[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
FEDERAL BENEFITS: ARE WE MEETING EXPECTATIONS?
=======================================================================
HEARING
before the
SUBCOMMITTEE ON FEDERAL WORKFORCE,
POSTAL SERVICE, AND THE DISTRICT
OF COLUMBIA
of the
COMMITTEE ON OVERSIGHT
AND GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
__________
AUGUST 2, 2007
__________
Serial No. 110-200
__________
Printed for the use of the Committee on Oversight and Government Reform
Available via the World Wide Web: http://www.gpoaccess.gov/congress/
index.html
http://www.house.gov/reform
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COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM
HENRY A. WAXMAN, California, Chairman
TOM LANTOS, California TOM DAVIS, Virginia
EDOLPHUS TOWNS, New York DAN BURTON, Indiana
PAUL E. KANJORSKI, Pennsylvania CHRISTOPHER SHAYS, Connecticut
CAROLYN B. MALONEY, New York JOHN M. McHUGH, New York
ELIJAH E. CUMMINGS, Maryland JOHN L. MICA, Florida
DENNIS J. KUCINICH, Ohio MARK E. SOUDER, Indiana
DANNY K. DAVIS, Illinois TODD RUSSELL PLATTS, Pennsylvania
JOHN F. TIERNEY, Massachusetts CHRIS CANNON, Utah
WM. LACY CLAY, Missouri JOHN J. DUNCAN, Jr., Tennessee
DIANE E. WATSON, California MICHAEL R. TURNER, Ohio
STEPHEN F. LYNCH, Massachusetts DARRELL E. ISSA, California
BRIAN HIGGINS, New York KENNY MARCHANT, Texas
JOHN A. YARMUTH, Kentucky LYNN A. WESTMORELAND, Georgia
BRUCE L. BRALEY, Iowa PATRICK T. McHENRY, North Carolina
ELEANOR HOLMES NORTON, District of VIRGINIA FOXX, North Carolina
Columbia BRIAN P. BILBRAY, California
BETTY McCOLLUM, Minnesota BILL SALI, Idaho
JIM COOPER, Tennessee JIM JORDAN, Ohio
CHRIS VAN HOLLEN, Maryland
PAUL W. HODES, New Hampshire
CHRISTOPHER S. MURPHY, Connecticut
JOHN P. SARBANES, Maryland
PETER WELCH, Vermont
Phil Schiliro, Chief of Staff
Phil Barnett, Staff Director
Earley Green, Chief Clerk
David Marin, Minority Staff Director
Subcommittee on Federal Workforce, Postal Service, and the District of
Columbia
DANNY K. DAVIS, Illinois
ELEANOR HOLMES NORTON, District of KENNY MARCHANT, Texas
Columbia JOHN M. McHUGH, New York
JOHN P. SARBANES, Maryland JOHN L. MICA, Florida
ELIJAH E. CUMMINGS, Maryland DARRELL E. ISSA, California
DENNIS J. KUCINICH, Ohio, Chairman JIM JORDAN, Ohio
WM. LACY CLAY, Missouri
STEPHEN F. LYNCH, Massachusetts
Tania Shand, Staff Director
C O N T E N T S
----------
Page
Hearing held on August 2, 2007................................... 1
Statement of:
Chaikind, Hinda, Specialist in social legislation, Domestic
Social Policy Division, Congressional Research Service; and
Patrick Purcell, Specialist in Income Security, Domestic
Social Policy Division, Congressional Research Service..... 99
Chaikind, Hinda.......................................... 99
Purcell, Patrick......................................... 113
Kelley, Colleen, national president, National Treasury
Employees Union; J. David Cox, national secretary-
treasurer, American Federation of Government Employees; and
Margaret Baptiste, president, National Active and Retired
Federal Employees Association.............................. 68
Baptiste, Margaret....................................... 76
Cox, J. David............................................ 75
Kelley, Colleen.......................................... 68
Moran, Hon. James P., a Representative in Congress from the
Commonwealth of Virginia................................... 7
Springer, Linda, Director, Office of Personnel Management;
Patrick McFarland, Inspector General, Office of Personnel
Management, accompanied by Timothy Watkins, Office of the
Office of the Inspector General, Department of Health and
Human Services; Jill Henderson, Office of Personnel
Management Group Chief Overseeing Audits of Pharmacy
Benefit Managers; Amy Parker, Office of the Inspector
General Special Agent on Medco Investigation; and Gregory
Long, executive director, Federal Retirement Thrift
Investment Board........................................... 17
Long, Gregory............................................ 35
McFarland, Patrick....................................... 27
Springer, Linda.......................................... 17
Letters, statements, etc., submitted for the record by:
Baptiste, Margaret, president, National Active and Retired
Federal Employees Association, prepared statement of....... 79
Chaikind, Hinda, Specialist in social legislation, Domestic
Social Policy Division, Congressional Research Service,
prepared statement of...................................... 102
Davis, Hon. Danny K., a Representative in Congress from the
State of Illinois, prepared statement of................... 3
Davis, Hon. Tom, a Representative in Congress from the
Commonwealth of Virginia, prepared statement of............ 15
Kelley, Colleen, national president, National Treasury
Employees Union, prepared statement of..................... 70
Long, Gregory, executive director, Federal Retirement Thrift
Investment Board, prepared statement of.................... 38
McFarland, Patrick, Inspector General, Office of Personnel
Management, prepared statement of.......................... 30
Moran, Hon. James P., a Representative in Congress from the
Commonwealth of Virginia, prepared statement of............ 10
Purcell, Patrick, Specialist in Income Security, Domestic
Social Policy Division, Congressional Research Service,
prepared statement of...................................... 115
Springer, Linda, Director, Office of Personnel Management,
prepared statement of...................................... 21
FEDERAL BENEFITS: ARE WE MEETING EXPECTATIONS?
----------
THURSDAY, AUGUST 2, 2007
House of Representatives,
Subcommittee on Federal Workforce, Postal Service,
and the District of Columbia,
Committee on Oversight and Government Reform,
Washington, DC.
The subcommittee met, pursuant to notice, at 2:15 p.m. in
room 2154, Rayburn House Office Building, Hon. Danny K. Davis
(chairman of the subcommittee) presiding.
Present: Representatives Davis of Illinois, Norton, Lynch,
and Marchant.
Staff present: Tania Shand, staff director; Caleb
Gilchrist, professional staff member; Lori Hayman, counsel;
Cecelia Morton, clerk; Ashley Buxton, intern; Mason Alinger,
minority deputy legislative director; and Alex Cooper, minority
professional staff member.
Mr. Davis of Illinois. The subcommittee will come to order.
Welcome Ranking Member Marchant, members of the
subcommittee, hearing witnesses, and all of those in
attendance. Welcome to the Subcommittee on the Federal
Workforce, Postal Service, and the District of Columbia hearing
entitled, ``Federal Benefits: Are We Meeting Expectations?''
Hearing no objection, the Chair, ranking member, and
subcommittee members will each have 5 minutes to make opening
statements, and all Members will have 3 days to submit
statements for the record.
We will begin. I expect that our other very distinguished
witness will be here momentarily, but we will begin.
Welcome Ranking Member Marchant, members of the
subcommittee, hearing witnesses, and all those in attendance.
Much like the Federal pay hearing the subcommittee held on
Tuesday, today's hearing will get an overview of insurance and
retirement benefits available to Federal workers. Future
hearings will focus on the existing benefits programs discussed
today. However, the Federal Government must keep current in the
types of benefits it offers employees, if it is to attract and
maintain a quality work force.
The Federal Government's life and health insurance programs
were created in the mid-1950's and the early 1960's. The mid-
1980's brought us a new retirement system called FERS, and the
late 1990's, early 2000's, ushered in paid organ donor leave,
long-term care and dental/vision insurance. In some cases the
Government shares benefit costs; in others, the employee pays
all.
While we examine the administration and operation of
existing programs, we must begin discussions on future benefit
options for our Federal employees.
Today I will be circulating a draft legislative proposal to
Federal employee stakeholders that would provide 8 weeks of
paid leave for the birth or adoption of a child and 4 weeks of
paid leave for elder care or the serious health condition of a
spouse or child. The proposal will also increase the age from
22 to 25 that young adults can receive health insurance
benefits under the FEHBP.
I look forward to working with the Office of Personnel
Management and employee groups over the recess so this cradle
to independence legislation can be introduced in the fall.
On March 14th I introduced H.R. 1518 to allow employees of
federally qualified health centers to obtain health coverage
under the Federal Employees Health Benefits Program. It is my
hope that this legislation draws attention to the fact that
health centers across this country are finding it more and more
difficult to provide affordable health insurance to their own
employees.
I understand that Representatives Tom Davis and Jim Moran
have legislative proposals of their own that would benefit
Federal employees. I look forward to hearing their
recommendations and the recommendations of OPM and the employee
groups on how to improve the Federal Government's benefits
programs.
[The prepared statement of Hon. Danny K. Davis follows:]
[GRAPHIC] [TIFF OMITTED] T2884.004
[GRAPHIC] [TIFF OMITTED] T2884.005
Mr. Davis of Illinois. I now yield to the ranking member,
Mr. Marchant, for his opening statement.
Mr. Marchant. Thank you, Mr. Chairman. Thanks for convening
this second hearing on the status of the Federal employees pay
and benefits.
Earlier this week the subcommittee learned about the
Federal Government's basic pay setting policies, as well as its
various policies and practices regarding locality pay, cost of
living adjustments, and other compensation and incentives.
Today the subcommittee will hear from personnel experts
about the Federal employee health and retirement benefits. As I
mentioned at Tuesday's hearings, there is a tremendous amount
of turnover in the Federal work force today, and these hearings
will help the subcommittee get a better sense of what changes,
if any, need to be made to the current system.
As we discuss the status of the Federal employees pension
and health care, I believe we also must be mindful of the
financial impact that changes to Federal employee benefits
could have on the Federal budget. I trust the experts will keep
this perspective in mind as we discuss any potential changes to
improve health and retirement benefits of Federal employees.
I look forward to hearing from all the witnesses today.
Thank you, Mr. Chairman.
Mr. Davis of Illinois. Thank you very much, Mr. Marchant.
Delegate Norton, do you have a statement?
Ms. Norton. Only a brief statement, Mr. Chairman, which has
to begin with gratitude for you for holding these comprehensive
hearings on pay, last week on benefits, employee and retirement
benefits this week. I don't remember the last time, frankly,
that we have had comprehensive hearings on our employee and
retirement benefits, and yet what you are doing today could not
be more timely.
You say the expectations, are we meeting expectations, we
would have to ask of whom. The expectation of employees who,
after all, most of whom could retire today? By they way, most
of whom could get top dollar in the private sector. Or do we
mean new people? Do we mean people coming out of college? Do we
mean expectations of people who the private sector is fighting
tooth and nail to get?
There is a difference between what is expected of us today
and what was expected when I was a kid growing up in this town
and a Government job was considered a good job. It was
considered a good job in no small part because its benefits
were superior to the benefits of the private sector at that
time to make up for lower pay. Well, the private sector is
still, for many of the employees of the kind who are now
employed today, and certainly of the kinds of workers we need
to attract, private sector is still a better deal. It is a
better deal for wages, it is a better deal for health care, and
it is a better deal for benefits.
We have had hearings in prior years, even when we were in
the minority, about the shock waves going through the
Government with the retirement of the Baby Boom. We had this
artificial windfall of some of the most talented people in the
United States who chose to come to Government, that came to
Government in part because of the era in which they grew up.
This was the era of the great movements, the era of Government
service. But also because there were so many of them that there
were enough of them to go around. But they produced fewer
children, Mr. Chairman, and there are not enough to go around
now, not if you mean go around to the private sector, which
every day of the week is trying to get the best of them to come
while we, frankly, are doing too little to get those same
workers to come.
Finally, Mr. Chairman, if I may say so, you and I and a
number of us on this side have cosponsored a bill for years now
just to raise the retirement benefits from 75 percent of what
the employee pays to 80 percent, and we have not gotten to
first base on that. Meanwhile, the other side spent all the
money on tax cuts for the rich and on invading another country,
and one wonders if we will get there in time.
If you were to ask me the single most important thing we
could do to catch up, I think I would focus on health benefits,
because that is where most Americans feel most dubious today.
Health benefits go up so quickly compared to compensation in
private and public compensation.
On the other hand, Mr. Chairman, for competitive reasons,
alone, we need to take an across-the-board serious
understanding that we don't have the kinds of funds that we
should have, that should be available to us, but looking across
the board at what we will have to do just to be a competitive
employer in the 21st century, and looking at benefits, it is a
very good place to start.
Thank you very much, Mr. Chairman.
Mr. Davis of Illinois. Thank you very much, Delegate
Norton.
Mr. Lynch.
Mr. Lynch. Thank you, Mr. Chairman.
