HOUSE HEARINGS ON SUPPLEMENTAL RETIREMENT

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP87M01152R000200170007-0
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 22
• Document Creation Date: December 22, 2016
• Document Release Date: December 30, 2009
• Sequence Number: 7
• Publication Date: April 3, 1985
• Content Type: MEMO

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OLL 85-0666/3
3 April 1985
MEMORANDUM FOR: Deputy Director for Administration
FROM :
VIA:
SUBJECT:
Chief, Liaison Division
House Hearings on Supplemental Retirement
1. As you know, the House Post Office/Civil Service
Committee is holding hearings this month on a supplemental
retirement system for new employees. The Agency is invited
to testify on 25 April. I attended the first two hearings
in the series of five. I sent you the statements for the
record from the 2 April hearing and there is nothing more to
add. There are several items from the 3 April hearing that
will be of interest to you. (The witness list is attached.)
PANEL OF FEDERAL PERSONNEL OFFICIALS
2. Chairman William D. Ford (D., MI) clearly stated at
the beginning and end of this session that the panel members
(see attached list) were speaking as personnel specialists
and were there to share their perceptions; they had not been
invited to comment on Administration or Congressional
proposals, to speak at the policy level, or-to defend the
Administration's position. The Chairman, therefore, made
sure that the panelists were not in the ackward position of
defending Administration policy.
3. The panelists did not have prepared introductory
statements. The Chairman asked a number of questions,
having each panelists respond in turn. The questions and
responses are as follow:
-"How many civilian employees are in your organization,
and how many are covered by Social Security?' that is to
ask how many people have you hired since 31 Dec. 1983)
Each panelist was prepared to and did give the numbers.
-"What are you advising the new hires now?" (The Chairman
wanted to know the impact on the morale of new hires
and on the recruitment of new employees, given the
uncertainty of their retirement.)
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Each panelist responded that the retirement question had
not had a negative impact on their recruitment efforts
and-that the new employees were more interested in pay,
benefits in general, and in career paths. (Later in the
session the difficulties in recruiting for the
hard-to-fill positions (ie. highly skilled scientists
and engineers) were cited.
-"What has been your recent experience with voluntary
retirement?" (The Chairman wanted to know whether
employees were retiring earlier because of fear over changes
in retirement. He explained that he was asking because, "I
have received a lot of letters and people tell me wherever I
go, Federal Employees and Foreign Service officers, that
they are very concerned. They ask me, "Do you think that I
ought to retire before they screw up my retirement?""
(The responses indicated that the panelists were not
prepared for this question, that they wanted to say that
there had been a negative impact on retention but didn't
have the facts, and that they preferred to talk about the
total benefit package and losing people to private industry.)
-Cipolia (DoD) stated that he could not verify the
negative impact and that in late 1984 there was no
appreciable change in the retirement rate.
-Chen (NIH) stated that he did not have the exact
numbers, only estimates broken down by the departments.
-Riley (Agriculture) said that he could not verify an
appreciable decrease or increase in retirement, but that in
December they had twice the expected number of retirements
which might have been attributable to concern over
retirement.
-Grant (NASA) said that his organization had an increase
in the number of people retiring, but that the increase was
not dramatic and he could not say with any assurance whether
that was affected by retirement issues.
-Meyer (Food and Drug) stated that he had no recent data
but he had plenty of people leaving for better pay and
benefits in private industry.
-Weiss (Treasury) said that his people knew that if
there were adverse changes enacted, they could put in their
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papers and quickly leave before they were hurt. He said
that retirements from Treasury did not reflect talk about
cut-backs.
4. Congressman Ford then moved to a discussion of the
"pay cap" with a question to Grant about NASA: "Your
predecessor came to usa couple years ago about the serious
problems caused by the pay cap,--is it still a problem?"
Mr. Grant made a very strong statement in the affirmative.
