The Fiscal Commission Wants to Cut the Work Force and Your Benefits Congressional Leaders Vow to Consider Spending-Cut Proposals By Dan Adcock, Legislative Director
January 2011



Federal workers and retirees can expect unprecedented assaults on their pay and benefits as Congress considers spending cuts proposed by the co-chairmen of the National Commission on Fiscal Responsibility and Reform. The 18-member bipartisan commission was created by President Obama in early 2010 to come up with proposals to balance the federal budget and reduce the country’s debt.

On November 10, the panel’s bipartisan co-chairmen – former Clinton White House Chief of Staff Erskine Bowles and former Wyoming Republican Senator Alan K. Simpson – released a preliminary 50-page draft report. On December 1, the date on which the panel was supposed to take a vote on the proposal, the chairmen issued a second draft report and delayed the vote so that commission members could consider the new plan.

As the commission finished its work, congressional leaders vowed to consider, as part of the budget process in 2011, the major tax-code changes, dramatic changes to Social Security and spending reductions proposed by the co-chairmen.

Under an agreement reached in February 2010, outgoing House Speaker Nancy Pelosi, D-CA, and Senate Majority Leader Harry Reid, D-NV, had said that the Senate and House would immediately consider the report as legislation without amendments if 14 of the 18 commission members voted to approve it. Absent the 14 votes, Pelosi and Reid were not obligated to take up the commission’s recommendations.

Impact on Federal Retirement

NARFE was deeply troubled by a proposal in the co-chairs’ final report to create a “federal work force entitlement task force” to make recommendations to Congress to cut federal civilian and military retirement benefits by $70 billion over 10 years. The report cited the options the task force should consider, including:

• Calculate federal civilian retirement annuities on the highest five years of salary rather than the highest three years under current and longstanding law. According to the Congressional Budget Office, this plan would reduce a Civil Service Retirement System (CSRS) annuity by an average of $1,424 in 2010 and would reduce the average annuitant’s retirement benefit by $7,148 over five years. A Federal Employees Retirement System (FERS) annuity would be cut by an average of $462 in 2010 and by $2,322 over five years.

• Require workers to contribute a much higher share of their salary toward their defined-benefit annuity, which would have the effect of a significant pay cut. The additional contribution would not result in any change in a retirement annuity. While employees currently make contributions from their salary to the Civil Service Retirement and Disability Fund, historically most medium and large private-sector employers have not required their workers to make any contributions toward their defined-benefit pensions.

• Defer CSRS cost-of-living adjustments (COLAs) until age 62. Instead, CSRS annuitants would be offered a one-time, catch-up inflation adjustment at age 62 to increase the benefit to the amount that would have been payable had full COLAs been in effect.

In addition, the report would require federal workers and annuitants to pay an increasingly higher share of the Federal Employees Health Benefits Program (FEHBP) premium by limiting the growth of the government/employer share to Gross Domestic Product (GDP) plus 1 percent. Increases in FEHBP premiums have outpaced the percentage increase in the GDP plus 1 percent.  That means that the share enrollees pay would grow from an average of 30 percent, under current law, to about 40 percent in 2015 and 58 percent by 2020, according to a preliminary estimate. Over five years, more than $3,500 in premium costs would be shifted to federal annuitants and employees.

The report’s proposal to use the so-called “Chained” Consumer Price Index for All Urban Consumers (C-CPI-U) to set COLAs for Social Security (and other indexed benefits) has been estimated by the Congressional Budget Office to lower Social Security benefits by 3 percent after a 10-year period and would likely result in a similar reduction to federal civilian and military retirement COLAs. Rather than adjust the COLA to reflect the disproportionately higher health care costs paid by older Americans, the co-chairs’ proposal to use the C-CPI-U would further erode federal annuitant inflation protection.

Cutting the Work Force and Freezing Pay

Deficit-reduction measures proposed by Chairmen Bowles and Simpson were not limited to federal retirement and health benefits. Active federal employees were also singled out for budget cuts, and would be particularly impacted by a recommendation to enact strict discretionary spending caps and provide $200 billion in domestic and defense discretionary savings by 2015. Discretionary spending refers to spending set by annual appropriations, which fund the day-to-day operation of government. The proposal included a three-year pay freeze and a 10-percent cut in the size of the federal work force.