I want to associate myself with your opening statement,
your remarks, and simply add that our ability to attract
dedicated and highly capable employees really will depend on--
obviously, we can't compete with the private sector in terms of
dollar-for-dollar on salary. While we deal with many of the
same subjects here in the Congress and many of our regulatory
agencies deal with the same subject matters--technology,
biotech, the FDA, different agencies in Government--where on
the regulatory side it still requires us to have highly
intelligent folks who are willing to work for this Government.
It is frustrating at times when you see how much progress
industry has made, especially over the last 50 years, things
that we never even dreamed about, and yet basically the
Government's side of things is basically the same. We have lost
the powdered wigs. That is about it. But we are still operating
on a 19th century model.
We have to be able to attract bright, competent, innovative
people to help us with the regulatory side of Government, and
we need to be able to attract the best and brightest employees
who are dedicated.
I think the way we can close the gap in some respects,
given the fact that we can't compete on a wage basis or a
salary basis, is the benefits that we might be able to employ
and to give to our employees. We could be a kinder, gentler
Government to our workers and encourage them and appreciate
them. That is the way we will bring people onboard, because I
think there really is a goodness in the American people to
serve their Government. I see it at the VA every day. They are
not making as much money, the nurses, the therapists, the docs
over at the VA, but they take their reward in large part from
the good that they are doing for our servicemen.
You can go across every single agency in our Government and
see people doing the same thing, and we need to reward that. I
think this is a great hearing, it is a great way to address the
inequity sometimes of some of our Federal employees. I am not
surprised, Mr. Chairman, that you are the one to bring this to
the committee, and I appreciate your doing so.
I yield back the balance of my time.
Mr. Davis of Illinois. Thank you very much, Mr. Lynch.
We will now proceed to our first panel of witnesses and our
distinguished colleague will be the first witness, the
Honorable James Moran, who was elected to his ninth term in the
U.S. House of Representatives after a distinguished career of
local public policy decisionmaking. He was elected to the House
of Representatives to his ninth term in 2006. He is a member of
the Appropriations Committee, where he serves on the Defense
and Interior Subcommittee, and one of the outstanding leaders
in the House of Representatives, Representative Moran.
STATEMENT OF HON. JAMES MORAN, A REPRESENTATIVE IN CONGRESS
FROM THE COMMONWEALTH OF VIRGINIA
Mr. Moran. Thank you very much for your kind words,
Chairman Davis. It is a pleasure to appear before you, ranking
member and Congressman Lynch. My good friend, I really
appreciate your holding this hearing on the retirement benefits
available to Federal employees.
I am proud to represent more than 40,000 Virginians who
serve our country as Federal civil servants, as well as 60,000
Federal retirees in my District. Protecting the strength and
the integrity of the Federal work force and the quality of life
of all beneficiaries is obviously an appropriate priority.
During the past several years we have worked with the
Office of Personnel Management, who is well represented here by
its Director, Linda Springer. She has been very helpful with
us. I want to thank her, as well as the labor organizations who
are also represented here today, representing millions of
Federal employees and retirees. NARFEA is represented, as well.
What we are doing is introducing legislation that will fix
an inequity in the current annuity computations within the
Federal retirement system.
About a decade ago Congress amended the Civil Service
Retirement System for workers with part-time service. Some
part-time employees were switching to full-time work for their
last 3 years in order to receive their high three annual
average salaries. By doing so, they received the same amount of
retirement annuity as those who worked their entire career full
time, so they were gaming the retirement system by switching to
full time only at the very end of their careers. That forced
the Congress to create the current methodology for determining
part-time retirement benefits.
Today a part-time salary is assigned by its full-time
equivalent salary, and then the benefit is pro-rated by the
proportion of a full-time career that a part-time employee
actually works. The new law is intended to allow an employee to
receive a high three salary during the period of part-time
service, therefore encouraging part-time service at the end of
a career. This often happens when a senior level workers cuts
back on his or her hours. The disproportionate share of these
workers appears to be women who leave the Federal service to
care for others in their family.
Unfortunately, there are two major problems with the
implementation of this new law. First, the law didn't specify
that the calculation of full-time equivalent salary would apply
to all part-time service before and after the implementation of
the law. The result of this omission is the retirement benefits
are calculated in two parts: one part based on retirement law
for pre-1986 work, and another part based on retirement law for
post-1986 work.
It also has another adverse consequence. As a result of
these two different annuity calculations, there is a financial
disincentive for Federal employees to take part-time work at
the end of their careers. Retirement annuity calculations are
sometimes hundreds of dollars less because employees have taken
part-time work during the late stages of their career, which is
a problem for us because we are trying to keep these very
experienced people who may not want to work full time but they
will lend their expertise, particularly transitioning to
younger employees for various responsibilities.
Now, the subcommittee's members' heads are probably
spinning over this, because it is difficult to grasp how these
annuity calculations occur, but you can imagine what it is like
for a retiree. They are told that there are two different
calculations. How much did you work pre-1986, post-1986? How
much was part-time? How much was full-time? It is an overly
complex formula that has led to some serious computational
errors.
Federal retirees, though, are starting to get the picture:
part-time work hurts your retirement. So my legislation will
restore full credit for part-time work for 1986 and clarify how
the full-time equivalent pay is to be applied. It will provide
a simplified annuity computation in cases involving part-time
service for all CSRS employees. In doing so, this proposal will
effectively eliminate the adverse effect of part-time service
performed late in an employee's career.
This change of the law can help stem the wave of retirement
the Federal Government faces imminently. It has been well
documented and this subcommittee knows all too well that over
the next decade, as the Baby Boom generation nears retirement
age, the OPM has shown us that we are going to have a crisis of
manpower. Approximately 60 percent of the Government's 1.6
million white collar employees and 90 percent of its Federal
executives will be eligible for retirement over the next
decade. Since a leading factor that influences the retention of
senior personnel is a worker's retirement package, I am
optimistic that fixing this part-time inequity can provide some
help to address this impending worker shortage.
Over the past several sessions of Congress we have
submitted this proposal to change the recommend calculation of
not only future retirees but for current retirees that may have
suffered a reduction in pension benefits as a result of part-
time work.
We would have preferred that the legislation that may
ultimately gain favor in this subcommittee contain a
retroactive component for the current retirees, but I recognize
that such a provision would weaken the bill's chances of
success. Applying the annuity calculation retroactively could
significantly exacerbate the depth that the CSRS retirement
fund already faces. Ultimately, that debt will be passed on to
the Federal Employees Retirement System [FERS], as the last
CSRS employees retire. At some point Congress is going to have
to then either increase taxes or limit benefits.
So, as important as it is to right the inequity of the
current part-time calculation, we don't want to add to the
burdens of the next generation.
Now, I understand that dropping the retroactive provision
may lose some support from the Federal retirees that are
experiencing this retirement inequity, but I do think that the
only way that this legislation moves forward is with bipartisan
cooperation and coordination. The changes that we have offered
as an amendment reflect this effort. A perfect bill should not
be the downfall of a good one.
Mr. Chairman and ranking member and Ms. Norton and Mr.
Lynch, I want to thank you for the opportunity to be heard.
In orchestrating this hearing, I want to thank Ms. Tania
Shand, who has reached out to our office. She has ensured that
our questions and concerns are answered in a very professional
and timely manner.
I do think this proposal will correct a longstanding
obstacle to part-time service and help agencies retain
qualified Federal employees nearing retirement, so I do ask for
your support. It is important. This legislation could affect up
to 600,000 current Federal employees, 30 percent of the Federal
work force. Now, of course, that figure decreases over time as
CSRS employees move over to FERS. It will cost about $18
million over a 5-year period, but it doesn't require any
additional appropriations. The funds come to the CSRS financial
count through an intergovernmental transfer. Of course, FERS is
not impacted.
Now, I am more than happy to answer any questions, but I do
think it is important to create this parity between FERS and
CSRS.
Mr. Chairman, that concludes my statement.
[The prepared statement of Hon. James P. Moran follows:]
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[GRAPHIC] [TIFF OMITTED] T2884.002
[GRAPHIC] [TIFF OMITTED] T2884.003
Mr. Davis of Illinois. Thank you, Representative Moran.
Let me just ask you, What has been the general reaction,
both inside the Congress as well as among the employee groups,
to your proposal?
Mr. Moran. They are very supportive of this proposal
because the CSRS retiree that take part-time service at the end
of their careers are potentially losing hundreds of dollars per
month because of this part-time inequity. You know, over time
it is a big deal. It really affects their quality of life, and
so there is very strong support among all those organizations
and individuals representative of the Federal work force and
its retirees.
Mr. Davis of Illinois. Thank you very much.
Let me ask Mr. Marchant if he has questions.
Mr. Marchant. Thank you.
The retirees that will be affected by the new plan there
will be certain people that have already retired that this will
affect their check?
Mr. Moran. Yes.
Mr. Marchant. Is it a large number?
Mr. Moran. No, not really. We are not going retroactively
back to----
Mr. Marchant. So everybody would be held harmless that has
already retired that is getting their----
Mr. Moran. That is my understanding. I expect Keith
Bumgardner, who has done my staff work here for me, to tell me
if I say anything wrong.
Mr. Marchant. And, as far as the way it works now just
functionally, the last 3 years, is it the amount of time that
you work the day? Is it half time? Three-quarter time? Or is it
the amount of pay that sets the limit?
Mr. Moran. It had been the amount of pay, and that is why
people were switching who had worked part time throughout their
careers, switching to full time for the last 3 years, and then
getting as much as people who had worked full time their entire
career.
Mr. Marchant. Yes.
Mr. Moran. That is why the Congress fixed it. But then they
had two different calculations, and it actually penalized
people who went to part time. So we are trying to make it more
consistent now, and we have a proportionate calculation now
that makes it fair and does it the same way they do it in the
other retirement system. Basically, we achieve parity between
the two retirement systems.
Mr. Marchant. Thank you.
Mr. Davis of Illinois. Mr. Lynch.
Mr. Lynch. Thank you, Mr. Chairman.
Congressman Moran, I appreciate your bringing this forward.
I certainly am supportive of the measure. I realize you have
made some compromises here in your own legislation, and I think
that is courageous.
I do want to say that, from my own experience, even on my
own staff, trying to keep people on part time long enough to
train the new employees is critical. My office manager in
Boston just retired recently, and I begged her to stay. She
worked part time for quite a while training the new people
coming in the door, and she had a wealth of experience, having
been with Congressman Moakley for about 25 years. I cried when
she left, because she was just terrific in bringing in the new
people and teaching them the professional standards.
That is happening all across Government. I think your bill,
by putting real value on the service, the part-time service of
these employees, very experienced, very expertise, at the end
of their careers will not only allow them to transition slowly
into retirement, but also will benefit us greatly in training
new employees.
I am with you on the bill. You might have to explain to me
again some of the calculations here at another time. I won't do
that on the chairman's time. But I appreciate your good work on
this and I yield back the balance of my time.
Mr. Moran. Thank you so much, Mr. Lynch.
Mr. Davis of Illinois. Thank you, Mr. Lynch, and thank you,
Representative Moran for coming.
Mr. Moran. Thank you, Mr. Chairman.
Mr. Davis of Illinois. We appreciate your testimony.
Mr. Moran. Thank you.
Mr. Davis of Illinois. I know that Mr. Davis was not able
to get here. Without objection, we will enter his statement
into the record and he will have opportunity to amplify on it
should he desire.
[The prepared statement of Hon. Tom Davis follows:]
[GRAPHIC] [TIFF OMITTED] T2884.006
[GRAPHIC] [TIFF OMITTED] T2884.007
Mr. Davis of Illinois. We will now proceed to our second
panel: The Honorable Linda Springer, the Honorable Patrick
McFarland, and Mr. Gregory Long.
I will proceed with the introduction of our witnesses.
The Honorable Linda Springer is the eighth Director of the
U.S. Office of Personnel Management. She was unanimously
confirmed by the U.S. Senate in June 2005. As OPM Director, Ms.
Springer is responsible for the Federal Government's human
resource planning benefit programs, services, and policies for
the 1.8 million employee civilian work force worldwide. We
thank you again, Ms. Springer.
The Honorable Patrick McFarland has been the Inspector
General of the Office of Personnel Management since August
1990. He provides leadership that is independent, nonpartisan,
and objective in the pursuit of waste, fraud, and abuse, and
mismanagement in programs administered by the OPM. Welcome, Mr.
McFarland.
Mr. Gregory Long is the Director of the Federal Retirement
Thrift Investment Board. Before joining the TSP, Mr. Long spent
7 years with CityStreet, where he served as Director of
Marketing for the American Bar Association Retirement Funds. In
that position, he oversaw all marketing, sales, and product
development activities for a program that provides 401(k)
services to over 4,000 law firms nationwide. Thank you very
much, Mr. Long. We appreciate your coming.
It is the custom of this committee that all witnesses be
sworn.
[Witnesses sworn.]
Mr. Davis of Illinois. The record will show that the
witnesses answered in the affirmative.
We thank you all for coming and we will begin, Ms.
Springer, with you.