He said that, "any adverse actions by Congress or the
Administration hurt us alot. We have very marketable people
at the senior level and all levels. We are losing people
who go out and get two and sometimes two and one-half times
more salary. Changes, like an increase in the retirement
age, will simply cause people to leave." Grant then
described the highly skilled workforce at Nasa. The other
responses to the "pay cap" question were:
-Chen (NIH) said that, "our problem in recruiting and
retaining at the higher levels is that government salaries
are falling behind. Salary is the primary reason for turn
downs. The 'special physician' pay helps us. One
retirement option we feel would help us more is already
employed by the Uniformed Services of Health Sciences; it is
a portable system used at most US Universities and Colleges
and professional organizations." (The TIAA System)
-Riley (Agriculture) said that, "scientists at the
higher grades are not a problem because they did not expect
them to stay anyway."
-Meyer (Food and Drug) said that the FDA did lose a
certain percentage of highly skilled people to private
industry, but he was not sure that the government could ever
adjust the pay cap to be competitive because the people left
for reasons in addition to more competitive pay.
-Weiss (Treasury) stated that his department, "had alot
of turnover of people at the higher grades, such as bank
examiners, but that it was useful to send the
government-trained people out to the private sector to make
things operate better."
-Cipolla (DoD) remarked that the total benefit package
was not competitive with the private sector and that it was
very difficult to recruit people for the hard-to-fill
categories, such as engineers and scientists; he said that
that was not the case with the other job categories.
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5. Congressman Don Young (R-AK), the only other Member
in attendance, asked a few questions about turnover. He
apparently was trying to state the Administration's case
regarding quit rates. Mr. Grant (NASA) closed the topic by
stating that the Government failed to account for the number
of Federal employees who constantly move from one Federal
job to another and that if the government did record these
changes in employment, the quit rates for private industry
and government would be much closer. (Recently, OPM
Director Donald J. Devine argued that Federal pay should be
determined by quit rates: when many people in a given job
category resign, then the pay in that particular category
should be increased in order to retain people.)
6. The final issue raised with this panel was pay
comparability between the private and Federal sector. Ford
stated that there was one thing he had learned after 21
years on this Committee, that pay comparability was
impossible. "We can't do it. It is like steering a ship by
looking at the waves. There are so many changing
circumstances that the pendulum swings; first you have a
glut of a certain skill, then a shortage." He cited
examples like DoD, which has such a variety of job
classifications that many have no equivalent in the private
sector, and the example of NASA, which can have a major
program cancelled and cause a surplus of people in
disciplines that formerly were hard to find.
TESTIMONY OF NATIONAL ASSOCIATION OF RETIRED FEDERAL
EMPLOYEES
7. A .copy of the statement for the record is attached.
The views of this Association are of interest because they
signal where the major employee groups may be headed on this
issue. To that end, the following points are worth noting:
-Want a three-tiered system, including Social Security,
a defined benefit, and a voluntary thrift plan. (The
Stevens model is an example.)
-Do not want a plan with only the tax-deferred plan to
supplement Social Security (The Administration's proposal is
an emample)
-New plan should incorporate provisions that satisfy
unique circumstances of special employee groups such as air
traffic controllers, firefighters and law enforcement
officers.
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-Employees currently under Civil Service should not be
allowed to opt into new plan; this could endanger the
current system.
-Should include some degree of employee contribution
(the group reasons that Federal benefits are often under
political attack and if employees have a direct stake in
plan's funding, it will be a source of political strength to
ward off the attacks.
-Include protection against inflation
8. In summary, this group would support a proposal like
that of Senator Ted Stevens (D-AK), and fight a proposal
like that of the Administration.
PANEL OF STATE GOVERNMENT PENSION ADMINISTRATORS
9. The purpose for this session was to collect
information on alternative designs. Each panelist described
their respective systems and responded to questions related
to integration formulas, administrative proceedures, and the
impact on the workforce of multi-tiered systems in which all
employees do not receive the same benefits.
