[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
RETIREMENT READINESS: STRENGTHENING THE FEDERAL PENSION SYSTEM
=======================================================================
HEARING
before the
SUBCOMMITTEE ON FEDERAL WORKFORCE,
U.S. POSTAL SERVICE AND LABOR POLICY
of the
COMMITTEE ON OVERSIGHT
AND GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
SECOND SESSION
__________
JANUARY 25, 2012
__________
Serial No. 112-114
__________
Printed for the use of the Committee on Oversight and Government Reform
Available via the World Wide Web: http://www.fdsys.gov
http://www.house.gov/reform
----------
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COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM
DARRELL E. ISSA, California, Chairman
DAN BURTON, Indiana ELIJAH E. CUMMINGS, Maryland,
JOHN L. MICA, Florida Ranking Minority Member
TODD RUSSELL PLATTS, Pennsylvania EDOLPHUS TOWNS, New York
MICHAEL R. TURNER, Ohio CAROLYN B. MALONEY, New York
PATRICK T. McHENRY, North Carolina ELEANOR HOLMES NORTON, District of
JIM JORDAN, Ohio Columbia
JASON CHAFFETZ, Utah DENNIS J. KUCINICH, Ohio
CONNIE MACK, Florida JOHN F. TIERNEY, Massachusetts
TIM WALBERG, Michigan WM. LACY CLAY, Missouri
JAMES LANKFORD, Oklahoma STEPHEN F. LYNCH, Massachusetts
JUSTIN AMASH, Michigan JIM COOPER, Tennessee
ANN MARIE BUERKLE, New York GERALD E. CONNOLLY, Virginia
PAUL A. GOSAR, Arizona MIKE QUIGLEY, Illinois
RAUL R. LABRADOR, Idaho DANNY K. DAVIS, Illinois
PATRICK MEEHAN, Pennsylvania BRUCE L. BRALEY, Iowa
SCOTT DesJARLAIS, Tennessee PETER WELCH, Vermont
JOE WALSH, Illinois JOHN A. YARMUTH, Kentucky
TREY GOWDY, South Carolina CHRISTOPHER S. MURPHY, Connecticut
DENNIS A. ROSS, Florida JACKIE SPEIER, California
FRANK C. GUINTA, New Hampshire
BLAKE FARENTHOLD, Texas
MIKE KELLY, Pennsylvania
Lawrence J. Brady, Staff Director
John D. Cuaderes, Deputy Staff Director
Robert Borden, General Counsel
Linda A. Good, Chief Clerk
David Rapallo, Minority Staff Director
Subcommittee on Federal Workforce, U.S. Postal Service and Labor Policy
DENNIS A. ROSS, Florida, Chairman
JUSTIN AMASH, Michigan, Vice STEPHEN F. LYNCH, Massachusetts,
Chairman Ranking Minority Member
JIM JORDAN, Ohio ELEANOR HOLMES NORTON, District of
JASON CHAFFETZ, Utah Columbia
CONNIE MACK, Florida GERALD E. CONNOLLY, Virginia
TIM WALBERG, Michigan DANNY K. DAVIS, Illinois
TREY GOWDY, South Carolina
C O N T E N T S
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Page
Hearing held on January 25, 2012................................. 1
Statement of:
Coble, Hon. Howard, a Representative in Congress from the
State of North Carolina.................................... 83
Coffman, Hon. Mike, a Representative in Congress from the
State of Colorado.......................................... 95
Dold, Hon. Robert J., a Representative in Congress from the
State of Illinois.......................................... 106
Griffin, Hon. Tim, a Representative in Congress from the
State of Arkansas.......................................... 88
Grimes, Charles D., III, Chief Operating Officer, U.S. Office
of Personnel Management; Andrew G. Biggs, Ph.D., resident
scholar, American Enterprise Institute; Pete Sepp,
executive vice president, National Taxpayers Union; and
David B. Snell, director of retirement benefits, National
Active and Retired Federal Employees Association........... 7
Biggs, Andrew G., Ph.D................................... 17
Grimes, Charles D., III.................................. 7
Sepp, Pete............................................... 24
Snell, David B........................................... 39
Nugent, Hon. Richard B., a Representative in Congress from
the State of Florida....................................... 102
Schilling, Hon. Robert T., a Representative in Congress from
the State of Illinois...................................... 99
Letters, statements, etc., submitted for the record by:
Biggs, Andrew G., Ph.D., resident scholar, American
Enterprise Institute, prepared statement of................ 19
Coble, Hon. Howard, a Representative in Congress from the
State of North Carolina, prepared statement of............. 85
Coffman, Hon. Mike, a Representative in Congress from the
State of Colorado, prepared statement of................... 97
Connolly, Hon. Gerald E., a Representative in Congress from
the State of Virginia, prepared statement of............... 112
Cummings, Hon. Elijah E., a Representative in Congress from
the State of Maryland, prepared statement of............... 113
Davis, Hon. Danny K., a Representative in Congress from the
State of Illinois, memo dated November 22, 2011............ 56
Dold, Hon. Robert J., a Representative in Congress from the
State of Illinois, prepared statement of................... 108
Griffin, Hon. Tim, a Representative in Congress from the
State of Arkansas, prepared statement of................... 90
Grimes, Charles D., III, Chief Operating Officer, U.S. Office
of Personnel Management, prepared statement of............. 10
Lynch, Hon. Stephen F., a Representative in Congress from the
State of Massachusetts, prepared statement of Ms. Kelly.... 75
Nugent, Hon. Richard B., a Representative in Congress from
the State of Florida, prepared statement of................ 104
Ross, Hon. Dennis A., a Representative in Congress from the
State of Maryland, prepared statement of................... 4
Schilling, Hon. Robert T., a Representative in Congress from
the State of Illinois, prepared statement of............... 101
Sepp, Pete, executive vice president, National Taxpayers
Union, prepared statement of............................... 26
Snell, David B., director of retirement benefits, National
Active and Retired Federal Employees Association, prepared
statement of............................................... 41
RETIREMENT READINESS: STRENGTHENING THE FEDERAL PENSION SYSTEM
----------
WEDNESDAY, JANUARY 25, 2012
House of Representatives,
Subcommittee on Federal Workforce, U.S. Postal
Service and Labor Policy,
Committee on Oversight and Government Reform,
Washington, DC.
The subcommittee met, pursuant to notice, at 9 a.m., in
room 2203, Rayburn House Office Building, Hon. Dennis A. Ross
(chairman of the subcommittee) presiding.
Present: Representatives Ross, Walberg, Lynch, Connolly,
and Davis.
Staff present: Robert Borden, general counsel; Will L.
Boyington, staff assistant; Jennifer Hemingway, senior
professional staff member; James Robertson, professional staff
member; Peter Warren, legislative policy director; Jaron
Bourke, minority director of administration; Kevin Corbin,
minority deputy clerk; Ashley Etienne, minority director of
communications; William Miles, minority professional staff
member; and Mark Stephenson, minority senior policy advisor/
legislative director.