STATEMENTS OF LINDA SPRINGER, DIRECTOR, OFFICE OF PERSONNEL
MANAGEMENT; PATRICK MCFARLAND, INSPECTOR GENERAL, OFFICE OF
PERSONNEL MANAGEMENT, ACCOMPANIED BY TIMOTHY WATKINS, OFFICE OF
THE OFFICE OF THE INSPECTOR GENERAL, DEPARTMENT OF HEALTH AND
HUMAN SERVICES; JILL HENDERSON, OFFICE OF PERSONNEL MANAGEMENT
GROUP CHIEF OVERSEEING AUDITS OF PHARMACY BENEFIT MANAGERS; AMY
PARKER, OFFICE OF THE INSPECTOR GENERAL SPECIAL AGENT ON MEDCO
INVESTIGATION; AND GREGORY LONG, EXECUTIVE DIRECTOR, FEDERAL
RETIREMENT THRIFT INVESTMENT BOARD
STATEMENT OF LINDA SPRINGER
Ms. Springer. Thank you, Mr. Chairman. Good afternoon to
you and members of the subcommittee. Thank you for inviting me
back again for the second time this week to discuss, in this
case, Federal employee benefits.
The Federal Government has long been recognized as a leader
in employee-sponsored benefits, and that helps us to maintain a
competitive advantage, both when we are recruiting and
retaining top talent to work for our country.
The Office of Personnel Management has primary
responsibility with respect to these programs, and, with
respect to your topic today, we can report that, based on the
most recent Federal Human Capital Survey, we are largely
meeting expectations with respect to benefits. In a variety of
categories, ratings have increased, ratings of employee
satisfaction.
This has been recognized in the private sector, as well.
The Gallup Organization has done surveys as recently as last
fall that indicate that one of the attractors of the work force
to Federal employment is our benefit programs.
Just to put the size of these in perspective, let me
comment that we run the world's largest single employer-
sponsored health insurance program. We run a retirement system
that has nearly three-quarters of a trillion dollars in assets.
And we have paid out benefits from our major programs totaling
about $92 billion, over $91 billion just in 1 year. So these
are major, major programs.
The description of our activities with respect to each of
these programs is in my written statement, so I will just touch
on a few highlights and then spend more time with our
legislative initiatives.
With respect to retirement, as you have heard, the SERS
plan is the older of the two plans. There are about 650,000
employees covered by SERS, and over 2 million covered by the
FERS plan. With the impending retirement wave, it is important
that OPM be able to service all of these retirees and new
retirees with the most accuracy and timeliness as we can so, as
you know, we have been working on a retirement systems
modernization project that will transform our processing from a
paper-based system that relies on 150,000 file drawers of paper
records that could start in this room and end to end go all the
way up I-95 to Baltimore and come back to this room again. So
converting from that type of system to a cutting-edge, state-
of-the-art system will help to ensure that we can give Federal
employees the type of service they deserve when it comes to
their retirement.
We are on target to roll that out in February 2008, and we
appreciate the support, particularly of this subcommittee, as
we move forward in that effort.
Our life insurance program, again, the Nation's largest
group life insurance program, covers over 4 million Federal
employees and many of their family members. In fiscal year
2006, approximately 90,000 claims were paid under our life
insurance program, and $2.3 billion dispersed.
Health insurance benefits--the Federal program, again, the
largest single employer-sponsored health insurance program in
the world. We have over 284 plan choices from approximately 130
private sector plans. We negotiate with each of those programs
and provide those plan choices across the country. They feature
the full range of options--HMOs, high deductible plans, fee-
for-service plans. Those choices and that commitment to choice
is a hallmark of the Federal program.
One of the very, very important features is the fact that
employees are able to carry that coverage into retirement, and,
unlike many of their counterparts in the private sector, they
retain the full subsidy. That is something we look at. We look
at competitors. I can tell you that the private sector has
backed off in many cases from maintaining that subsidy level
from the employer into retirement, but we have continued that,
so, in effect, we have improved our position by continuing it,
whereas other employers have backed away from it.
We have done a good job, we believe, in maintaining premium
rates. For this year that we are in, 2007, those rates only
went up by 1.8 percent, the lowest increase in 11 years. We
saw, over the past 5 years, rate increases that were lower than
the average for the industry. There are some who would say that
is because we released reserves. The level of reserves is
determined by the insurers, and they are the ones that came to
us. In effect, that represented an overpayment by employees,
and so it is entirely fair to give that back in the way of a
smaller premium increase.
We are doing a lot in the way of making medical records
accessible to the advanced health information technology that
will allow for better care. We have also worked to have our
carriers, our health plans, provide information about quality
of the providers, as well as cost, through Web sites, and that
is something we are continuing to do.
In 2006 we published new regulations to allow OPM's Office
of the Inspector General the right to audit provider contracts,
including prescription benefits management companies. I know
you are going to be hearing a report from Inspector General
McFarland about their success, which has been substantial. That
helps us to maintain a rate of over 99 percent accuracy in the
payment of the Federal health plan benefit payments. We
appreciate the work of the Inspector General.
Our Federal long-term care program was authorized in 2000
by the Congress, and we, again, have the largest group
insurance program of its type in the country.
Last year, as you know, we added dental and vision. We
currently have 400,000 enrollments in the dental program and
more than 300,000 in vision. Those enrollments are indicative
of the interest people have in maintaining good care before bad
things happen. By those regular checkups, they are able to
forestall things that otherwise might progress to a more
serious stage, so it is very important to have participation.
The one area that I believe we have a shortcoming in our
health program is short-term disability. People today in our
programs have to cobble together a combination of sick leave,
other paid leave, and donated leave to support times when they
are too sick or hurt to work for longer periods of time. That
includes maternity.
I know there is a great deal of interest by Members in
dealing with this and addressing it, and that is something that
we all share. What the right answer for that is is something we
look forward to working with you on, but we acknowledge and
believe candidly that it is something that needs to be dealt
with because it is an important area. And programs exist. There
is no need to have to cobble something together.
Our legislative proposal, our most important one that I
will highlight is the part-time reemployment proposal. I am
happy to hear Mr. Lynch mention the experience he had with
retaining the services of a very valued employee. This
proposal, along with the one that we have successfully worked
on with Congressman Moran, would allow us to address the need
for part-time service of our employees. In this case, the one
you heard was about keeping people before they retire. In this
case this would allow us to bring back annuitants without a
penalty to them so that they could work, be paid for their
work, still get their annuity--which, by the way, is not double
dipping. It is two different streams of service--but would
allow us to have their services to train new employees. That is
valued service, as Mr. Lynch has indicated.
So that is our major one. There are other improvements that
we have suggested and that I would be happy to answer any
questions on.
Thank you, Mr. Chairman.
[The prepared statement of Ms. Springer follows:]
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Mr. Davis of Illinois. Thank you very much for that, Ms.
Springer.
Mr. McFarland.
STATEMENT OF PATRICK MCFARLAND
Mr. McFarland. Mr. Chairman, members of the subcommittee,
thank you for the opportunity to appear before you today to
discuss OPM's Office of the Inspector General audit and
investigative efforts in helping to safeguard the benefits of
the Federal Government employees and retirees in waste, fraud,
and abuse.
If I may, immediately behind me is Timothy Watkins. We
partnered with HHS OIG in developing the corporate integrity
agreement that I will talk about. To your right, Jill Henderson
is the organization's group chief who oversees the audits of
the PBMs. And Amy Parker is a special agent on the Medco
investigation.
The U.S. Office of Personnel Management administers
benefits from its trust funds for all Federal employees and
retirees participating in the Civil Service Retirement System
and Federal Employees Retirement System, Federal Employees
Health Benefits Program, and the Federal Employees Group Life
Insurance Program. These programs cover over 8 million current
and retired Federal civilian employees, including eligible
family members, and disperse approximately $91 billion annually
from the program trust funds.
The majority of our auditing and enforcement activities are
spent in protecting these trust funds, particularly the Federal
Employees Health Benefits Program. Since fiscal year 1997,
these activities have produced over $306 million in judicially
ordered recoveries, and over $1 billion in recommended
recoveries through our audits of the participating FEHBP health
plans.
Today I want to inform you of one of our recently concluded
investigations. We participated in an 8-year investigation of
Medco Health Solutions, Inc., Medco, the largest pharmacy
benefit manager in the United States. This was a joint
investigation with the U.S. Attorney's Office for the Eastern
District of Pennsylvania, as well as the Offices of Inspector
General at the Department of Health and Human Services and the
Department of Defense.
The investigation was initiated after a former Medco
employee filed a qui tam lawsuit alleging that Medco defrauded
the FEHBP and other health programs. At that time, Medco
contracted with the FEHBP to provide mail order prescription
drugs to Federal employees, retirees, and their eligible family
members insured under the Blue Cross/Blue Shield Association
Federal employees program and other FEHBP plans.
The joint investigation concluded that Medco falsely
reported their turn-around work performance agreement under the
FEHBP carrier contracts. They dispensed prescriptions without
properly performing drug utilization reviews that protect the
patient. They falsified paper or electronic records relating to
the dispensing process. They improperly used pharmacy
technicians and other non-pharmacist personnel to perform
functions which legally must be performed by a pharmacist or
under a pharmacist's direct supervision. They billed the
Government for prescriptions that were never filled or ordered.
They mailed prescriptions to patients with less than the number
of pills prescribed but charged for the full amount.
They made false statements to patients that their mail
order prescriptions had not been received when, in fact, the
prescription had been received and then canceled in order to
appear to meet contractually required turn-around times. They
favored Merck drugs over the other manufacturer's drugs in
switching programs, even when the Merck drugs were more
expensive. And they made false statements to the United States
during the investigation of Medco's illegal conduct.
During the investigation, Medco and the U.S. Government
agreed to a permanent injunction against several practices.
This consent decree, which did not resolve the issue of
restitution and monetary damages, was entered into in April
2004. In October 2006, the Federal Government and Medco entered
into a settlement agreement to resolve alleged false claims
acts violations totaling $155 million. Of this amount, $137
million related directly to the FEHBP. The remainder involved
other Federal programs, including Medicare.
As a result of the settlement, the FEHBP trust fund
received $97 million in restitution. In addition, $40 million
in multiple damages associated with the false claims were
returned to the U.S. Treasury. This amount represents the
largest single recovery by our office.
Because of the growing importance of drug benefits to the
health of FEHBP enrollees and the financial integrity of the
trust fund, we pursued additional oversight. Due to the
substantial impact Medco and other PBMs could have on the
FEHBP, we partnered with the HHS OIG in having Medco sign a
corporate integrity agreement, referred to as a CIA. The HHS
OIG, with our assistance, is monitoring the corporate integrity
agreement with Medco. We felt this was the best and most
efficient way to protect the FEHBP, in part because the
outstanding program the HHS OIG has developed to implement and
monitor corporate integrity agreements.
This is not the first PBM that our office has investigated
for allegedly defrauding the FEHBP. Our office, in coordination
with the HHS OIG and the U.S. Attorney's Office for the Eastern
District of Pennsylvania, conducted a 6-year joint
investigation of the PBM AdvancePCS that administered
prescription drug benefits for some of the FEHBP plans and
Medicare plus choice organizations. This case was resolved in
September 2005 with a civil settlement in which AdvancePCS paid
$137 million to the Federal Government. Of this amount, $54
million was returned to the FEHBP trust funds.
Mr. Chairman, this statement described a detail of two of
our longest and most-complex health care fraud cases that not
only affected the health and well-being of Federal employees,
retirees, and their families, but also allowed the FEHBP to
recover $151 million. We continue to investigate a great number
of complex FEHBP health care fraud cases and involve billions
of dollars.
The efforts of our investigators and auditors are critical
in preventing waste, fraud, and abuse within OPM programs. For
example, results of our past PBM audits have highlighted that
much remains to be done to improve oversight and controls
regarding PBMs participating in the FEHBP. In this regard, we
are working with OPM to identify methods to ensure that the
FEHBP derives the safest and best possible pharmaceutical
services at a fair price.
We feel very strongly that our rigorous, ongoing oversight
of organizations participating in the FEHBP provides a sentinel
effect that helps reduce erroneous and fraudulent payments in
the $32 billion a year Federal health program.
A special note is the positive and cooperative relationship
between our office and OPM leadership in pursuit of trust fund
integrity.
I would be glad to answer any questions that you have.
[The prepared statement of Mr. McFarland follows:]
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Mr. Davis of Illinois. Thank you very much, Mr. McFarland.
Mr. Long.
STATEMENT OF GREGORY LONG
Mr. Long. Good afternoon, Chairman Davis, members of the
subcommittee. My name is Greg Long. I am the executive director
of the Federal Retirement Thrift Investment Board, and I am
also the managing fiduciary of the Thrift Savings Plan. I
welcome this opportunity to summarize my statement.
The TSP is a voluntary savings and investment plan that
allows Federal and Postal employees and members of the
Uniformed Services to accumulate savings for their retirement.
It currently has approximately 3.8 million individual accounts,
and the Thrift Savings Fund has now grown to over $224 billion
in assets.
