IMPACT OF SOCIAL SECURITY REFORM/FEDERAL RETIREMENT PROPOSALS ON THE CENTRAL INTELLIGENCE AGENCY
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CIA-RDP85M00363R001002200014-6
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September 11, 2007
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IMPACT OF SOCIAL SECURITY REFORM/
FEDERAL RETIREMENT PROPOSALS ON THE
CENTRAL INTELLIGENCE AGENCY
Social Security Reform
The report of the National Commission on Social Security Reform which
will form the basis for Congressional action early in the 98th Congress
recommends that Social Security coverage be extended on a mandatory basis
as of 1 January 1984 to all newly hired civilian employees of.the federal
government. The implication of this provision is that the Civil Service
Retirement System and special federal retirement systems such as the CIA
Retirement and Disability System will continue to exist only for individuals
who entered government service prior to 1 January 1984. In time, and when
the'last beneficiary of these retirement systems dies, these systems will
disappear.
Changes to the Civil Service Retirement Act
The President's fiscal year 1984 budget recommends a number of changes
in - federal. employee. retirement and disability programs. Probably the most
significant of these would raise the retirement age for an annuity without
reduction from age 55 to age 65 phased in over a period of ten years.
Retirements would be permitted at earlier ages but employees who so retire
would have their annuities reduced by five percent for each year they are
under the prescribed age at the time of retirement; e.g., age 56 in 1984,
age 57 in 1985, and soon. In ten years the age would be 65. Employees who
are age 55 at the time of enactment will not be affected. The Office of
Management and Budget already has indicated that the Administration will
seek to raise the CIARDS retirement age from 50 to 60 with the same five
percent per year penalty for early retirement. The overall thrust of all
of the retirement changes is that employees will have to pay more for less
attractive annuities and will have to work longer in order to qualify for
retirement without reduction.
The impact of the Social Security reform/federal retirement p.roposals
will be particularly heavy and adverse for the Central Intelligence Agency.
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S E C R E T
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a. There are currently em loyees eligible.for voluntary 25X1
retirement under the CSRA; of these, hold an SIS rank from 1 through 6. 25X1
E CIARDS participants are immediately eligible for retirement; of these, 25X1
old the rank of SIS-1 through 6. While it is not likely, because of
grandfather clauses protecting their current entitlements, that this large
number of employees will opt for retirement now, there is the risk that
because of general distrust of the legislative process some may choose to
leave now. The result could be a disastrous loss of experienced personnel,
many of whom are in key positions.
b. We believe-that an even more critical loss to this Nation and
the Agency would be in our extraordinarily competent and highly motivated
mid-career personnel in the 35 to 50 range. Certainly, a significant part
of their commitment to a career with the Agency is retirement/benefits
package that the Government offers. We believe that it is this group that
is hardest hit by these proposals because they realize that they will have
to revise their future plans, taking into account that there will be no
substitution for the severe reduction in retirement benefits that they
will be required to accept by the changes. The particular problem here is
that in this group of employees there is a great deal of difficulty in
moving into a new career or employment position outside of the Agency except
for the most competent and highly gifted individuals. It is the cream of
our career staff that we will be likely to lose, a group that will be
extremely difficult to replace. The devastating impact of this happening
will be reflected in the long term because we will not have successors to
replace the current leadership and it will take many years to replace the
mid-level career group.
c. In its recruitment of the brightest young men and women to help
fulfill the CIA mission,.the Agency has had much to offer:
1. We promise a meaningful career in an area of vital concern
to our Nation's welfare, a. career which exposes them to the most sensitive
of information and which allows them to make a significant contribution to
the Agency's mission;
2. We assure them of continuing advancement to positions of
increasing responsibility if their performance warrants it;
3. We provide the opportunity to serve a full career while
permitting them, at the same time, full retirement at an age that leaves
productive years to pursue other interests, such as employment in the private
sector, academia or otherwise.
d. The proposed changes would force us to offer employees and those
we need to recruit considerably less.
e. The proposals would change the career nature of Agency employment
by dramatically lengthening the service of.current Agency employees and
prospective hires. The lengthening of service of Agency employees by as
much as ten years would also have a devastating impact on promotions and
could require the Agency to conduct reductions in force in order to permit
the promotion of deserving younger officers.
