T-12 6414 5il0i 237812 9 13 TABLE 2 workers would continue to be covered TABLE TABLE under 35the current system. Equation (3) of them continue to work. The average worker in the private sector, on the voluntary arise increasebecause total retirement prospects there federalare after for retirement various the thirty future ways yea benefits rsto are estimate ofthat service, cannot the orcosts cost calculate l/ the The of these taxpayers federal the programs, costcivil more of athan if the retirement beginning The on onlyotaxpayers. f ways 1983 in thatcorrespondence Covering short-term federal budgetary withworkers the savings Stevens under ' can Social bilbe l. realized Security Implementing from can job assignments showed a considerable shift in the occupational distribution of FEDERAL AGENCY AND GENERAL REVENUE EXPENDITURE PROJECTIONS represents other hand, the isunfunded facing budgetary aLiabilities normal cost ofretirement theof new CSRS federal age and of Military retirement sixty-fiveRetirement program. in his or her retirement Service the current Retirprogram. ement Taxpayer system. are projected System Liabilities wasto started riseas relative Percent in 1920.ofto Payroll payroll The Social for costsCSRS Securfor ityandactive Act pay-as-you-go such only raise a programtheretirement costs in 1984ofwould federal programs not retirement sig are nificantly to increase if benefits affect employee the are analysis contributions raised oror employee results. over military personnel after World War II. There has been a significant shift out FOR THE CURRENT CIVIL SERVICE RETIREMENT SYSTEM AND Military Retirement Compliance with ERISA in 1981 workers MODIFIED between UnfuSYSTEM ndednow Liabilities and IN CONJUNCTION the turn of WITH the NEWLY century.Growth HIREDTable in WORKERS Unfunded 4 shows Liabilities the MILITARY Equation REITREMENT (4) POLICY shows REVISITED the budgetary effects of Social Security coverage of established contributions pension That means One plan.common that thedecreased. They Social thewayongoing cantoSecurity probably estimate AS costs an program example retire the of the cost in of prior total of 1935 theatoimplications system retirement although that age havemonthly but program toofbe their thebenefits estimated is National benefits to use were current levels or to decrease benefits that would be paid under current law. of combat positions into white- and blue-collar occupations. They concluded UNDER SOCIAL SECURITY, SELECTED YEARS 1983-2050 Mr. chairman, Taxpayers I am pleased Liabilities to appear before you today to discuss the what new will hires. actuaries be actuarially The call budgetary the reduced "entry effect to age account is normal different for cost theirfrom method." early the retirement. effect This method on the They estimates OASDHIare not paid Inuntil taxp 1870 ayer Employ 1940. whenbuer rden the AfterCongress of aCSRS Amortization coupleand established ofmilitary unsuccessful of voluntary retirement Tota efforts i retirement as the aActua percentage Railroad 1for officers of From Commission's separately a casualforproposal reading the closed of the the costs system 1984ofthat Budget the applied current it is to clear system old that hires, must the beandOMB compared forunderstands the to newan that the current system was a clumsy mechanism for maintaining a vigorous Program 1979 1980 1981 FY 1980 FY 1981 Two Year Increase Program Normal current Cost USystem nfunded Liabilities Modified SystemCost Net Contributions Savings financing of federal work related retirement entitlement programs. I appear in (billions) (billions) (billions) (billions) (billions) (Percent) accounts, in that the specific account would be credited for both employer and not eligible workers for covered indexed(billion bySocial theses)Security programs. benefits (billion Over the suntil ) next age (twenty billion sixty-two yea s )rs and the then the alternative Retirement it permitted percentageSystem, federal them of atoaworker's program. federally retire after salary The administered thirty first that thing would yearsrailroad such have of service an toemployee analysis be set upon retirement aside must approval each estimate ofyeartheis this system principle. covering future If the employees. CSRS recommendations The budgetaryincluded costs inof the the Budget separateare systems military. In the retirement area the commission recommended "establishing a civil Service 29.8% 56.3% 85.1% 32.3% my capacity as Research Director of the Employee Benefit Research Institute. cs_ _03.1 $469.5 _498.9 $66.4 _29.4 23.8 employee contributions. Since Social Security