESULT OF THE 1983 SOCIAL SECURITY AMENDMENTS. WHEN
THOSE AMENDMENTS WERE ENACTED, IT WAS RECOGNIZED BY ALL INVOLVED THAT
THE CONGRESS WOULD HAVE TO ESTABLISH A NEW RETIREMENT SYSTEM FOR THOSE EM-
PLOYEES IN ORDER TO SUPPLEMENT THE SOCIAL SECURITY BENEFITS THAT THEY WILL
BE EARNING. LEGISLATION WILL NOT BE ENACTED BY JANUARY TO ESTABLISH A NEW
SUPPLEMENTAL RETIREMENT PLAN. THEREFORE, THESE EMPLOYEES WILL END UP BEING
COVERED UNDER AND PAYING FOR BOTH THE VERY EXPENSIVE EXISTING CIVIL SERVICE
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
24
RETIREMENT SYSTEM AND SOCIAL SECURITY. AS A RESULT, THEY WILL HAVE TO PAY
A TOTAL OF 14 PERCENT OF THEIR SALARIES FOR EXPENSIVE, INAPPROPRIATE AND
DUAL RETIREMENT COVERAGE.
IT IS IMPORTANT THAT THE PRESENT LAW BE AMENDED TO CORRECT POTENTIAL DUAL
RETIREMENT DEDUCTIONS AND COVERAGE. IT WOULD BE INAPPROPRIATE TO PROVIDE
FULL, PRESENT CIVIL SERVICE RETIREMENT COVERAGE--EVEN TEMPORARILY-TO FEDERAL
EMPLOYEES WHO ARE ALSO COVERED UNDER SOCIAL SECURITY. THIS IS PARTICULARLY
TRUE IF WE REMIND OURSELVES THAT THE CIVIL SERVICE RETIREMENT SYSTEM IS AN
EXTRAORDINARILY GENEROUS SYSTEM. THE EXCESSIVE RETIREMENT COVERAGE THAT WOULD
BE PROVIDED BY CONCURRENTLY PLACING EMPLOYEES UNDER SOCIAL SECURITY AND FULL
CIVIL SERVICE RETIREMENT CAN ONLY CONFUSE AND DEMORALIZE THOSE EMPLOYEES BY
CREATING FALSE EXPECTATIONS REGARDING THEIR FUTURE BENEFITS.
THE COMPTROLLER GENERAL HAS IDENTIFIED FOUR POSSIBLE APPROACHES TO THE
DOUBLE COVERAGE PROBLEM. ONE OPTION IS THAT FEDERAL EMPLOYEES COVERED
BY BOTH SOCIAL SECURITY AND CIVIL SERVICE RETIREMENT MIGHT BE GIVEN A
TEMPORARY TAX CREDIT FOR THE AMOUNT OF THEIR CIVIL SERVICE RETIREMENT
CONTRIBUTIONS. A SECOND OPTION WOULD BE TO COVER EMPLOYEES UNDER CIVIL
SERVICE RETIREMENT, BUT RELIEVE THEM OF THE OBLIGATION TO FINANCIALLY
CONTRIBUTE TO THE CSRS. THIRD, PARTICIPATION IN THE CIVIL SERVICE
RETIREMENT SYSTEM MIGHT BE MADE VOLUNTARY UNTIL A NEW SUPPLEMENTAL
RETIREMENT PLAN IS ENACTED. FINALLY, EMPLOYEES COULD BE COVERED
SOLELY UNDER SOCIAL SECURITY WHILE A NEW PLAN IS BEING DELIBERATED.
THE ADMINISTRATION STRONGLY OPPOSES GRANTING FEDERAL EMPLOYEES A SPECIAL
TAX CREDIT FOR THE AMOUNT OF THEIR RETIREMENT CONTRIBUTIONS. SUCH A TAX
CREDIT HAS NO PARALLEL IN THE TREATMENT OF PRIVATE SECTOR EMPLOYEES'
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
RETIREMENT CONTRIBUTIONS. AS A MATTER OF EQUITY, WE OBJECT TO PREFEREN-
TIAL TAX TREATMENT FOR FEDERAL EMPLOYEES. ALSO, AS THE COMPTROLLER GENERAL
POINTS OUT, THIS OPTION WOULD UNFAIRLY ENABLE EMPLOYEES TO RECEIVE BOTH A
TAX CREDIT FOR THEIR CIVIL SERVICE RETIREMENT CONTRIBUTIONS AND A REFUND OF
THOSE CONTRIBUTIONS, SHOULD THEY LEAVE THE GOVERNMENT. FINALLY, THIS ALTER-
NATIVE WOULD PROVIDE IMMEDIATE RELIEF FROM DOUBLE COVERAGE ONLY IF EMPLOYEES
ADJUSTED THEIR SALARY WITHHOLDINGS FOR INCOME TAX.
WE ALSO FIND THE SECOND OPTION OBJECTIONABLE. THIS REMEDY WOULD PROVIDE
CIVIL SERVICE RETIREMENT COVERAGE, BUT WITH NO EMPLOYEE CONTRIBUTION, AND
WOULD REQUIRE THE INDIVIDUAL'S CIVIL SERVICE RETIREMENT BENEFITS TO BE
OFFSET BY HIS OR HER ENTIRE SOCIAL SECURITY BENEFIT. SINCE THE SUPPLE-
MENTAL RETIREMENT SYSTEM THAT MAY EVENTUALLY BE ENACTED IS LIKELY TO DIFFER
SUBSTANTIALLY FROM THE CURRENT CIVIL SERVICE RETIREMENT SYSTEM, TEMPORARY
CIVIL SERVICE RETIREMENT COVERAGE WOULD BE OF QUESTIONABLE VALUE TO NEW
EMPLOYEES.
THE THIRD OPTION THE COMPTROLLER GENERAL MENTIONED--VOLUNTARY PARTICIPA-
TION IN THE CIVIL SERVICE RETIREMENT SYSTEM--WOULD BE ATTRACTIVE ONLY TO
EMPLOYEES WITH HIGH INCOMES. CIVIL SERVICE RETIREMENT COVERAGE WOULD BE
OF ONLY LIMITED VALUE DURING THIS TRANSITION PERIOD. DOUBLE CONTRIBU-
TIONS WOULD DISCOURAGE PARTICIPATION BY LOWER-INCOME EMPLOYEES, WHO ARE
LIKELY TO BE RELATIVELY YOUNG AND LESS CONCERNED ABOUT PREPARING FOR THEIR
FINANCIAL SECURITY IN RETIREMENT.
THIS BRINGS US TO THE LAST OF THE FOUR POSSIBILITIES DISCUSSED BY THE COMP-
TROLLER GENERAL: COVERING POST-1983 EMPLOYEES SOLELY UNDER SOCIAL SECURITY
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
UNTIL THE NEW SUPPLEMENTAL PLAN IS IN PLACE. EXCLUDING THE AFFECTED EMPLOY-
EES FROM CIVIL SERVICE RETIREMENT COVERAGE AND COVERING THEM UNDER SOCIAL
SECURITY ALONE WOULD NOT SIGNIFICANTLY ENDANGER THEIR FINANCIAL SECURITY
IN THE INTERIM PERIOD BEFORE ESTABLISHMENT OF THE NEW SUPPLEMENTAL RETIRE-
MENT PLAN. THIS IS TRUE BECAUSE, EVEN IF THEY WERE COVERED UNDER THE CIVIL
SERVICE RETIREMENT SYSTEM, FORMER EMPLOYEES REHIRED BY THE GOVERNMENT AFTER
A BREAK IN SERVICE WOULD HAVE TO WORK FOR AT LEAST A YEAR BEFORE THEY WOULD
BE ENTITLED TO A NORMAL ANNUITY BASED ON THEIR PREVIOUS SERVICE. NEW EMPLOY-
EES WOULD HAVE TO WORK FOR AT LEAST 5 YEARS BEFORE GAINING TITLE TO AN ANNUITY.