Freezing or cutting pay sends the wrong signal at a time when federal agencies will be hard-pressed to recruit and retain the most competent workers needed to make government operate more efficiently, prevent the next terrorist attacks, fight two wars, cure diseases, provide assistance to unemployed and disabled Americans, and treat wounded soldiers and veterans.

Cutting the federal work force by 10 percent is more about politics than good human resource management. In fact, 60 percent of all federal workers will be eligible to retire in the next five years. Experts agree that the federal government can ill afford to lose its most talented and experienced employees at a time when the country is facing unprecedented crises. Indeed, Paul C. Light, New York University Wagner's Paulette Goddard Professor of Public Service, said in November that the co-chairs’ government-cutting proposal is “… a random shooting that will further eviscerate the front lines of government, where the goods and services are actually delivered, and that will fuel further growth in the contracting work force.”

NARFE Responds

In November, NARFE Headquarters took extraordinary measures to alert members about the threat posed to their benefits by the Fiscal Commission chairmen’s proposed plan. First, the Association sent an Action Alert through its GEMS e-mail messaging system to all NARFE members who have provided an e-mail address to NARFE. Then, it sent automated phone calls to NARFE members for whom phone numbers, rather than e-mail addresses, were on file. The messages asked members to use a toll-free phone number to contact their representative and senators to oppose the Fiscal Commission plan.

“The proposals in the co-chairs’ final report to cut federal employment and compensation will outlive the Fiscal Commission and will be treated seriously by the new Congress,” said NARFE President Joseph A. Beaudoin. “It will be up to all of us to remain vigilant about these threats to our earned wages, retirement and health benefits.” For that reason, Beaudoin encouraged NARFE members to receive the weekly NARFE Legislative Hotline by including their e-mail address in their membership record. The Hotline also is available on the NARFE Web site, www.narfe.org, or by calling toll-free 877-217-8234.

In addition, NARFE gathered support from 15 member organizations of the federal-postal coalition to sign a joint letter sent to Bowles and Simpson, urging them to reconsider their proposals to cut federal civilian retirement and health benefits, freeze federal pay and reduce the federal work force by 10 percent.

“In light of the growing number of critical challenges being shouldered by federal workers, the government cannot afford to make substantial reductions to the earned compensation of individuals who have dedicated their careers to public service,” the groups said. “For that reason, we urge you to defend the integrity of a system that provides wages, health and retirement benefits compensation to 4.6 million federal workers and annuitants.”

Other Key Proposals

The chairmen’s draft plan proposed to make the “benefit formula” for Social Security more progressive, meaning benefits would target those who need them the most. While upper income recipients would have their future payments reduced the most, the formula change would cut the benefits of all future recipients. In addition, under the plan, the retirement age for Social Security eligibility would be increased, based on the average American’s greater longevity, increasing the age to 68 by 2050 and 69 in 2075.

In 2009, earnings up to $106,800 annually are subject to Social Security payroll taxes. Currently, the maximum limit on taxable salary income applies to less than 86 percent of national earnings – with the highest wage-earners avoiding the lion’s share of payroll taxes. The co-chairs’ suggested plan would gradually increase the maximum taxable salary to cover 90 percent of wages by 2050.

Bowles and Simpson suggested that the Medicare “doc fix” be paid for by spending reductions or revenue increases.  Their report suggested that such “fixes” be less generous to health care providers. 

The “doc fix” refers to periodic scheduled reductions in the growth of payment to health care providers under Medicare. These scheduled reductions were put into the Medicare law before the Medicare reforms made in the health care reform legislation enacted in 2010. Physicians have threatened to stop taking new Medicare patients if the scheduled reimbursement cuts go into effect. Consequently, Congress typically addresses this issue on an annual basis at the last moment, subjecting Medicare beneficiaries and providers to a fraught-filled cliffhanger process. For instance, in November, during the lame-duck session of the 111th Congress, the Senate and House passed a one-month extension of the current Medicare physician payment rates in an effort to avert a 23-percent cut that had been scheduled to take effect December 1.

Legislative Counsel Alan Lopatin contributed to this article.