TESTIMONY OF MOE BILLER, PRESIDENT AMERICAN POSTAL WORKERS UNION, AFL-CIO BEFORE THE HOUSE POST OFFICE AND CIVIL SERVICE COMMITTEE ON DESIGNING A SUPPLEMENTAL RETIREMENT PLAN FOR NEW POSTAL AND FEDERAL EMPLOYEES

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP89-00066R000300090015-7
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 13
• Document Creation Date: December 22, 2016
• Document Release Date: March 7, 2011
• Sequence Number: 15
• Publication Date: April 23, 1985
• Content Type: MISC

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American Postal Workers Union, AFL-CIO
MOE BILLER
President
Testimony of
Moe Biller, President
American Postal Workers Union,
AFL-CIO
on
Designing a Supplemental Retirement Plan for
New Postal and Federal Employees
April 23, 1985
WILLIAM BURRUS
RICHARD I. WEVODAU.
THOMAS A. NEILL
REGIONAL COORDINATORS
PHILIP C. FLEMMING, JR.
Executive Vice President
Director, Maintenance Division
Industrial Relations Director
RAYDELL R. MOORE
Eastern Region
DOUGLAS HOLBROOK
LEON S. HAWKINS
KEN LEINER
Western Region
NEAL VACCARO
Secretary-Treasurer
Director, MVS Division
Director, Mail Handler Division
JAMES P. WILLIAMS
Northeastern Region
JOHN A. MORGEN
SAMUEL ANDERSON
Central Region
ARCHIE SALISBURY
Director, Clerk Division
Director, SDM Division
Southern Region
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Testimony of Moe Biller, President
American Postal Workers Union, AFL-CIO
Mr. Chairman, I am pleased to be here today on behalf of
325,000 postal workers to advise the Committee on the design of a
supplemental retirement plan that will provide Civil Service
.Retirement. benefits for. new. hires. The Committee has an awesome-
responsibility ahead of it because the supplementary plan will
become an important part of the compensation of all postal and
federal employees hired after December 31, 1983 just as the cur-
rent system is for those hired prior to that date. Furthermore,
your actions on this new plan will make a statement on national
retirement policy that may affect the circumstances of future
retirees from state and local governments and private employers
as well.
The House Post Office and Civil Service Committee begins its
work under a charge set forth two years ago by the distinguished
Chairman and your colleagues, Speaker O'Neill and Chairman
Rostenkowski. In that reassuring communication to House Members,
you pledged your support for retirement benefits for new hires
that would be comparable with those of the current Civil Service
Retirement program,. and you opposed Administration efforts. to
reduce-current benefits. We appreciated that.statement of
support, Mr. Chairman, and, with your permission, I would like to
submit that letter for the hearing record.
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Before I speak to the subject of today's hearing, I want to
remind the Committee that the events of 1983 that place you in
the position of having to hold these hearings were mistaken.
Social Security coverage for new federal and postal employees was
not needed and not wanted. The financial benefit to Social
Security of the.coverage extension was very modest in the short-
run and non-existent in the long-run.
The main thing that Social Security coverage did accomplish
was to present the employees and the Congress with a large and
unnecessary legislative. headache. We.warned.Congress in 1983
that it would be difficult to come up with a retirement system
for new hires that would treat both them and the existing
employees fairly and that would protect the future benefits of
the people expecting to retire under Civil Service Retirement.
Nothing that we have seen since suggests otherwise. A truly
satisfactory solution to the legislative requirement we face may
be beyond the reach of any approach other than the obvious one of
dropping Social Security coverage.
Principles to Guide Plan Design
Assuming Social Security coverage for new hires is con-
tinued, I want to suggest several broad principles as guidelines
for design of. a supplementary plan for new hires. First, and
most important, the supplementary benefit plan must provide for
an adequate retirement income together with.Social Security if
Social Security . cove-rage,is,.continued. In considering this
?guideline,.I urge theCommittee.to shun the.example set by many
private plans that offer an attractive package on retirement day,
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but then let inflation eat away its value year after year
thereafter. We need a plan that is just as adequate when our
retirees are age 80 as it was when they were 60.
The second guideline I urge you to consider is to keep the
treatment of new hires specifically comparable with that of
employees under the existing. Civil. Service Retirement system. We
recognize that the continuation of Social Security coverage would
make it impractical to structure a comparable plan that is
exactly like the current one. However, experience in State
retirement systems has shown..that severe personnel problems will
develop if new hires are treated differently from the people next
to them in the workplace. Both groups must be assured that they
will be getting a similar value in benefits for the contribution
that they make.