EVEN NEW EMPLOYEES WOULD HAVE TO WORK AT LEAST 18 MONTHS BEFORE THEIR SPOUSES
WOULD BE ENTITLED TO SURVIVOR ANNUITIES BASED ON THE EMPLOYEES' DEATH IN
SERVICE. IN ANY EVENT, WHEN A SUPPLEMENTAL PLAN IS CREATED, WE WOULD HOPE
AND RECOMMEND THAT EMPLOYEES BE ALLOWED TO PURCHASE RETROACTIVE CREDIT FOR
THE PERIOD PRECEDING ENACTMENT OF THE SUPPLEMENTAL PLAN.
WE RECOGNIZE THAT THIS OPTION MAY CREATE SOME CONCERN THAT THE LOSS OF IN-
COME TO THE CIVIL SERVICE RETIREMENT FUND FROM NEW EMPLOYEES WOULD CREATE
FINANCIAL PROBLEMS IN THE FUTURE FOR THE FUND. FRANKLY WE THINK THIS CON-
CERN IS MISDIRECTED, SINCE ANY FINANCIAL PROBLEM FOR THE FUND WOULD
ARISE ONLY MANY YEARS IN THE FUTURE. NEVERTHELESS, WE WOULD BE WILLING TO
CONSIDER A REQUIREMENT THAT THE GOVERNMENT CONTINUE TO MAKE CONTRIBUTIONS
TO THE CIVIL SERVICE RETIREMENT FUND DURING THE TRANSITION PERIOD IN THE
SAME AMOUNT IT WOULD HAVE MADE HAD THE NEW EMPLOYEES BEEN COVERED.
CONCERNS HAVE ALSO BEEN RAISED THAT EMPLOYEES MIGHT BE DENIED CERTAIN BENEFITS,
SUCH AS DISABILITY ANNUITIES AND SURVIVOR ANNUITIES FOR THEMSELVES OR THEIR
DEPENDENTS, WHICH THEY MIGHT OTHERWISE BE ELIGIBLE FOR DURING THE PERIOD WHILE
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
27
THE NEW PLAN IS BEING DEVELOPED. HERE AGAIN, WE WOULD BE WILLING TO
CONSIDER SOME ARRANGEMENT TO ENSURE PROTECTION FOR THESE INDIVIDUALS.
IN SUMMARY, WE BELIEVE THAT EXCLUSION FROM CIVIL SERVICE RETIREMENT
COVERAGE OF FEDERAL EMPLOYEES WHO WILL BE COVERED BY SOCIAL SECURITY
IS THE MOST APPROPRIATE SOLUTION TO THE DOUBLE COVERAGE PROBLEM. WE
ARE HOPEFUL THAT A NEW SUPPLEMENTAL RETIREMENT SYSTEM WILL BE ENACTED
SOON FOR THOSE FEDERAL EMPLOYEES WHO WILL BE COVERED BY SOCIAL SECURITY
STARTING IN 1984. THE ADMINISTRATION HOPES THAT THIS NEW SUPPLEMENTAL
RETIREMENT PLAN BE IN PLACE BY 1985. WE ARE EAGER TO ASSIST THE MEMBERS
AND COMMITTEES OF CONGRESS WITH TECHNICAL SUPPORT FOR LEGISLATION TO
REFORM THIS IMPORTANT ITEM OF PUBLIC BUSINESS.
THANK YOU FOR THE OPPORTUNITY TO DISCUSS THIS PROBLEM. I WILL BE HAPPY
TO ANSWER YOUR QUESTIONS.
Senator STEVENS. It's my understanding that Jerry Klepner's
father has had a personal problem and he has asked that we call
Kim Parker to present this statement that he has for today.
GEORGE GOULD, CHAIRMAN, LEGISLATIVE COMMITTEE, FUND
FOR ASSURING AN INDEPENDENT RETIREMENT [FAIR], AC-
COMPANIED BY KIMBERLY C. PARKER, SECRETARY, FAIR
Ms. PARKER. Mr. Chairman, George is going to present the state-
ment.
Senator STEVENS. Fine, thank you.
Mr. GouLD. Good morning, Mr. Chairman.
Senator STEVENS. Good morning.
Mr. GouLD. On behalf of the president and chairman of the
board, Vincent Sombrotto, we appear today as representatives of
FAIR.
Recently, the 26 member organizations voted unanimously to
continue FAIR as a voluntary coalition of unions and employee or-
ganizations concerned with legislative issues affecting all active
and retired Federal and postal employees.
At its June 7, 1983, board of directors meeting, new officers were
elected. Vincent Sombrotto, chairman and president; Kimberly C.
Parker, secretary; Jerry Klepner, treasurer; and I was again select-
ed as chairman of the FAIR legislative committee.
With me this morning is Kimberly Parker, secretary of FAIR.
We're here today at your invitation to discuss FAIR's position on
the situation facing new Federal and postal employees hired on or
after January 1, 1984.
Under the present law they will be required to pay 7 percent
into the civil service retirement, and an additional 7 percent into
social security.
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
28
As usual, Mr. Chairman, it is a pleasure to appear before you
today. We appreciate the interest you have always shown and con-
tinue to show in the welfare of all Government employees and re-
tirees.
We realize the chairman's time constraint. Therefore, our state-
ment is as short as possible.
With your permission, if necessary, we request the opportunity to
submit additional testimony for the record.
Senator STEVENS. Very fine, thank you.
Let me state that now, I do intend to try and move this. We're
going to have a meeting of the full committee next week, and I
would like to have this bill on that agenda. So I would like to have
any additional materials that are going to be submitted by the wit-
nesses to be delivered to the committee by Monday, close of busi-
ness.
Mr. Gouin. We will be glad to comply.
Senator STEVENS. Thank you.
Mr. Gouin. Mr. Chairman, as a coalition representing Federal
and postal employees, we anticipated problems, as you did, that
could arise if social security coverage was extended to new Govern-
ment employees.
During the debate on the social security bill this year, on many
occasions we took the opportunity to express our concerns that
there would be a dichotomy between new and present employees.
That situation becomes a reality on January 1, 1984.
If a solution can be developed to resolve this dichotomy, we, as a
coalition of 26 Federal and postal unions and employee organiza-
tions, believe that any such solution must meet certain tests to be
viable, workable, and acceptable.
And, if a solution is indeed going to be enacted into law, it is es-
sential that it be agreed to as much as possible by all interested
parties.
Mr. Chairman, there are few, if any, Members of Congress more
knowledgeable in the legislative process than you. In dealing with
the issues as sensitive as this one, it necessitates a consensus.
To reach that consensus it is necessary to thoroughly communi-
cate among the involved parties. That is why we appreciate these
hearings which gives us an opportunity to work with you and your
staff on this issue.
Given that opportunity, we would like to discuss briefly two tests
that we feel must be met if a solution is to be achieved. These tests
are consistent with FAIR'S position since its inception. Any vari-
ation from this runs contrary to that historical perspective.
First, contributory funding for the Federal retirement trust fund
must continue. It is essential that there be no interruption and no
reduction in those contribution levels. Continuing contributions
insure that all options remain available and insure the financial
solvency and integrity of the Federal retirement trust funds.
Second, there must be equity between new employees and
present employees. Inequities in contribution level could result in
personnel problems, declining morale, and drops in productivity.
To have two employees at the same pay level doing the same job,
yet one contributing 7 percent toward civil service retirement, and
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
29
the other contributing 7 percent toward civil service retirement
and 7 percent to social security is inherently inequitable.
For the government to work effectively, it must be able to attract
and retain qualified employees. As employee and retiree organiza-
tions, we are concerned with the welfare of current employees and
retirees whom we represent.
As organizations dealing with the business of Government, we
are also concerned that post-1983 hires be treated fairly, and that
there be no fragmentation of the Federal workforce.
Mr. Chairman, we welcome the opportunity to work with you
and your staff to develop a solution to the dichotomy between new
and current Federal and postal employees.