10. The next House hearings on supplemental retirement
are scheduled for 23, 25 and 30 Apri)-
Distribution:
1 - DDA w/att
1 - D/OP w/att
1 - DD/OP w/att
1 - DD/EB&S/OP w/att
1 - DD/PA&E/OP w/att
1 - D/OLL w/att
1 - DD/OLL w/att
1 - C/LEG/OLL w/att
1 - C/LD/OLL w/att
1 - C/HL/LD/OLL w/att
1 - rk) w/att
1 - Subject w/att
1 - Chrono w/o att
1 - OLL Record w/att
1 - OLL Chrono w/o att
U/U-iaison Division
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COMMITTEE ON POST OFFICE AND CIVIL SERVICE
CONTINUATION OF HEARINGS ON SUPPLEMENTAL RETIREMENT PLAN
Wednesday, April 3, 1985
WITNESS LIST
1. PANEL OF FEDERAL PERSONNEL OFFICIALS:
Paul T. Weiss, Director, Office of Personnel, Department
of the Treasury;
Gerald F. Meyer, Associate Commissioner for Management
and Operations, Food and Drug Administration;
Carl E. Grant, Director, Personnel Programs Division,
National Aeronautics and Space Administration;
William J. Riley, Jr., Director of Personnel, Department
of Agriculture;
Philip S. Chen, Jr., Associate Director for Intramural
Affairs, National Institutes of Health; and
Frank P. Cipolla, Director, Personnel Management, Office
of Civilian Personnel Policy and Requirements,
Department of Defense.
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2. PANEL OF STATE GOVERNMENT PENSION ADMINISTRATORS:
Bennett Shaver, Executive Director, Maryland State
Retirement and Pension System;
Richard Beers, Director, Michigan Bureau of Retirement
Systems, Department of Management and Budget; and
John McManaman, Assistant Deputy Comptroller, New York
State Employees Retirement System.
3. Lud Andolsek, President, National Association of Retired
Federal Employees
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NATIONAL ASSOCIATION OF RETIRED FEDERAL EMPLOYEES
1533 NEW HAMPSHIRE AVE.. N.W.. WASHINGTON. D.C. 20036 AREA CODE [phone]
STATEMENT OF
THE NATIONAL ASSOCIATION OF RETIRED FEDERAL EMPLOYEES
BEFORE THE
HOUSE COMMITTEE ON POST OFFICE AND CIVIL SERVICE
ON THE DESIGN OF A SUPPLEMENTAL RETIREMENT PROGRAM
FOR
FEDERAL EMPLOYEES HIRED AFTER 1983
WEDNESDAY, APRIL 3, 1985
I am L. J. "Lud" Andolsek, President of the National Association of
Retired Federal Employees (NARFE). It is pleasure to appear before this
Committee to assist in the construction of a supplemental retirement program
for new employees. Although the benefits of this program will not directly
affect our members who are already retired, we feel privileged to provide you
with a look at this important matter through the eyes of age.
We, more than anyone else, recognize the legitimate purposes of a
retirement system. As former government managers, we understand the need to
provide a sensible progression into retirement for older workers so that new
generations can take over the reins. As current retirees we, more than others,
recognize the income replacement and security needs of those who have completed
their careers as productive wage earners, and earned the right to retire with
security. As patriotic citizens we agree with the legitimate need for a
social safety net established in our national policies for half a century,
which is most often achieved through retirement programs provided by employers
for the productive members of our society and their families.
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Finally, as those who have felt the ebb and flow of political winds
enrich and then threaten our dignity and security, we recognize the need to
insulate this new program as much as possible from political pressures. This
means neither hiding it nor putting it totally beyond the reach of political
leaders. What it does mean is constructing a plan which is consistent with
private sector practices while recognizing the unique needs and mission of
a unique employer -- the government. It means creating a program which both
employees and the public can understand and view as fair; and it means
guaranteeing the program's fiscal health through an unwavering commitment by
the U. S. government itself.
Mr. Chairman, in my testimony today I will take a few minutes to describe
the objectives that NARFE regards as crucial to the design of a federal
retirement program to supplement Social Security. I will then turn to the
specific issues mentioned in your letter of invitation to this hearing and
comment on each of those issues.
NARFE believes it is important to design a new plan that will satisfy
several major goals:
o It should provide an adequate retirement
income for the new employees across the
full spectrum of job classifications and
salary grades;
o It should be a program that will (be) fair
to new hires, the 5 million employees and
annuitants still under the current Civil
Service Retirement System, and the public;
It should be funded in a manner that will
protect the financial integrity of the current
system into the future;
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o It should meet the federal govenment's
continuing need to attract and retain a
quality workforce that can execute the many
different functions of government at the
high performance level to which the American
taxpayer is entitled.