Mr. Ross. Good morning. I will now call the Subcommittee on
Federal Workforce, U.S. Postal Service and Labor Policy to
order.
Today's hearing is on ``Retirement Readiness: Strengthening
the Federal Pension System.''
As we do in all Oversight Committees, I will recite the
Oversight Committee mission statement.
We exist to secure two fundamental principles: First,
Americans have a right to know that the money Washington takes
from them is well-spent; and, second, Americans deserve an
efficient, effective government that works for them. Our duty
on Oversight and Government Reform Committee is to protect
these rights.
Our solemn responsibility is to hold government accountable
to taxpayers, because taxpayers have a right to know what they
get from their government. We will work tirelessly, in
partnership with citizen watchdogs, to deliver the facts to the
American people and bring genuine reform to the Federal
bureaucracy.
This is the mission of the Oversight and Government Reform
Committee.
And I know we have votes probably as early as 9:30. So we
hopefully, especially with just the ranking member and I here
today right now, will be able to get through this panel before
we have to do votes, and then we will impanel our second panel
right after that.
With that, I will recognize myself for 5 minutes to deliver
my opening statement.
Today's hearing will explore options in reforming the
entire Federal pension system to bring it more in line with the
private-sector work force and help balance the budget. It is
clear that the taxpayer cannot afford the current Federal
pension cost structure in the long term.
But what is good for the goose is good for the gander.
Today's hearing will also explore options to ensure that
Members of Congress are treated no better than their fellow
citizens in the Federal work force. The taxpayer has had enough
of ``do what I say, not what I do'' from Washington.
Being a Member of Congress is not a career; it is an honor
bestowed upon a few by the great people of this Nation--a great
people who pay a great price for a work force and a Congress
that costs too much.
According to an August 10, 2010, analysis conducted by the
CATO Institute, the Federal Government pays almost $42,000 in
health insurance and pension benefits for Federal employees,
which is nearly four times greater than that which is the
average in the private sector.
Worse, Members of Congress currently receive a pension
benefit that is vastly better than the rest of the Federal work
force. According to the Office of Personnel Management, the
average annual pension for those retiring from Congress was
$53,940. To put it in perspective, the average Social Security
recipient receives $14,000 per year.
In 2010, Obama's deficit-reduction commission recommended
increasing the amount Federal employees pay toward their
retirement and to start calculating their pension using the
employee's average of 5-year salary rather than the current 3-
year salary as a base.
Last December, Republicans in the House of Representatives
passed H.R. 3630, which called for reform of the Federal
pension system, making it more comparable to the marketplace
and saving taxpayers $38 billion, according to the
Congressional Budget Office.
The bill also included recommendations of the President's
deficit commission: increase the employee retirement
contribution; eliminate the supplemental payment to individuals
who voluntarily retire before age 62; and changed the pension
formula for new hires. The bill also applied to Members of
Congress and their staff.
Unfortunately, this bill died in the Senate, but I suppose
we should not expect too much since it currently takes over
1,000 days to pass a budget in that chamber.
Today we will hear from distinguished witnesses to examine
the current policies and formulas that govern Federal pensions
under the Civil Service Retirement System and the Federal
Employees Retirement System. We will also hear from several
Members of Congress who have introduced legislation aimed at
adjusted or eliminating Members' pension coverage.
Today's hearing is not about beating up on Federal
employees or even Members of Congress. It is about living in
the real world--a world where defined-benefit pension plans are
disappearing and market-driven solutions, like the Federal
Thrift Savings Plan, are on the rise.
Protecting taxpayers and ensuring reasonable retirements
for the Federal work force is our primary goal. But a deeper
reality should set in here in Washington: The American people
demand in their elected representatives a willingness to live
under the laws they pass. They are tired of the perks and
hypocrisy they witness in their Congress and are rightfully
outraged by the pension benefits guaranteed to a Federal work
force that has grown too large, paid for through an ever-
increasing tax burden on the hardworking American taxpayer. Too
many working Americans watched their pensions evaporate because
of the economic consequences of debt and borrowing caused, in
part, by these unsustainable promises.
There is no way to ensure value to the taxpayer and
security to the worker, both private and public sector--there
is--excuse me--there is a way to ensure value to the taxpayer
and security to the worker, both public and private sector,
through a more affordable pension system.
On top of today's hearing, I will be introducing
legislation that overhauls the Federal pension system and
applies to Members of Congress. H.R. 3813 would increase the
employee and Member retirement contribution by 1\1/2\ percent
of salary over 3 years. My bill would also eliminate the
supplemental payment to individuals who voluntarily retire
before the age of 62; increases the employee retirement
contribution for new hires; changes the multiplier used in the
pension formula; and uses a 5-year average as a salary base.
And all of these reforms would apply to Members of Congress, as
well.
As Congress looks forward to cut costs, Congress must also
lead by example. I sincerely hope that this is just the
beginning of a reform year in which we make government and
Congress more accountable.
I thank the witnesses for appearing today, and I look
forward to your testimony.
And I now recognize my friend and ranking member from
Massachusetts, Mr. Lynch.
[The prepared statement of Hon. Dennis A. Ross follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Lynch. Thank you very much, Mr. Chairman. It is good to
be with you this morning.
I do have to say, though, this is really--this hearing
really is an attack on Federal employees, on Federal pensions.
Only in Congress, only in the U.S. Congress, would a hearing
entitled ``Retirement Readiness: Strengthening the Federal
Pension System'' consist of eliminating Federal pensions. That
is the way that my colleagues have suggested they are going to
strengthen the pension system, is by eliminating the pension
system.
A couple of other things. The President did indeed
recommend that Federal employees pay more for their pension,
make greater contributions. The President also suggested we
eliminate the supplemental benefit for early retirees. But he
introduced those ideas as part of a--in a context of asking the
wealthiest in this country also to kick in, to pay a little bit
more. So he conceded that, yes, we should ask Federal employees
to contribute more; yes, we should pare back benefits in light
of our economic crisis. But at the same time, the President
said, could we ask the wealthiest in this country to pay a
little bit more?
And that is why the bill went nowhere in the Senate. That
is why it crashed and burned over there, because a lot of folks
on the Republican side have signed this oath, this oath to
Grover Norquist, that under no circumstances will they raise
taxes. They won't raise taxes on the wealthiest. They won't
raise taxes to pay for the war in Iraq, they won't raise taxes
to pay for the war in Afghanistan, even though they describe
themselves as being pro-military. Pro-military as long as they
don't have to pay for it.
And this hearing and much of the testimony that you will
hear today is really an attack on Federal workers. There are
some comparisons here--we will get into it later--but it is
sad, it is really sad in this day and age that we would just go
after our Federal employees.
You know, eliminating pensions for Federal workers and
eliminating pensions for Members of Congress is popular, I
guess. And I think that, you know, we could have a bill that
the people would support if we eliminated--if we eliminated all
pay for Members of Congress, make them work for zero; eliminate
their health benefits; eliminate their pensions; make them walk
to work, even if from Massachusetts, make them walk back and
forth. I think, you know, Congress is very unpopular right now.