We will be happy to answer any questions that you might have.
Senator STEVENS. Thank you very much.
I think we're in agreement, and we will be pleased to consult
with you as we prepare the draft.
Mr. GOULD. Thank you, Mr. Chairman.
Ms. PARKER. Thank you, Mr. Chairman.
Senator STEVENS. We should have the draft by the middle of next
week, I hope.
Thank you very much. My best to Jerry.
Next is Mr. Jerry Shaw, chairman of the Federal Employees Co-
ordinating Committee, accompanied by John W. Gregorits, Profes-
sional Engineers in Government; Robert Beers, American Foreign
Service Association; and Ronald Stern, Patent Office Professional
Association.
TESTIMONY OF G. JERRY SHAW, CHAIRMAN, FEDERAL EMPLOY-
EES COORDINATING COMMITTEE, ACCOMPANIED BY JOHN W.
GREGORITS, PROFESSIONAL ENGINEERS IN GOVERNMENT;
ROBERT BEERS, AMERICAN FOREIGN SERVICE ASSOCIATION;
AND RONALD J. STERN, PRESIDENT, PATENT OFFICE PROFES-
SIONAL ASSOCIATION
Mr. SHAW. Thank you, Mr. Chairman, it's a pleasure to be able
to appear once again before you and your subcommittee as we at-
tempt to deal with some of the problems that have come up.
I would like to submit the statement of the Federal Employees
Coordinating Committee for the record, and just make a short sum-
mary, and then each organization would like to say a few words
about their position and the people that they represent, if that is
satisfactory.
Senator STEVENS. Thank you. We will print your statement. I
have read it. We will put it in full in the record.
Mr. SHAW. Mr. Chairman, I think all of us knew that this day
was going to come, and it has come. We all are faced with the di-
lemma of new employees versus current employees and of trying to
maintain the integrity of the current Federal retirement system.
We are faced with, as employees and employee representatives, a
continuous barrage of publicity about how fat and happy the Feder-
al employee retirement system currently is and how it is continu-
ously on the verge of going broke at the same time.
We have examined in some detail the alternatives presented by
the General Accounting Office, and frankly, we are not enamored
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
30
with any of them. But, recognizing that solutions must be found,
we favor the social security offset solution.
We think that is the fairest to the new employees. We think it is
fairest to the current employees of the three or four proposals that
were made.
We do think that any plan that is adopted must have the follow-
ing elements: First, that the new employees after January 1, 1984,
must be reimbursed, or made whole, for any direct financial penal-
ties of dual coverage, in timely fashion. Part of the problem with
the tax credit offset was that they may not be able to get their
money back for a year.
That's not fair and we don't think that they should be forced to
make any financial penalty.
Second, we think that the financial integrity of the existing Fed-
eral retirement benefit program must be insured by Congress, and
the lack of new employee contributions at whatever level not
become a new excuse for OPM to unleash a further publicity bar-
rage about how the Federal retirement program is breaking the
Government.
We have had our fill of being accused as current Federal employ-
ees and current retirees of breaking the Federal Government and
being responsible for a large part of the deficit of the Government
based on a retirement program that has been in existence and
healthy for a long, long time now.
Senator STEVENS. I find it interesting that it's those who have
been at the highest levels of Government for a long period of their
lives that seem to be attacking the system the most. Primarily ex-
Members of the House.
Mr. SHAW. It's an interesting observation, Mr. Chairman.
Third, you have heard from us before on your proposed bill, Mr.
Chairman, and our beliefs on that. We have been in contact with
Mr. Cowen and others of the subcommittee staff and Mr. Schley
about our views on that. We think that it is the basis for any new
system.
But we believe that any new retirement system for employees
must be a fair and equitable one. Finally, new employees must be
made aware of the temporary retirement system that is going to be
in effect for the short period of time to accommodate their entry
into the Government.
Now, by that, we mean we have gone through a period of great
uncertainty and turmoil. If new employees are going to be faced
with a new retirement system 2 years after they come into the
Government, and/or any possibility of having to contribute retroac-
tively to get coverage, such as was proposed or talked about in Dr.
Devine's testimony, a very simple language document is going to
have to be provided to those employees so they understand what is
happening to them.
Senator STEVENS. I just don't see how we can recommend that
they be required to contribute retroactively to something that they
don't know about now. And we can cross that bridge when we come
to it on a voluntary basis, if the employee contributions are re-
quired.
But certainly I would oppose putting into law now that they can
get into the system for the time between now and the new system
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
coming into effect only on the basis of contributions, or payment
for retroactive coverage.
Mr. SHAW. We appreciate that.
Senator STEVENS. On the contrary, I think we ought to make it
very clear they will be covered. I think the cost, really, is de mini-
mus in terms of the overall morale of the Government as far as the
new employees is concerned.
I think they should be assured now that they will be covered for
the time that they serve. That will be in our bill.
Mr. SHAW. I appreciate that, Mr. Chairman. I appreciate that
statement. I know all of us here today do.
The point is I think, again, that there is going to be so much un-
certainty for new employees from January 1984 on, as there is for
current employees. OPM should be required by Congress to give a
clear and simple nonlegal-type statement to all new employees as
to what they are coming into when they come into Government,
and what their retirement options are going to be to the extent
that they're predictable so that employees are not surprised 2 years
down the road by what they've walked into.
Mr. Chairman, I really appreciate the opportunity to be here.
I would like Mr. Gregorits from the Professional Engineers and
then Mr. Beers and then Mr. Stern to make very short 1-minute
statements.
Mr. GREGORITS. Mr. Chairman, in the interest of time, and with
your permission, I would like to have my statement recorded in the
record, and I would just like to make one or two small points.
In the era of ever increasing technological change, it is impera-
tive that the Federal Government be capable of recruiting, hiring,
and retaining quality engineering talent to execute the business of
Government.
I stress the word "quality." We are not talking here about filling
vacancies which our personnel friends can do easily. We're talking
about quality talent. And in the engineering profession, with all
the changes that are taking place in our lifetimes, we must attract
and retain that talent.
Prior to the enactment of Public Law 98-21, it was difficult
enough to hire and retain quality engineering talent in the Federal
Government. The current situation makes it almost impossible.
We've reviewed the position of the GAO report, and feel that
option three is the least innocuous of the choices that are placed
before us. We recommend that if those are our only choices, that
option three be the one chosen.
I would be happy to answer any questions you have.
Senator STEVENS. Thank you. Your statement will be made part
of the record.
Mr. Beers?
Mr. BEERS. Thank you, Mr. Chairman.
We do not have any prepared statement. We are members, the
American Foreign Service Association, of both the FAIR coalition
and the Federal Employees Coordinating Committee, and so we
subscribe to the position taken by those two groups.
The one point that I come here to make today is that I would
like to point out that every reference so far in these hearings is to
the civil service retirement fund.
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
I'm sure you're aware, Mr. Chairman, as others are, that the
Foreign Service is a separate personnel system with its own retire-
ment trust fund. As far as this issue is concerned, we share the
same concerns as the civil service people. But as these measures to
overhaul and revise the retirement system of the Federal service
proceed, we would like very much to stress that our personnel
system does have very special and unusual requirements.
That's my purpose in appearing here today.
Senator STEVENS. Thank you, Mr. Beers. We are familiar with
that, and we want to assure you that we will be cognizant of it not
only as we try to protect the existing funds, but also a new system
for the whole Government.
Mr. Stern?
Mr. STERN. Mr. Chairman, the Patent Office Professional Associ-
ation is the exclusive bargaining agent of all nonmanagerial patent
professionals at the U.S. Patent and Trademark Office.
The vast majority of our members are engineers engaged in the
examination of patent applications. Our association is a charter
member of the Federal Employees Coordinating Committee.
It has been previously testified that the scheduled 14-percent re-
tirement program deductions for new hires will exasperate an al-
ready serious recruitment problem.
Let me try to define the magnitude of the problem in the Patent
Office. Our agency is currently at the midpoint of a major expan-
sion, with about 400 new engineers to be hired in the next 2 fiscal
years.