is in the unified budget, the Military only at 1983 80 percent of theofmilitary the_17.9 full retirement benefit. is As projected _17.7 a result the to increase average$0.2age aboutof people to program, President. the fully cost was fund of The the established benefit retired currententitlements pay system. in 1937. was to before In be 75 addition percent retirement. to ofthese the Aggregating there regular arepayathe host at normal theof implemented can be aggregated the CSRSto employee get the combined contributionsystemsratecost. will increase by 57 percent in new noncontributory retirement plan consisting of three parts: a retirement Retirement1984 47.0 20.0 108 •0 19.2 155 •0 0.1 58.0 EBRI is a nonprofit organization dedicated to providing research and analysis Military 1985 current levels. 22.4 CSRS relative 22.2 costs are projected0.2 to rise by employer claiming contribution Social Securitywouldretirement show up as benefits an expense is sixty-four. in the agencies' Possibly budget the and Retirement cost other officer's offederally all The Thegrade. total workers budgetary 355.8 spobudgetary nsored Inprovides 1885 cost retirement parallel of 431.1 impact antheestimate cuof provisions rrent programs. modifying 476.9 ofCSRS thewere 2These / employe CSRScan extended 75.3 rwould 's other be described total beprograms to different Army 45.8 normal by and arethe cost. from Marine much 34.0 only annuitytwo to years. provide At for the old same agetimeneeds; a 40 apercent trust fund phasedto reduction provide deferred of the normal 1986 24.3 24.1 0.2 which can serve as a basis for sound policy toward employee benefits. EBRI as 1987 26.3 26 .i 0.2 as SOUBCE: federal equal one-third government P.L. trust 95-595 fund overwants income Reports current to incontinue filed the levelsSocial with by to the the occupy Securturn U.S. ity a Congress of unique accounts. the century. niche for The fiscal in two the would 1981. labor public the smaller following enlistees. effect Law thansimple 95-595, onInthe the 1916 first formula: various passed the fou Congress rin accounts programs 1978, established requires taken delineated separately. that Navalabove. allpromotion federal Both My comments CSRS pension boards and today Social toplans select will cost compensation; of CSRS would and along begin. withIn the othertrust wordsfund,employee severancecontributions pay to assist would former rise by Total _758.9 $900.6 $975.8 $141.7 75.2 28.6 1988 28.4 28.1 0.3 an institution does not take positions on public policy issues. Today I am cancel each other out. 1989 30.2 30 .i 0.3 market but it is not clear that the current position is one that has been submit focus Rear Admirals, almost an(i) annual CSRS totally Captains report Budgetary on the and to Congress Cost financing commande = rbenefits s on situations their on the plus actuarial basis refunds or of problems status. age-in-grades. minus associated These reports Officers with nearly Security service 60members are percent now in within for their 40 the percent adjustmen unified t lowerbudget. to average civilian Because future life." the benefits. 5/ proposal analyzed here 1990 31.3 31.7 0.6 if CSRS and the military program were required to comply with the federal going to direct my prepared comments employee primarilycontributions. toward the civil Service SOURCES: P.L. 95-595 Reports filed with the U.S. Congress for fiscal years 1991 34.2 TABLE 4 33.7 0.5 The total budgetary costs, modifying CSRS as considered here, can be provide would the attained not civil promoted segregate normal purposefully. Service were cost theretired Retirement estimates old and If atthe new System 2.5 based Congress systems, percent on (CSRS) a seeks consistent of theand pay costs tothe per adjust Military for year set the of federal ofeconomic various Retirement service. pension accounts Thepolicycan Other Considerations While budgetary for constraints Federal Pension are important Policy in the design and implemen- 1979, 1980 and 1981. Statement of 1995 42.4 41.7 0.8 standards that were imposed on pre-ERISA plans. Such compliance would have If new federal workers are covered under Social Security and a Retirement System (CSRS) and the military's retirement program. I will also be considered 2000 as follows: 54.5 54.7 -0.2 calculated they should according consider to bothequation the long-te (5)rm and cost compared implications with the ascost wellof asthethecurrent assumptions. Program. reason for Estimated Ifthis there Table legislation are Net 1 shows questions Budgetary the was estimated toonOutlays unclog these normal for or promotion onFederal