There is one poll out there that says that Congress' popularity
is somewhere between the Taliban and the swine flu. And we
probably deserve that. So, you know, it is one thing to
acknowledge that and try to do better. It is quite another to
feed into it.
And if we eliminate pensions and health benefits and cut
pay for Members of Congress, pretty soon it will get to a point
that only people who are independently wealthy--you know, if we
really are ascribing to the wishes of the Founders of this
Nation and those who drafted our Constitution, the Framers of
the Constitution really thought that Congress should be
constituted by a mixture of people and backgrounds. If we
eliminate pay and pensions and health benefits for Members of
Congress, only those people who are independently wealthy or
retired and have had a full career will be able to come here,
will be able to afford to come here and represent the people in
this great government.
So I think it is pathetic, really, that so many bills are
out here to go after Federal employees. We are asked to, in
every aspect of government, match up against a private sector
that is enormously well-funded and well-equipped to deal with
some of the issues, whether it is financial services or
environmental issues. We have a hard time matching up, posting
up against people who we are, you know, proposed to regulate.
But I thank the gentleman. I look forward to the testimony,
and I yield back the balance of my time.
Mr. Ross. Thank you, Mr. Lynch.
I now ask unanimous consent that the statement of House
Administration Chairman Dan Lungren be placed into the record.
Without objection, it is so ordered.
Members have 7 days to submit opening statements and
extraneous material for the record.
I will now introduce our first panel, and I welcome our
witnesses.
We have Mr. Chuck Grimes, who is the chief operating
officer for the Office of Personnel Management. We have Dr.
Andrew Biggs, who is a resident scholar at the American
Enterprise Institute. We have Mr. Pete Sepp, who is executive
vice president of the National Taxpayers Union. And we have Mr.
David Snell, who is the director of retirement benefits for the
National Active and Retired Federal Employees Association.
Pursuant to committee rules, all witnesses will be sworn in
before they testify. So please rise and raise your right hands.
[Witnesses sworn.]
Mr. Ross. Thank you.
Let the record reflect that all of the witnesses answered
in the affirmative.
In order to allow time for our discussion, please limit
your comments to 5 minutes, and please also understand that
your entire written statement will be made part of the record
of this proceeding.
With that, I will recognize Mr. Grimes for 5 minutes for an
opening.
STATEMENTS OF CHARLES D. GRIMES III, CHIEF OPERATING OFFICER,
U.S. OFFICE OF PERSONNEL MANAGEMENT; ANDREW G. BIGGS, PH.D.,
RESIDENT SCHOLAR, AMERICAN ENTERPRISE INSTITUTE; PETE SEPP,
EXECUTIVE VICE PRESIDENT, NATIONAL TAXPAYERS UNION; AND DAVID
B. SNELL, DIRECTOR OF RETIREMENT BENEFITS, NATIONAL ACTIVE AND
RETIRED FEDERAL EMPLOYEES ASSOCIATION
STATEMENT OF CHARLES D. GRIMES III
Mr. Grimes. Chairman Ross, Ranking Member Lynch, and
members of the subcommittee, thank you for the opportunity to
appear before you to discuss Federal pensions.
OPM's mission is to recruit, retain, and honor a world-
class work force to serve the American people. As part of that
mission and by law, OPM oversees administration of the Civil
Service Retirement System [CSRS], and the Federal Employees
Retirement System [FERS], covering annuitants in the executive,
legislative, and judicial branches.
OPM processes annuity payments for retirees and their
survivors. As of October 1, 2010, there were 1.52 million CSRS
annuitants, with an average monthly annuity of $2,941, based
upon 29.6 years of service; and 361,000 FERS annuitants, with
an average monthly annuity of $1,065, based on 17.2 years of
service. There were 262 retired CSRS Members, with an average
monthly annuity of $5,785, based on 20.7 years of service; and
181 retired FERS members, with an average monthly annuity of
$3,205, based on 16.2 years of service.
Generally, Federal employees who entered service prior to
1984 are covered by CSRS. When established in 1920, coverage
was limited to permanent and competitive employees in the
executive branch. In the 1940's, coverage was extended to
agency heads and, upon election, to the President, Vice
President, and Members of Congress.
With some exceptions, Federal employees contribute 7
percent of their pay to CSRS, congressional employees
contribute 7.5 percent, and Members contribute a combined 8
percent of their pay to CSRS and Social Security, while the
employing agency pays those rates into the retirement fund. The
CSRS defined annuity benefit is computed based on the high-3
average pay and length of service.
The Federal Employees Retirement System Act of 1986
established a new three-tier retirement structure with a
defined benefit annuity, a defined contribution under TSP, and
Social Security. Generally, Federal employees who entered
service on or after January 1, 1984, are covered by FERS, and
Members first elected in 1984 or later are automatically
covered.
With FERS, Congress made a conscious and conscientious
decision to prevent the underfunding problems that have plagued
so many private, State, and local defined-benefit retirement
systems. FERS was designed as a fully funded retirement system
with a dynamic normal cost-of-service credit paid for by the
employer and employee contributions. It was also designed to
better serve the needs of a more mobile work force. Though the
defined benefit provides maximum benefits when an employee
continues Federal employment into retirement, TSP and Social
Security are fully portable.
Under FERS, Federal employees contribute 0.8 percent of
their pay, and the employing agency in fiscal year 1912
contributes 11.9 percent. Members and congressional employees
pay 1.3 percent, and Congress pays 16.7 percent for employees
and 18.3 percent for Members. Federal employees and Member
contribute 6.2 percent of their pay to Social Security, with
the exception of 2011 and the first couple of months of 2012
due to the payroll tax relief bill.
The FERS basic annuity is computed based on the high-3
average pay and length of service. In addition, some FERS
retirees may be entitled to receive an annuity supplement,
payable to age 62, based on the potential Social Security
benefit earned by Federal employment.
On September 19, 2011, President Obama released ``Living
Within Our Means and Investing in the Future: The President's
Plan for Economic Growth and Deficit Reduction.'' The
President's plan proposed an increase in the employee
contribution to FERS and CSRS, as well as other defined-benefit
plans not administered by OPM. Federal employees' total pension
amounts would remain unchanged, and the employee contribution
would increase 0.4 percent of pay a year over 3 years, for a
total increase of 1.2 percentage points.
The President's plan also proposed the elimination of the
FERS annuity supplement for new employees, other than employees
subject to mandatory retirement. Overall, the plan is estimated
to save $21 billion over 10 years.
Thank you for the opportunity to testify today, and I am
happy to address any questions you may have.
[The prepared statement of Mr. Grimes follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Ross. Thank you, Mr. Grimes.
Mr. Biggs, you are recognized for 5 minutes for an opening.
STATEMENT OF ANDREW G. BIGGS, PH.D.
Mr. Biggs. Thank you very much.
Chairman Ross, Ranking Member Lynch, and members of the
subcommittee, thank you for offering me the opportunity to
testify today with regard to Federal employee retirement
benefits.