Data from the College Placement Council and the Pennsylvania
State University show that most engineers received job offers in
excess of $25,000 per annum this past school year. The Patent and
Trademark Office is only authorized special pay rates at the GS-5
and GS-7 entry levels of $16,706 and $19,639 respectively.
In the past, the Government's reputation for a generous retire-
ment program at least partially overcame such huge salary gaps.
When folklore is replaced by fact, when the uncertainty of retire-
ment benefits, coupled with the 14-percent deductions that are fur-
ther subject to the income tax, becomes known, how will we attract
quality graduates?
Will we be relegated to hiring only those who cannot get any
other job?
Retention resentment must also be considered. New employees
are recruited from all parts of the country. They must bear the
costs of moving and the expenses of starting a new household.
When unanticipated deductions shrink advertised salaries to
much smaller take home amounts, the initial shock may turn to
bitterness, especially when the new hires discover that only slight-
ly more senior employees are not required to make the same sacri-
fice.
A roughly comparable situation was presented last year when
engineer patent examiners were denied increases in their special
pay rates even though other employees were granted a 4-percent
increase.
The new employees angrily demanded that our association seek a
judicial remedy which we did. I will not be surprised if the Govern-
ment's cost of defending this still pending lawsuit, together with
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
the cost of misdirecting productive energies, will far exceed the
value of the 4-percent salary increase.
Our association strongly supports the recommendations of the
Federal Employees Coordinating Committee. We believe the fairest
and least disruptive interim solution is to provide the new employ-
ees with a retirement system that is as comparable as possible to
that enjoyed by current employees.
Of the alternatives presented, the social security offset approach
comes closest to this ideal.
I would like to make one additional point. We also believe that
the new hires should be making the same contributions as current
employees. Thus, new hires should, in addition to their payments
to social security, pay the difference between 8.3 percent, which is
the contribution of current employees, and the social security pay-
ment into the civil service retirement fund.
One must remember that current employees are now paying 7
percent into the civil service retirement fund, and 1.3 percent as
the medicare tax.
The total is 8.3 percent. The difference between 8.3 percent and
the payments they would be making into the social security
system, we believe, ought to go into the civil service retirement
fund to provide equity.
Thank you very much for giving us this opportunity to present
our views.
Senator STEVENS. Well, if there is going to be equity, then they
wouldn't be able to get back that contribution if they withdrew
from the Government, right? No one can get back the medicare
fund when their retire from Government.
Mr. STERN. That's true, and if an employee withdrew in the first
5 years, he would be able to get it back. But if he withdrew later,
he wouldn't get it back.
Senator STEVENS. If it goes into the retirement fund under the
existing law he would get it back. But if people in the Government
now, if they withdrew, they would not get it back.
Mr. STERN. They would not get the 1.3-percent medicare tax. But
they would get back the contribution to the civil service retirement
fund.
Senator STEVENS. I want to make sure we understand. You raised
a good point. I want to make sure we understand it, that the con-
tribution is going to go into the civil service retirement fund, it's
going to go in there period. They won't be able to get it back.
Mr. STERN. Good point.
Senator STEVENS. We would have trouble with that, incidentally,
because it would be-it is required to be a payment into the medi-
care fund. We would be changing that, if I understand you.
Mr. STERN. My understanding is that the new employees would
be paying into social security, including the 1.3-percent medicare
tax. However, that total contribution is less than the amount that
current employees are required to pay.
Senator STEVENS. You have a good point. We'll explore that. I
just want to warn all concerned that we're getting into an area of
uncertainty and confusion. I think that we've got to keep this-my
first wife used to give me that card, you know, when I got up to
make a speech. It said KISS, keep it simple, stupid. [Laughter.]
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
We've really got to keep this fairly simple so that the explana-
tion that you asked for, Mr. Shaw, is capable of being delivered in
a clear and precise and totally understandable way.
But we will explore that, Mr. Stern, and try to see if we can ad-
dress it in the draft.
Mr. STERN. Thank you, Mr. Chairman.
Senator STEVENS. It would be my hope that we will have a bill
prepared by the middle of next week and we'll try to see if we can
get it ready to go to the full committee as soon as possible.
I would urge those of you to consult with the staff as soon as we
can get any further suggestions coming. I personally favor a very
clean statement that the employer will continue to make contribu-
tions; the employees will not make contributions except for this
question Mr. Stern has raised; that there will be a coverage in the
new system if it becomes effective by October 1, 1985.
We cannot legislate carrying beyond that in my opinion. Until
we define what that system is, we should not grant that coverage
into a fund that may require contributions.
I think that we can get an understanding. Incidentally, I also be-
lieve that we ought to make certain that we do cover, in terms of
the disability and the survivor benefit provisions. And the cost of
that is very small. It ought to be covered so there is no uncertainty
about that either.
It would be my hope that we would agree that the goal is to get a
bill prepared so that it can be introduced before the close of this
Congress so that everyone will have a chance to study it, and that
we set a goal of enacting a bill in the first session of the next Con-
gress.
Mr. SHAW. Thank you, Mr. Chairman. We appreciate the oppor-
tunity to be here.
Senator STEVENS. I think it would be unconscionable for the Con-
gress to maintain the position that these new people must pay this
premium because of the action taken to resolve the social security
problem.
We tried to get it taken care of at that time. It was misunder-
stood. I'm hopeful that we can develop the consensus among all of
those who seek the solution so that we will not have a disagree-
ment when we get to the floor.
You know, this is a Benjamin Franklin situation. We either
agree, or we will hang separately.
I'll look forward to any further suggestions you have, gentlemen.
Thank you very much.
[The prepared statements of Messrs. Shaw and Gregorits follow:]
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
Federal Employees Coordinating Committee
CHAIRMAN
FEDERAL EMPLOYEES COORDINATING COMMITTEE
TO THE
SUBCOMMITTEE ON CIVIL SERVICE,
POST OFFICE, AND GENERAL SERVICES
OF THE
COMMITTEE ON GOVERNMENT AFFAIRS
U.S. SENATE
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
36
Mr. Chairman, Members of the Subcommittee, I appreciate
the opportunity to present the views of the Federal Employees
Coordinating Committee and its member organizations. The FECC
represents approximately a dozen federal employee organizations
representing a wide range of government workers. Many of our
members work in departments and agencies particularly concerned
about the effects of the recently enacted Social Security
Amendments. The temporary dual coverage by Social Security and
existing federal retirement pension systems, mandated by the
PL-98-21 will have a direct dollars and cents effect, as well
as an indirect effect on our membership.
Should Congress fail to enact legislation to eliminate the
built-in disadvantages and inequities of the Social Security
Amendments on federal employees, the consequences will be severe.
Recruitment and retention problems, already endemic in many
federal agencies, will become even more serious, as pay and
benefits to new employees are affected. Simultaneously the
federal government's comparative disadvantages in recruitment
becomes more acute with the economic recovery. Private employers
will not only be increasing their hiring, but offering higher pay
and benefits.
Moreover, the effects of the Social Security Amendments
are not restricted to newly hired federal employees. Difficulties
in recruiting qualified new employees, and increased employee
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
attrition have direct effects on agency workloads, efficiency
and morale. The ability of federal managers to carry out their
assigned responsibilities will be adversely effected as will
their job satisfaction and their commitment to a civil service
career.
These problems faced by existing federal employees are
compounded by the knowledge that the future of the pension
programs to which they themselves have contributed during
their federal careers is itself in doubt. Federal employee
confidence in existing federal pension and benefit programs
is already at an all time low. The adoption of the Social
Security Amendments only served to futher erode this confidence
at a time when federal employees are already witnessing a
mass exodus of their colleagues to the private sector.
