[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:]

    [GRAPHIC] [TIFF OMITTED] T2884.001
    
    [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.]

                                 
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