Participants may invest in any or all five of the core
investment funds and the five lifecycle funds. TSP
administrative expenses are borne by the participants, not the
taxpayers.
The FERS participation rate stands at 85.8 percent. For
CSRS employees it is about 69 percent. For the Uniformed
Services, after only 5 years of availability, now stands at
25.6 percent.
The TSP is administered by the Federal Retirement Thrift
Investment Board, which was established as an independent
Federal agency. There are approximately 70 employees of that
agency. With input from the executive director, the statutory
Employee Thrift Advisory Council, Board staff, the five board
members establish the policies under which the TSP operates.
First, it provides that all moneys in the Thrift Savings
Fund are held in trust. The executive director and the board
members are required to act prudently and solely in the
interest of TSP participants and their beneficiaries. This
fiduciary responsibility gives the board members and the agency
a unique status within Government.
FERSA also requires the Secretary of Labor to establish a
program of fiduciary compliance audits, and it mandates that
the Board contract with the private accounting firm to conduct
an annual audit, and it also authorizes the 15 member Employee
Thrift Advisory Council. The Council includes representatives
of the major Federal and Postal unions, other employee
organizations, and the Uniformed Services.
The agency has always enjoyed an extraordinarily
cooperative relationship with the Office of Personnel
Management. By law, OPM has statutory responsibility for the
overall retirement education for the Federal work force and the
training of retirement counselors at the Federal employing
agencies.
The Board is the entity that ensures the efficient delivery
of benefits and services to plan participants. They are located
in the executive branch, but are not part of the
administration.
The TSP is a participant-directed plan. Each participant
decides how to invest the funds in his or her accounts. The TSP
funds now include Treasury securities, corporate bonds, the
entire U.S. stock market, and stocks of developed countries in
Europe, Australia, and the Far East.
In August 2005 the TSP introduced lifecycle funds, the L
Funds, which are invested in various combinations of the five
statutory funds. Participants benefit from having
professionally designed asset allocation models that are
appropriate for their particular investment horizon. We are
pleased with the reception of the L Funds. As of June, over
515,000 TSP participants have invested more than $21 billion in
the L-funds.
The Board contracts with Barclays Global Investors [BGI],
to manage the F, the C, the S, and I Fund assets. BGI is the
largest investment manager of index funds in the United States,
with almost $2 trillion in assets under management.
Although we invite proposals from all qualified providers,
only those asset management companies capable of efficiently
handling our very large cash-flows could satisfy the minimum
qualifications required. We know that there are many excellent
vendors who would like to perform services for the TSP but are
unable to satisfy the extraordinary demands which an operation
of our size requires. In this regard, Mr. Chairman, you and
others have expressed interest on behalf of smaller companies.
We appreciate that interest and do all that we can to fashion
our RFPs to achieve the broadest possible competition,
consistent with the fiduciary's duty to act solely in the
interest of participants.
By law, TSP investment policies must provide for both
prudent investments and low administrative cost. From the
beginning of each fund's existence through December 31, 2006,
the G, the F, the C, S, and I funds have provided compound
annual returns net of expenses of 6.6 percent, 7.3 percent,
11.9 percent, 10 percent, and 9 percent, respectively.
For calendar year 2006, the net plan administrative
expenses were 0.03 percent. What this means is that the 2006
net investment return to participants was reduced by
approximately $0.30 for every $1,000 of account balance. These
costs compare very favorably with the typical private sector
401(k) plan.
Many improvements made by Congress during the plan's 20
year history have kept pace with the best features of 401(k)
plans offered by private sector employers; however, neither
participant expectations nor the Congress stand still. When
Congress passed the Pension Protection Act last August, we
carefully examined it for potential TSP improvements. The Board
members recently voted to seek statutory authority to institute
automatic enrollment and to make default investments in an age-
appropriate L Fund.
Both of these changes, which private sector plans are
encouraged to make under the Pension Protection Act, will
improve the TSP. Our own survey of TSP participants, which
found that only 3 percent of respondents were dissatisfied,
nevertheless found strong support for these two changes. We
hope that the Congress will favorably consider these proposals.
The Board members further decided at the June meeting to
more carefully examine the possibility of establishing a Roth
feature for the TSP and to revisit this issue within 2 years.
The Board also continues to pursue administrative program
enhancements, including improvements that guard against the
constant threat of computer fraud.
Early this year we replaced our four-digit PIN number with
an eight-character alpha-numeric password for the TSP Web site.
Later this year we will replace our current Social Security
number identifier with a computer-generated account number.
In closing, Mr. Chairman, I would like to thank you and the
members of this subcommittee for your interest in the TSP and
all benefits provided to Federal employees. Since coming to the
agency last year, I have gained an enormous appreciation for
how well this program meets the needs of employees, and I
remain committed to moving forward, together with the Congress,
the administration, the Council, OPM, the employing agencies,
and others to continue to meet the evolving needs of Federal
employees.
That concludes my comments.
[The prepared statement of Mr. Long follows:]
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Mr. Davis of Illinois. Thank you very much, Mr. Long.
We will proceed directly to questions.
Director Springer, I will begin with you. The President's
fiscal year 2008 budget proposed the Blue Cross/Blue Shield and
the Indemnity Benefit Plan be allowed to offer health savings
accounts in the FEHBP. As you know, the Federal employee and
retiree organizations that will testify later this afternoon
are concerned that further expansion of HSAs could increase
premiums for comprehensive plans, since relatively healthy
enrollees with higher incomes could be siphoned off into these
HSAs.
Given the fact that these employee groups have expressed
concerns, could you tell us why the administration continues to
support this proposal, since relatively few employees have
joined the HSAs?
Ms. Springer. Yes, Mr. Chairman. We do have, as you
mention, a few options of that type today, but none are
associated with the Blue Cross and Blue Shield system. The
Blues represent over half of our membership in the Federal
health plan, so there is a very strong brand identity. I think
that my expectation would be that we would see minimal
enrollment in those types of plans today until it is available
through the Blue Cross/Blue Shield system, because the first
level of decisionmaking is to associate yourself with the
brand.
But adding it and allowing that capability for the Blue
Cross and Blue Shield system we think is important because we
think that a plan of our type, the largest offered in the world
by a single employer, should have a full range of choice, and
we think that only offering it in those very limited
circumstances where it is available today doesn't provide that
full range of choice.
Ultimately, we will deal with the experience, but we think
that the population across the system of the Blues, all of the
three options that will be available will still be substantial
in all three.
Mr. Davis of Illinois. Thank you very much.
As you know, OPM's Inspector General found that Medco
Health Solutions engaged in fraud in the FEHBP. However, OPM
has decided not to bar Medco from the program. Could you
explain?
Ms. Springer. Yes. Medco actually is under contract, I
believe, or will be directly with the Blue Cross and Blue
Shield, not with us directly. Now, indirectly that means some
services will be provided by them to people who are enrolled in
the Blue Cross/Blue Shield system, but we have not directly
contracted with Medco.
I visited with Inspector General McFarland and I learned
that Blue Cross/Blue Shield had engaged in that contract with
them, because I had the same concern that I think you are
expressing. There are a number of safeguards in place. The
senior management team has changed at Medco. There are a
variety of things that I have been told will give them enough
comfort to have engaged in it, that contract, but we will be
keeping a very watchful eye on it through the work of the
Inspector General.
Mr. Davis of Illinois. Let me ask what changes would you
recommend to improve the Federal Employees Health Benefits
Program, and what concerns do you have, if any, about the
effects of increased enrollment and potential adverse selection
issues for high-deductible health plans and health savings
accounts?
Ms. Springer. Well, the first part of your question as far
as changes, the thing that I really and truly believe that we
need to look at at the top of the list is the short-term
disability benefit, to include maternity. As I say, that is not
a benefit that we provide today. We have found that companies
of 200 employees or more 80 percent of the time offer a short-
term disability program. We do not, and I think it is
disgraceful.
That would be my No. 1 issue to attack.
With respect to the participation issue, again, with high-
deductible plans I think that there are circumstances where
that works and is appropriate. I think there are other people
where that is not a good option. But I think that it is
important to offer it so that we are state-of-the-art. A plan
like ours should offer the full range of choice.
Mr. Davis of Illinois. Is it true that employees pay all of
the disability benefit's costs?
Ms. Springer. We have not transmitted a proposal to the
Congress yet about that. We are still trying to craft the right
proposal to send to you. I know that there are several
proposals here. There is interest. We would like to work
together with you.
Balancing cost with the benefit is obviously a concern, and
one thing we can offer for sure, though, is our negotiating
power in getting a good rate, and certainly the tax benefit
that comes with a pre-tax contribution of payment, even if it
is employee pay all.
Mr. Davis of Illinois. As a sort of a side question, I have
introduced legislation to allow community health centers to
participate in the FEHBP. Are you familiar with these centers?
Ms. Springer. I have become familiar with your proposal and
learned a little bit about the centers just by reading the
testimony that was submitted on it.
Mr. Davis of Illinois. And as of now you don't have any
concerns about that?
Ms. Springer. Well, I don't want to speak for the
administration. Because it has just come to our attention, we
would have to review that, and we will do that.
Mr. Davis of Illinois. Thank you very much.
I will go to Mr. Marchant.
Mr. Marchant. Thank you.
Ms. Springer, you stated earlier that the increase in the
premium was 1.8 this year, but that was as a result of an
overpayment from the previous year?
Ms. Springer. That was a contributing factor, but not the
only factor. There are a number of things that have helped us
to control costs in the plan, but that was a factor. It would
have been higher had that not been the case.
Mr. Marchant. What would have been the rate of increase
without that overpayment?
Ms. Springer. It would have been a little over 6 percent
increase, which still would have been pretty favorable
increase.
Mr. Marchant. Yes. Explain to me the issue about the $3,000
exclude on the health premiums for public safety officers.
Ms. Springer. I am going to need a little help on that, if
I may.
Mr. Marchant. OK.
Ms. Springer. May I have someone get back to you on that,
Mr. Marchant?
Mr. Marchant. Absolutely.
Ms. Springer. I don't want to give you an incomplete
answer, and I need a little help with that.
Mr. Marchant. You have answered the other question, what
would your top priority be. You have answered that with the
disability.
Ms. Springer. I answered that, yes, with respect to just
the health plan, which I think that was the way that was
raised. Certainly nothing is a higher priority to us than the
reemployed annuitant proposal that we have that would allow us
to have the benefit of the knowledge and experience of
annuitants who want to come back and help train that next
generation.
I know that there has been overwhelming support for this.
Polls show over 80 percent of employees want it. The Chief
Human Capital Officers representing the hiring agencies want
it. There was a little bit of question about do these people
take the place of new employees. Well, when you are facing a
shortage of 600,000 potential positions turning over due to
retirement, as Congressman Moran said, this is just a drop in
the bucket in filling that, and it actually helps these new
people to come in and learn from the masters, and then they go
on and the new people are remaining. So that and the short-term
disability.
Mr. Marchant. And the last question I will ask you is: with
the greater number of veterans that are leaving the service
today and, in many instances, the probability of a lot of those
injured veterans coming into the Federal work force, have you
contemplated the fact that many of them will be disabled? And
do you feel like there are an adequate number of jobs that will
be available to a disabled vet in the Federal system?
Ms. Springer. We do believe there will be. Right now
veterans make up a quarter, about 450,000 members, of the
Federal work force, and some agencies obviously have greater
participation than others, and we encourage all of them. One of
the things we do is highlight veterans' preference and work
with our agencies. But with respect to disabled veterans
particularly, we have established over the past 2 years
programs onsite at Walter Reed, at Brook Army Medical Center,
and we will be starting one at Fort Collins at the three
medical facilities there for the Armed Services to counsel them
on jobs in the Federal Government, on writing resumes, on
interviewing.
We have people that we staff onsite. I have been to Brook
Army Medical Center. I have been to the Center for the Intrepid
to visit those wounded warriors. They are terrific people, and
we want them.
Yesterday I just filmed a video to be played for the Navy.
We want these people. There is a place for them, whether
disabled or not, and we are very happy to have them. We have
indicated by our presence onsite at the hospitals.
Mr. Marchant. Thank you very much.
Mr. Davis of Illinois. Thank you very much, Mr. Marchant.
We will go to Ms. Norton.
Ms. Norton. Ms. Springer, I am looking for ways that might
be considered more realistic to try to encourage the adjustment
of benefits so that somebody will want to come work for the
Federal Government, so we will be competitive. Even with FEHBP,
you have 250,000 or so people who don't subscribe to this plan
because they can't afford it. Those are people who work for the
Federal Government and giving up a plan that some of us see as
decent because we can afford it, and only because we can afford
it.
The 72 percent that the Federal Government now pays on
average, when was that percentage set?
Ms. Springer. I don't know when that was set. I could get
back to you. I don't know exactly when the 72 percent----
Ms. Norton. Well, I think the reason that you can't think
about when it was set is because it was so long ago.
Ms. Springer. I just don't happen to know. That is all.