Lastly, the Social Security Amendments will have direct
budgetary implications. At a time when all Americans are con-
cerned about the cost of government, greater difficulties in
recruiting and retaining workers with specialized or highly
technical abilities has already necessitated the payment of
special pay rates to many existing federal employees, many of
which I might add, are members of the FECC. The exacerbation
of recruitment and retention problems due to dual coverage
may require payment of higher special pay rates to greater
numbers of individuals.
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
38
These and similar effects of the Social Security Amendments
suggest three distinct objectives faced by Congress in the near
term.
First, and most important, a retirement system for new
employees must be designed and implemented without delay. The
longer this is postponed the more serious the problems will
become. No temporary stopgap measure designed to alleviate
current problems will satisfy this need.
Second, a solution must be found to the immediate problem
caused by dual coverage that will eliminate the basic inequity
that would be suffered by new employees forced to contribute
to two pension systems. These new employees can expect to
contribute some half a billion dollars to the Civil Service
Retirement System and other systems while obtaining something less
than three and?a half million in benefits during the same period.
To quote the recent General Accounting Office study of the problem,
"Requiring to temporarily contribute to both
systems appears to be an inequity. The dual
contribution will reduce employee's take home
pay if the situation is not remedied by Con-
gress."
Third, an effort must be made to minimize the general damage
to the federal government, its effectiveness, its efficient opera-
tion, and the morale of its employees. The retention and recruit-
ment problems must be addressed head-on.
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
Alternatives
Several legislative alternatives have been proposed to
address these last two legislative objectives: eliminating the
inequity and minimizing the damage done by the Social Security
Amendments. The three most widely discussed alternatives have
been (1) to exclude new'employees from Civil Service Retirement
System coverage, either universally, or on a voluntary basis;
(2) to institute some form of tax credit that would reimburse
new employees for the increased financial burden of dual coverage;
or (3) alternatively to develop a Social Security offset formula
while providing temporary CSRS coverage without employee contribu-
tions.
None of these three alternatives, nor any other with which
I am familiar, are entirely satisfactory.
The first alternative, to exclude new employees from coverage
under the current federal pension program, would of course eliminate
the direct financial inequity to be borne by new employees. How-
ever, this alternative also eliminates the potential personnel
recruitment benefits of inclusion under such programs. Also, a
simple exclusion of new employees from the current federal retire-
ment system would further strain the financially strapped federal
program. New employees who otherwise would have been able to take
advantage of Civil Service Retirement System benefits would be
substantially penalized. Creating a different kind of inequity.
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
Like the CSRS exclusion alternative, tax credit arrangements,
which would reimburse new employees for their contributions to
federal retirement benefit programs, would also eliminate the
direct financial inequities of dual coverage. Such an alternative
would also benefit the financially strapped existing federal retire-
ment benefit programs. However, for many new employees, earning
entry-level wages, the possible delay in reimbursement pointed
out in the GAO report could be an important consideration in
joining the federal government. Though the federal government
would be alleviated of any substantial administrative burden, it
would do so at the expense of new employees. These disadvantages
will doubtlessly be reflected in recruitment and retention.
The last alternative, involving the Social Security offset,
has the fewest disadvantages. This alternative would provide
new federal employees coverage under both the Civil Service and
Social Security systems, while at the same time eliminating the
direct financial impact on the employee. Moreover, this arrangement
would provide comparable disability and death benefits coverage
for the new employees while at the same time partially protecting
the financial health of the existing federal retirement programs
through agency-only contributions. Nonetheless, the Social
Security offset arrangement will result in administrative burden
which would be avoided under the tax credit scheme.
Obviously, none of the alternatives available is completely
satisfactory, underscoring the need for Congress to address the more
important problem of overhauling existing retirement benefit programs.
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
Of the alternatives available, however, the FECC prefers
the Social Security offset approach.
Recommendations
Whichever alternative is agreed to by the Congress, the
FECC feels such a plan should contain five elements:
1. New employees should be reimbursed for any direct
financial penalties of dual coverage in a timely fashion.
2. The financial integrity of existing federal retire-
ment benefit programs must be insured by Congress, and the lack
of new employee contributions not become a new excuse for OPM
to unleash a further publicity barrage about how the Federal
retirement program is "breaking" the Government.
3. Any new retirement system for new employees must be
a fair and equitable one.
4. Lastly, new employees should be completely aware of
the temporary arrangements made to accommodate their entry into
the U.S. government. The Office of Personnel Management should
be instructed by the Congress to inform new employees both of
the temporary nature of the retirement system under which they
enter, and the specific benefits to which they would be entitled
pending Congress's work on a new Civil Service System.
Thank you very much.
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
42
STATEMENT OF MR. JOHN W. GREGORITS, P.E. TO
THE UNITED STATES SENATE COMMITTEE ON GOVERNMENTAL AFFAIRS
SUBCOMMITTEE ON CIVIL SERVICE, POST OFFICE AND GENERAL SERVICES
--- WEDNESDAY, SEPTEMBER 14, 1983 ---
HEARING ON OPTIONS TO IMPLEMENT AN INTERIM
RETIREMENT SYSTEM FOR CIVIL SERVICE EMPLOYEES
WHO WILL BE COVERED BY SOCIAL SECURITY
Good Morning. My name is John Gregorits and I am the Chairman
of the Professional Engineers in Government Practice Division of
the National Society of Professional Engineers. I have recently
served as the Chairman of the Special Task Force on Engineering
Recruitment for the Federal Service. In these capacities, and as
a civil servant of more than 25 years of service, I am pleased to
be able to present to you some specific comments which I believe
will bear on the subject of concern to this subcommittee.
In this era of ever increasingly rapid technological change, it
is imperative that the Federal Government be capable of recruiting,
hiring and retaining quality engineering talent to execute the
business of government and provide accurate technological advice
to its less technically trained arms. This is especially true
where decisions affecting the public well being are made daily.
Diverse segments of the Federal Government served on The Special
Task Force on Engineering Recruitment. Although their report is
currently undergoing final approval some of the findings are re-
portable now. We identified that in recruiting, hiring and
retaining quality engineering talent in the Federal Service, there
are seven distinct areas of concern:
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
1. Image
2. Entry level recruitment
3. Retention at the journyman level
4. Communication
5. Mobility
6. Engineering Technologists
7. Compensation/salary
Today, I would like to concentrate on Entry level recruitment
and Retention at the journeyman level. In my opinion, information
on these areas could bear directly on your upcoming decisions.
You are all aware of the increasing body of literature concerning
the emergence of "new values" in American society. This means that
we are dealing with two distinct groups of individuals - the recent
graduate, raised in an affluent society and the journeyman engineer,
a more traditional individual. The young engineer, or for that
matter any member of the "baby boom" is looking for an interesting,
well-designed job to develop a broad, marketable skill base and
short-term capital to cover mortgage and car payments. Retirement
is not the primary concern of this group. They assume that the
federal retirement system will be comparable to that provided in
the private sector.
On the other hand, the mature engineer has a stable career.
Since he is more concerned with providing for himself and his
family, he will consider the retirement aspect of his compensation
of greater importance.
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
In either case, paying more for a retirement, especially one
whose benefits are not defined and clearly left to the uncertain
legislative process, would result in making it tantamont to
impossible to attract the quality engineering talent needed.
Indeed, prior to the economic downturn and before the passage of
Public Law 98-21, which brought civil service employees under social
security, even with the Special Pay Rates, it was most difficult
to fill vacancies. Attempts to compensate for this difficulty
have included training designed to qualify mathematicians, phys-
icists and chemists to fill engineering positions and the re-
engineering of job descriptions so these professionals could qualify.
The shortage of engineering positions in the private sector, has
changed this picture only briefly, but, with the economy changing
and Public Law 98-12, the task of the technical federal manager
to attract and retain engineering talent becomes nearly impossible.
Public Law 98-12 is here and we must make the best of a difficult
situation. In my opinion, given that the prevailing conditions
cannot be changed, Option 3 as proposed in the GAO report offers
a workable alternative for the interim. Recruitment and retention
will still be extremely difficult, but, at least possible.
Senator STEVENS. The subcommittee will now adjourn.