Third, it is very important that the supplementary plan's
financing be designed so that it contributes to the integrity of
the funding base for the current system. Two million retired
federal and postal workers and survivors depend on that funding,
and many people now working will join their ranks over the next
few decades. We must not pull the financial rug out from under
them. The supplementary plan's funding must be coordinated
closely with that of the existing plan and its assets kept within
the Civil Service Retirement trust fund.
Key Issues in Plan Design .
These guiding. principles, lead me.to. believe, that. certain
features are absolutely' necessary for inclusion in any supple-
mentary plan -- these are, first, a defined benefit formula that
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is designed to make it easy for a worker to predict what his or
her retirement income will be; second, a full COLA; and third,
eligibility for an adequate retirement income at age 55 with 30
years of service.
There are many other critical issues that need your
attention. One is the idea that a-tax-deferred thrift plan
should be a part of the new system. I will oppose this idea if
the thrift plan is being proposed as part of the basic protection
the average postal or federal retiree needs to attain an adequate
?:income.:.': 'Howeverit .S.oc.ia?l.. Sec.ur.fty'..cover-age -continues and the.
defined benefit supplemental plan provides an adequate retirement
for the average retiree so that the thrift plan is merely a
source of additional retirement income for those who want it,
then I think that the Committee should consider a thrift plan.
Another major issue is whether pre-1984 employees will be
given an option to switch from the current Civil Service
Retirement system to the new plan. There would be two technical
problems raised by allowing people to switch. First, if a large
number of people were to switch to the supplementary plan, the
funding for the current system would be placed in extreme
jeopardy. Second, legislation that would permit individual
federal and postal employees to opt for Social Security coverage
would certainly reopen the whole coverage issue and would lead to
intense pressure for Congress to mandate coverage for additional
categories of . employees. For these reasons, I believe that the
supplementary system should be limited to the new-hires.
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And now, Mr. Chairman, I want to address the specific issues
you raised in your letter of invitation.
Cost. I stated earlier that the new hires should have a
retirement system that is truly comparable to the current
system. The long-run cost of retirement systems is a very basic
way to judge this objective of comparability. A system for new
hires and the current system should be at the same cost level as
a percent of payroll in order to be comparable. OPM estimates
this level is 27.9 percent of payroll. The Reagan Administration
wants to-reduce this figure to 20 percent or less. I strongly
oppose their position'. 'A system that costs less will be worth
less to the workers and will represent a breach of faith with
federal and postal employees based on the assurances given in
1983 when Congress enacted Social Security coverage over our
vigorous objection.
The Administration's efforts to reduce employee benefits are
not limited to retirement. They changed FEHBA in 1981 and
reduced the value of our health benefits by $830 per postal
employee over three years. This benefit loss undermined the 1981
postal contract. Now they are repeating the FEHBA voucher
proposal that Donald Devine advocates. This voucher approach to
health insurance would fundamentally change FEHBA and reduce its
value to postal workers, thereby undermining the contract just
agreed to this past December. If the Committee is being asked to
consider a lower-cost retirement system you must take into
account-the deterioration in our health plan. in arriving at a
position on: the appropriate cost of.retirement for."federal and
postal employees.
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Relationship to Social Security. I favor a defined benefit
retirement plan for new hires that is independent of the Social
Security system. Integrating the plan with Social Security, as
private firms often do, would achieve little in smoothing out the
"tilt" in the Social Security benefit formula because the range
in salaries of covered employees at retirement is not very
large. This is especially true for postal workers.
An independent plan will avoid the problems that integration
creates. You heard from state pension administrators three weeks
ago that integration makes a retirement plan much harder to
administer - and- explain.' to employees.
The real purpose of integration, when all is said and done,
is to offset the Social Security "tilt" by shifting benefits from
lower-paid to higher-paid workers. If a thrift plan is a part of
the package, this shift will be accomplished anyway, because the
tax savings feature of such a plan will be more attractive the
higher the employee's salary.
Employee Contributions. It is very important that mandatory
employee retirement contributions be the same for both the new
hires and the other employees. Therefore, new hires should pay
1.3 percent of salary into the Civil Service Retirement trust
fund if they continue to pay the Social Security tax.
