Federal pension reform
Washington politicians of both parties continue to seek ways to extend federal loans to the states to keep laid-off workers drawing 99 weeks worth of benefits. (That number is now set to be gradually reduced, though it will still have little relation to premiums originally set to fund just 13 weeks of benefits.)
The most recent impasse on the Hill: Republicans wanted to come up with a way to pay for this ongoing largess by reducing federal spending obligations somewhere else.
Up till last week, negotiators appeared headed for a deal that would have required all federal employees to pay more for their pensions. But key negotiators Sen. Benjamin Cardin and Rep. Chris Van Hollen, both D-Md., balked at the proposal, even after phone calls from President Barack Obama, The Washington Post reports. So negotiators finally agreed Thursday that only future federal employees will contribute more toward their pensions.
As the deal now stands, new federal employees hired after Dec. 31, 2012, who have less than five years of federal service, would pay 3.1 percent of their salary toward retirement benefits — 2.3 points more than employees currently enrolled in the Federal Employees Retirement System.
Current federal employees, and any current employee with more than five years of service who is hired into a new federal position, would not be affected by the changes. The plan is expected to generate about $15 billion in savings.
Leaders of government employee unions promptly complained the proposal would establish two classes of federal employees: new hires paying more for retirement benefits, versus current employees, many of whom are older, paying less for the same benefits.
Oh, the humanity.
Yes, the initial GOP plan would have made more economic sense. After all, switching all employees away from defined-benefit pension plans and into defined contribution plans more like 401(k)s is precisely what the private sector now finds necessary.
Just the day before, on Wednesday, General Motors announced it’s freezing its traditional pension plan for salaried workers, moving them instead toward a 401(k)-style defined-contribution plan. GM has had its own two-tiered system for about a decade. Workers hired after 2001 had been on this defined-contribution plan, while those hired before that time had remained on the traditional defined-benefit plan.
For salaried employees — not hourly employees, who work under a union-set pension plan — that will change this fall.
The advantage to workers is that the new account becomes their property, even if they leave the company. The disadvantage is that once the account runs out of money, there are no more payments.
The advantage for employers? Solvency — a concern seldom raised in Washington, these days.
Requiring some federal workers to pay more toward their own retirements is, at least, a step in the right direction.