Legislation has been proposed that would alter Federal
employee retirement benefits by increasing employee
contributions and reducing the percentage of final earnings
replaced by the FERS pension plan.
If we wish to ensure comparability of pay between the
public and private sectors, whether these policies make sense
depends, in part, upon how the Federal and private-sector
pension provision compares. If Federal compensation drops below
private-sector levels, then the government may have difficulty
attracting and retaining employees. If Federal compensation
exceeds private levels, however, then taxpayer resources may be
wastefully employed.
To illustrate potential differences, I analyzed retirement
benefits for a typical Federal employee relative to what a
private-sector worker with the same salary could expect to
receive. The details of my calculations are outlined in my
written testimony, but I will summarize the results here.
While older Federal employees are covered under the Civil
Service Retirement System, younger and newly hired workers will
receive retirement income from three principal sources: Social
Security benefits, the defined-benefit Federal Employee
Retirement System, and the defined-contribution Thrift Savings
Plan. Most private-sector workers will receive retirement
income from a combination of Social Security and a defined-
contribution 401(k)-type pension plan.
In a defined-benefit plan, retirement benefits are
calculated using a formula based upon final earnings and the
number of years of service. In a defined-contribution plan by
contrast, benefits are a function of contributions and interest
earned over the years. Workers may choose how to invest their
contributions, but they also bear any market risk associated
with those choices.
I assumed a Federal employee retiring at age 62 after 28
years of service with final earnings of $78,650, which is
roughly typical for Federal employees of that age. At
retirement, he or she would be eligible for the following
benefits: $18,264 per year in Social Security benefits, $23,710
from the FERS plan, and $8,610 from his or her TSP account. The
Federal employee's total retirement income would equal roughly
$50,583, or 64 percent of their final earnings.
A private-sector worker with the same salary could expect
to receive the same Social Security benefit of $18,264, plus
around $7,044 from a 401(k) plan with a typical employer match.
The private-sector worker's total benefit of $25,308 replaces
roughly 32 percent of final earnings.
For this stylized employee, Federal retirement benefits are
roughly twice as generous as those paid to a typical private-
sector worker. Federal employees receive an employer match to
their defined-contribution TSP pension that is significantly
more generous than the typical private-sector plan, in addition
to which they receive defined benefits through the FERS plan.
Federal employees also may have access to supplemental
benefits if they retire prior to age 62 and to retiree health
coverage. In short, the Federal Government retiree income
package is a generous one that few private-sector employers
match or exceed.
Now, differing employees will experience different
outcomes, and we obviously can disagree about some of the
assumptions made in generating these figures. But no reasonable
changes to assumptions will show Federal retirement benefits to
be comparable to or inferior to a typical private-sector plan.
These figures alone do not say what we should do about
Federal employee pensions. What matters is the total
compensation package, which includes salaries, pensions, other
fringe benefits, job security, and general working conditions.
Yet most peer-reviewed academic research conducted over the
past several decades has shown Federal employees' salaries to
be higher than those paid to private-sector workers with
similar levels of experience and education. My own work with
Jason Richwine of The Heritage Foundation found similar results
with salaries, while recording a total benefits package that
exceeded private-sector levels.
Employee compensation is often described and certainly
perceived as a matter of fairness. But the fair level of
compensation, meaning fair both to employees and to taxpayers,
is the minimum level that allows the Federal Government to
attract and retain the employees it needs. It appears that the
Federal compensation taken as a whole exceeds that minimum
level, sometimes by a significant margin.
Whether to alter the terms of Federal retirement benefits,
salaries, or other terms of employment is up to Congress to
decide. It should be done in the context not of meeting some
specific budgetary goal but of setting pay that competes with
but doesn't supersede private-sector levels.
Thank you very much.
[The prepared statement of Mr. Biggs follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Ross. Thank you, Dr. Biggs.
Mr. Sepp, you are recognized for 5 minutes for an opening.
STATEMENT OF PETE SEPP
Mr. Sepp. Mr. Chairman and Mr. Ranking Member, members of
the committee, I am very grateful that you invited National
Taxpayers Union to testify today.
I will begin my testimony by referring to another
testimony, one that occurred in 1984 from our pension
consultant at the time, H.P. Mueller. He pointed out not only
the dimensions of the old Civil Service Retirement System and
its possible financial difficulties; he also talked about how
that current system was unfair to Federal retirees and
employees, as well. So we are approaching this issue from both
perspectives.
Another interesting parallel, though, is that he was
saying, even at that time, that the consultants the committee
that he was testifying before, Hay Associates, paid to try and
do private-sector comparisons with pensions still were not
including an adequate universe of the private sector to conduct
such a comparison. I think we still have those difficulties
today. I think it is a testament to my fellow panelist, Mr.
Biggs, that he could come up with such great comparisons with
the private sector.
That is one of the points that I would like to make in this
testimony. We still need high-quality data to do good
comparisons of congressional Federal employee compensation
versus the private sector. That is going to be necessary for
any reform efforts moving forward.
Another point I would like to make has to do with
bipartisanship. We are going to have a great deal of partisan
disagreement over what direction to take over pension reform. I
would contend that this kind of bipartisan effort has to begin
not only within Congress but outside of Congress. We are
willing to do that; we have been doing that.
I would call your attention to this report, ``Toward Common
Ground.'' This was put out by NTU and U.S. Public Interest
Research Group, a left-of-center organization, identifying over
a trillion dollars' worth of budget savings. This was not easy.
It took us sitting down in a room, arguing with each other,
literally coming close to pulling each other's hair out, but we
settled on these recommendations.
One of them had to do with the granting of waivers under
OPM for retired annuitants coming back into Federal service and
drawing full dual compensation. We noted that if this practice
were curtailed, if the rules were restored to a more reasonable
level, you could achieve something on the order of $600 million
in savings over 5 years. Not much, but it is a start. My
message: If we can do it, so can Congress.
Which brings me to Congress. I am not here necessarily to
argue that Members should not be compensated at all. How about
we start with a few basic reforms that can show the American
people we are trying to make progress?
One I think, H.R. 981. It would allow Members to opt out of
the FERS system. That is a good start. H.R. 2162, it would
expand the number of felonies to 20 that would disqualify a
Member for receiving a pension. Let's start there, see where
else this could possibly lead.
One example might be to simply equalize the contribution
rates and benefit formulas for Members with those of the
general Federal rank-and-file. I know my testimony has
conducted a couple of comparisons along those lines. One I
would like to point your attention to--and, here again, I am
not talking about comparisons between the general public and
Members of Congress but rather between Members and the rank-
and-file. Is the differential, the amount of extra benefit plus
the amount of extra contribution Members pay, justifiable? I
would argue the time has come to reconsider that.
Just one illustration: Ten years of service of a lawmaker,
10 years of service of a rank-and-file employee, same salary.
The employee gets about $15,600 in pension to start at 62; the
Member, $26,600. For that differential, the Member pays a
little over $8,300 over his or her entire career. And that is
an $11,000 extra benefit in the first year for about $8,300
worth of extra contributions over 10.