How do we translate these goals into a supplemental retirement program?
One part of the answer is to keep those elements of the current system that
have been most important in meeting these objectives in the past. That means
having a total benefit including Social Security that replaces a substantial
portion of the final salary for the long-term employee. It means maintaining
a flexible retirement age policy that permits the long-term employee to elect
retirement with an adequate income after 30 years of service. It means
protecting all retirees and survivors against the devastating consequences of
inflation in old age.
But the new system has to include new elements as well. These new
elements should reflect the role that Social Security will play in the lives
of the new hires and their families; the new system should take advantage of
recent private-sector innovations to encourage personal retirement saving;
and the new system should not unduly penalize employees who find it necessary
to interrupt their government careers before reaching retirement age.
Our organization has devoted a great deal of thought to this matter over
the past two years. Although we remain flexible on many of the specific
features, we have developed a viewpoint on the direction we think the system
design should take.
First, we have concluded that a three-tier retirement system is needed.
The first tier, Social Security, will provide the basic floor of protection.
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The second tier should be a supplemental defined benefit plan with benefits
tied to the high-three average salary and years of service. These two tiers
will provide employees with a retirement income level that can be predicted
in advance of reaching retirement age and that should provide an adequate
retirement replacement income for those employees with modest salaries.
For those who want a greater retirement income than these first two tiers
can provide, a third tier is needed. This third tier should be a voluntary
thrift plan to which employees are encouraged to contribute through tax-deferred
status and agency matching contributions on their behalf.
Second, we think that an expanded group life insurance program makes
sense as an element of survivor protection in this system. Group life could
be provided to all new hires relatively cheaply and would become an important
adjunct to Social Security survivor benefits and elective surviving spouse
annuities.
Third, we feel strongly that this system for new hires should be just
that - a system for new hires. To allow those now under Civil Service
Retirement to opt into this new system, as some have discussed, could endanger
the current retirement system. Congress would have to amend the Social
Security Act to allow optional individual participation in Social Security
since such optional participation by individuals is not now, nor has it ever
been, allowed under law. Given the current climate, we feel it is simply
unrealistic to believe that the Congress will allow individual civil servants
to decide whether or not it is to their personal benefit to participate in
Social Security. If Congress was forced to address this issue, it more
likely would choose to mandate Social Security coverage for major
additional categories of federal and postal employees. This political
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employees. This political risk outweighs any advantages that might accrue
from giving current employees an option.
Now, Mr. Chairman, I will turn to the particular questions you raised
in your letter.
Cost of a Supplemental Retirement System
When Congress acted in 1983 to extend Social Security coverage to new
federal and postal employees, it did so as a part of a comprehensive measure
to avoid an impending insolvency in the Social Security trust funds. This
legislation did not bear at all on the question of whether the Civil Service
Retirement System costs too much or too little. In fact, House action on
that 1983 bill was accompanied by an excellent statement of support for the
existing level of Civil Service Retirement benefits signed by the distinguished
Chairman of this Committee and two of his colleagues -- the Speaker of the
House and the Chairman of the House Committee on Ways and Means.
Given that background, and the need to develop a retirement system for
new hires that is fair both to them and to employees and retirees under the
existing system, the design of the supplemental should be undertaken on a cost-
neutral basis. By that we mean that the cost to government of the supplementary
system should be close to that of the current system. By "cost" we mean the
share of payroll needed to pay for the future benefits that newly entering
workers will someday receive.
It is critical to the quality of the federal work force for Congress to
ignore the Administration's call for a cheaper retirement program. The excellent
study done for this Committee by Hay Associates demonstrates that federal
employees lag well behind their private-sector counterparts when it comes to
overall compensation. Only the value of the federal retirement plan keeps
the compensation gap from being truly horrendous. To enact a bargain-basement
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retirement plan for new hires as OPM Director Donald Devine advocates will
make it impossible for federal agencies to compete with the top corporations
in recruiting skilled employees. You know the old saying: "You get what
you pay for." It is crucial that Congress recognizes that a federal retirement
system is not just another spending program for budgeteers to whack away at
each year. A retirement system is a part of the price we pay for good
employees. We need a system for new hires that assists in the recruitment
and retention of such employees.