Ms. Norton. No, it is not that you don't happen to know. I
didn't expect you to come up with it off the top of your head.
Somebody ought to know. I don't know when the FEHBP was, in
fact, established, but it strikes me that--and I don't know the
date, myself--but it strikes me that the Government has rested
on its laurels on 72 percent and said just take that, premiums
will go up, and be satisfied with it.
So you don't intend to recommend any increase in the
Government share of FEHBP, do you?
Ms. Springer. We do not. I could tell you why, but we do
not.
Ms. Norton. That being the case, it is certainly not
because you consider it adequate or competitive----
Ms. Springer. We do.
Ms. Norton [continuing]. With employees of the caliber we
have.
Let me go on. One way to make up for that, it seems to me,
would have been for OPM to have asked for the subsidy for
Medicare Part D. It would have had the effect of reducing the
premiums somewhat overall and, of course, of helping to keep up
with the hugely growing prices of drugs in the first place, but
the Federal Government has chosen not to participate, and
therefore to have an effect, at least, on premiums which, as
you have just testified, you do not intend to increase as to
the Government's portion.
Don't you think that if you are not going to increase the
share you have to look at other lower-cost ways such as
participating in Medicare Part D to try to stay competitive
with the kind of private sector employers who want the same
people that we want?
Ms. Springer. You have raised, I think, four questions in
there. One is about our participation and the affordability;
one about the Medicare subsidy; one about would we raise the
subsidy, the 72 percent, and increases----
Ms. Norton. No, you said you wouldn't.
Ms. Springer [continuing]. And increases in price.
Ms. Norton. You said you wouldn't.
Ms. Springer. I just want to elaborate, if I may, a little
on that so you have the complete answer.
With respect to participation, 85 percent of the people who
are eligible do participate. Another 4 percent have spouses in
the FEHBP through whom they get their coverage. Another 9
percent have coverage elsewhere, probably from a prior
employer. So there is really only 2 percent who are not covered
one way or the other, but 90 percent almost are covered through
the FEHBP. So participation is high.
With respect to the competitiveness of the plan, we believe
that it is competitive. We believe when we look at other
employers what we see is that they are backing off from their
subsidy, in many cases, and so in effect that means by us
staying at 72 percent----
Ms. Norton. On the contrary, Ms. Springer.
Ms. Springer [continuing]. We are staying----
Ms. Norton. Ms. Springer, that is true. I am thinking about
employees of the kind we need.
Ms. Springer. Yes.
Ms. Norton. You have many, many Fortune 500 employers who
pay for 100 percent.
Ms. Springer. I do not know of many who pay 100 percent. I
know in the experience we have looked at that, particularly in
retirement, that they are decreasing the share of the employer.
Ms. Norton. I am not talking about retirement. That is bad
enough. I understand the difference in retirement and I
understand what we do. I am thinking about the fact that the
Government, in fact, understood that it wasn't always able,
given the level of employee we have, to be competitive in
benefits, to be competitive in wages, but it would do things
like thrift savings, for example, which is the kind of thing
you think about, well, maybe the pay isn't as good, but there
is the Thrift Savings Account.
Or, again, I am focusing on health benefits. To name a
benefit that if it were, in fact, changed, this without going
from 72 percent to the 80 percent that people like me want,
might, nevertheless, have at least a marginal effect,
particularly on keeping certain employees who are already here,
such as the benefit that some employers have again of the
caliber of the Federal Government that would say a kid doesn't
age out at 22 but, say, ages out at 26, so that one of the most
troublesome age groups still remains covered because you are
covered by your FEHBP plan.
What I am trying to get at is if there is not something
around the edges, if we keep at increases like, hey, you can
have your own vision and dental plan if you pay for it 100
percent; hey, how about a long-term plan, which you actually
market even when not all employers will need it. How about a
long-term plan if you pay for it?
I mean, if anything, you are devolving benefits to the
point that you can have anything you want to as a group if you
pay for it as a group, and you have not thought about even
around the margins of how you might, in fact, if you can't, in
fact, raise the level of benefits forthrightly.
Ms. Springer. Well, nothing comes without a cost. There is
a price tag to all those things, and ultimately the decision
will have to be made where we put what is the right level
amount of cost and what is the right place to invest. You must
be seeing something different than we do, but we do not see
that this is a barrier to retaining or hiring people. People
see this in our surveys as a competitive advantage. The
satisfaction level with benefits has gone up in our most recent
survey compared to the last one.
All I can say is we think that it is still positioned
properly.
Ms. Norton. I will go. I just want to say I think this is
the most short-sighted notion of your competitive position
relative to particularly the kinds of people you are going to
have to recruit to become workers in the future.
Mr. Davis of Illinois. Thank you very much. We will return.
[Recess.]
Mr. Davis of Illinois. Thank you all very much. The
subcommittee will return to order.
We will try and finish up with this panel. Let me thank all
of you for continuing to have been here and for being here. We
always say that this is the week that we try to get as many
things done as we possibly can, and everybody is racing,
hopefully, for a recess that we still don't know when it is
going to take place, but we suspect that it will be some time
before next week.
Let me just ask, Mr. McFarland, due to the complexity of
the prescription benefit managers, that is the PBM contracts,
what challenges and obstacles have you encountered in
performing your audits, and what are your recommendations for
eliminating these obstacles?
Mr. McFarland. Mr. Chairman, let me mention five points
here, and then I will mention what we think we can do to help
resolve this.
First of all, your point is well taken. Auditing these PBM
contracts has proven to be a great challenge. In addition to
the normal delays in requesting data from the carriers, both
PBMs we have audited, Medco and CareMark, were reluctant to
provide the claims and administrative data necessary to perform
the audits.
Overall, our PBM audits revealed that the major issue was
not contract compliance, but rather the weaknesses found within
the contracts, themselves.
Some of the specifics that we have encountered are the five
that I mentioned. First, the PBMs contract directly with the
insurance carriers and not with OPM; therefore, OPM has limited
control over the terms of these contracts, especially related
to pricing and fees. Carriers pay PBMs based on a negotiated
rate which may have no relationship to the actual price paid
for the drugs; therefore, we could not determine accurately the
amount of profit made on Federal business, nor can we determine
if a price is fair and reasonable.
Contracts are complex, and the specific pricing terms are
difficult to understand. OPM should require full disclosure
from the PBM regarding pricing terms, including rebates
generated from the Federal business.
Each FEHBP carrier negotiates the terms, pricing methods,
rebates, administrative fees, etc., of its contract with the
PBM; therefore, there is no consistency among these contracts.
Finally, little incentive for the carriers to negotiate the
best price for the pharmacy services, since OPM reimburses them
for all costs charged by the PBMs.
Now, as far as the potential solutions, I speak in the
singular, but for the great majority of my comments I am
referring to a cooperative venture with the program office at
OPM and our office. To that end, the first suggestion would be
the possibility of changing the language in the Federal
employees health benefits acquisition regulations to include
large providers as subcontractors.
Second, to assess the benefits and risks--and I emphasize
the risk--of carving out pharmacy benefits and having OPM
contract directly with the PBMs for these services and
benefits.
Finally, reimburse PBMs based on the actual cost of the
drugs dispensed.
The OIG has identified many areas that require change in
the current contract language and/or areas that require greater
oversight. We are still currently analyzing the contracts and
the process of administering pharmacy benefits through the
FEHBP. At the conclusion of this process, we will provide our
findings and recommendations to OPM and work with the
appropriate contracting officials to strengthen the controls
and oversight regarding FEHBP's pharmacy benefits.
Those are the solutions that we are working toward in
concert with OPM.
Mr. Davis of Illinois. Thank you very much.
Let me ask you, Mr. Long, what is the average percent of
pay contributed by TSP participants? Has it been going up or
down? And how do the contributions of younger and lower-paid
employees compare with others in the program?
Mr. Long. Mr. Chairman, we did some homework on this a few
months back and we prepared a report that is available on our
Web site. It is called the Participant Behavior and
Demographics Report, in which we took a look at activity from
2000 through 2005. To specifically answer your question, the
rate of salary deferral among FERS employees stands at 8.6
percent at the end of 2005.
Over the last 5 years I am very pleased to say that has
been steadily increasing. Specifically, the younger and lower-
paid employees, the challenge there is, first, to get them
participating in the plan, and then, second, to get them
participating at higher rates. We have seen over the years that
participation among most age groups is fairly stable, but we
have seen some slight increases of participation among the
younger and lower-paid. We are very pleased to see that. They
are contributing at a lower rate than the more highly paid and
older employees. They are at about 6.4 percent of pay.
Mr. Davis of Illinois. And let me ask you, what are your
views on adding socially responsible investment funds to the
TSP?
Mr. Long. This is an issue which has received a bit of
press lately, and it is one that I have been doing a bit of
homework on since I joined the Board about a year and a half
ago. I gather that over the years there have been many
proposals to divest in certain types of securities that are
considered bad or over-invest in certain types of securities
that are considered good.
The congressional designers of the TSP 20 years ago clearly
came out and said that social and political considerations
should not be used in the TSP. Certainly, we shouldn't be using
participant money to further those goals. That is a position
which I agree with and the Board agrees with.
What we can't do is there is no particular social or
political goal that everybody is going to agree with, so you
would end up with a hodgepodge of multiple different goals, and
that would really cause significant problems, especially when
we work in a passive management index. Our funds are designed
to cover broad segments, and in this case you would be trying
to pluck out certain securities that create significant
problems, as well as cost.
Finally, I would say that the promise that was made to TSP
participants was that when you invest your money the
fiduciaries will invest it only for your best interest without
consideration of social or political goals, and that would
change the game.
Mr. Davis of Illinois. Thank you all so very much. We again
appreciate your patience and your willingness to stay while we
go through our machinations, but it is all a part of the
process. Thank you, indeed. We appreciate it.
I wonder if we could actually go to panel four. I know that
Ms. Kelley has to catch a plane, and if we could accommodate
her we would like to do that, so if we could go to panel four.
While we are exchanging, I will just go ahead and introduce
the panelists.
Colleen Kelley is the president of the National Treasury
Employees Union, the Nation's largest independent Federal
sector union, representing employees in 31 different Government
agencies. As the union's top elected official, she leads the
NTEU's efforts to achieve the dignity and respect Federal
employees deserve. Ms. Kelley represents the NTEU before
Federal agencies, in the media, and testifies before Congress
on issues of importance to NTEU members and Federal employees.
J. David Cox is the national secretary-treasurer of the
American Federation of Government Employees. He was elected
during the union's 37th convention in August 2006.
Ms. Margaret Baptiste of Mount Pleasant, SC, is the first
woman to be elected national president of the National
Association of Retired Federal Employees and the first spouse
of a Federal retiree to hold the position. Mrs. Baptiste is the
former president of the South Carolina National Association of
Retired Federal Employees Federation.
Thank you all so much for being here.
It is the custom of this committee to swear in witnesses.
[Witnesses sworn.]
Mr. Davis of Illinois. The record will reflect that each of
the witnesses answered in the affirmative.
Of course, you know our procedure. Your entire statement
will be included into the record. If you would summarize in 5
minutes, the green clock means that you start. When it begins
to get yellow you are down to 1 minute. Of course, red means
that you are to cease.
Thank you all very much. We will begin with you, Ms.
Kelley.
STATEMENTS OF COLLEEN KELLEY, NATIONAL PRESIDENT, NATIONAL
TREASURY EMPLOYEES UNION; J. DAVID COX, NATIONAL SECRETARY-
TREASURER, AMERICAN FEDERATION OF GOVERNMENT EMPLOYEES; AND
MARGARET BAPTISTE, PRESIDENT, NATIONAL ACTIVE AND RETIRED
FEDERAL EMPLOYEES ASSOCIATION
STATEMENT OF COLLEEN KELLEY
Ms. Kelley. Thank you very much, Chairman Davis, Ranking
Member Marchant. I appreciate the opportunity to speak with you
today about Federal employee benefit and retirement programs.
The question you asked, are we meeting expectations, is a
relevant and an important one for all Federal employees. It is
difficult to say that we are meeting expectations when every
day Federal employees are asked to do more with less and face
an often hostile administration that does not seem to value the
work done by Federal employees every day.
We appreciate those Members of Congress like yourself, Mr.
Chairman, who put substantial time and effort into improving
working conditions for Federal employees. NTEU is actively
working on a number of these proposals.
First, increasing the coverage for dependents in FEHBP to
age 25. Thank you very much for your draft legislation, Mr.
Chairman. Young adults are the fastest-growing age group among
the uninsured, and while the current law does provide health
insurance until age 22, 22 year olds are seldom in a position
to obtain health insurance themselves. Several States have
enacted legislation to avert this health crisis. Because young
adults are healthier than older adults, it is possible that
adding more of them to a pool of health care participants may
even lower the average cost for group insurance. NTEU looks
forward to working with you to have your proposal enacted into
law.