That provides an illustration, I think, that we can
approach this from a sensible perspective and say, all the
rhetoric, all the anger from the public aside, we have some
genuine issues that can be resolved here. We are willing to
work with you to do that.
And let me thank you, Mr. Chairman, as well as Mr. Gowdy
and Mr. Chaffetz, for cosponsoring several pieces of reform
legislation that could help get this conversation going.
Thank you.
[The prepared statement of Mr. Sepp follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Ross. Thank you, Mr. Sepp.
STATEMENT OF DAVID B. SNELL
Mr. Snell, you are recognized for 5 minutes for an opening.
Mr. Snell. Thank you, Mr. Chairman and members of the
committee. I am Dave Snell, director of retirement benefits at
the National Active and Retired Federal Employees Association.
I am testifying here today on behalf of the Federal Postal
Coalition, a group of nearly 30 organizations whose individuals
span almost the entire spectrum of the Federal community. Thank
you for the opportunity to testify on behalf of these nearly 5
million workers and retirees.
I would like to make three basic points today. First,
retirement plans should be judged by whether they provide the
income security needed to ensure that retirees do not suffer
significant decline in their standard of living in retirement.
Second, judged by that universal standard, current Federal
retirement programs provide adequate but not overly generous
retirement income. And, third, making permanent cuts to modest
Federal retirement compensation of middle-class workers to pay
for a 1-year payroll tax holiday is both unfair and unwise.
Federal workers did not enter public service to become
rich, but they do face the same economic challenges as everyone
else, including the need to prepare for retirement. Although
they are paid, on average, 26 percent less than their private-
sector counterparts, a modest retirement package helps to make
up for part of that lower pay by helping to provide reasonable
income security in their later years.
Unfortunately, recent legislative proposals have sought to
unravel this basic bargain, unfairly singling out middle-class
Federal employees for disproportionate sacrifice. Last month,
the House passed legislation that would use permanent cuts to
Federal retirement compensation of middle-class Federal and
postal workers to pay for a 1-year payroll tax holiday. Federal
employees should not have to pay for two-thirds of the cost of
continuing the holiday. This is not shared sacrifice.
Federal families are no more immune from the challenges
that come with tough economic times than any other working
American family. They, too, have been experiencing declining
home values, diminished savings, rising health insurance costs,
escalating tuition for their children's college, spouses who
have lost jobs, and grown children unable to find work after
college.
Cuts to Federal retirement benefits and further pay freezes
harm hardworking Federal employees and their families who are
struggling with these challenges just like their private-sector
counterparts. They also undermine the Federal Government's
ability to attract and retain talent, threatening harm to a
Federal civil service critical to meeting the increasingly
complex and deeply important tasks that the American citizens
need for them to do.
Rather than looking to eliminate the current Federal
Employees Retirement System [FERS], or reduce its benefits,
Members of Congress should look to the system as a model for
private-sector reforms. The basic FERS annuity is modest. Taken
together with the other two components of the plan, Social
Security and the Thrift Savings Plan, FERS provides an adequate
retirement security.
H.R. 3630 would substantially reduce the retirement income
security provided by FERS and effectively provide a pay cut for
Federal employees currently under a pay freeze for the last 2
years. New employees would experience a 41 percent reduction in
their deferred compensation, resulting in a new median annuity
of only $425 a month or $5,098 annually. That is barely over a
third of what a minimum-wage earner would make per year working
40 hours per week for $7.25 an hour.
As much as anyone, our Nation's civil servants understand
the constraints of the Federal budget and the gravity of the
Nation's fiscal responsibilities. But we do not believe that it
is fair to be singled out for sacrifice to pay for a tax
holiday that some of us do not even receive.
Thank you again for the opportunity to share our views, and
I am happy to take any questions.
[The prepared statement of Mr. Snell follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Ross. Thank you, Mr. Snell.
I will now recognize myself for 5 minutes for questioning.
And I am going to go to the heart of what I think is facing us
here, and that is the congressional pension system.
Do you, each one of you, believe that Congress should bring
its retirement rules in line with those of most Federal
employees? And I will start off with you, Mr. Grimes. And why
or why not? Speaking specifically of Congress.
Mr. Grimes. Honestly, the administration would not have a
view on whether congressional pensions should be the same as
the rank-and-file. Thank you.
Mr. Ross. Dr. Biggs.
Mr. Biggs. In general, yes.
Mr. Ross. And any follow-up, I mean, as to why or why not?
Mr. Biggs. Well, with congressional pensions, there are
some specific issues that you are looking at, in terms of short
tenure and not--well, presumably, or supposedly, not as much
job security. But, in general, you can address those through a
defined-contribution plan, where there is an employee
contribution and an employer match. If the Member of Congress
leaves, they can take that with them.
Working that circumstance into a defined-benefit plan gets
tricky. The defined-benefit plan, if you look at what is called
the normal cost of pensions under FERS for Members of Congress,
is much, much more generous than the ordinary FERS for Federal
employees, which in turn is much, much more generous than what
a typical private-sector worker gets. So I think clearly some
scaling down makes sense.
Mr. Ross. Mr. Sepp.
Mr. Sepp. Certainly. And I would just point out one other
rather interesting statistic concerning the normal cost factor,
in other words the agency contribution that is set aside for
Members of Congress. That actually has been rising at a
somewhat faster rate than what you would find for the rank-and-
file contribution, which actually tends to fluctuate between 11
and 12 percent. It was about 15 percent back in 1997, now it is
over 18 percent for lawmakers.
Mr. Ross. Mr. Snell.
Mr. Snell. Mr. Chairman, our coalition believes that
Members of Congress should be on an equal footing with all
other Federal retirees in the matter of their retirement.
Mr. Ross. Thank you.
Mr. Grimes, I know it is very important that OPM makes sure
that the Federal Government recruits and retains and rewards
Federal employees. And that is all part and parcel, I think, of
what needs to be done in order to keep our human resources at
their best.
Now, taking us from a defined-benefits plan to a defined-
contributions plan, will that in any way, in your opinion,
impact the recruitment and retention of Federal employees?
Mr. Grimes. Our employee surveys show that benefits
provided by the Federal Government for employment are essential
for recruiting and retaining high-quality employees.
We believe that the President's proposal to increase
contributions over 3 years by the amount of 1.2 percent is an
adequate response in this time of difficulty.
Mr. Ross. Okay. But do you think it is--is it going to
change the ability for the Federal Government to retain and
recruit if we move toward a defined-contribution plan as
opposed to a defined-benefit plan?
Mr. Grimes. Well, back when FERS was implemented, of course
we did add that component.
Mr. Ross. Right.
Mr. Grimes. And I don't know that our recruitment strategy
changed at that time. But time would have to tell.
Mr. Ross. Dr. Biggs, in terms of the private sector versus
the public sector, I think we have seen Fortune 500 companies
rarely, if at all, provide a defined-benefits plan. In fact, I
think--and let me know if this is true or not--they are moving
toward an almost all defined-contribution plan, which is
essentially a 401(k). Is that your understanding?