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c G r' R r T
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f. If the CIA is to carry out its extremely important mission,
and particularly if it is to assure the utmost security of our Nation's
most important secrets, it cannot afford to be a short-term (3-5 years)
training facility for its work force.. There are a number of agencies in
government which strive for a short-term work force. The U.S. Attorney's
Office and the Department of Justice, as well as regulatory agencies like
the FTC and the SEC, are good examples. Because of the private sector
demand for people with these experiences, individuals use these agencies as
a training ground. However, because of the sensitive. intelligence which
Agency employees come into contact with, the Agency cannot afford to have a
population of short-term employees. The need for a highly motivated,
extraordinarily capable career cadre able to serve a full career, i.e.,
20-30 years, is an absolute necessity. It can only be achieved and maintained
by providing the necessary competitive remuneration along with a retirement
program similar to the one that now exists, allowing our essential careerists
to commit their careers to the defense of this Nation while at the same time
allowing those careerists to provide adequately for their future.
g. The proposals and objectives of OMB would cripple CIARDS for
current employees and eliminate it for prospective new hires. In 1964
Congress enacted CIARDS to recognize that CIA's operational cadre, because
of the special nature of their service, deserved retirement benefits
significantly different from other employees. OMB plans to insert an
annuity penalty reduction for early retirement which does not now exist.
Such a change, as well as lengthening the age of CIARDS participants before
they could retire without an annuity reduction, could destroy CIARDS as an
important management tool. CIARDS has allowed the Agency to require or to
permit early retirement with no penalty reduction to members of this opera-
tional cadre who can no longer serve under the strenuous and hardship
circumstances required; such early retirements have provided managers
promotion headroom for deserving younger officers.
h. Because of these serious concerns, we strongly urge that the
Director take positive and aggressive action as recommended below.
Action Believed Necessary
For the reasons discussed above, we have recommended that the Director
obtain the President,'s approval for an attempt to exempt CIA from the Social
Security Reform Act proposals, obtain the President's approval to exempt
CIA from the age and penalty changes proposed for the Civil Service Retirement
Act, and request the President to instruct OMB to take no action to amend
CIARDS.
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primarily serving overseas or who are performing certain types of service
in the United States, e.g., hazardous duty.
C. Since an understanding of the Social Security proposal impact
depends on some familiarity with our present Civil Service and CIARDS systems,
these are addressed first.
III PROPOSED AMENDMENTS TO THE CIVIL SERVICE RETIREMENT ACT
A. The President's budget message proposed the following major changes
to the Civil Service Retirement Act:
1. Under existing law, employees who are at least age 55 with
30 years of service,. age 60 with 20 years of service, or age 62 with 5 years
of service may retire voluntarily with no reduction in benefits. Involuntary
retirement benefits are available to employees who are at least age 50 with
20 years of service or who have 25 years of service regardless of age;
such employees have their annuities reduced by 2% for each year they are
under age 55.
The retirement age for an annuity without reduction would be
raised from age 55- to. age 65, phased - in over a period of-10 years. Retire-
ments would be permitted. at earlier ages but employees who so retire would -
have their annuities reduced by 5% for each year they are under the prescribed
age at the time of retirement, e.g., age 56 in 1984, age 57 in 1985, and
so on. In ten years the age would be 65. The reduction would not apply
to persons retiring because of disability. Please note: employees 55 or
over at enactment would not be affected.
2. Employees currently pay 7% of their base salary for retirement
The employee's contribution would be increased to 9% in 1984
and 11% in 1985.
3. Currently, annuity calculations are based on the employee's
highest three years of salary, referred to as the "High-three."
This would change to the highest five years of salary. Please
note: employees within 3 years of retirement eligibility would not be
affected.