Paid parental leave, NTEU has long been an advocate for
parental leave and was instrumental in the successful passage
of the Family and Medical Leave Act of 1993. Since that time,
it has become clear that many who would take advantage of time
off to care for a baby have not because they were unable to
forego their income. A benefit that you cannot take advantage
of is not much of a benefit.
Most industrialized nations already provide paid family
leave. Mr. Chairman, we will do all we can to help enact your
draft legislation in making this a reality.
We have been fortunate in the 110th Congress to have many
issues advanced by NTEU that were introduced as legislation,
and in most cases with bipartisan support. These include:
Premium conversion to allow Federal and military retirees to
use pre-tax dollars to pay for their health insurance premiums;
recapture credit, allowing individuals who return to the
Government service after receiving a refund of their retirement
contributions to recapture credit for the service covered by
that refund; annuity and part-time service, correcting the
glitch in the 1986 law that changed that financial management
that Congressman Moran spoke to. NTEU is supportive of that
change, but we are concerned about the elimination of the
retroactivity clause, and we will work with this committee and
with Mr. Moran on that issue.
Pension offset and windfall elimination, changing the
Social Security provisions that prevent Federal retirees from
receiving the full Social Security benefits to which they are
entitled; cost of health insurance, where there has been some
discussion today already. NTEU continues to be very concerned
about the escalating cost of health insurance for Federal
employees, and we ask for your help in persuading the Office of
Personnel Management to pursue two items that could lower
health benefit premiums for Federal workers.
First, which was talked about earlier, the Medicare drug
subsidy. If OPM had applied for the drug subsidy to which it is
entitled under Medicare, it would have lowered the average 2006
FEHBP premium by 2.6 percent. We need a legislative measure to
require OPM to apply for that subsidy.
Second, negotiating the drug prices. OPM negotiates with
carriers for the best overall health care package, but the
carriers negotiate for the best drug prices. We would like to
see OPM negotiate for the drug prices, trying to bring those
costs down.
In addition, we are working to achieve the passage of H.R.
1256 introduced by Congressmen Hoyer and Wolf, which would
increase the level of Government contributions under FEHBP from
72 percent to 80 percent. Federal employees are paying a
constantly increasing share of their paycheck for health
insurance premiums for their families, often at the same time
watching their coverage decline.
Since 2001, FEHBP premiums have risen by 50 percent. Had
the OPM not dipped into the reserve funds for the current year,
Federal participants would have realized increases, as we heard
from Director Springer, of over 6 percent. Making FEHBP
premiums more affordable is a priority for NTEU.
Finally, Mr. Chairman, in regard to the Federal Retirement
Thrift Savings Plan, Congress established TSP investment policy
by passing the Federal Employees Retirement System Act, which
wisely left the management of the fund to the Thrift Investment
Board, the only group that has a fiduciary responsibility to
the fund's investors. They take it seriously, and that fund is
a great success. We believe that they should take the lead in
deciding on new investments in the future.
Thank you very much. I would be happy to answer any
questions.
[The prepared statement of Ms. Kelley follows:]
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Mr. Davis of Illinois. Thank you very much.
We will go to Mr. Cox.
STATEMENT OF J. DAVID COX
Mr. Cox. Thank you, Mr. Chairman and members of the
subcommittee, for the opportunity to testify today.
Federal employee benefits need to be considered in the
context of overall compensation. The shortcomings in Federal
salaries make it increasingly difficult for Federal employees
to afford the cost of fully participating in all the benefit
programs made available to them through OPM. The list of
benefits available for Federal employees sounds impressive. The
new list of new benefits sounds pretty impressive, too, until
you realize the new benefits are all employee pays all.
But this approach is just the logical conclusion of the
attitude OPM currently has toward all Federal employee
benefits. This attitude is that benefits should be made
available to Federal employees for purchase; that is, they
should not be paid for by the employer. They seem to think that
at most the employer should negotiate a group discount. This
has been the case with long-term care insurance, as well as the
newest benefits for vision and dental insurance.
AFT strongly opposes OPM's approach. Until major national
health care reform is enacted, we believe that it is our
employers' responsibility to finance coverage generously enough
so that every Federal employee and retiree and all their
dependents have comprehensive and affordable coverage. This
means financing at the rate of at least 80 percent so that even
the lowest-rated Federal employees can afford coverage for
themselves and their families.
We also believe that dental and vision coverage are
fundamental components of health care, and it is a disgrace
that Federal Government has carved out these two categories of
coverage into separate employee-pays-all plans.
Comprehensive dental and vision belong in a standard
benefits package that should be required offering in the
Federal Employees Health Benefits Program and should be
subsidized at the same rate as other health care services.
In 2000, OPM initiated long-term care insurance as a first
employee-pays-all benefit, or pseudo-benefit. Then came the
Bush administration, and this time the employee-pays-all
insurance idea was applied to health care benefits previously
considered part of a comprehensive package and subsidized at
the same rate as other health care services. Although the plans
that provide vision and dental benefits have not yet dropped
this coverage, enrollees are bracing for this eventuality, as
coverage of these services is not included in the statutory
requirements for benefits.
AFGE opposes the carve-out of dental and vision coverage in
the strongest possible terms. Both dental and vision care are
fundamental to good health and to the ability to function in
any work environment. Earlier this year, we became aware of not
only a tragic consequence that happened of lack of access to
dental care, but also how closely dental illness is linked to
other illnesses. In March, a 12 year old boy from Prince
George's County, MD, died from an infection that started in an
abscessed tooth. The infection spread to the boy's brain and,
for the want of dental care, a completely preventable death was
not prevented.
Corrected vision and healthy gums are not cosmetic
electives. This is not about tinted contact lenses or bleached
teeth; this is about health care.
AFG urges Congress to add language to Chapter 89 of Title 5
to make vision and dental coverage mandatory categories for the
Federal employee health benefit plans. OPM has carried out the
Bush administration's health care policy by shifting costs to
enrollees and trying to persuade them to replace traditional
insurance with health savings accounts. In addition, the
administration has each year included in its budget proposals
policies that would require employees to pay more or receive
less. Worse, it has promoted carving out benefits currently
subsidized by the Government and offering them on an employee-
pays-all basis.
None of these policies is consistent with an effort to
recruit the next generation of Federal employees or to maintain
morale and commitment among those on board. AFG urges Congress
to resist the administration's efforts to undo a generation's
progress and establish the Federal Government as a fair
employer and provide decent benefits sufficient to provide
economic security to its employees and retirees.
This concludes my statement. I would be glad to take any
questions, sir.
Mr. Davis of Illinois. Thank you very much, Mr. Cox.
Ms. Baptiste.
STATEMENT OF MARGARET BAPTISTE
Ms. Baptiste. Mr. Chairman, I am pleased to present NARFE's
views on the Federal retirement benefit programs which are so
crucial to the economic and health care security of our Federal
employee, retiree, and survivor members. Our primary
legislative objective is to preserve the retirement and
insurance benefits we earn as part of the total compensation
packages of careers in Federal service.
Clearly, it is essential that Federal service attract and
retain the highest caliber employees as new challenges put new
pressures on the Federal budget, yet it also is imperative that
the Federal Government continue to honor its commitments to its
workers and retirees. Among those commitments is the Federal
Employees Health Benefits Program, a program cited by many
policy experts as a model group health insurance plan.
I cannot pass up this opportunity to thank Congressman Tom
Davis and the majority of the members of this subcommittee for
the introduction and support of H.R. 1110, the NARFE-backed
bill to extend to retirees the tax benefit of premium
conversion which executive and legislative branch employees
have had for several years. This clarification of the tax code
would be a modest step in making annuitants' FEHBP premiums
more affordable.
I hope that by working together we can move this
legislation out of the Ways and Means Committee toward
enactment in this Congress.
The Office of Personnel Management does a good job of
negotiating premiums for the FEHBP, but we are concerned that a
$1 billion payment which could be used to lower costs is left
on the table. The 2003 Medicare law provided all employers,
including to Government, a subsidy if they provide drug
coverage as generous as Medicare. Unfortunately, the
administration has decided to forego this payment on behalf of
FEHBP enrollees.
A recent GAO report found that premium growth in one of the
largest FEHBP plans, with many older enrollees, could have been
3.5 to 4 percent lower in 2006 had the payment been accessed,
and it could have reduced overall FEHBP premiums for the year
by more than 2 percent. We cannot understand why the
administration failed to apply for this subsidy, to which they
did not originally object.
In addition, NARFE is concerned that offering health
savings accounts could undermine the FEHBP. GAO data has
strengthened our belief that healthier, wealthier enrollees
tend to be attracted to HSAs because, as low health care users,
they can be rewarded with unspent balances at the end of each
year. Less-health enrollees avoid them and are more likely to
stay in traditional, comprehensive plans, forcing these plans
to raise premiums, cut benefits, or both.
So far, HSAs have had minimal effect on comprehensive plans
because few have joined them. The administration's 2008 budget
could jump start enrollment in HSAs if Blue Cross/Blue Shield
is allowed to offer them in the FEHBP. Their brand loyalty and
marketing resources could significantly increase HSE enrollment
if they offered such an option in the FEHBP, and if an
additional indemnity HSA also should be added, as the
administration has suggested.
NARFE opposes any further expansion of HSAs. HSAs are a
solution in search of a problem. Prescription drugs, the
greatest cost driver in FEHBP, are a problem in search of a
solution.
FEHBP plans should be allowed to buy prescription drugs for
enrollees at the discounts provided through the Federal supply
schedule. This was considered as a pilot project, but the
pharmaceutical industry refused to participate. New
congressional support for allowing Medicare to directly
negotiate drug prices makes it time to revisit this proposal.
Retirement income security is a critical part of our
compensation package, and an integral part of retirement income
planning is the option to select a survivor annuity. Survivor
annuities go a long way in providing peace of mind to the loved
ones of Federal retirees. I know because I am a survivor
annuitant. When my husband elected a survivor annuity, the most
he could provide was 55 percent in exchange for an 8.5 percent
reduction in his own retirement.
NARFE believes a Federal employee should be able to elect a
higher survivor amount if they pay the additional actuarial
cost. To make this a reality, we ask you to support a budget
neutral proposal allowing retiring employees to elect
additional amounts in 5 percent increments up to a maximum 75
percent.
Unfortunately, certain CSRS retirees who work part time
toward the end of their careers do not receive the full amount
of the annuity they earned because of the application of a 1986
law. Current interpretation discourages many from working part
time at the end of their careers and can result in annuities
being reduced by 20 percent. President Bush's 2008 budget
proposed using full-time equivalent salary to calculate the
annuities of future retirees who work part time, but current
retirees are left out of this plan. For that reason, NARFE had
supported Representative Jim Moran's bill, H.R. 2780, but we
were disappointed to hear from him today that retirees will be
excluded from the part-time remedy in his amended bill.
On the other hand, we are pleased that retirees are being
sought by agencies that want to re-hire them. We believe
retirees interested in returning to Government service should
receive the full salary of the job without any offset of their
annuity. NARFE supports OPM's proposal to allow agencies to
reemploy Federal retirees on a limited, part-time basis without
this offset.
Mr. Chairman, we are pleased with the performance of the
Federal Thrift Savings Plan and its management. We support a
proposal to allow Federal workers to contribute bonuses into
their TSP accounts and are pleased OPM also supports this.
Thank you for your support of Federal employee benefits and
retirement programs as an investment in the Federal
Government's most valuable asset, its human capital.
We stand ready to work with you and the administration to
ensure that our retirement programs remain competitive,
innovative, and a model for others.
Thank you.
[The prepared statement of Ms. Baptiste follows:]
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Mr. Davis of Illinois. Thank you very much.
Mr. Marchant, I will go to you first.
Mr. Marchant. Thank you very much for your testimony. I am
on a learning curve on this subject, so I have a few questions.
I come from a Texas system. I spent 18 years in the this
legislature, and actually served on the Pensions Board and the
Pensions Committee, so I am still trying to digest and
understand the Federal system.
We do have a 25 year old provision in our insurance, and
that is why I am not on Federal insurance. I am a retiree from
Texas and my family and I are still on the Texas insurance as a
retiree, mainly because I have two kids under the age of 25.
Have you been able to get an actuarial study done? I know
that when the kids go out at age 22 and 23 that their insurance
is cheaper. Have you been able to get some kind of a study or
anything in your hands that will show that there might even be
a premium lowering?
Ms. Kelley. Actually, I am aware of a study that OPM did,
but I would call it kind of a back-of-the-envelope calculation.
It was a three-page report, and I think it would be very
helpful and beneficial if there were a better look taken, a
closer look, to see what the actual numbers would be, and also
to make sure that all of the costs and benefits are considered
in the calculation. I do not think that has been done to date.
Mr. Marchant. Yes. It may be a missed opportunity to
broaden the pool and at least stabilize the premium.
Ms. Kelley. I agree.
Mr. Marchant. The other aspect of it, I have opted to do a
deferred retirement so that if I pass away my wife gets the
retirement, but ours is a substantial decrease. It is about a
30 to 40 percent decrease with 100 percent replacement, so, Mr.
