Should We Kill FERS?

dreamstime_xs_6998336During 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.

3 thoughts on “Should We Kill FERS?

  1. Joe S. M. Tella says:

    Leave CSRS and join FERS! IT’s a GOOD DEAL! Yup, not me! No benefit; many downsides. I projected a loss of $10K / year when FERS came out. Putting max into TSP in both = break even. BUT you put MORE into FERS. Why do it?
    CSRS: Age 50 with 20 years + RIF = RETIRED.
    FERS: Age 54 & 11 months + RIF = out on the street. Adios, sucker.

    Of course, the greedy congresstoads passed a law saying that your after-tax money in the CSRS pot ain’t the same money. { THEY serve one term and pension FOREVER! } Used to be you paid no income tax for about a year and a half. NOW, they let you deduct 1/30th of it per year, because the greedy toads want to buy votes. AND if you croak, and your heirs don’t know about that residual money, do you think the gubmint contacts them and tells ’em that it’s theirs? Sure…..

    Rely on the National Socialistic Security Ponzi Scheme! The congresstoads will steal it and give it away for bread and circuses for votes, and it’s going bust. AND, if we think you make too much money [ progressive evil ] we’ll TAX it again even though it’s been taxed when you earn the money. It was supposed to be voluntary. Yup….

    Now they want to kill off the pensions entirely? Who will want to work for the Federal Govt?

    Buy Savings Bonds! It’s an inexpensive way for the gubmint to finance itself. We’ll give you below-market rates, and tax you on the gains as inflation eats up the gains. You’ll LOSE! Mandatory participation in that got sued to a stop.

    Contribute to the Combined Federal Campaign. You can designate where the money goes. BUT they skim and give to causes you might oppose, and never tell you that. That mandatory participation got sued out of existence.

    I’d NEVER recommend a career with the Feral Gubmint. Maybe a short stint, but escape. Me: 30 and OUT! Paid every month for 10+ years, and hope I make it another 20 to 90 like my dad did.

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  2. Joe S. M. Tella says:

    Leave CSRS and join FERS! IT’s a GOOD DEAL! Yup, not me! No benefit; many downsides. I projected a loss of $10K / year when FERS came out. Putting max into TSP in both = break even. BUT you put MORE into FERS. Why do it?
    CSRS: Age 50 with 20 years + RIF = RETIRED.
    FERS: Age 54 & 11 months + RIF = out on the street. Adios, sucker.

    Of course, the greedy congresstoads passed a law saying that your after-tax money in the CSRS pot ain’t the same money. { THEY serve one term and pension FOREVER! } Used to be you paid no income tax for about a year and a half. NOW, they let you deduct 1/30th of it per year, because the greedy toads want to buy votes. AND if you croak, and your heirs don’t know about that residual money, do you think the gubmint contacts them and tells ’em that it’s theirs? Sure…..

    Rely on the National Socialistic Security Ponzi Scheme! The congresstoads will steal it and give it away for bread and circuses for votes, and it’s going bust. AND, if we think you make too much money [ progressive evil ] we’ll TAX it again even though it’s been taxed when you earn the money. It was supposed to be voluntary. Yup….

    Now they want to kill off the pensions entirely? Who will want to work for the Federal Govt?

    Buy Savings Bonds! It’s an inexpensive way for the gubmint to finance itself. We’ll give you below-market rates, and tax you on the gains as inflation eats up the gains. You’ll LOSE! Mandatory participation in that got sued to a stop.

    Contribute to the Combined Federal Campaign. You can designate where the money goes. BUT they skim and give to causes you might oppose, and never tell you that. That mandatory participation got sued out of existence.

    I’d NEVER recommend a career with the Feral Gubmint. Maybe a short stint, but escape. Me: 30 and OUT! Paid every month for 10+ years, and hope I make it another 20 to 90 like my dad did.

    Notify me of new comments via e-mail and new posts via e mail

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  3. Hal says:

    The phrase, ” . . .ensure retirement secutity . . .” and the Federal government’s obligation and promise to do so should be a point sent to the current heads of OPM and OMB who are on a campaign to eliminate FERS COLAs for currenmt as well as future retirees.
    The point of FERS from its inception was to provide a three-leg stool for retirement – – FERS, Social Security and TSP with COLAs for the first two iems.
    To eliminate FERS COLAs now – – a proposal made twice already – – sounds an awful like like why the public doesn’t trust the government to keep its word.
    COLAs are integral to FERS retirements for more than 35 years.
    Sounds like a precedent to a few million retirees!

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