4. It is also proposed to eliminate the retiree cost-of-living
adjustment for 1984, and for 1985 and thereafter to make permanent current
legislation that allows only one-half cost-of-living adjustments for non-
disability retirees under age 62.
5. Currently, the formula used to determine the percentage of
salary that is replaced by retirement benefits is 1 1/2% of an employee's
"high 3" years of salary for the first 5 years, 1 3/4% for the next 5 years
and 2% for each year over 10. An employee who retires after 30 years of
service would receive 56.25% of his/her "high three." The Budget suggests
the possibility that this level could be lowered significantly but the
specific manner in which the reduction is to occur and the timing involved
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has not been specified. One figure mentioned is a flat 1 1/2% for each year
of service. Thus, we are not yet able to describe accurately the annuity
reduction proposed, but there could be one and it could be very significant
in terms of dollar loss over current expectation.
1. None of the. changes are without concern to employees: they
will have to pay more for less attractive annuities and will have to work
longer in order to qualify for retirement without reduction. Of all the
changes, the most serious to management and employees are those which raise
the retirement age for an annuity without reduction-to 65 and impose an
annuity reduction for early retirement. These changes need particular
attention.
2. Since the specific details of the proposal identified in
paragraph III A 5 above are not yet known, we are unable at this time to
assess accurately its impact on those Agency emplo ees covered by the CSRA
who are currently eligible to retire; they total Except for that 25X1
uncertainty, employees in the Civil Service Retirement System age 55 and
above are protected from the age 65 proposal and the 5% penalty reduction
for earlier retirement; employees in the Civil Service Retirement System who
are within 3 years of retirement eligibility are protected from the change
from a "high 3" to a "high 5" basis for calculation. They total but 25X1
there is some overlap with the previous category. These two "grandfather"
clauses should ease the concern or minimize the possibility that the large
number of Agency employees now eligible for CSRA retirement will in fact
opt for retirement since their entitlements, except for increased contribu-
tions, would not be immediately affected.
3. On the other hand, employees who are not protected from the
age-65, 5% penalty, and change to "high 5" proposals are immediately affected.
For them, especially those who just miss out, e.g., age 54, the retirement
changes--if enacted as proposed--could be demoralizing.
a. In 1982 the average of Agency employees retiring under
CSRA was 56.9. (See Tab A for prior years.) Elsewhere it was 61. Thus,
our CSRA employees retire well in advance of the average of retirements
elsewhere in Government. Many of our employees retire early to pursue a
second career in industry or in academia which adds additional income to
a retirement annuity.' Our fear is that many of our very sharp personnel,
especially mid-level or younger analysts or certain high-tech employees,
might decide to resign now rather than have to wait for age 65.
b. Lengthening the service of Agency employees by as much as
10 years, or for'that matter even 5 years, over the current age 55 could have
a devastating long-term impact-on-the promotion and assignment aspirations
of our bright young men and women and would impair the ability of Agency
management to move promising officers up through the ranks. (See Tab B,
which shows grade levels of retirees and promotion capability created by
such retirements.) The officers themselves will quickly perceive that their
advancement is seriously curtailed, blocked by senior officers who must work
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longer in order to qualify for unreduced retirement. One way to create the
headroom would be to conduct periodic reductions in force. These have
occurred rarely in the CIA; when they did the result was seriously reduced
morale and many cases of disaffected employees who were let go. The current
situation would be worse because under the proposal, separated employees
would also suffer significant reductions in annuities.
c. For the same reasons described above, we believe that our
ability to recruit new and essential personnel could be seriously impaired,
particularly since today's applicants appear to be more materialistically
oriented than our earlier employees.
d. Thus, while all of the retirement proposals will have some
impact on employees, those concerning retirement age and penalty reductions
in annuities for early retirements should receive priority focus since those
directly impact on the Agency's management of its personnel.
e. 0MB is drafting the necessary legislation to implement
the Budget proposals. The-initial soundings from the Congress are that
there is little enthusiasm for these retirement changes in their present
form although some downward revision of current benefits and some change in
retirement eligibility can be anticipated. Our understanding is that
Congressional consideration will not occur until late-spring, at the earliest.