The total contribution rate for new hires would increase
somewhat over time when Social Security tax increases already
legislated go into effect. To maintain parity between the two
employee. groups over the years, the-1.3-Percent contribution to
the. supplemental plan could automatically decline whenever the
Social Security tax goes up.
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Funding. The funds contributed for the supplemental
retirement plan by the employees and their agencies should be
paid into the existing Civil Service Retirement trust fund. it
is important for the fiscal integrity of the current system that
the funding of CSRS and a supplementary plan be tied together and
operated under a parallel set of rules.
I do not believe that it is necessary to-build up a fund
that will be sufficient to cover all projected liabilities in
advance of their being paid. Advance funding is critical to the
security of private-sector workers,.since even the largest
corpora.tions.can-and do have..trouble meeting their financial
obligations. However, the federal government is in a totally
different circumstance due to its taxing powers and monetary
controls. Not only is advance funding unnecessary, but it would
probably be undesirable politically to build up a huge retirement
fund. We already see critics of Social Security complaining
about the buildup of that program's assets resulting from the
1983 amendments.
Vesting. The vesting period for the supplementary plan
should be less than the period prevailing in the private sector.
Most private plans vest in 10 years, which is the longest vesting
period allowable under ERISA. The plan for new hires should not
be guided by a minimum acceptable standard but should set its own
objective based on a desirable policy for federal and postal
employees..
The OPM Plan
In closing, Mr. Chairman, I 'want to. express my opposition to
the plan that Donald Devine presented to the Committee' earlier
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this month. His plan -- which was offered by an unconfirmed
official and which does not have the Administration's endorsement
-- will be strongly opposed by employees if it ever does become a
formal proposal.
There are several reasons why I oppose it. First, the
government would commit only 19 percent of payroll to the plan,
which is only about two-thirds as much as the commitment to the
current system. Thus, new federal and postal employees as a
group would be much worse off than their fellow workers. This
level of cost is. similar to the level that would result for the
current system if Congress went along with-the severe-cuts Devine
proposes every year. Congress has consistently rejected the idea
that Civil Service Retirement should be reduced to that level.
A second reason to oppose this plan is that it puts all the
risk of economic uncertainty on the individual worker. There
would be no definite benefit supplement keyed to final salary
level. Instead, the size of a person's supplement to Social
Security would depend on the employee's entire salary history and
the movement of interest rates over his or her entire career. It
makes little sense to put a person's future retirement income on
such an unpredictable basis.
Those private organizations that offer only investment-type
plans for retirement at least give their employees some choice as
to types of investments. The Devine proposal would put all the
funds in very conservative Treasury issues that historically do
little better than keep up-with inflation-.- The employee would
have no right to place.,those funds in any other type of
investment;
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Another fault of the Devine plan is the so-called "super
IRA". This feature might be a good way for the higher-salaried
employees to accumulate savings, but the worker in a low tax
bracket who needs all of his or her take-home pay to meet the
family living expenses would gain little or nothing from a "super
IRA". I suggest that the Ways and Means Committee would find it
too "super" anyway and cut back on its generosity, since it would
allow two-and-one-half times as much tax shelter as the current
Finally, Mr. Devine has offered "bait" to the pre-1984
employees to get them to switch to his new plan, which would
leave the current Civil Service Retirement system weaker
financially and politically. I stated earlier that I thought it
would be a mistake to let employees switch out of a good, sound
retirement system. It would be a tragedy to let them be "baited"
into accepting the bad deal Devine is offering.
Conclusion
Thank you, Mr. Chairman, for providing me the opportunity to
express my views on the issues raised by the new hires' supple-
mentary retirement plan. I will be glad to respond to any
questions Committee Members may have.
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You also. requested us.to,.develop options for addressing the
age. when social security-benefits will be available to them.
As later.agreedwith your'.offices, we expanded the scope of our
:study to (1) include all federal.civilian-employee groups who are
eligible'for retirement benefits without penalty at.ages earlier
than general civil service.:employeesl and (2) provide
.information about employees, like those in. the District, who are
,covered by the civil service retirement system , but are not
federal. employees.