Mr. Biggs. That is correct. Defined-benefits plans are
dying out in the private sector, and there is a variety of
reasons, one of which, though, is the ability to recruit and
retain.
Defined-benefit plans have an very odd, sort of, path of
benefit accumulation over a worker's career. For a long period
of time, under defined-benefit plans, an employee accumulates
very little of what you call pension wealth. That tends to
shoot up very quickly later in their career and then falls down
again once they reach their 60's. I would refer you to the work
from Michael Podgursky of the University of Missouri, who has
looked at this very closely with reference to teachers.
What that means is a defined-benefit plan is worth very,
very little to short-term employees. The young, mobile
employees you might wish to recruit, a defined-benefit plan is
essentially worthless to them. Also, you have older employees
who you wish to keep on the job later, continuing employment
often means they lose money under a DB plan. So you get this
pushing and pulling effect which often works contrary to what
you want to do in terms of employee recruitment and retainment.
Mr. Ross. Mr. Sepp, from your research, are we moving
toward, even in government pensions, whether it be municipal,
county, or State pensions, from a defined-benefits plan to a
defined-contributions plan?
Mr. Sepp. I would say we are. And a lot of it is not by
choice, it is by necessity. If you take a look, for example, at
Rhode Island's problems. The treasurer there, Gina Raimondo,
had to come up with a plan that has much heavier reliance on
defined-contribution systems to finance the whole retirement
structure.
Mr. Ross. Because they just can't afford it.
Mr. Sepp. Affordability is a problem. Plus, of course, in
the State and local pension plans, you have the additional
factor of investments. In other words, the Federal Government
doesn't invest DB assets----
Mr. Ross. Right.
Mr. Sepp [continuing]. In markets, whereas State and local
governments often do. They have had a lot of volatility there.
Mr. Ross. I follow you.
I see that my time is up. I will now recognize the ranking
member, Mr. Lynch from Massachusetts, for 5 minutes for
questioning.
Mr. Lynch. Thank you, Mr. Chairman.
I do note here, we have a MetLife--a 2008 MetLife study
that indicates that workers are more likely to consider pension
benefits as an important factor in remaining with a company.
And it would seem to refute at least some of what we are
hearing there from the panel. Is there any real rebuttal on
that?
MetLife is saying that--let me see if I can find it--72
percent of employees cite retirement benefits--defined-benefit
retirement benefits as an important factor in their loyalty to
their employer. And they additionally found--there are several
others studies that show defined-benefit plans keep workers at
the job longer than workers without pensions and that firms
with defined-benefit pensions experienced lower turnover rates
than non-pension firms.
Do you find that surprising?
Mr. Biggs. I am not sure that finding is actually
inconsistent with the points that I just made, in terms of the
incentives of defined-benefit pensions.
It is certainly true that a mid-career employee under a DB
plan who quits and shifts to another job, because the DB plan
isn't portable, will often leave literally hundreds of
thousands of dollars on the table by doing that. So a mid-
career----
Mr. Lynch. That would be a disincentive, wouldn't it?
Mr. Biggs. Sure. A mid-career employee, therefore, has a
strong disincentive to leave.
What that often means in public service, though, is if you
have somebody--this applies more to the State and local level--
someone who is burned out in their job and would like to leave,
they effectively are prohibited from doing it by the effects of
the DB plan.
There is, I think, strong empirical evidence that public
employees respond to the push-and-pull incentives of defined-
benefit pension plans. For instance, if you have a----
Mr. Lynch. Okay. I don't want you to eat up all my time.
Mr. Biggs. Sure.
Mr. Lynch. Thank you.
I also notice that, you know, there is a lot of comparison
going on about private-sector defined-benefit plans. One thing
I did notice, that 96 percent of defined-benefit plans in the
private sector are fully paid for by the employer, so that
there is only 4 percent of these defined-benefit plans that--I
mean, 96 percent of them, the employer covers everything.
Employees don't have to contribute a nickel, not a dime,
nothing. And we are comparing them to, you know, the Federal
plan that requires employees to contribute over their
lifetime--a fairly significant amount over their career.
So I having a little bit of trouble comparing a private-
sector plan that requires no contribution, employer covers
everything--which is 96 percent of those plans--and the plan
that we are talking about here today. Any thoughts on that?
Mr. Biggs. I think my answer to that would be that very,
very few private-sector employees today, particularly newly
hired private-sector employees, have DB pensions. I noted in my
testimony that most private-sector DB plans are not
contributory; there isn't an employee contribution. But the
fact is simply that very few private-sector workers have those.
If you look at----
Mr. Lynch. Would they be larger firms or--the problem is,
you know, you try to compare--I mean, what is it, 8 million
Federal employees, and then you are trying to compare that to
Al's Deli. You know, how do you make that comparison?
Mr. Biggs. They would tend to be more unionized firms--
heavy industry, airlines, auto, things of that nature. In my
testimony, I focused based on worker type. I compared two
workers who were classified by the Bureau of Labor Statistics
as professional management or related workers--the white-
collared, skilled workers that roughly approximate where
Federal employees are.
If you adjust for firm size, you are likely to find
somewhat larger pension contributions. But there are very few
newly hired private-sector workers in any type of firm who are
being offered a DB pension. It is just very unusual.
Mr. Lynch. Right. But, as you said, if you are comparing
defined-benefit plans to defined-benefit plans, you probably
should look at firms that are similar, right? As opposed to--
new firms are generally small when they start. You know what I
mean?
Mr. Biggs. I am not talking about firms. I am----
Mr. Lynch. So you are already----
Mr. Biggs. Even newly hired employees at large firms.
Mr. Lynch. I am going to take back my time, if I could.
Thanks.
Actually, Mr. Chairman, I will yield back. I only have a
few seconds left. Thank you.
Mr. Ross. Thank you.
The gentleman from Illinois, Mr. Davis, is recognized for 5
minutes.
Mr. Davis. Thank you very much, Mr. Chairman. I want to
thank you for yielding.
I would like to go back to a remark that was made by one of
the witnesses a few minutes ago that I believe deserves some
highlighting. Mr. Snell from the Federal Postal Coalition, I
believe it was you that said that Federal workers do not enter
public service to become rich. And I will repeat that: Federal
workers do not enter public service to become rich.
In fact, I believe that the average Federal worker enters
these jobs out of the desire to serve their country and to make
a difference on behalf of others. That is a point that I think
has been overshadowed a great deal in recent years.
For the most part, Federal workers are middle-income,
hardworking Americans who perform critical jobs and duties day-
in and day-out. To suggest that they do not deserve a
retirement annuity sufficient enough to cover their expenses in
the later years of their life is pretty much as uncompassionate
as I think we can get.
Let me ask each of you if you are aware that the majority
of Federal employees work in cities and communities outside the
District of Columbia. You are aware of that?
Mr. Snell. Yes.
Mr. Davis. Well, in fact, I believe that each and every one
of us on this podium, as well as on the panel, know Federal
employees and postal employees in my congressional district who
work with the idea that after retirement they ought to be able
to at least take care of their basic expenses.