Nonetheless, we believe that there should be some DCI expression of concern
to the President now, so that the legislation the Administration submits to
implement the Budget proposals can be tailored to our special requirements.
C. Impact of Amendments to the Civil Service Retirement Act on the
CIA Retirement and Disability System
1. The Central Intelligence Agency Retirement Act of 1964 (CIAP.DS)
was-designed to assist the Agency in improving its personnel management
program by authorizing the establishment of a retirement system that included
early retirement provisions. In authorizing this system, the Congress
attached special importance to the demanding nature of CIA positions, and
also recognized the special character of overseas intelligence work. CIA
does indeed have a crucial ongoing need to attract and retain a force of
highly motivated careerists who are capable of being trained in. unique skills.
The demands-of-our overseas intelligence work generally require that these
individuals be younger than what usually is called for in Government. service.
These demands include unique duties performed under difficult and sometimes
dangerous conditions. The stresses and strains of uneven and uncertain hours
of work, of duty in unhealthy locations, and of arduous assignments require
personnel who possess a high degree-of vigor, vitality, and endurance. An
operational cadre with such physical and emotional characteristics is,
absolutely essential to the mission of the Agency. It has been demonstrated,
for example, 25X1
Experience has taught us that the nature o certa 25X1
unique types of work in CIA requires a combination of mental, physical, and
psychological characteristics which are predominantly associated with the
younger band of the age spectrum and have been built in as a basic and vital
feature of this Agency's operational cadre management system.
4
S E C R E T
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S
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2. CIARDS participants can retire at age 50 with 20 years of
federal service, which includes 10 years of.Agency service, and of which
5 years must be qualifying service, e.g., overseas. A CIARDS participant
may be involuntarily retired with 25 years of service regardless of age;
in this case there is no penalty, i.e., no reduction in annuity, for retire-
ment below age 50. Annuities are calculated at a flat 2% of "high 3" for
each year of service, or compared with the CSRA formula noted in paragraph
III A 5, page 2, above.
3. The retirement proposals discussed in paragraph III, page 2
above relate directly to the Civil Service Retirement Act but OMB has
informed a representative of our Office of General Counsel that it will
propose changes in CIARDS bearing some direct proportion to the changes in
the Civil Service Retirement Act. For example, if the retirement age without
reduction for those covered by the Civil Service Retirement Act is raised to
age 65 from the current age 55, OMB will expect CIARDS retirement age to
rise by 10 years to age 60 from the current age 50. Furthermore, OMB has
stated that it would strive to obtain reductions in annuities for each year
the individual is under the voluntary retirement age along the same lines it
has proposed for the Civil Service Retirement age. Since there is no provision
in CIARDS for a reduction in annuity for any kind of retirement, voluntary
or involuntary, and regardless-of the-age-at retirement, this would.be a
major revision to CIARDS and would remove the most important feature of
our System; it could render CIARDS useless as a management tool for reasons
discussed in paragraph 1 above. The increase in retirement contributions,
the change from a "high 3" to a "high 5" basis for calculating annuities,
the ultimate'reduction in total annuity, and the cost-of-living changes
will be applied as well to CIARDS.
4. The average age of CIARDS retirements in FY 82 was 52.8. (See
Tab A for prior years.) The early retirement features (lower age with no
penalty) of CIARDS as well as the higher annuity (flat 2%) benefits payable
have been an important, indeed essential, incentive for employees to serve
overseas. Since, as noted above, in enacting CIARDS Congress recognized
that service performed by the Agency's operational cadre is special enough
to warrant retirement benefits significantly different from employees covered
by the Civil Service Retirement Act, we believe that every effort must be
made to preserve CIARDS as it is.