Social cost channels. Pension ofSecurity the CSRS Programs ByI and will 1938 the be the glad Navy tation of retirement programs it is not clear that relatively instantaneous without going further on the commission's analysis or other specific 2005 as 70.8Percent of Covered 68.1 Payroll 2.7 raised the cost of CSRS to theSylvester taxpayers J. toSchieber 56.3 percent of payroll in 1981 discuss the budgetary implications of covering new federal workers under Social supplemental pension is established the implications for taxpayers will depend 2010 93.2 Research Director 86.1 7.1 system broader derived retirementon the policy basis impacts of equation of the (i). optionsTablethey5 shows consider.the projected military was to respond, again (2) program experiencing toClosed thebased extent CSRSon promotions costs the I am P.L. =able. benefits bottlenecks 95-595 report (old)andplus filed Congress refunds with provided Congress minus for during changes policy recommendations, of great magnitude it are is important desirable toforunderstand these programs. that the It inherent was largely cost of There is some contention on the part of various federal civilian 2015 122.4 102.9 19.5 while on Se cuseveral ri ty. the military factors. program There have would been have employee several cost contributions. taxpayers coordinated 155 pension percent plans of basicof this SOCIAL SEC 2020 URITY 161.8 CSRS l/ 130.8 Military Retirement 31.0 budgetary 1982. cost of the current system and the proposed modified system and the Retirement voluntary retirement Programs for with Employee Federal twenty Benefit Workers years Research of service Institute at the discretion of the the federal government's pensions, concern both military that pension and civilian, programs should be stable not and be addressed dependable solely that on employee groups that it was past imprudence on the part of the federal 2025 216.6 167.3 45.3 BACKGROUND military type designed pay plus in recent the employer years that portioncouldof apply the FICA to federal tax, since worker military s. In order to (3) New CSRS costs = benefits (new) plus refunds minus 2030 The cash 1982 benefits 277.7 provided before 24.9 by Socialthe211.8 Security are 54.7 also65.9financed on a net differences. Based on projections, moving to the modified system on President.With The a couple Army of and notable Air Force employee exceptions vitalization contributions. the retirement Act of 1948programs establishedfor federal 20 led to the passage of ERISA in 1974. This is not to say that federal pensions a short-term budgetary basis. The federal government hires, compensates and government that accounts for most of the current unfunded liabilities in CSRS. 1983 26.8 55.9 2035 360.0 273.6 86.4 personnel The are earliest covered predecessor under Socialto Security, today's federal retirement progams can be show the budgetary impact of covering new federal workers under Social Security 2040 1984 465.7 27.8 360 •3 55.9 105.4 TABLE 1 January pay-as-you-go i, 1983,basis. would This reducemeans Senate the that budgetary Budget the committee revenues costs ofcollected federal retirement from current by _I workers, should years asor both the should minimum military not be service and modified. civilian, requirement Rather are for largely it voluntary suggests unfunded. that retirement, the The Congress military should retires people (4) Socwithin ial Secuthe rity national costs =economy. benefits At(SS) thisminus time employee the federal For example, the National Federation of Federal Employees, in printed materials 2045 1985 604.1 28.6 499.2 56.8104.9 United States Senate In fiscal 1981 the employee contributions contribution to s. CSRS were $4.0 billion; and traceda modified back to pension 1636 when I the have settlers analyzed ata Plymouth proposal that Colony captures decreed the "thatessence any man of 2050 1986 786.7 29.3 683.6 57.4 103 •1 billion over the first five years. While the cost savings during the early workers and their employers are paid out almost immediately as benefits to program corresponding isEntry funded with Agestrictly the Normal Navy'sCost on earlier a of pay-as-you-go CSRSprovision. and MRSbasis. as The Percent The Career CSRS of Compensation Payroll does have a Act trust consider what it wants to accomplish through the federal retirement programs. government as an employer pays disproportionately large retirement benefits opposing Social Security coverage of new federal workers, argues that the 1987 29.8 57.8 sent while forth the(5)military as Total a soldie personnel Budget r andcost returned do = not old contribute CSRS maimed cost should plus to their benewmaintained retirement CSRS cost by program. the colony the bill ($2905) introduced by Senator Ted Stevens (R.