Chairman, I am wide open to that idea. I think that we should
explore it and I think it should be the prerogative of the
retiree. Again, it would have to be actuarially sound, but I do
know States that are funding their benefits out of an
independent pool, not out of the budget, the operating budget,
are doing that, and it is actuarially sound. So I would be a
proponent of that.
Those are the two thoughts I had, Mr. Chairman. Thank you
very much.
Mr. Davis of Illinois. Thank you very much.
Let me ask each one of you: do you have any recommendations
or how would you improve the prescription drug benefit in the
FEHBP?
Ms. Kelley. Well, actually a number of us have mentioned
the drug subsidy. I mean, from a cost perspective that is the
complain that I hear all the time from enrollees in the plan.
There just seems to be such a missed opportunity here that I
don't understand why OPM has not taken advantage of, you know,
with the opportunity with the Medicare subsidy. I would hope
they would just take it because it is the right thing to do,
but absent that, again, I would hope that some legislation is
passed that directs them to do it and requires them to do it.
It is costing Federal employees money that they shouldn't have
to pay.
Mr. Cox. Mr. Chairman, as I shared with you, I worked for
the Veterans Administration for 23 years. I believe AFGE has
raised the issue on numerous occasions. Why can't Federal
employees, their health insurance, bargain with the VA and
those other entities that go out to the drug manufacturers and
try to get the better prices? I mean, VA does very well with
its drug buying, and I believe if you put that pool of several
million Federal employees and retirees in that, that you
certainly would have a much larger buying power and could
certainly have a cost savings with that.
Mr. Davis of Illinois. Ms. Baptiste.
Ms. Baptiste. Well, as I said in my statement, Mr.
Chairman, we believe strongly that the subsidy should have been
taken, and I agree with Ms. Kelley on that. We also believe
that the FEHBP plan should be allowed to buy prescription drugs
at the discounts provided through the Federal supply schedule.
Mr. Davis of Illinois. How important would you say that
vision and dental coverage are? Both of those I think have
always been stepchildren, quite frankly, of health care
delivery. We have reached the point where dental, vision, or
mental health services have had the kind of attention that I
think they have needed. Just the dental vision, how important
do you think that is?
Mr. Cox. Mr. Chairman, I would not be able to see you
without my glasses on. I would not be able to read this paper.
Vision is very, very important to all of us. Think what it
would be like to not be able to see.
Dental, again, that is part of a healthy person. Your teeth
are in your head that is next to your brain. You do not want
infections in your teeth.
It is a shame that the Federal Government has not, again,
with the many Federal employees and the retirees, had a program
that required all of the participants in the Federal Employees
Health Benefits Program, all the companies to offer dental and
vision and to cover, like at 80 percent, to do that for them.
That is how you have healthy people. It will save money in the
long run because you keep people well and you prevent things.
I think of this 12 year old boy. That is a tragedy that
should have never occurred in a country as great as this.
Ms. Kelley. I think the numbers of enrollment for the first
year in the vision and dental speak volumes to how important
this is. Even with employees having to pay 100 percent of the
cost, there were 700,000 Federal employees who signed up when
it was first made available.
NTEU supported the introduction of a vision and dental plan
for Federal employees, but we had also supported that it be
done with some Government contribution, even if starting out it
wasn't the full FEHBP contribution, some contribution, and we
had hoped right up to the last minute that would happen.
Even in the end, when it was clear there would be no
contribution by the Government, NTEU still supported these
plans because we believed that they were important to Federal
employees and that they would be taken advantage of. Like I
said, I think for a first year enrollment that those numbers
were higher than I expected, but they would have been much,
much higher had there been any kind of contribution by the
Government so that others who could not afford to pay the whole
premium could do so.
Mr. Davis of Illinois. Ms. Baptiste, do you have any
comment on that?
Ms. Baptiste. I agree with Ms. Kelley. It would put up the
cost of enrollment a very considerable amount, but teeth and
vision are important, and it is a subject that needs working
on.
Mr. Davis of Illinois. Let me ask each of you, Ms. Kelley,
are you familiar with community health centers?
Ms. Kelley. I am not, Mr. Chairman.
Mr. Davis of Illinois. Mr. Cox, are you familiar with them?
Mr. Cox. No, sir.
Mr. Davis of Illinois. Ms. Baptiste, are you familiar with
community health centers?
Ms. Baptiste. No.
Mr. Davis of Illinois. Well, let me thank you all so very
much in terms of, again, your patience and willingness to be
here and to share your testimony with us. We appreciate it.
Thank you very much.
Mr. Cox. Thank you, Mr. Chairman.
Ms. Kelley. Thank you.
Ms. Baptiste. Thank you very much, Mr. Chairman.
Mr. Davis of Illinois. The first shall be last, and the
last shall be first, but in this one we will say that the third
shall be last.
While our panel is assembling, let me just introduce them.
Our panel consists of Ms. Hinda Chaikind, who is a Specialist
in Health Care Financing at the Congressional Research Service
[CRS], covering Federal employee health benefits, Medicare
advantage, Medicare reform, Medicare spending, retiree health
insurance, and other private health insurance issues. Prior to
joining CRS, she was with the Department of Health and Human
Services in the Office of the Assistant Secretary for
Management and Budget, responsible for budgetary, legislative,
and regulatory activity in the Medicare program.
Thank you so very much for being with us.
Ms. Chaikind. Thank you.
Mr. Davis of Illinois. Mr. Patrick Purcell is a Specialist
in Income Security at the Congressional Research Service. He
specializes in policy issues related to the Civil Service
Retirement System, the Federal Employees Retirement System, the
Thrift Savings Plan, individual retirement accounts, and 401(k)
plans. He has previously worked at the Urban Institute, the
Congressional Budget Office, and the Department of Health and
Human Services.
Thank you both for being here.
It is our custom to swear in witnesses.
[Witnesses sworn.]
Mr. Davis of Illinois. Thank you very much. The record will
show that each of the witnesses answered in the affirmative.
Of course, each of you know the drill with this, and so if
you would summarize your statement, we will put the whole
statement in the record, of course. Then we will have some
questions after 5 minutes.
STATEMENTS OF HINDA CHAIKIND, SPECIALIST IN SOCIAL LEGISLATION,
DOMESTIC SOCIAL POLICY DIVISION, CONGRESSIONAL RESEARCH
SERVICE; AND PATRICK PURCELL, SPECIALIST IN INCOME SECURITY,
DOMESTIC SOCIAL POLICY DIVISION, CONGRESSIONAL RESEARCH SERVICE
STATEMENT OF HINDA CHAIKIND
Ms. Chaikind. Mr. Chairman and members of the subcommittee,
my name is Hinda Chaikind and I am a Specialist in health care
Financing with Congressional Research Service. Thank you for
inviting me to speak to you today about the Federal Employees
Health Benefits Program and the Federal Employees Dental and
Vision Insurance Program.
The Federal Employees Health Benefits [FEHB], Program
covers about 8 million current full-time and part-time workers,
Members of Congress, annuitants, and their families. Eligible
family members include a spouse, unmarried dependent children
under the age of 22, and continued coverage for qualified
disabled children 22 years and older.
As Director Springer stated, in total there are about 300
different plan choices, including nationally available fee-for-
service plans, locally available plans such as HMOs, as well as
choices offered by plans for standard option, high option, and,
since 2003, high-deductible health insurance plan options
combined with a tax advantaged account.
Beneficiaries can use their tax advantaged accounts to
cover qualified medical expenses. As a practical matter,
depending on where an enrollee resides, his or her choice of
plans is limited to about five to fifteen plans. Also, since
July 2002, FEHB-eligible active employees can place their own
pre-tax wages into a health care flexible spending account to
cover qualified medical expenses.
Participation in FEHB is voluntary, and enrollees may
change plans during designated annual open season periods.
Special enrollment periods are also allowed for new employees
and for those with a qualifying special circumstances such as
marriage. Pre-existing condition exclusions are not allowed.
The Government's share of premiums is set at 72 percent of
the weighted average premium of all plans in the program, not
to exceed 75 percent of any given plan's premium. It is
calculated separately for self only and for family coverage.
Part-time workers pay a larger share of their premiums,
depending on the number of hours that they work. Annuitants and
active employees pay the same premium amounts, although active
employees have the option of paying premiums on a pre-tax
basis.
Premiums in 2007, compared to the prior year, remain the
same for about 63 percent of enrollees, and another 15 percent
of enrollees had a premium increase of less than 5 percent.
That said, while these overall increases are small, some plans
did have large increases.
Although there is no core standard benefit package required
for fee plans, OPM may prescribe reasonable minimum standards
for health benefits. All plans cover broad categories of
services, including basic hospital, surgical, physician, and
emergency care. Plans are required to cover certain special
benefits, including prescription drugs, mental health care with
parity of coverage for mental health and general medical care
coverage, child immunizations, and limits on an enrollee's
total out-of-pocket costs for the year.
Plans must also include certain cost containment
provisions, such as offering a preferred provider organization
network and a fee-for-service plan.
Despite the wide range of plan choices, more than one-half
of all individuals enrolled in a fee plan choose one of the
Blue Cross and Blue Shield plans, and even those enrolled in
other plans tend to remain in their plan from year to year.
Comparing the access and employer contributions for the
benefits of Federal workers to those offered in the private
sector provides some insight into how these benefits measure
up. According to the Department of Labor's March 2006, National
Compensation Survey, 71 percent of private sector workers have
access to health benefit plans and 67 percent have access to
prescription drug coverage. Access to health insurance in the
private sector increases for firms with more than 100 workers,
those who employ white collar workers, full-time workers, union
workers, and those with average wages of $15 per hour or
higher.
Private sector employers contributed an average of 82
percent of the health insurance premium for self only coverage,
and an average of 70 percent of the premium for family
coverage.
On average, 46 percent of private sector employees have
access to dental care, and 29 percent have access to vision
care. As required by statute, OPM created the Federal Employees
Dental and Vision Insurance Program [FEDVIP], available since
December 2006. Employees who are eligible to enroll in a fee
program, whether or not they are actually enrolled, may also
enroll in FEDVIP. Enrollees are responsibility for 100 percent
of the FEDVIP premium. There are three nationally available
vision plans, four nationally available dental plans, and
another three dental plans that are only available regionally.
FEDVIP enrollment occurs during annual open season, as well
as special election periods, and individuals may choose a self
only, self plus one, or family plan. This set of options
differs from the fee plans, which allows for two choices, self
only or family plan.
Premiums vary by plan, by whether enrollment includes other
family members, and residency. Unlike the fee plans,
individuals enrolled in a nationwide FEDVIP plan, dental plan,
pay different premiums depending on where they live. Active
employees must pay FEDVIP premiums on a pre-tax basis. While
there are no pre-existing condition exclusions for this
coverage, there are waiting periods for orthodontia, and
switching to a new plan may require a new waiting period.
Finally, turning to current issues, Congress is considering
legislation that encompasses a wide range of changes to the fee
program, including but not limited to: Allowing Federal,
civilian, and military retirees to pay health insurance
premiums on a pre-tax basis; expanding the program to cover
individuals who are not Federal employees, such as employees of
small private businesses or, as the chairman has mentioned,
employees of federally qualified health centers; expanding
required benefits to include additional services such as
hearing aids; increasing the level of Government contributions;
eliminating the time limit on the continuation coverage for
employees who leave Federal service; and requiring plans to
establish and maintain electronic individual personal health
records.
Other issues facing the program include maintaining the
integrity of the risk pool eliminating fraud and abuse, and
containing cost.
This concludes my statement. I would be happy to answer any
questions that the members of the subcommittee might have.
[The prepared statement of Ms. Chaikind follows:]
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Mr. Davis of Illinois. Thank you very much, Ms. Chaikind.
Mr. Purcell.
STATEMENT OF PATRICK PURCELL
Mr. Purcell. Mr. Chairman, Ranking Member Marchant, thank
you for inviting me to speak with you today about the Federal
Employees Retirement System.
Federal employees are eligible for retirement benefits
under either the Civil Service Retirement System [CSRS], or the
Federal Employees Retirement System [FERS]. Employees hired in
1984 or later are covered by FERS; employees covered before
that date are covered by CSRS, unless they switched to FERS in
open seasons held in 1987 and 1998.
Today, about three-fourths of Federal employees are covered
by FERS. This figure rises each year as employees under the old
CSRS retire.
FERS was established under the Federal Employees Retirement
System Act of 1986 and it consists of three elements: Social
Security, a defined benefit pension called the FERS-based
annuity, and the Thrift Savings Plan. Before 1984, Federal
employees were not covered by Social Security, they were
covered instead by the CSRS, which Congress created in 1920.
Because Social Security needed greater cash contributions
to remain solvent, in 1983 Congress required Social Security
coverage for all new Federal employees hired in 1984 or later.
Congress recognized that Social Security provided some of
the same benefits as CSRS and that covering workers under both
plans would require payroll deductions of more than 13 percent
of pay. Therefore, Congress directed the development of a new
retirement system with Social Security as the base, but also
including a defined benefit pension and a savings plan. The
result of this was the FERS Act of 1986.