5. In paragraph III B 2 above, page 3, we noted that employees
age 55 and those within 3 years of retirement eligibility would be "grand-
fathered" from the age, penalty, and "high 5" proposed changes in the Civil
Service Retirement Act. Similar grandfather clauses should be obtained for
CIARDS as is proposed for CSRA, else we can anticipate t-ket most, if not all,
current CIARDS participants eligible for retirement to opt for retirement.
There are CIARDS participants eligible for voluntary retirement. Of 25X1
thos are age 55 and above; =are age 50-54, and this is the group 25X"1
that nee s to be "grandfathered."
D. Recommendations
1. That the DCI report to the President that the proposed age and
penalty changes to the Civil Service Retirement Act present serious management
concerns.
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2. Because of these concerns, that the DCI request the President
to instruct OMB to exempt CIA from the proposed age and penalty amendments
and
3. That the DCI request theoPresident to instruct the D/OMB to
take no action to amend CIARDS.
IV SOCIAL SECURITY REFORM
A. The second effort underway is a comprehensive amendment of the
Social Security System to implement the consensus recommendation of the
National Commission on Social Security Reform. Legislation has already
been submitted and hearings are underway. We understand that the House plans
to complete its work on the Bill by the Easter recess.
1. The concern to the Agency is a provision to bring all.new
hires to-the federal work force after 1 January 1984 under the provision
of the Social Security Act, as it.will be amended, and not under the CSRA
as is now the case. In addition, the National Commission on Social Security
Reform has suggested an accompanying program referred to as a supplemental
retirement plan for these new hires. Specific details of this supplemental
plan are not--available now but. we have learned that the Office of-.Personnel.
Management is working on such a plan. We have recommended below a course -
of action to resolve our concerns on this proposal. Failing this, our hope
is that we can use the Director's authority to develop a supplemental plan
covering both categories of Agency employees, i.e., CSRA and CIARDS, and to
do so in such a way as to distinguish the benefits.
2. The concerns expressed above with respect to a retirement age
of 65 and penalty of earlier retirement apply equally under this proposal
since no new hires after 1 January 1984 would be eligible for Social Security
benefits until age 65, or with reduced benefits at age 62.
3. Although both the existing CSRA coverage and CIARDS coverage
are of concern, the more pressing concern is that CIARDS, the Agency's
preferred retirement system for selected personnel, would gradually disappear,
as participants who entered CIA prior to 1 January 1984, or their survivors,
die. Social Security coverage and the as yet undefined supplemental plan .
are intended to replace all currently existing federal retirement systems,
including the preferred systems, for employees entering the federal work
force subsequent. to 1 January 1984.
4. We believe that a strong effort should be made for recognition
of CIA's management concerns that flow from any change in existing retirement
benefits and eligibility, especially age, and to preserve the distinction,
in whatever form, between CIA's overseas cadre and other Agency and Federal
employees. To achieve these objectives, there is a range of possible options:
a. An outright exemption from the provisions of the Social
Security Reform Act for CIA employees, allowing us,to maintain the same
coverage we now have, i.e., both Civil Service type retirement for approximately
80% of our people and CIARDS for the remainder.
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S E C R E T
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b. An alternative to the explicit exemption for CIA personnel
would be enactment of a provision that would give the President the right
to exempt classes of employees or Agencies in the National Defense and
Foreign Affairs area. This option would not only protect the interests of
the CIA but also those of others in the Intelligence Community who may be
similarly concerned about the impact on their personnel. At the present
time, the Foreign Service Retirement System provides benefits approximately
the same as CIARDS. FBI, law enforcement personnel, and air traffic
controllers receive preferred retirement benefits under the provisions of
the CSRA. These and other groups might be included in any designation by
the President. (This is easier politically but we are speaking of the
preservation of Agency uniqueness and address in this paper the Director,
CIA, not the Community DCI.)
