Month: August 2018

During an interview this morning I was asked a question about federal retirement plans and whether I thought the government should move away from the defined benefit portion of the Federal Employees Retirement System. We have all heard proposals for retirement reform that range from increasing employee contributions to doing away with the pension plan and having employees rely entirely on the Thrift Savings Plan and Social Security for their retirement.

Arguments in favor of killing the pension plan are usually based on the fact that defined benefit retirement programs are a dying breed. More and more companies have discontinued pension pans and shifted to defined contribution plans. From the perspective of a company’s bottom line, it appears to be a good move. Costs are lower and far more predictable. Risk is shifted from the employer to the employee. Once an employee leaves, there is no obligation. Add to that the fact that people change jobs far more often than in the past and the ability to accumulate a pension is lessened. Since you probably would not work long enough to earn a pension, why burden the employer with having such a plan. Sounds good, right?

Because that change has happened in the private sector, more and more people argue that it should happen in the public sector as well. After all, why should public employees have a benefit that private sector employees do not have? When we look at it like that, it may make sense to do away with the pension component of FERS.

But is that the way we should look at the question? I think the answer is no. I prefer to look at what kind of employer federal, state and local governments should be, rather than how they can reduce benefits to conform to norms in the private sector. Simply put — government should be a model employer, and a model employer should care about more than the bottom line.

Some folks will tell us that the American people want lower taxes and resent seeing public employees getting benefits that they do not get themselves. Sounds believable, but it is not true. A 2017 study by the National Institute on Retirement Security reported that ” … 76 percent of Americans are concerned about their ability to achieve a secure retirement, with that level of worry at 78 percent for Democrats and 76 percent for Republicans. Some 88 percent of Americans agree that the nation faces a retirement crisis, and the concern is high across party lines.” The study also reported that 73 percent of Republicans and 83 percent of Democrats support state retirement plans.

There is also a cause-and-effect dynamic at work that we rarely discuss. What we typically hear is “no one wants to work for a company for 30 years” and “young people today want to change jobs often.” So why is it that people want to change jobs often? Is it simply a generational difference? Or does the lack of a pension plan incentivize turnover? Many younger folks tell me that their view is that loyalty is a two-way street. If their employer wants them to stay around, they want their employer to commit to keeping them around. I believe the changing employer dynamic is one of the chief drivers of the turnover mentality. Employees take a job to get a certain type of experience, then move on when opportunities arise.

While the shift away from defined benefit plans may have been caused by financial interests of employers, we are seeing that there is a financial downside as well. Turnover is not cheap. Recruiting new talent costs money. Onboarding new talent costs money. Training new talent costs money. Productivity losses from having new hires cost money. What we may have done is substitute one cost for another, without necessarily saving anything.

So what is the answer? Telling people to save more when they are young is not enough. Some people start saving early, while others are not forward-thinking enough to do it, or they simply cannot afford it. Two-thirds of millennials have no retirement savings. The fact that more than three quarters of Americans are concerned about their retirement security should be troubling, but it also presents an opportunity. This is not a partisan issue. Democrats, Independents and Republicans alike are worried about their future financial security.

Rather than focusing only on the costs of programs like the pension component of FERS, it is time for a serious, bipartisan public policy discussion about ways we can ensure retirement security for everyone in the U.S., not just for public employees. A 401(k) alone is not enough. How do we guarantee retirement security without giving a free ride to some folks? How do we do that without creating a multi-trillion dollar federal program? If we put the right people on the problem and seek the best ideas from business, government, nongovernment organizations and academia, we can find some way to solve this problem. If we can find a good way to do that, it may be that programs like federal pensions for new employees would no longer be needed. If we cannot do it, depriving federal workers of a pension is not the right move.

The federal government employs more than two million people. Almost every kind of work is represented – doctors, lawyers, scientists, clerks, contracting officers, HR specialists, undertakers, aircraft mechanics, and a few hundred more. The government has not done significant layoffs in the last decade or more. Vacation and health insurance benefits are great.

With those things in mind, the government should be the employer of choice for many people. But – is it? Let’s take a look at some of the reasons you might recommend a government job, and some reasons why you might not.

Why the Government is a Great Employer

The Mission. One almost universal characteristic of federal employees is dedication to the mission. The reasons are obvious. Federal employees run our national parks, support our military during and after their service, run the Social Security program, explore space, and countless other vital missions. The work can be fascinating and fulfilling.

