November 6, 2013

In an under-noticed article inside the Wall Street Journal today – titled “Parties Hunt for Revenue Streams” – was this revelation:

“Now, budget negotiators in both parties are again looking to premiums, user fees and other nontax revenue as they try to soften the effect of a new round of automatic federal spending cuts set to kick in at the start of the year. Possibilities include…raising how much federal employees must contribute to their pension programs, among many others…”

And later in the article:

“Members of both parties also have backed the idea of overhauling the pension system for federal employees, to require more contributions from workers—an idea that raises $20 billion in the administration’s budget and more than $80 billion in one House GOP plan. As a result, the new approach of raising nontax revenue ‘seems to be rather politically attractive,’ said retired Sen. Judd Gregg, a former top Republican on the Senate Budget Committee.”

Recall that the White House proposed an increase in FERS employee contributions to their pensions by 1.2% from the current 0.8% to 2%. Others have suggested raising employee contributions to 5% of their salary, and a few have called for pensions to be discontinued. Already new employees have to contribute significantly more to the pension system (contributions which, by the way, is going directly to current retirees and not into some “lock box” for these new employees when they retire…).

Another proposal is to discontinue FERS Special, which benefits those who retire before the age of 62.

This is certainly an important national conversation to have, given the massive U.S. budget deficits projected for the indefinite future and the even greater unfunded liabilities in a variety of programs (which do not seem to be a serious part of the conversation just yet).

In my opinion, since a version was proposed by the White House and has significant support among a segment of Congress – and it does not raise taxes – this proposal is likely to be enacted as part of a compromise agreement on the budget for FY14.

The Thrift Savings Plan seems to be the one program that is not in danger of being trimmed.