Given NARFE's belief that within a total compensation framework the
cost of the current system is legitimate, we believe this cost factor should
be retained in the new program. We recognize, however, that the technical
ability of the experts to measure the equivalence of two quite different
retirement programs may not permit a fine-tuning of a plan design that will
achieve exact equality. The Congressional Research Service has recently
published an estimate that the current retirement system costs the government
24.7 percent of payroll. They estimate that the federal cost of social
security coverage for federal employees is 6.1 percent of payroll. These
two figures imply that a supplemental plan should cost 18.6 percent of payroll
so that, when added to the 6.1 percent for Social Security, it would equal
the current system's cost.
However, all of these estimates are very sensitive to assumptions about
future pay increases, interest rates, and so on. The Social Security estimate
even depends on Congress leaving in place the payroll tax hikes now scheduled
for future years. I think that the supplemental plan's cost should be close
to that target level of 18.6 percent of payroll, but we should not pretend
that an exact equivalence can be measured to everyone's satisfaction.
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Relating Supplemental Benefits to Social Security
The Social Security program is a program that provides retirement income;
but it is also a program designed to improve the adequacy of income in old
age. Thus, unlike a typical staff retirement plan that pays annuities that
replace the same proportion of salary for all employees with the same length
of service, Social Security benefits replace more of a person's wages at the
lower end of the wage scale. This "tilt" in the Social Security benefit
formula poses a problem for retirement plan designers, since an employer
must decide whether to design the staff retirement plan in a way that offsets
the "tilt" to some degree.
This issue has led to the development of a complex set of federal rules
for ways in which retirement plans can be integrated with Social Security.
A plan that fails to comply with those rules is denied a tax exemption for
the earnings of the plan's assets.
One policy implication that emerges from these integration rules is
that a company plan cannot fully offset the relative advantage Social Security
gives to lower-wage employees. The federal government should abide by this
policy in designing the supplemental plan for its own employees. A national
policy aimed at giving the lower-wage worker a break should not be completely
overturned by employers, whether private or public. Additionally, should the
public employer be allowed to ignore the rules it places on private employers,
an unfair and politically volatile situation is created.
Should the federal plan at least partially offset the Social Security
"tilt"? There are two approaches used by private plans that do this:
(1) the offset method, in which a fraction of the Social Security benefit
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is deducted from the full entitlement under the employer plan; and (2) the
step-rate method, in which employees at the higher salary levels accrue benefits
from the employer plan at a faster rate than do lower-paid employees.
These integration methods make sense in a large corporation, where the
variation in salary is enormous, ranging from minimum-wage jobs on up to six-
figure executive positions. In a federal plan, these integration methods
make little sense because the salary range is much narrower and the salary
concentration of employees at the time of retirement is narrower still. An
offset or step-rate formula would have relatively little impact on overall
wage-replacement rates in a federal system compared to a non-integrated
add-on formula.
Mr. Chairman, I would like to submit a chart for the hearing record
that illustrates this point. The chart shows an example of an add-on plan,
an offset plan, and a step-rate plan that replace the same amount of salary
after 30 years of service. When you add Social Security, you get a total
wage replacement rate that is higher for the $15,000 worker than for the more
highly paid workers. The offset or step-rate plans narrow this differential
compared to the add-on plan, but the degree to which it is narrowed is not
that great.
At the lower end of the salary scale, the offset plan yields a total
replacement rate of 60.9 percent, which is 4.3 percentage points less than
for the non-integrated add-on plan. The step-rate plan does not differ
from the add-on plan below the salary level at which the accrual rate changes,
which is $39,600 in this example.
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At the $60,000 salary level, the integrated plans both raise the
replacement rate compared to the add-on plan, but only by 4.8 points for the
offset plan and 5.9 points for the step-rate plan.