[Whereupon, at 11:31 a.m., the subcommittee adjourned, subject
to reconvene at the call of the Chair.]
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD
AMERICAN FEDERATION OF GOVERNMENT EMPLOYEES
Affiliated with AFL-CIO
1325 Massachusetts Avenue, N.W., Washington, D. C. 20005
KENNETH T. BLAYLOCK
NATIONAL PRESIDENT
AMERICAN FEDERATION OF GOVERNMENT EMPLOYEES
(AFL-CIO)
SUBCOMMITTEE ON CIVIL SERVICE,
POST OFFICE AND GENERAL SERVICES
COMMITTEE ON GOVERNMENTAL AFFAIRS
ON
DUAL RETIREMENT CONTRIBUTIONS
SEPTEMBER 14, 1983
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
The American Federation of Government Employees (AFGE),
AFL-CIO, is pleased to submit this statement to the Senate
Committee on Government Affairs, Subcommittee on Civil Service,
Post Office, and General Services. AFGE represents over 700,000
employees throughout the Executive Branch of government.
We are pleased to see this Committee address the rather
absurd situation brought about by the passage of H.R. 1900, the
Social Security Reform Bill. On January 1, 1984, new federal
employees will be (barring any change in current law)
contributing 14% for retirement purposes -- 7% to the Civil
Service Retirement System, 5.7% to Social Security and 1.3% to
Medicare. (For 1984, .3% of the Social Security contribution
would be allowed as a tax credit for income tax purposes.) The
new employees will be contributing this 14% of their salary
without having any clear idea what their ultimate retirement
benefits will be since there currently is no supplemental
retirement p.lan in place for these employees.
Below we illustrate the size of the annual retirement
contribution, at current pay, for each of the GS levels, 1
through 12:
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
GS LEVEL
STEP
ANNUAL PAY
ANNUAL RETIREMENT CONTRIBUTION
1
5
$ 9,831
$1,376
2
5
10,703
1,498
3
5
12,065
1,689
4
5
13,541
1,896
5
5
15,153
2,121
6
5
16,889
2,364
7
5
18,767
2,627
8
5
20,783
2,910
9
5
22,956
3,214
10
5
25,283
3,539
11
5
27,776
3,889
12
5
31,332
4,386
Of course, one would have to deduct health insurance,
federal, state, and local income taxes before one could estimate
the take home pay for these federal workers.
As the General Accounting Office stresses in its report and
the above table indicates, the ability of the federal government
to recruit and retain quality employees will be severely reduced
given this level of retirement contribution. We cannot but add
at this point that the pay caps,- retirement benefit reductions,
increases in the health premiums, deterioration of working
conditions, and constant belittlement of the worth of federal
employees has also affected the governments' ability to attract
top notch workers. These retirement contributions will make
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
worse the already existing entry level pay gaps between the
private sector and the federal sector. (See attachment.)
The Senators are well aware that this union opposed bringing
new federal employees under Social Security. Our opposition was
shared by virtually all federal employees. However we were not
able to prevail on this issue.
When it became clear that new employees were to be brought
under Social Security, we supported and were happy to see the
Senate pass the amendment offered by Senator Russell Long (D-LA)
to H.R. 1900 which would have delayed coverage of new federal
employees until a supplemental retirement system was in place.
Unfortunately, the Senate was not able to prevail in Conference
with the House on the Long admendment. If the Long admendment
had prevailed we would not be facing the current abysmal
situation.
Although we recognize the political difficulties'in passing
a provision similar to the Long admendment, we still believe
that removing new employees from Social Security until a
supplemental retirement system is in place is the best answer to
the current problems.
Without this favored solution, it becomes very difficult to
find an appropriate solution to the current situation. This
difficulty stems from the fact that we are trying to remedy the
contribution aspect of the retirement system for new employees
without having any clear idea what the benefit structure will
eventually be. The GAO Report states, "... we assumed the new
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
supplemental retirement system will retroactively cover all
periods of service by new employees subsequent to January 1,
1984." New employees, considering the track record of promises
made to federal employees, may
"assumption" is valid.
THE PROPOSALS EXAMINED BY GAO
The criteria offered by GAO for the four proposals it
considers is "alternatives which would alleviate adverse impacts
on recruiting and retention". We believe that there is another
consideration which should be taken into account in attempting to
alleviate the dual contribution problem -- namely that equality
between current and future employees be maintained. When the
supplemental retirement program is under consideration AFGE will
be guided by the following principle:
The supplemental system (when combined with Social Security)
should provide the same level of benefits as the current
system with the same level of contributions from the
employee.
In light of this principle, AFGE cannot endorse any of the
retirement contribution proposals as currently fashioned by GAO.
The first proposal, to provide new employees with a tax
credit for their contribution to the Civil Service Retirement
System, would place new hires in a relatively priviledged
position when compared to current employees. For example
consider the hypothetical case of two employees (one current
employee and one newly hired 1984 employee) both earning S40,000
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
and paying 30% in federal income tax. In this case under this
alternative, the current employee would pay $2,800 to the Civil
Service Retirement System, $495 for Medicare, and $12,000 in
federal income tax for a take home pay of $24,705. The new
employee on the other hand would pay $2,800 to the Civil Service
Retirement System, $2,172 to Social Security, $495 for Medicare,
and $9200 in federal income tax (taking into account the tax
credit for the Civil Service Retirement System contribution).
His take-home pay would be $25,333 -- a full $628 more than the
current employee. In addition, new employees could also receive
a refund of their Civil Service Retirement contribution if they
leave government service.
The second option of no Civil Service Retirement coverage,
thus no employee or employer contribution to the Civil Service
Retirement System, also is flawed. The new employee would have
Social Security coverage but would have no defined stake in a
supplementary retirement system. The resulting increased
insecurity would, again, have adverse impact in the government's
recruitment ability. There would also be fairness problems in
disability and death situations. It would also have an adverse
impact on the finances of the Civil Service Retirement Fund.
The fourth option, of voluntary participation in the Civil
Service Retirement System, is merely allowing employees to choose
between the current situation which is, as these hearings attest,
recognized to be unsatisfactory and the second GAO option which,
as we have already argued, is also unsatisfactory. An option to
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
contributions, also has some problems. By not requiring any
contribution from new employees it fails to show new employees
that they have a stake in a supplementary retirement system. If
they are guaranteed credit for the years of service in this
interim period, it is not equitable to current employees who will
be contributing at a higher rate than these new workers or future
employees who may be required to contribute to the supplemental
retirement plan. It does have the advantage of providing
increased coverage to new employees in situations of disability
or death. It also aids in the financial status of the Civil
Service Retirement Fund, compared to GAO option two, by providing
for agency. contributions.
If it is considered impossible to delay Social Security
coverage of new employees until a supplemental retirement system
is in place, then AFGE would recommend that GAO option three be
modified to provide for a 1.3% employee contribution to the Civil
Service Retirement System because:
It would achieve a parity of contribution between new and
current employees for retirement purposes.
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
credit of their years of service toward a supplemental
retirement plan in this interim period.
It would provide new employees with coverage for disability
and death benefits comparable with pre-1984 federal
employees.
Provisions should, also, be made for the refund or addition-
al contribution in the case where the supplemental system
requires a contribution rate that is different than 1.3%. There
already exists a precedent for this approach in the way Congress
has chosen to handle the post-1956 military service for Civil
Service Retirement. We are not persuaded by the protests made by
GAO in regard to the administrative complexity of such an
approach. We fully recognize that their are some potential
administrative problems in this approach but we strongly believe
that such problems are secondary to the principles of equity and
fairness to federal employees, both current and potential.
We want to thank the Chairman and the Committee for
examining this situation and look forward to working with the
Committee and its staff to resolve the problem.
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
53
ATTACHMENT
Based on March 31, 1983 data supplied by OPM, the relative
differences in entry level pay between similarly matched jobs in
the private sector vis the federal sector has become alarming.