c. Another option would be to amend the CIA Retirement and
Disability System in such a way as to cover all Agency employees but with
two forms of coverage: CSRA and CIARDS. We would have one system, CIARDS,
but two sets of benefits equivalent to CSRA and CIARDS. This would permit
the Agency to provide CIARDS-type coverage to employees who qualify without
concerns of funding, Social Security credit implications, etc. (This, to a
considerable extent, is what many outsiders think the CIA Retirement System
is now.)
d. Failing any success in exempting CIA personnel from the
Social Security Reform provision; we will have to try to.ensure that the
"supplemental retirement plan" referred to above provides the necessary
distinction for the Agency's operational cadre; by this, we mean the develop-
ment of two supplemental systems for the Agency with the higher benefit
accruing to those normally eligible for CIARDS benefits.
B. The Social Security reforms are now being considered by the Congress.
We believe, therefore, that of the two reform efforts underway this is the
one that needs the Director's immediate attention. We understand that State
has also undertaken a study of the implications of the Social Security Reform
Act on its Foreign Service Retirement System.
C. Recommendation
That the DCI obtain the President's approval and commitment for
an Administration initiative aimed at securing outright exemption for CIA
from the Social Security Reform Act and preservation of CIARDS in its
present form.
c r r R V T
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S-E- - - .
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1967
1968:
1969
1970
1971
1972
3.973
1974
1975
1976
1977
1978
7/1/78 -'9/30/78.
1979
1980
1981
1982
CIARDS
.55.1
S.4'. 3,
54.4
54.9'
53.2
52.7.
53.-3
51.7
51.8 .
51.0
52.0
51.4-
52..8
52.3
53.1
53.3
Civil Service
CO;Iti)ined'
57.1
57.0 ...
56.6
56.5
57.3
55.9
56.7
56.3,
...55.1
57.5
55.9
54.6
54.8
54.7
57.1
1. Year ending 30 June.througn 1978, 30 Septent;er thereafter.
S-E-C-R-E-T
54.6
54. ILLEGIB
53.3
52.8
52.2
53.2
52.6
53.7
53.4
54.8
55.3
54.7
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I INTRODUCTION
This paper identifies serious issues for the CIA created by current
efforts to revise existing retirement coverages and benefits. They could
impact on all Agency employees, both in the Civil Service Retirement Act
and in the CIA Retirement and Disability System, and could result in a mass
exodus of Agency employees in both Systems currently eligible for retirement
and seriously damage the aspirations of others not eligible. Further, the
changes could radically alter the career nature of employment with CIA
whereby we offer to the best we can hire an opportunity to embark on a
meaningful career, with reward of continuing advancement to those who
deserve it, and with the prospect for retirement at a reasonably young age
for those interested in pursuing a second career later in life. The result
could be a frightening loss of mid-level and younger personnel in hard-to-get
categories whom the Agency struggled to find, hire, and develop as well as
an inability to recruit new personnel in these same categories. Moreover,
.the proposals could impact on the Agency's management of its personnel as
in the case of the Agency's special retirement system, CIARDS, which allows
retirement as early as age 50 for those enduring special hardships associated
with operational service overseas and could render CIARDS useless as a
management tool for the operational cadre. The paper identifies and dis-
cusses these concerns and recommends that the Director take positive action
to prevent the application of the proposed changes to the CIA.
II BACKGROUND
A. There are two significant retirement reform efforts underway
which employees, including some who are now. eligible for retirement,
see as potentially threatening: 1. Comprehensive changes in the Civil
Service Retirement Act; 2. Social Security coverage for new federal
employees. Although the reforms are separate efforts, they are related.
Legislation to implement the Retirement Act changes is being drafted by the
Office of Management and Budget, but Congressional review is not expected
before spring at the earliest. Legislation to implement Social Security
reform is already being considered by the Congress; thus, an Agency position
on this legislation probably will be required in advance of the time the
Civil Service Retirement proposals receive Congressional action.
B. Approximately 80% of Agency personnel.are covered by the Civil
Service Retirement Act (CSRA). 20% are participants in the CIA Retirement
and Disability System (CIARDS), which provides higher benefits for employees
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