In summary, a supplement that is integrated with Social Security would
do little to make wage replacement rates more uniform across the government's
salary range; but integration would increase the plan's complexity and make it
harder to gain understanding and acceptance. A tax-deferred thrift plan,
which would benefit all employees but especially highly paid employees, could
accomplish the objective of integration without the drawbacks.
Employee Contributions
In the private sector, employees do not contribute to defined benefit
plans. All contributions are made by the employer, which amounts to a tax
subsidy for private employees and employers since this employer-provided
payment is not subject to taxation as individual income, and employers may
write off their retirement expenses as a cost of doing business.
In the public sector, employees have traditionally contributed to
their retirement plans. Since pay and benefits of public employees are
often under political attack, the employees' having a direct stake in the
plan's funding has been an important source of political strength in warding
off these attacks. For this reason, some degree of employee contributions
should continue in any new supplemental plan.
Another reason to require employee contributions is to maintain parity
with the current system to the extent possible. Establishing a 1.3 percent
employee contribution rate would achieve parity for employees earning less
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than the Social Security maximum taxable wage base ($39,600 this year). The
combined rate for Social Security and the new plan would be 8.35 percent,
which is equivalent to the Civil Service Retirement and Medicare contributions
that federal and postal employees currently pay.
In 1986 and 1987, the 8.35 percent combined rate will rise to 8.45 percent
due to a Medicare tax increase. In 1988, the Social Security tax will increase,
causing the total contribution rate for the new hires system to rise to 8.81
percent while the current system's combined rate would stay at 8.45 percent.
As such divergence occurs and as Congress may act in the future to change
the Social Security and Medicare tax rates, the Committee might want to
consider automatically adjusting the contribution rate to avoid development of
a substantial difference in the total rates for the two systems. I would like
to submit a chart for the record that shows how this divergence in rates
would occur over time.
Financing the System
In regard to the overall financing of the system, we should maintain the
approach now followed for the current system. Funds should flow into the
Civil Service Retirement Trust Fund from the employee, from the agency, and
from general revenues, and benefits should be paid out by the Trust Fund.
While the accountants and actuaries will want to keep track of the cost of
the supplemental plan separately, its funds should not be isolated from those
of the current Trust Fund. It will be important for the continued strength
of Civil Service Retirement that the unity of program funding for all federal
and postal employees be maintained.
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We see no purpose in full advance funding of a federal retirement system.
As the Chairman of this Committee has often observed, the government is not
about to go out of business, so there is no analogy to the need to protect
benefits rights in pension plans of private businesses which can fail.
Government funds should not be squirrelled away to insure against such a
meaningless contingency as the government going into default.
The Committee may want to consider limiting the need to use general
revenues for the supplemental plan by relying more on agency matching
contributions. Currently, the agency matches its employee's 7-percent
contribution with another 7 percent. If the employee pays 1.3 percent under
the supplemental plan, the agency requirement could be kept at 7 percent.
There would be two advantages to doing this. First, it would make the cost
to the agency of new hires and old-law employees the same. Second, it would
mean that a smaller share of the supplemental system's cost is borne by
general revenues transfer than is the case for the current system.
Vesting
The current Civil Service Retirement system has a vesting period of
5 years, a relatively short requirement compared to private-sector plans,
which often set vesting at 10 years. It has been important historically for
Civil Service to have a fairly short vesting period for at least two reasons.
First, there was no Social Security coverage that could be carried along to
a new job and built upon. Second, there was no thrift plan or profit-sharing
plan in which an employee could build individual equity. When a civil
servant left government, it was vital that he or she had some right to a
federal annuity since these portable benefits available in the private
sector were not available in government.
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The vesting requirement clearly needs rethinking in designing the
supplemental plan. The new hires have Social Security coverage, and the new
system may well include a thrift plan. Thus, a short vesting period will not
be as critical as in the past. On the other hand, a mobile work force can be
hurt by failure to vest when vesting requirements are longer than the duration
of job tenure for a large proportion of employees.