For example:
ENTRY LEVEL DIFFERENCES IN PAY
OCCUPATION
PRIVATE SALARY
FEDERAL SALARY
% DIFFERENCE
ACCOUNTANTS
$19,519
$14,098
38.454
ATTORNEYS
28,119
20,591
36.55
CHEMISTS
21,365
13,628
56.77
ENGINEERS
25,556
17,431
46.51
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
NASCOE
National Association of ASCS County Office Employees
The Honorable Ted Stevens
Chairman, Sub-Committee on Civil Service,
Post Office and General Services
United States Senate
Washington, D.C.
The members of the National Association of ASCS County office
Employees (NASCOE) are concerned about the situation that will be
faced by new hires after January 1, 1984 and, collaterally, about
the continued viability of the present Civil Service Retirement
System. Therefore, NASCOE appreciates your endeavors to find an
acceptable alternative to alleviate the plight of new hires until
a supplemental plan is in place.
The National Association ASCS County Offic Employees (NASCOE)
is an association whose purpose it is to promote the welfare of
Association members. Its membership consists of those employees
hired to work in the U.S. Department of Agriculture's Agriculture
Stabilization and Conservation Service County Offices. There are
about 10,000 such employees whose jobs are to provide services to
the farmers of our nation participating in the programs of ASCS.
County Office employees are not classified Federal employees,
but they are paid from Federal funds; funds appropriated under the
U.S. Department of Agriculture's budget and allocated to ASCS.
Their entitlment to participate in the Civil Service Retirement
system, the Federal Employees Health Benefits program, and other
programs was made possible by various legislative enactments.
The issue of pursing alternative measures for those employees
hired after January 1, 1983 was thoroughly discussed at NASCOE's
Annual meeting held August 17 - 20 in Rapid City, South Dakota.
It was agreed by the members that some alleviating measure should
be enacted to cover the interim period between January 1, 1984 and
the time when a supplemental plan for new hires is in place. It
was also agreed that every effort should be made to provide equitable
treatment for both new hires and incumbents. And, most importantly,
no action should be taken which does not provide for full contri-
butions/funding to the present Civil Service Retirement System.
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
55
Therefore, the Delegate Body of NASCOE at its 1983 annual
meeting passed a resolution which would support an alternative
measure that would require:
1. New Hires to pay a 7% contribution to Social Security
2. New Hires to pay a 1.3% contribution to CSRS
3. Full CSRS contribution/funding to be paid by employer
4. Any CSRS benefits paid to new hires to be off-set by
any Social Security benefits received.
Such measures as amortization of the Governments's Cost could
make this proposal one of a minimum annual appropriation.
NASCOE also wishes to point out that as a member of FAIR,
it is working with other employee organizations in an attempt
to develop an alternative, acceptable to a majority of FAIR's
members, to be forwarded to you.
We repectfully request that consideration be give to NASCOE's
position on this issue and that this statement be included in the
record of the hearings on this matter.
( L~--t?~J- ll T
Lindsay--Cr6ss t,
President
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
56
NATIONAL ASSOCIATION OF RETIRED FEDERAL EMPLOYI.E9
1533 New HAopsoipE Ave.. N.W.. WASHINGTON, D.C. 20036 APEA COOl 1202; 234 OF}i[
STATEMENT OF L. J. ANDOLSEK, PRESIDENT
NATIONAL ASSOCIATION OF RETIRED FEDERAL EMPLOYEES
PRESENTED TO
SENATE SUBCOMMITTEE ON POST OFFICE, CIVIL SERVICE, AND GENERAL SERVICES
OF THE COMMITTEE ON GOVERNMENTAL AFFAIRS
ON THE
RETIREMENT CONTRIBUTION REQUIREMENTS OF POST-1983 FEDERAL EMPLOYEES
I am L. J. Andolsek, President of the National Association of Retired
Federal Employees, commonly known as NARFE. I am pleased to present our views to
this Committee on behalf of our half-a-million dues paying members, all of whom are,
or soon will be, dependent on the Civil Service Retirement Fund as the major
source of their retirement income. We commend you for holding this hearing on the
effects of requiring future Federal employees to contribute to both the Civil
Service Retirement System and the Social Security System, and appreciate the
opportunity to present our views. NARFE is a member organization in the FAIR
coalition, and although the views we are presenting today are our own, they are
consistent with the basic principles outlined by that 25 member coalition.
Mr. Chairman, the 63 year old Civil Service Retirement System is a testament
to the basic policy that employees of the Federal Government deserve a retirement
system sufficient to meet their financial needs when they retire from the active
workforce. As we approach the threshold of mandatory Social Security coverage for
post-1983 Federal hires, we must ensure that no breach occurs in that longstanding
commitment to the staff retirement system.
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
Under existing law, both current and future career employees are automatic
participants in the Civil Service Retirement System, and NARFE is unalterably
opposed to any legislative action which would eliminate or interrupt that full
workforce participation. During the 20th Century, this nation has embraced a
policy of encouraging employers to establish staff retirement plans for the
protection of employees during their careers and for providing post-career income
based on years of service by granting favorable tax treatment of employer contributions
to those systems. For the Government itself to dismiss this policy by allowing
even a temporary breach to occur in retirement coverage for new Government employees
is inconsistent and unfair. Moreover, for the Government's top personnel officer
to propose excluding new employees from the existing system while Congress works
to establish a supplemental retirement program which, in his words, "mom eventually
be enacted" is unbelievable.
The systems which stabilize society and provide a framework for the
protection and progress of our nation and its citizens are based on continuity.
The work of Government and indeed the business of life is always undergoing
transition. Sincere efforts must constantly be made to eliminate inevitable
duplications. However, in some situations a degree of duplication is essential to
ensure both continuity and flexibility.
In an effort to gain support for increases in military spending, President
Reagan referred to a "window of vulnerability" that would occur if we did not
continue funding weapons systems based on current technology at the same time we
develop new technologies for the future. We do not claim to be defense experts;
however, we are retirement experts and NARFE can assure you that if the Administration
succeeds in exempting future employees from participation in the Civil Service
Retirement System, even temporarily, it will open a window of vulnerability that
will never be closed.
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
Mr. Chairman, all employees of the Federal Government must be participants
in the staff retirement system whether it be under the total retirement program
available to past and current employees, or a yet to be developed supplemental
program of benefits coordinated with Social Security for future employees. Until
such a program is in place, however, the post-1983 employees must be included in
the existing program. If the choice is between a lapse in retirement coverage
or full employee contributions to both Federal retirement and Social Security,
NARFE must opt for the latter.
As an organization representing former employees from all levels of
government, including management and the highly technical, we fully recognize and
have voiced concern about the recruitment problems that could result if new
employees are required to contribute 14% of pay towards their retirement security.
However, it would be extremely difficult to attract highly qualified candidates
for Federal employment if we did not offer any retirement system, even for a short
period of time, to compete with those available from private sector employers.
A new survey by the U. S. Department of Labor found that 84% of full-time workers
in large and medium size private companies are covered by private retirement plans
as well as Social Security, and in most cases those plans are financed totally
by the employer.
We also recognize that morale problems could result from inequitable
treatment of current and future employees. Understanding that modifications may
be necessary to the amounts of funding derived from each of the three current
sources -- employees, employing agencies, and the Government -- does not change
the basic premise that those funds must continue to flow into the existing Federal
Retirement System and that new employees must continue to be covered by that System.
It is presently the one and only retirement system of the Federal Government.
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
59
A number of proposals have surfaced which are consistent with the goals
of continued funding and continued coverage that provide enough flexibility to
offset any inequities that could arise from requiring new employee participation
in both systems. Legislation you introduced to provide a tax credit for
employees' contributions to the Federal Retirement System would address many
concerns in these areas, although we recognize the practical problems facing
enactment of such a plan. As various temporary measures are considered, it is
critical that basic coverage in the system not be changed to achieve a short
term solution. There can be no lapses in coverage or funding. This is the
only way to assure that Congress will be able to consider a full range of options
for a supplemental program, when all of the data from the Congressionally
approved studies currently underway is available.