I have a large number of Federal employees in my
congressional district, which is the Seventh Congressional
District of Illinois, which is a major metropolitan area. And,
Mr. Snell, let me ask you, what do you think are some of the
potential negative economic consequences in congressional
districts such as ours if Congress freezes Federal workers' pay
for an additional year, as required based on H.R. 3630?
Mr. Snell. Thank you, Congressman.
That is--the implications on freezing it for another year,
workers' pay, it will substantially reduce their ability to
help feed their families, send their kids to school. It will
also have an impact on their contributions to their Thrift
Savings Plan or other retirement nest eggs that they may have.
So I think what we are talking about by another freeze is
again penalizing middle-class Federal workers, postal workers,
to help solve a budget problem they didn't commit. And, I mean,
they didn't have--they are not responsible for.
Mr. Davis. Thank you.
Mr. Biggs, in your testimony, you mentioned that Federal
work force pay is comparable to pay in the private sector for
similar work. However, I would like to ask if you and the other
witnesses are aware of a recent study by the Bureau of Labor
Statistics that found that there is actually a 26 percent pay
gap between Federal workers and their similarly skilled and
educated private-sector counterparts.
Mr. Biggs. I am well aware of that study.
I will say, opinion is divided on Federal pay. On one side
are the studies done for the Federal pay agent, which find
these large pay gaps for Federal employees. On the other side
are effectively three decades of peer-reviewed academic
research, which finds a very different result using different--
a variety of different methods.
The problem with the pay-agent result is they try to
compare jobs to jobs. They say, what does a Federal job pay
relative to a similar private-sector job? They don't look at
the people who fill those jobs. The Congressional Budget
Office, over 20 years ago, along with academic research, has
shown that for any given job the Federal Government tends to
place in that job an individual with less experience and less
education than the private sector would. Once you account for
that, this 26 percent pay gap simply disappears.
So there is a reason why those studies from the pay agent
are not taken particularly seriously by academics who look at
these issues.
Mr. Davis. Mr. Chairman, let me ask unanimous consent to
include in the record the memorandum from the Federal Salary
Council that highlights the 26 percent pay gap found by the
Bureau of Labor Statistics.
Mr. Ross. Without objection, so ordered.
[The information referred to follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Davis. Thank you. My time is up, and I would yield
back.
Mr. Ross. Thank you.
Mr. Lynch.
Mr. Lynch. Thank you, Mr. Chairman.
Similarly, I would like to ask unanimous consent that the
statement of Colleen M. Kelly, the national president of the
National Treasury Employees Union, also be entered into the
record.
Mr. Ross. And, without objection, it is so ordered.
[The prepared statement of Ms. Kelly follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Ross. That completes our questioning by these Members.
We have been called to vote. We will recess now.
I want to thank our panelists for being here today. I
appreciate your testimony.
And then we will reconvene right after this series of votes
to impanel our second panel of witnesses.
[Recess.]
Mr. Ross. I want to reconvene the Subcommittee on Federal
Workforce, U.S. Postal Service and Labor Policy. In the
interest of time, we are going to go ahead and get started, and
I would like to recognize one of our first panelists, the
gentleman from North Carolina, Mr. Coble, for 5 minutes on his
bill.
STATEMENT OF HON. HOWARD COBLE, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF NORTH CAROLINA
Mr. Coble. Chairman Ross, I thank you and your fellow
members of the subcommittee for having called this hearing.
Reforming congressional pensions is long overdue. From the
feedback that I have received over the years, Mr. Chairman,
this program is unpopular with many taxpayers. When I first ran
for office in 1984, I told citizens of the Sixth District of
North Carolina that if elected, I would not participate in the
congressional pension program--not my most brilliant financial
decision, I might add--and would work to reform the system.
North Carolina has a similar system back home, and I have
rejected that as well, for this reason, Mr. Chairman. I believe
the taxpayers pay our salary. I don't know that they need to
pay our pensions. Over the years, I have tried unsuccessfully
to change the congressional pension program. I have introduced
bills to abolish the system and to make it equal to the pension
that all Federal employees receive. All of these past efforts
died quickly and quietly.
So for the 112th Congress, I tried a new approach. My bill
would link to the time of service required before a Member of
Congress would be eligible for participation in the pension
program. This legislation, H.R. 2652, extends the time
required, as is the case now, from 5 years to 12 years before a
Member is vested in an annuity under the Federal Employees
Retirement System. In order to avoid any constitutional
concerns, the bill would only apply to Members who have not yet
been elected to serve in the Congress.
Extending the required years of service from 5 to 12 years
was a logical calculation. It is the equivalent of two terms in
the Senate or six terms in the House or a combination of each
of the two.
It is also important to note, Mr. Chairman, that H.R. 2652
has no impact on other Federal employees. During the past few
years, many workers and retirees in America have lost their
pensions due to bankruptcy or in the stock market. In my view,
the decision to participate in the congressional pension
program is a personal one, between the Representative and his
or her constituents. H.R. 2652 does not interfere with that
relationship. It simply raises the bar of eligibility for
Members seeking a Federal annuity.
I think the bar should be raised, and considering the
current economy, I think doing so now would be received very
well by the American taxpayers.
I am not patting myself on the back. Well, maybe I am, but
I am patting you on the back as well, Mr. Chairman, you and
your members, for having called this hearing because many
people in this town don't want any discussion directed to
pensions. They want the status quo to remain intact, and I
think that is probably--in my opinion, that is a mistake. I
appreciate your consideration for H.R. 2652 and hope that you
will support this legislation so that we can begin the process
of improving the congressional pension program.
Mr. Chairman, in closing, I don't know of any pension
situation that vests after only 5 years. I think it is overly
generous, and I think that is one of the reasons why it is so
unpopular among taxpayers in America, and I thank you again,
Mr. Chairman.
[The prepared statement of Hon. Howard Coble follows:]
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Mr. Ross. Thank you, Mr. Coble, I appreciate your time
today.
Now recognize the gentleman from Arkansas' Second
Congressional District, Mr. Griffin, for 5 minutes.
Mr. Coble. Mr. Chairman, may I be excused?
Mr. Ross. Yes, sir.
Mr. Coble. I am going to head to the airport.
Mr. Ross. Have a safe trip home, Mr. Coble.
Mr. Coble. Thank you, sir. Appreciate it.
Mr. Ross. Yes, sir.
STATEMENT OF HON. TIM GRIFFIN, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF ARKANSAS
Mr. Griffin. Thank you, Mr. Chairman, thank you to Ranking
Member Lynch for inviting me to testify on my bill, H.R. 3480,
the End Pensions in Congress [EPIC] Act.
My top priority in Congress is to encourage private sector
job creation, especially through finding ways that the
government can live within its means. I believe the EPIC Act
helps to achieve this goal.
Americans are demanding bold and real change from
Washington, and I believe my proposal meets that test, and as I
hear a lot when I am back in my district in Arkansas, it is
something that my constituents really don't think we will ever
do.
