H.R. 1804: Federal Retirement Reform Act

H.R. 1804

Federal Retirement Reform Act

Date
April 1, 2009 (111th Congress, 1st Session)

Staff Contact
Communications

Floor Situation

H.R. 1804 is being considered under suspension of the rules, requiring a two-thirds vote for passage. The legislation was introduced by Rep. Ed Towns (D-NY) on March 31, 2009.

Under new PAYGO rules in the 111th Congress, savings from prior bills passed by the House may count towards meeting PAYGO requirements. Because the Congressional Budget Office projects a $955 million revenue loss over ten years associated with H.R. 1256's provisions regulating tobacco due to a 2% reduction in adult smoking after ten years, the majority intends to pass H.R. 1804 under suspension of the rules to offset this lost tax revenue prior to the consideration of H.R. 1256. The rule for consideration of H.R. 1256 provides that, at the time of engrossment, the Clerk will add the text of H.R. 1804 to the end of H.R. 1256, in order to meet PAYGO.

Bill Summary

The bill would make several changes to the federal Thrift Savings Plan (TSP), as well as federal defined-benefit pensions, as follows: 

 

TSP Provisions:  The bill would auto-enroll new federal employees in the TSP, with a withdrawal rate of between 2-5% established by the TSP Board.  The bill grants the Defense Department the authority to suspend or preclude auto-enrollment for enlisted military personnel.  Although new federal employees would be automatically enrolled in the program, they could opt-out of salary withholding.

 

The bill would permit federal employees to make after-tax contributions (similar to a Roth IRA) in the TSP, grant the TSP Board the authority to establish a self-directed investment window, and make other changes regarding TSP investment options.

 

Federal Pension Provisions:  H.R. 1804 would expand federal pension obligations, by changing the pension formula calculations to include unpaid sick leave accrued at the time of workers' retirement-which according to the Congressional Budget Office would lengthen workers' time of service by an average of three months.  However, federal employees currently receive a defined benefit pension plan available to only 18% of private-sector workers-and further receive annual cost-of-living adjustments available to less than 2% of the private-sector population (only 7% of the 18% of workers with defined-benefit pensions).  Moreover, according to the Office of Personnel Management, average federal wages totaled $66,711 in 2007, more than 60% higher than the average salary level for all American workers of $41,328.

 

At a time when many Americans' 401(k) values have declined-and President Obama himself has imposed a salary freeze on key White House staff-some Members may be concerned about the implications of expanding government entitlements to increase pension benefits for government bureaucrats that many experts would already consider overly generous.

 

The bill also includes other provisions relating to federal defined-benefit pensions, including provisions allowing certain employees re-entering government service to "buy back" their service time with respect to their pension contributions, and adjusting pension calculations for certain federal employees with prior service for the District of Columbia government.

 

Veterans Provisions:  H.R. 1804 increases indemnity allowances for widows and widowers of service personnel affected by the Survivor Benefit Plan offset.  Under current law, payments under the Survivor Benefit Plan are reduced dollar-for-dollar to reflect payments under the Dependency and Indemnity Compensation plan.  H.R. 1804 would increase the allowance to offset the reduction in payments to widows and widowers of service members.

Cost

A final score on the bill was not available at press time. The bill permits federal workers to contribute after-tax savings (similar to a Roth IRA) into the Thrift Savings Plan (TSP). Because some federal workers would voluntarily choose to pay taxes on their TSP contributions immediately, CBO has previously estimated this provision would generate nearly $2.3 billion in revenue over ten years.

The bill would also provide retirees with credit for unused sick leave for purposes of calculating a retirement annuity benefit, increasing direct spending by nearly $600 million. The bill's other provisions relating to federal pensions would cost an additional $100 million. The final cost of the veterans provisions was not available at press time.

As drafted, the bill would generate $2.3 billion in revenue, and increase direct spending by at least $700 million. However, as noted above, the majority intends to use the bill's unobligated savings to pay for the expected revenue shortfalls associated with H.R. 1256's creation of a new regulatory regime for tobacco products.

Lastly, the bill requires automatic enrollment of new federal workers in the TSP, increasing discretionary spending subject to appropriations for new agency matching contributions by an estimated $900 million over ten years.