Mr. Chairman, NARFE commends you for your efforts to resolve the conflicts
which will face the Federal retirement and personnel management systems next
year. We look forward to working with you and your staff on addressing them in
a temporary fashion and in the future development of a fair supplemental
retirement plan for Federal employees hired after 1983. I would be happy to
respond to any questions you may have.
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
Mr. Chairman: We appreciate t.ho opportunity to (jiscuj;:; tile
impact of social security and civil service retirement coverage
on Federal workers hired on or after January 1, 1984. The issue
is of pressing importance to current as well as future Federal
employees and retirees.
Employees hired by the Federal Government after December 31,
1983 and employees who experience a break in service of more
than one year, will contribute to and be covered by both social
security and civil service retirement. Their total payroll
deductions for retirement purposes will be 14 percent (7 percent
for social security and 7 percent for civil service retirement).
These deductions, coupled with the usual payments for Federal,
State, and local taxes and health insurance, will place an
extraordinary financial burden on new hires.
In 1982, Federal agencies spent $93 million in special pay rates
to recruit and retain qualified people in certain.occupations.
There is little argument that the Federal Government will ex-
perience even greater recruitment problems once the 14 percent
deduction is implemented.
A partial, long-term solution will probably come in the form of
a completely new retirement system for Federal workers covered
by social security. The new system, which will either be inte-
grated with social security or an add-on to it, will almost
surely require less in employee payroll contributions than 14
percent. But it is doubtful the new system will be in place
before late 1985.
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
In the meantime, Congress must take steps to alleviate the
financial burden on new employees and to facilitate the Govern-
ment's recruitment efforts. In doing so, however, you must
ensure that the following criteria are met.
First, there should be no disruption of revenue to the current
Federal retirement programs. The General Accounting Office, as
you know, estimates that new hires will contribute nearly $500
million over the next two years to the various Federal pension
systems. Should these funds be cut-off, the systems' financial
posture would be weakened and benefits could be jeopardized for
current and future retirees. This must not be allowed to
happen.
The second test that should be met is one of equity between
present employees and those hired after this year. Current
civil service workers pay 7 percent of salary toward Federal
retirement and 1.3 percent toward Medicare, for a total payroll
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, civil servants hired after this
year should also contribute 8.3 percent of salary toward retire-
ment or a figure as close to that as possible.
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
Several proposals are now being discussed as possible remedies
to the problems that will be created by fully covering new em-
ployees with both social security and Federal retirement. One
proposal that appears to meet our criteria would require new
Federal employees to contribute the standard amount to social
security (7 percent of the first $37,500 in salary) and 1.3
percent to Federal retirement, for a total payroll deduction of
8.3 percent. In return, new civil service workers would be part
of the current Federal retirement system until a new annuity
program is designed and implemented. With respect to funding,
Federal agencies would continue to make their contributions on
behalf of new workers. In addition, however, a lump sum'would
be authorized to be paid to the Federal retirement systems by
the Federal Government. This would make up the 5.7 percent
contribution for which employees' would no longer be
responsible.
NFFE could support this proposal. Yet, we could also support
others should they meet the criteria summarized above. We
simply urge Congress to recognize the severity of the pending
problem and to work with all due speed to implement a viable
solution.
This concludes my statement. I will be happy to answer any
questions.
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
STATEMENT OF
ROBERT M. TOBIAS
PRESIDENT
NATIONAL TREASURY EMPLOYEES UNION
On behalf of the 120,000 Federal employees and retirees
represented by the National Treasury Employees Union, we appre-
ciate this opportunity to submit our views on S. 1522.
The issue of how to alleviate the large financial burden
that will be placed on Federal employees hired on or after Jan-
uary 1, 1984 due to their inclusion under the Social Security
System is one that must be addressed. We commend you, Mr. Chairman,
for the leadership and responsibility you have shown in seeking
a rapid legislative solution to this problem.
Let us state from the outset that we view this issue as
critical not just as an immediate concern, but for the long-term
retirement security of Federal employees. During the debate
earlier this year on the Social Security Amendments of 1983 (now
Public Law 98-21), we opposed the inclusion of new Federal and
postal employees under social security for numerous reasons. We
were primarily concerned about the effects of this change upon
the future solvency of the current civil service retirement sys-
tem and upon the morale of the workforce where workers performing
the same job would be paying different amounts for their
retirement. When the law was enacted, we were told that Congress
was committed to ensuring the financial security of civil service
retirement and of relieving new workers of the burden of paying
into both systems.
The time has come for Congress to make good on its commitment.
On January 1, 1984, newly hired Federal and postal workers will
pay approximately 14 percent of their gross salaries in social
security taxes and civil service retirement contributions. In
addition, the Administration has endorsed a plan which, we believe,
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
would disrupt the continuity of funding to the civil service
retirement system.
In hearings before the Subcommittee last week, Office of
Personnel Management Director Donald J. Devine expressed the
Administration's support for removing new employees totally from
the civil service retirement system. Under this option, the
employees would only pay into social security and would be allowed
to purchase retroactive coverage in the new supplementary retire-
ment plan that will be developed.
Having stated this position, however, the Director then went
on to say that the Administration would be willing to consider
requirements that the government continue to make contributions
to the civil service retirement fund and to provide disability
and survivor protection to these workers during that time. While
we are glad that the Administration at least recognizes some of
the problems associated with its recommendation, we cannot sup-
port this position.
It is not the fault of future Federal employees that Congress
chose to cover them under social security while no supplementary
retirement is in place. Given the complexity of developing such
a retirement system and the extreme care and deliberation that
must be taken before it is enacted, no one can say for sure
excactly when the system would be in place. We believe that in
order to protect fully the continuation of funding into the pre-
sent system and protect employees to the fullest extent possible,
a definite answer must be reached. The responsibilities of the
government and the employees must be clearly articulated and
enacted. Allowing new Federal and postal workers to remain
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
covered only by social security for an indefinite period is
simply unacceptable.
We believe that another solution must be found. The Gen-
eral Accounting Office listed five options that could be pursued.
One of these -- the idea of granting new employees a tax credit
for their civil service retirement contributions -- has a great
deal of merit, but it has drawn significant opposition to the
point where it probably cannot be enacted.
We believe that the best solution available would encom-
pass the following features:
all new employees would remain under the civil service
retirement system until a new supplementary plan is enacted
when they would be placed under that system;
- new employees would pay the 6.7 percent FICA tax;
new employees would also pay 1.3 percent of the contribu-
tions to the civil service retirement system; this would
be done to ensure that all workers are paying the same
amount of their salaries toward retirement;
- the government would continue to pay 7 percent for each
employee into the CSR fund;
- the remaining 5.7 percent of the employees contribution
would be paid out of general revenues to be amortized
over a thirty-year period.
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
 Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0
66
We believe that this system offers the best available means
to deal equitably with the problem at hand. The GAO estimates
that employee contributions by new hires in 1984 would total
about $470 million. Deducting the 1.3 percent that the employees
would pay, means that the government would amortize the remain-
ing amount to be paid in authorized annual installments over 30
years. There is precedent for this in that Congress chose to
handle part of the funding for the present civil service retire-
ment system in this fashion. This offers a low-cost alternative
to the problem.
In addition, our proposal ensures fairness by requiring that
all employees pay the same amount for retirement. This would
alleviate any problems with administration and morale that would
certainly develop under present conditions.
Finally, this solution would fulfill Congress' commitment
to maintain the funding of the present civil service retirement
system. Eventually, the long-term issue of what happens when
employee contributions to the fund diminish will have to be'
addressed. But in the interim, the stability of the system dur-
ing the period when a supplementary plan is developed will be
ensured. We urge the Subcommittee to adopt our proposal.
This concludes our remarks. We will be glad to offer any
further assistance possible to the Subcommittee.
0
Approved For Release 2010/03/01 : CIA-RDP89-00066R000100120001-0