Time Off. Compared to the private sector, leave benefits are great. Federal workers start with 13 days of sick leave and 13 days of annual leave. The annual leave increases to 20 days after only three years of service, and to 26 days after 15 years. Add in the 10 paid holidays and federal workers get 36 to 49 paid days off per year. By almost any standard that is superb. The ability to accrue 30 days of annual leave and unlimited sick leave is icing on the cake.

Health Insurance. Feds can choose from 30 or more plans, including fee-for-service, high deductible and HMO plans. The rates are reasonable, with the government paying a big chunk of the premium. For anyone who plans to retire from the federal workforce, the ability to take the health insurance with you after retirement and have the government continue paying part of the premium is a tremendous benefit.

Retirement. The Federal Employees Retirement System (FERS) gives workers a defined benefit retirement program. Once common in the U.S., defined benefit programs are becoming extinct. Even if feds are made to pay more of the cost of the program, it is still an extremely valuable benefit.

Lack of Layoffs. Even though the government has rules for reduction in force (RIF), it rarely uses them. Since 2005, the total number of federal workers who were separated by RIF is less than 11,000. The number in the past five years is only 1,105. That means the odds of a federal worker being laid off are close to zero. In 2017, the number who were laid off was 0.007 percent.

Termination for Cause. In fiscal 2017, there were 11,121 feds fired for performance or misconduct. That is just over one-half percent.

Ability to be Promoted and Move Around. Many federal jobs are filled by promoting or reassigning current employees. It is easy to serve 30 years or more and still work for a variety of agencies in different types of jobs. That movement does not require employees to change health and life insurance or retirement programs, and it does not start the clock again on leave. It is a remarkable amount of flexibility.

Why the Government is Not a Good Employer

Bureaucracy. There are rules for the rules. Bureaucratic hurdles can be maddening to folks who are trying to get work done. While there may be good reasons for some of the red tape, much of it is the variety that no one in the private sector would impose.

Inflexible Pay. About three quarters of the workforce is covered by the General Schedule or a GS-derived pay plan. Once an employee is hired, pay raises follow rigid rules that do not take into account how well or poorly the employee performs. Entry level pay for high demand jobs may not be competitive, and bonuses for most workers are insignificant. There are no stock options or other pay incentives, and an employee who saves millions of dollars may get a bonus that is trivial.

Slow Promotions. Great employees whose performance is exceptional can typically be promoted no more than once per year. That unnecessary restriction can drive great employees away, or cause great candidates to decline a federal job.

Politics. The biggest problem may be our toxic political system. Federal workers have been the targets of opportunistic politicians for years. A great example is those on the right and left calling federal law enforcement officers “jackbooted thugs” at different times in the past 20 years and more recent complaints about Transportation Security Officers calling them “government gropers.” Internal Revenue Service employees are criticized for doing their jobs, and every ten years Census Bureau enumerators are physically attacked while they are carry out a constitutional duty. Then there are the complaints about government workers calling them lazy, incompetent or unable to find “real jobs.”

The Bottom Line

Whether the government is a good employer or not may depend in large part on the agency. Some agencies have enough clout that they are able to get flexibility that other agencies may not enjoy. A great example is the Department of Defense. DoD was given a number of flexibilities following the September 11 attacks. The Department of Homeland Security, created in response to those attacks, did not get the same flexibilities that DoD got. Other agencies (such as financial regulatory agencies) get pay and benefit enhancements that others do not.

The prevailing political situation may also affect the desirability of a government agency. The defense buildup during the Reagan Administration made jobs and opportunities plentiful in DoD. The defense drawdown following the end of the Cold War and the outsourcing of tens of thousands of DoD jobs made DoD less appealing for a few years.

My opinion is that the federal government, with all of its flaws, is still an excellent employer. It offers good pay and even better benefits for most employees. It offers great job security, and the opportunity to do meaningful work that can benefit millions of people. Most federal workers are dedicated and do their jobs well.

Yes, it has flaws. It is subject to the absurdities of modern politics. It is a huge bureaucracy. It can be maddening. Still, for most people in most lines of work, the opportunities and challenges make it a great career option.

What do you think?

I would love to hear the opinions of ChiefHRO readers. Please use the comments option to let other readers and me know what you think. Would you recommend that your son or daughter or a friend go to work for the government? Why?