national active and retired federal employees association (narfe) budget cut threats
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National Active and Retired Federal Employees Association (NARFE) Budget Cut Threats in the 112th Congress (2011-2012). By Dan Adcock Legislative Director. Budget Threats. Fiscal Commission Recommendations Threats Beyond the Commission Budget Enforcement. Budget Threats. - PowerPoint PPT PresentationTRANSCRIPT
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National Active and Retired Federal Employees
Association (NARFE) Budget Cut Threats
in the 112th Congress(2011-2012)
ByDan Adcock
Legislative Director
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Budget Threats
Fiscal Commission Recommendations
Threats Beyond the Commission
Budget Enforcement
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Budget Threats
“This is an extraordinary time that will affect us for the balance of our careers.”John RotherExecutive Vice President of Policy, Strategy and International AffairsAARPJanuary 2011
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Fiscal Commission: December 2010 Reported 45 Proposals 11 of 18 Members Voted for the Report 14 Votes Required Immediate Action Proposals Receiving Serious Consideration in 112th
Congress (2011-2012)
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Fiscal Commission Recommendations
Create “Federal Workforce Entitlement Taskforce” Recommend to Congress to $70 billion in cuts to:
federal civilian and military retirement benefits
Examples: Increase Employee Contributions to CSRDF…….$51 billion Defer CSRS & Military COLAs to age 62…...........$17 billion Annuity Based on Highest Five Years of Salary…..$5 billion
Total……………………………………………$73 billion
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Lower COLAs: “Chained Consumer Price Index for All Urban
Consumers” “Chained CPI” Use C-CPI-U instead of CPI for Urban Wage
Earners and Clerical Workers (CPI-W) CPI-W to Calculate COLAs:
Social Security Federal Civilian Annuities Military Retirement Pay
Supporters Say:More Accurately Reflects “Substitution Effect”
Buying Chicken instead of Beef
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Lower COLAs: C-CPI-U
Opponents (Including NARFE) Say:Current CPI-W
Should reflect higher health care costs paid by elderly
Instead, C-CPI-U would further erode inflation protection.
Effect on benefits:Lowered by 3 percent after 10 years.
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12-Month Percentage Change for CPI-W (Current) & C-CPI-U (Proposed): 2000-2008
-0.5
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
2000 2001 2002 2003 2004 2005 2006 2007 2008
CPI-W
C-CPI-U
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Highest 5 Years of Salary
Current Annuity Calculation Formula:Accrual Rate x highest 3 years of salary x
years of service = Annuity Proposed Formula
Accrual Rate x highest 5 years of salary x years of service = Annuity
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Highest 5 Years of Salary
Effect of Proposal on Future Retirees:CSRS annuity reduced by an average of:
$1,424 in 2010 $7,148 over five years.
FERS annuity reduced by an average of: $462 in 2010 $2,322 over five years.
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Increase Employee Contributions to CSRDF Fiscal Commission
“Adjust the ratio of employer/employee contributions to CSRDF to equalize contributions.”
Translation:Make employees pay half of annuity cost.
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Increase Employee Contributions to CSRDF CSRS
Current Employee Share: 7% of Payroll
Full Normal Cost: 25.1 percent
Presumed Proposal: Increase Employee
Contribution to 12.5 % of payroll.
FERS* Current Employee
Share: 0.8% of Payroll
Full Normal Cost: 11.5 percent
Presumed Proposal: Increase Employee
Contribution to 6.5 % of payroll.
*FERS employees pay 6.2 percent of their salary to Social Security.
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Increase Employee Contributions to CSRDF Effect of a significant pay cut
On top of 2-year pay freeze Added contribution would not increase
annuity Most medium/large private employers
have not required their workers to make any contributions toward their defined-benefit pensions.
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Defer Future Retiree CSRS COLA
Defer CSRS COLAs until age 62. Instead:
One-time, catch-up COLA at age 62 to increase
Forgo catch-up COLA if the annuitant dies before age 62.
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Health Care
Index Gov’t Share of FEHBP PremiumsCurrent law:
Average Gov’t Share: 71% Average Enrollee Share: 29%
$10 a month rate hike example: Gov’t Pays: $7.10 Enrollee Pays: $2.90
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Index Gov’t Share of FEHBP Under proposal:
Government Share capped at: Percentage increase in Gross Domestic Product +
1% FEHBP Premiums Estimated to Outpace this Index Enrollees Pay $3,200 More Over Five Years Every Year FEHBP Premiums > GDP+1%
Enrollee premium Share GrowsGovernment Share ShrinksPremiums Become Increasingly Unaffordable
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FEHBP Enrollee Share: Current Law vs. Indexing Proposal
FEHBP Index Proposal
$4,000.0$4,500.0$5,000.0$5,500.0$6,000.0$6,500.0$7,000.0$7,500.0$8,000.0
2012 2013 2014 2015 2016
Years
En
roll
ee
Sh
are
Indexing Proposal Current Law
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FEHBP Index Proposal
20.0%21.0%22.0%23.0%24.0%25.0%26.0%27.0%28.0%29.0%30.0%31.0%32.0%33.0%34.0%35.0%36.0%37.0%38.0%39.0%40.0%
2012 2013 2014 2015 2016
Years
% In
crea
se
Indexing Proposal Current Law
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FEHBP Indexing Proposal
Brain Child of Rep. Paul Ryan
Budget Committee Chair
Alice Rivlin Clinton
Administration OMB Director
FEHBP Guinea Pig: Medicare Part B
Indexing Fixed subsidy
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Threats Beyond Fiscal Commission Proposals FECA Reform:
Future Participants moved from:Workers Comp to RetirementSignificant Cut in BenefitsAnnuity Amount Calculation Unfair
Retirement Annuity COLA Cuts$50 billion in cuts during 1980s and 1990s
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Threats Beyond Fiscal Commission Proposals Double TSP Contributions to Receive Full Match
10% of salary contribution for 5% match Future Retirees Pay Higher Share of FEHBP
premiumsLess than 20 years of service pays greater
sharePay 2% more for every year less than 20
years
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Budget Enforcement Proposals Majority Leader Eric Cantor: Deputy Majority Whip Kevin Brady:
Use Debt Limit to Get Spending CapSimilar to Gramm-Rudman-Hollings Automatic Spending Cuts:
when the deficit exceeded fixed targets.
1985 COLA Lost to Gramm-Rudman-Hollings
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Budget Enforcement Proposals S.J. RES. 3, Balanced Budget Amendment
Introduced by Sen. Orrin Hatch Approval Required
2/3 of House & Senate ¾ of States Past Attempt: 1997
Passed HouseOne Vote Short in Senate
Spending Could Not Exceed Revenue Spending Capped at 20% of Gross Domestic Product
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Budget Cut ThreatsQUESTIONS AND ANSWERS