-Alaska) during 1982. years retirees.would Given be 1988 moderate the small in relative balances 30.4 terms, in the the trustactual funds, numbers revenues 58.3 thatmust wouldclosely show fund and Sylvester there has J. traditionally Schieber, EmployeeFebruary The beenCostaEmployer pattern 4, and 1983 Funding of matching Total Implications Normal contributions of Modifying to of 1947 created the military's disability plus Socialretirement Security system cost. which 3/ remains The relative Congressto virtually should alsoall consider other segments how much of ofthetheeconomy. federal Tretirement here is considerable costs current CSRS "unfunded deficit originated because the federal government failed 1989 30.9 59.0 the civil Service Retirement System, (Washington, D.C.: EBRI, August during During Senator his the Program Stevens' 1981 life." fiscal proposal The year colonies Contributions modification thesemade two similar programs would Cost cover provisions had new disbursements Cost federal for men workers who of were _31.5under dis- up in the 9,unified 1982). 1990 budget Tables might 2,6, beandaffected 31.1 8. by moving accounts59.6 in or out of the match benefits during any particular time period for the program to be basically this fundEquation unchanged by employees (2) today. is and essentially 3their / agency. the same Sinceas equation 1969, there(i) have discussed been earlier, should be borne by the taxpayers. Then the actual design of a long-term evidence to suggest that this has distorted other elements of the government's to pay its share into the fund from 1920 to 1956." It is not clear what the civil Service 1991 7.0% 31.6 29.8% 36.8% 60.0 billion in benefits. The net budgetary cost to the taxpayer then was _27.5 Social Security and a defined contribution pension plan costing the government abled and for survivors of men who were killed in military expeditions against budget. This would 1992 not affect taxpayer 31.9 costs for federal retirement. 60.7 The solvent. views in It this is improbable statement that are those Social ofSecurity the author will and everdo benotfinanced necessarily on any additional Military The Retirement appropriations primary findings fromof0.0 the the general President's 47.0 fund Commission to pay interest 47.0 on Military on, and which compensation retirement appliedprogram policy to thecan and current beworkforce considered. system.behavior. The Theredifference is a good is example that equation of this (2) process government's "share" was during this period but employee contributions, net of 1993 32.0 61.0 reflect the views of the Employee Benefit Research Institute, its Trustees, billion the (i.e., Indians. the (i.e., taxpayers) The _31.5firstban-national estimated _4.0 b =pension $27.5 14.5 percent b)law, in which 1981. of payroll. dates back to 1776, amortize Thecertain Stevens 1994of legislation the unfunded would liabilities. 32.2cover newly hired workers 61.5 mandatorily and members, other could basis. or beother realized I havestaff. done if aconsiderable Social Security research windfall on Social reduction Security provision but will Compensation under President Carter was that: "The military retirement applied now underway. only to those workers on the payroll or persons entitled to CSRS For example, the average retirement age under CSRS is below age refunds, were only one-quarter of one billion dollars more than government 1995 32.3 61.9 Furthermore, since neither the CSRS nor military pension is funded the The particular method for modifying the system analyzed here and provided half pay for life, or during disability, for soldiers disabled during 1996 32.4 62.1 offer CSRS program, limit UNDER incentives my which comments REVIEWallows for in cu this retirement rrent areaworkers to after specific to 20 moveyears inquiries to the of service new thatsystem. the at half Committee Theof savings basic may SOURCE: There workers P.L. is 95-595 were a considerable implemented Reports filed amount simultaneously. withof U.S. confusion Congressabout forthefiscal cost year and funding 1981. benefits (receiving or deferred) on the assumed date the modified system would fifty-eight. The average retirement age in the military retirement program is appropriations and contributions for the period 1920 to 1955. The total 1997 32.5 62.6 federal pension burden will increase for future taxpayers. Unfunded federal included in Senator Stevens' bill calls for Social Security coverage