I do not think that the Committee would want to consider a vesting period
longer than the ten years set by ERISA as a minimum standard for the private
sector. On the other hand, the 5-year period may not be needed in the
supplemental system. Within this range, the period could be set at a particular
length to meet the overall system's cost objective.
Closely related to vesting is the issue of the portability of accrued
benefit rights when an employee leaves the government. We urge the Committee
to consider ways in which a vested employee can retain his or her benefit
rights without a substantial loss in the real value as time passes and
inflation takes its toll between the date of separation and the date of
retirement. One possible approach would be to index accrued benefits by the
amount of general federal pay increases. Another approach would be to let
separating employees elect to roll their accrued benefits into a thrift
plan and accrue earnings on those assets on a tax-deferred basis.
Special Employee Groups
We understand the Committee plans to hold another hearing to discuss
the special retirement situations of such groups as the air traffic controllers
and federal law enforcement officers and firefighters. I will limit my
remarks on this subject to one observation. The considerations which
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led Congress in the past to provide special retirement rules for these groups
have not changed. Therefore, whatever the design of the supplemental plan,
it should incorporate provisions that satisfy the unique circumstances of
these employee groups in a manner that is consistent with the way they have
been treated under current law. Congress shouldn't reinvent the wheel, but
just make sure it stays round.
To conclude, Mr. Chairman, we appreciate the opportunity to testify
here today. The mission which you have undertaken will set new policy that
will determine the shape of federal benefits for many years to come. It
will potentially lead to changes in private-sector policies as well. NARFE
wishes you well in this endeavor, and stands ready to work with you in
developing a good retirement system for the post-1983 employees, while
maintaining the fiscal and moral integrity of the current Civil Service
Retirement System on which millions continue to depend.
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Gross Wage-Replacement Rates Under Social Security
and Alternative Federal Supplemental Retirement Plans
for a 62-Year-Old Retiree with 30 Years of Service
Final Salary
$15,000 $30,000 $45,000 $60,000
Gross wage-replacement
ratesa from:
Social Securityb 30.7% 22.3% 17.0% 12.8%
Supplemental add-on planc 34.5 34.5 34.5 34.5
Total Incl. Social Security (65.2) (56.8) (51.5)_ (47.3)
Supplemental offset pland 30.2 34.5 37.2 39.3
Total incl. Social Security (60.9) (56.8) (54.2) (52.1)
Supplemental step-rate plane 34.5 34.5 36.6 40.4
Total incl. Social Security (65.2) (56.8) (53.6) (53.2)
Notes:
a Wage replacement rates were obtained by dividing retirement
benefit by final salary.
b Social Security benefits were calculated using the early
retirement reduction factor of 30 percent that will apply after
the normal retirement age is raised to 67. The final salary (or,
if lower, the taxable wage ceiling of $39,600) was used as the
average indexed monthly earnings in the benefit formula.
c The benefit accrual rate for this plan is 0.95 percent for each
of the first ten years of service and 1.25 percent for each
additional year. The final salary was used as the high-3 average
salary.
d A benefit accrual rate of 1.525 percent per year of service was
used, reduced by 50 percent of the Social Security benefit. The
final salary was used as the high-3 average salary.
e A benefit accrual rate of 1.15 percent per year of service was
used for salary up to the taxable wage ceiling of $39,600; above
that level, a rate of 1.725 percent was used. The final salary
was used as the high-3 average salary.
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Employee Contribution Rates under Current
Civil Service Retirement System and Supplemental Plan for New Hires
Supplemental Plan for New Hires
Social
Supplemental
Year
Security
Medicare
Plan
Total
1985
5.7
1.35
1.3
8.35
1986
5.7
1.45
1.3
8.45
1987
5.7
1.45
1.3
8.45
1988
6.06
1.45
1.3
8.81
1989
6.06
1.45
1.3
8.81
1990
6.2
1.45
1.3
8.95
and
thereafter
Current System
(CSRS)
Year
Medicare
Civil
Service
Retirement
Total
1985
1.35
7.0
8.35
1986
1.45
7.0
8.45
1987
1.45
7.0
8.45
1988
1.45
7.0
8.45
1989
1.45
7.0
8.45
1990
and
thereafter
1.45
7-.0
8.45
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