Federal employees are fully vested in the FERS basic
annuity after 5 years of service. The minimum retirement age,
which was 55 for workers born before 1948, will increase over
time to 57 for workers born in 1970 or later. This year a
worker with 30 years of service can retire at age 55 and 10
months. Workers with 20 to 29 years of service can retire at
60, and workers with 5 to 19 years of service can retire at 62.
The FERS basic annuity pays a pension equal to 1 percent of
the average of the three highest consecutive years of pay, so
for a worker retiring at 55 with 30 years of service this
annuity is equal to 30 percent of his or her high three pay.
FERS also pays a supplement until age 62, which is equal to the
amount of the Social Security benefit that the worker earned
while employed by the Federal Government. The supplement ends
at 62, regardless of whether the employee applies for Social
Security at that age.
The legislative history of the FERS Act shows that Congress
wished to enroll new employees in Social Security, to provide a
benefit that in total was comparable to that under CSRS, and to
make the FERS plan similar to retirement plans of large
employers in the private sector. Thus, in establishing the
FERS, Congress provided Federal employees the opportunity to
save for retirement on a tax-deferred basis through the Thrift
Savings Plan [TSP].
The thrift plan is similar to 401(k) plans provided by many
companies in the private sector. This year employees under age
50 can contribute up to $15,500 to the TSP. Employees 50 and
older can contribute an additional $5,000. These contributions
are pre-tax, and investment earnings grow tax-free until the
money is withdrawn.
The Government contributes an amount equal to 1 percent of
pay to the TSP for all employees. In addition, employees
covered by FERS receive a 100 percent match on the first 3
percent of pay they contribute and a 50 percent match on the
next 2 percent contributed, for a total employer contribution
of 5 percent of pay.
Currently, 86 percent of employees covered by the FERS
contribute to the TSP, and the Thrift Board has submitted a
bill to Congress to make enrollment in the TSP automatic for
new Federal employees.
The pension benefits provided to Federal employees compare
favorably to those provided in the private sector. Under FERS,
employees participate in Social Security. They are covered by
defined benefit pension, and they can save pre-tax through the
TSP. This combination of benefits has become rare in the
private sector.
The Department of Labor reports that only 51 percent of
workers in the private sector participated in an employer-
sponsored retirement plan of any kind in 2006, and just 20
percent of private sector workers were covered by defined
benefit plans that provide a guaranteed retirement income.
The Labor Department estimates that only 12 percent of
private sector workers participated in both a defined benefit
plan and a 401(k) plan in 2006.
This concludes my statement, and I will be happy to answer
any questions.
[The prepared statement of Mr. Purcell follows:]
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Mr. Davis of Illinois. Thank you both very much.
Ms. Chaikind, let me try to make sure that I understand the
comparison between what Federal employees basically qualify for
in terms of health benefits and those in the private sector.
It seemed to me that you are saying that basically Federal
employees compare rather favorably----
Ms. Chaikind. That is correct.
Mr. Davis of Illinois [continuing]. To what they could
expect in the private sector.
Ms. Chaikind. In terms of access to plans, yes. I mean,
that is all that I was talking about. There was access to
plans. All Federal workers who are considered either full time
or part time do have access to a health benefit plan.
In the private sector, that access varies. As I said, it
increases as firm size increases, as pay increases, as full
time increases, so there are more barriers, I would say, in the
private sector for any given individual to have access to
health insurance than there are in the Federal work force.
Mr. Davis of Illinois. Do you have any value comparisons in
terms of the values of what they qualify for?
Ms. Chaikind. I don't have that, but I think that is
something that I could get back to you with, if you would like
me to.
Mr. Davis of Illinois. I would appreciate it.
Mr. Purcell, your testimony suggests that when it comes to
retiree benefits, that Federal employees similarly compare
rather favorably to what exists in the private sector; is that
accurate?
Mr. Purcell. I think that is an accurate characterization.
And the reason for that is that in the private sector, since
the early 1980's there has been a strong trend away from the
traditional defined benefit pension in favor of the 401(k)
plan. What that means is if you looked at the statistics in
1980 you would have seen about the same percentage of workers
in the private sector in a plan as are in a plan today, about
half. But in 1980, virtually all of them would have been in a
traditional pension. Today, only one worker in five in the
private sector is participating in a traditional pension, and a
number of those, perhaps as many as a quarter, have been frozen
in one respect or another, meaning either no new benefits are
accruing or new workers are not allowed into the plan.
If you isolate on, say, the 500 largest companies in the
S&P or Fortune 500, you will still see a majority, roughly two-
thirds, that offer a defined benefit pension, but it is still a
minority that offer both a DB plan and a tax-favored savings
plan, which Federal employees are able to participate in.
Mr. Davis of Illinois. Let me ask both of you, do you have
any idea why there is sort of a common perception? I mean, when
you talk to people, there seems to be a tendency to believe
that the private sector does a better job in both these arenas
than the public sector.
Mr. Purcell. I can't answer for sure why that perception
might exist, but, as one of the earlier witnesses said today,
the difference in pay is very easy for people to measure. The
difference in benefits is more complicated, particularly with
younger workers. As the Director of the TSP mentioned today,
they have lower participation rates and lower contribution
rates. They are going up, which is a good thing. But it is very
difficult to get younger workers, in particular, to focus on
the importance of saving for retirement or to understand the
value of the defined benefit pension.
I think when people are comparing between the private
sector and the public sector they have a much clearer idea
about differences in pay than they do differences, particularly
in retirement benefits. I can't really speak about the health
insurance aspect because that is not my area.
Mr. Davis of Illinois. Let me just ask about the health
insurance.
Ms. Chaikind. Well, I am going to draw from some of my
other experience in health insurance and say that many people
in both the private and the public sector are concerned about
health insurance coverage as employers, whether they are
private sector employers or other, are reducing benefits,
increasing co-insurance, increasing co-payments. So I am not
sure that this is an issue that is of concern only to Federal
Employees Health Benefits Program, but it is also an issue of
any employer-sponsored health benefit plan.
Mr. Davis of Illinois. Have you seen much movement in the
vision/dental coverage arena in terms of trends that might be
evolving or developing?
Ms. Chaikind. In terms of trends, as I mentioned in my
statement, other private sector employees do have lower access
than Federal employees have lower access, but what I cannot
speak to is whether or not those employees have to pay 100
percent just like Federal employees have to pay.
Mr. Davis of Illinois. Thank you. Thank you both very much.
Mr. Marchant.
Mr. Marchant. Thank you, Mr. Chairman.
Part-time employees have the same ability to access the
health insurance, so if you are brought on at 20 hours, you
have the same waiting period and you can enter the program and
you have exactly the same access, no pre-existing?
Ms. Chaikind. Everything is the same except the premium.
Part-time employees will pay a larger share, and it is pro-
rated based on the number of hours that they work.
Mr. Marchant. But the access is available and they can get
it, so there is a great amount of value, as opposed to the
corporate world now. Most corporations are moving to a part-
time status so that they are not required by law to offer
insurance at any price.
Ms. Chaikind. Yes, that is correct. In the Federal
Employees Health Benefits Program, employees are given the same
access. As I said, they just have to pay a larger share of the
premium, and they also are able to pay the premiums on a pre-
tax basis, just as the full-time workers are.
Mr. Davis of Illinois. Mr. Chairman, that is a great thing
to be offered. In the private world right now, in the corporate
world, it is almost unheard of for a part-time worker to be
even offered the plan.
Is there any document, Mr. Purcell, that you know of that a
Federal worker is shown when they take their job that says,
Here is your cash compensation and here is the value of your
benefits package, its equivalency, so that a person can say,
OK, if I have to work for this company and I pay this, or I go
to work for the Federal Government and pay this, same cash
amount? Is that made available?
Mr. Purcell. For new Federal employees they would receive
information as part of their orientation that will explain the
pension benefit that is provided. The Thrift Board puts out
numerous publications that are very easy to read. They don't go
into eight pages of fine print, but they have charts and show
here is what you will accumulate if you start saving at this
age or this age. So I believe that the Federal Government is
doing a pretty good job right now of informing new employees
what retirement benefits they have available to them. How that
is done in the private sector I am not sure.
I would say that more companies in the private sector,
about a quarter of the, say, Fortune 500, have gone to
automatic enrollment in 401(k) plans, and I think most
observers expect that trend to continue, and that is going to
get a lot more people into 401(k) savings plans at an earlier
age, just as it would if it was adopted by the thrift plan.
Mr. Marchant. So the ability to enter a defined benefit
plan is a plus.
Mr. Purcell. The interest thing is in a defined benefit
plan, the traditional pension, as a worker you don't do
anything. You are on the payroll, you are in the plan. You may
not even be aware of it. That is one reason I was saying before
it is difficult for workers to compare retirement benefits
because they are not quite sure of the value of those benefits.
In a defined contribution plan, since you are getting sort
of a quarterly statement of how much is in your account, it is
much easier to see how you are doing.
The inertia in the past has been that newer workers and
lower-paid workers were reluctant to give up take-home pay to
put money into either the thrift plan for the Government or the
401(k) plan in the private sector. With automatic enrollment,
the default is at 6 months or whatever the start date is, a
certain percentage is going to be put into your account.
Now, of course, you have to offer them the option to say I
don't want to do that, but studies, real-world experiments in
companies, have shown once people are automatically enrolled,
90 percent, 95 percent of them stay in.
Mr. Marchant. Well, just from a pure PR standpoint, the
Federal Government I don't think does as good a job as they
could do informing the potential employee out there that they
can join a company, get automatic coverage on the health care
and their family--at a price, but get it--get in a pension
system that has a definable benefit, and then have a structure
that surrounds it that is not contingent on a board of
directors annuitizing their pension plan and freezing them in
it.
Mr. Purcell. It is one of those things where I think the
appreciation of the health and retirement benefits that Federal
employees receive often doesn't dawn on them until they have
been in the Federal Government a number of years. I mean, I
talk to a lot of Federal employees about retirement issues.
Many of them are not aware at all that they are covered by a
traditional pension in addition to the Thrift Savings Plan.
Mr. Marchant. The one thing that I don't know, Mr.
Chairman, if this dogs you or not, but sometimes on Sunday
afternoon I am driving back from my ranch back home getting
ready to come back here and I listen to these financial gurus,
you know, and they harp on the fact that I don't pay any Social
Security tax, and then I get these chain e-mails. Was there
ever a time that we did not pay Social Security tax? Where does
that come from?
Mr. Purcell. A long time ago. Prior to 1984 Members of
Congress, like every other Federal employee, were in the Civil
Service Retirement System, and that system was actually created
before Social Security.
Mr. Marchant. OK.
Mr. Purcell. When the 1983 Social Security Amendments were
passed, part of those amendments said from now on all new
employees are going to be in Social Security and all Members of
Congress will be in Social Security. All Members of Congress
pay Social Security taxes. I have seen the e-mail. I have seen
it many, many times. And we do have a report about retirement
benefits for Members of Congress that explains very clearly
that they pay the same Social Security taxes as every other
citizen of the United States except, of course, there are some
State workers who don't.
Mr. Marchant. Right.
Mr. Purcell. And Texas I think is one of them.
Mr. Marchant. Yes, it is, and they want to double dip.
Thanks for your information. I appreciate your testimony.
Mr. Davis of Illinois. And that the retirement is not
nearly as lucrative as some believe.
Mr. Marchant. It is probably not going to be the many
millions of dollars that the e-mail says.
Mr. Davis of Illinois. Well, you know, the public has this
perception that it is just a fat cat pension that you get. I do
a television show every week, and I have some callers who just
call in and want to know, what are you going to do with your
pension? And I am saying, My wife would probably like to know
what I am going to get as a pension.
I have just one additional question, Mr. Purcell. What is
the average age at which Federal employees retire, and what is
their average monthly pension?
Mr. Purcell. The average age has been very stable for many
years, right around 61. Currently, the retirees under the Civil
Service Retirement System get an average pension of about
$2,500 a month, which will work out to $30,000 a year. And
under the FERS the average pension is about $900. Now, the
reason that number is so much lower, there are two reasons. One
is the FERS pension is smaller because those workers are also
covered by Social Security, so their combined benefit is
bigger. Second, the retirees under CSRS still have a higher
average career length. FERS is still, as a pension system,
fairly young, so the FERS retirees don't have as long a career
as the CSRS retirees.
Mr. Davis of Illinois. Well thank you very much. I think
that is about what the average Member of Congress who retires
will get. I understand it is about $35,000 a year.
Let me thank you all very much for your patience and your
diligence. We really appreciate the fact that you stayed.
Mr. Marchant, unless you have some additional questions,
comments?
[No response.]
Mr. Davis of Illinois. We thank you very much. This hearing
is adjourned. We thank our staff who have also done due
diligence and got a lot of late evening work.
[Whereupon, at 5:30 p.m., the subcommittee was adjourned.]