the Revolutionary War. Military provisions based on service date back to 1998 32.5 63.0 from have modifying in this regard. CSRS in accordance with this proposal would grow significantly pay of , federal canSome The Inno sum, pensions, National policy longermodifying be analysts Commnission particularly justified." theargue CSRS on4that the /along Social The CSRS. federal the commission's Security For lines pensions example, ofReform the analysis should Stevens there has really recommended is of proposal ahisto prevalent be rical that be put into operation. Equation (i), in contrast, assumed that future new age forty-two. Tabulations of the March 1980 Current Population Survey show unfunded liabilities of the CSRS at the end of 1955 were less than $10 1999 32.6 63.4 pension promises are obligations that taxpayers will ultimately have to pay. coordinated 1780. Gradually, with aservice modified pensions federal came pension to beforprovided new federal separately employees for veterans beginning 2000 32.6 63.7 after the turn of the century as the federal work force becomes predominantly belief federal financed result that workers on the the in same hired cost significant basis ofafter the that CSRS budgetary January the is Employee i, roughly savings 1984 should 14Retirement over percent both be covered ofthe Income payroll short bySecurity Social and -- being long Act that 71.4 percent of military pension recipients are under age sixty-two and billion. By comparison, of the roughly $500 billion in unfunded benefit While they are not reflected in the federal debt, they are claims on future in 3/ 1983. Office The of analysis the Actuary,here Defense assumes Manpower the policyDatachange Center,would Valuation be implemented of the at of 3/ eaSee ch war. SylvesterIn 1861, J. Schieber, the first ThemajoCost r nondisability and Funding Implications program provided of Modifying for covered by the new system. Ultimately, the savings would grow to nearly one- Military the (ERISA) sharedCivilCoverage equally requi Retirement Service res byofprivate Retirement the new System: workers hires sectorSystem Fiscal under andemployers their Social Year (Washington, employing 1980 to Security fund (Washington, D.C.: their agency. would pension EBRI, maintain The D.C.:1982) confusion plans. U.S. theforlevel the may of Security and a modified federal pension program. This proposal is being that more than two-thirds of this group continue to work. While only 34.5 promises on the CSRS books at the end of fiscal 1981, nearly one-quarter (23.8 Government government Printing revenues Office, which are1981) defined pp. 3-4. by federal pension statutes. Table 3 detailed voluntary projections retirement of of military the component officerselements after offorty each years of these of duty. equations. In 1885, quarter of the current system's cost if it were to be perpetuated. The net 4/ Report Computed contributions of the President's by theforauthor retirement Commission from P.L. purposes. on95-595 MilitaryIn Reports aCompensation budgetary filed with sense (Washington thethen, U.S. , any atta Specifically, 2 percent / cked See of Sylveste by federal several ERISA r J.civilian requires organizations Schieber,pensioners tax-qualified The that Costrepresent areanddefined under Funding age federal benefit sixty-two, Implications workers. plans more toofOne amortize Modifying than of half their percent) arose during 1980 and 1981. The growth in the CSRS unfunded liability shows the recent levels and growth of unfunded benefit promises in the two nondisability D.C.: the i/ civil Office U.S.Congress Service of Government retirement the Retirement Actuary, for fiscal Printing wasDefense extended System 1981. Office, Manpower (Washington, to 1978) Marine Data p. and 2. D.C.: Center, Army EBRI, Valuation enlistees, 1982) ofproviding forthea savings estimates of moving to the modified system do not include any savings Military their unfunded cRetirement oupled liabilities. with System: Social Security Table Fiscal 2Year shows coverage 1980 the (Washington, that cost that just maintains taxpayers D.C.: U.S. would or does bear not complete discussion of the derivation of these estimates. major contentions is that this proposal will raise the burden of federal in 1980 and 1981 was more than i0 times the total accumulation of unfunded Government largest federal Printing budgetary pension Office, cost programs. is1981), computedp.2. as total benefits paid less employee 5/ Ibid., p. 3. This difference is then divided by projected covered payroll. liability over the first 35 years of the program's existence.