In January 1978,. we reported on our review of issues,,
associated with District. employees'participating in the civil
servic.e.retirement system and some'federal personnel covered by
,the District retirement.system.2 We concluded at that time that'
.the District:should establish a': separate retirement system for:
its-,employees and.that'new federal'employees.in positions covered
by.-the-District's program should be placed in a'federal
.retirement system., Moreover,' in an earlier report we questioned
..the.need'for special early., retirement provisions for federal law
enforcement and firefighter personnel and recommended'that the
Congress 'reevaluate.the need for such benefits.3 The Congress
future status of certain federal law enforcement personnel who
are-now covered by a. District. retirement program in.the design of
.the-new civil service retirement program. New employees in. this
.group are covered -by social- security but must retire before the',
took no..action on these reports.
'retirement provisions and retiree demographics from the Office of
Personnel Management (OPM), Department of State, Department,of '
.the Interior',.Federal Aviation'Administration, Central
Intelligence Agency,.Secre.t.Service,. and the District of
Columbia. Except for OPM, certain. employees of each.of.these
organizations may`retire.without penalty at earlier ages than can
general civil service employees OPM has overall responsibility
for managing the civil service retirement system. We considered
the views of officials of each of these organizations in
developing the options we are presenting.
In conducting this study,:we'obtained information on
1General..employees are all employees not covered by special
provisions of the retirement, system.
2Federal and District of Columbia Em loyees Need to be-in
.-Separate Pay and Benefit Systems (FPCD-77-71, Jan. 12, 1978).
3Special Retirement Policy for Federal Law Enforcement and
Firefighter Personnel Needs Reevaluation (FPCD-76-97, Feb.' 24,
1 !1 ^7 _7 %
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EMPLOYEES PARTICIPATING IN THE
CIVIL SERVICE RETIREMENT SYSTEM
WITHOUT SOCIAL SECURITY COVERAGE
We identified two employee groups who are continuing to
participate in the civil service system but are not federal
employees and do not have social security coverage. These groups
are employees of the District of Columbia and employees of the
Washington Metropolitan Area Transit Commission.
In contrast, another employee group which did not have
social security coverage stopped entering the civil service
system on January 1, 1984. State Department officials recognized
that a new civil service retirement system which supplements
social security would be inappropriate for its foreign national
employees who are not covered by social security and, in January
1984, discontinued entering new foreign employees in the civil
service system.. These employees are being placed in programs in
their respective countries.
Qptions we identified which the Congress may want to
consider for those employee groups not covered by social security
are:
1. Allow the employees to continue entering the current
civil service system. If this option is taken, these
nonfederal employees will eventually be the only
participants in the current system. In this case, the
employees' or employers' contributions could be increased
to cover the full accruing costs of retirement benefits.
OPM estimates these to be an additional 22.5 percent of
pay.
2. Close the current system to all new entrants, in which
case, civil service retirement coverage. for such
employees could be terminated and replaced with a new.
program established by their employers.
We did not consider the option of social security coverage
for District employees because the Congress has not required any
state or local government employees to participate in the social
security program and the District has not elected such coverage
for its employees.
SPECIAL RETIREMENT ELIGIBILITY PROVISIONS
Certain groups of federal employees are covered by special
provisions which permit them to retire without penalty at earlier
ages than employees covered by the general civil service
retirement provisions. These employees, if they have 20 years of
service, are eligible for full benefits at age 50 or younger. By
contrast, the earliest point at which most federal employees can
opt to retire without penalty is age 55 with 30 years of service.
3
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The table below identifies groups of employees with special
provisions, their retirement eligibility provisions, and the
retirement system which covers them.
Retirement
Employee group eligibility provisions
Law enforcement Age 50 and 20 years'
officers/ service as law enforce-
firefighters ment officer or fire-
fighter. With some
exceptions, mandatory
retirement is at-age 55
or 20. years' service
whichever is later.
Air traffic Age 50 with 20 years'
service as an air
traffic controller, or
any age and 25 years'
service as an air
traffic controller.
With some exceptions,
mandatory retirement is
at age 56.
Foreign Service Age 50 and 20 years'
service. With some
exceptions, mandatory
retirement is at age 65.
Central Same as Foreign Service
intelligence system except mandatory
officers retirement is at age 60.
Park Police Any age and 20 years'
service. Mandatory
retirement is at age 60.
Uniformed Division Same as Park Police.
of the Secret
Service
Secret Service Same as Park Police.
agen tsa
Retirement
system
Civil service
Civil service
Foreign Service
Central
Intelligence
Agency
District of
Columbia
District of
Columbia
District of
Columbia
aSpecial agents assigned to protect the president and other
government officials.
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