On November 18, 2011, I introduced the EPIC Act, which
would end the congressional pension plan for future Members of
Congress and recently elected Members who have not yet vested.
So if you are here like me and you haven't been here 5 years,
then it would end the pension for you as well as new Members of
Congress.
If you have already vested, then you have the opportunity
to opt in if you want to stay in the system, and then it won't
impact you. I thought that was only fair for the people who had
been here for some time, to leave the rules of the game as they
were when they got here.
For me, this is not a moral judgment. I personally, like
Congressman Coble, decided not to participate in the
congressional pension program. I did that because I ran on it.
But this is not a moral judgment for me, and I don't ask that
folks necessarily share my view on whether to take the pension
in order to support the EPIC Act.
I would love to provide Members with pensions, but for me,
it is just a matter of the bottom line, and that is that we
can't afford it. Our national debt has topped $15 trillion,
going to $16 trillion, and the Federal Government borrows 42
cents for every dollar it spends. And I recognize that ending
congressional pensions alone will not fix our debt problems. In
fact, it won't even significantly reduce our Federal spending.
I get that. But I believe it is the gateway, if you will, it is
the necessary starting point for reforming the Federal
Employees Retirement Program more broadly, FERS, as we call it.
Congress must lead by example and cannot credibly tackle
FERS without first reforming our own federally funded benefits.
Many of my constituents have told me they support ending
congressional pensions and pensions for future Federal
employees because they know those combined, not just focusing
on the congressional, but those combined will save the American
taxpayers hundreds of billions of dollars. The private sector
has already realized that defined-benefit pension plans for
employees are a thing of the past. This realization came at a
cost with the failure of the pension programs of some of
America's biggest companies.
Take, for example, United Airlines and Delphi corporations.
Both of these companies' pension programs were turned over to
the Pension Benefit Guaranty Corporation, and now some
participants in those programs receive reduced payments.
If you look at what the private sector gets in terms of
private-sector employees and their benefits and what we get in
the Federal Government, what we get is generous by any
standard. Most private-sector employers do not provide pension
benefits. Some provide TSPs with a 3 percent match. We get a 5
percent match.
The Federal Government is currently projected to contribute
about $25 billion to FERS in 2012. By 2025, there is a three-
quarter of a trillion dollar deficit. If we do not adjust these
benefits for future recipients, our retired Federal employees
may be faced with potential cuts to their benefits. We have
already seen this in Greece, where the current financial crisis
has resulted in a 20 percent cut in pensions.
So the bottom line is this: It is not a choice between
leaving things the same or changing and reforming the system.
We either have to reform the system, or eventually benefits are
going to be cut for people currently relying on them.
I ask for your support with my bill. I think it is a first
step toward reforming pensions more broadly. I think it is
about time we did it. Thank you for having me here today. Look
forward to working with you on it.
[The prepared statement of Hon. Tim Griffin follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Ross. Thank you, Mr. Griffin.
I now recognize the gentleman from Colorado's Sixth
Congressional District, Mr. Coffman, for 5 minutes.
STATEMENT OF HON. MIKE COFFMAN, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF COLORADO
Mr. Coffman. Thank you, Mr. Chairman, and Ranking Member
Lynch.
I had the honor of serving in both the U.S. Army and the
Marine Corps. And in the Congress of the United States, I have
the opportunity to serve on the House Armed Services Committee.
And I think Admiral Mullen, when he was chairman of the Joint
Chiefs of Staff, testified before the Congress that the
greatest threat to U.S. security is our national debt. He
didn't say it was Al Qaeda. He didn't say it was North Korea or
Iran. He said it was an internal problem, and that is America's
national debt.
We in the Congress are going to have to exercise
extraordinary leadership in navigating this country out of our
debt crisis, and in doing so, we are going to have to ask the
American people to make sacrifices, to include Federal
employees and even our military, and so it is about leadership.
And if there is one thing I learned in both the U.S. Army
and the Marine Corps about leadership, it was leading by
example. Never ask anyone to do anything that you yourself
would not be willing to do. And so I believe that the Congress
of the United States has to lead by example to give us the
credibility to attack these very difficult issues.
Last September, I introduced House Resolution 2913, and
what House Resolution 2913 does is it in effect ends the
congressional pension program. It does so by honoring all
accrued benefits that Members have earned under this program,
but not allowing any more benefits to accrue. Members of
Congress pay in 1.3 percent of their salary into this pension
program. It is a factor of 1.7 percent is the benefit they
accrue for the first 20 years, 1 percent thereafter, and so
what it would say is that we will honor anything that has been
accrued up to the effective date of the bill, and for those
Members who are not vested yet, it takes 5 years to be vested,
then they would certainly get that 1.3 percent refunded to
them.
I believe that the Founding Fathers of this country
envisioned a Congress where its Members came from other
professions to serve in the Congress and didn't see the
Congress as a career in and of itself, where they would be
reliant upon the taxpayers of the United States to provide them
a pension for the rest of their lives, and so I feel that this
also fits in that vision by doing away with the defined benefit
pension program.
We would still have a defined contribution pension program
that is available to all Federal employees, whereby members can
put up to $17,000 into the defined contribution pension plan
and have a 5 percent match of their salary that is matched by
the taxpayers of the United States, and I think this is more in
line with what our private sector counterparts get all across
America, and so, again, I think this is about leading by
example. This is about Congress making a sacrifice to show the
American people that we have skin in the game with them during
these challenging economic times. So, Mr. Chairman and Ranking
Member Lynch, I look forward to your questions.
[The prepared statement of Hon. Mike Coffman follows:]
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Mr. Ross. Thank you, Mr. Coffman.
Mr. Griffin. Mr. Chairman.
Mr. Ross. Yes, Mr. Griffin.
Mr. Griffin. I just want to ask permission I be allowed to
go catch my plane.
Mr. Ross. Sure.
Mr. Griffin. Thank you, appreciate it.
Mr. Ross. Thank you, Mr. Griffin.
The gentleman from the 17th Congressional District of
Illinois, Mr. Schilling, you are recognized for 5 minutes.
STATEMENT OF HON. ROBERT T. SCHILLING, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF ILLINOIS
Mr. Schilling. Thank you, Chairman Ross and Ranking Member
Lynch.
I appreciate the opportunity to be here today to testify.
When I came to Congress, there was several different issues to
discuss, and what I did was I put together a bill 2397, H.R.
2397. I call it the Congressional Retirement Age Act. It is a
bipartisan money-saving piece of legislation that provides an
opportunity for Congress to lead by example.
And in Congress, we often talk about what we can do today
to make things better for our kids and our grandkids. To
achieve this, I think we are going to have to make some tough
decisions and then some easy decisions. The Congressional
Retirement Age Act represents a small commonsense step we can
take toward reevaluating the pensions that the Members of
Congress are eligible to receive.
When I ran for office, I made a contract with the people of
the 17th District of Illinois, and one of the elements of this
contract was to reject the congressional pension. This was a
personal decision, rooted in the belief that our Founders did
not set Congress up to be a career. And I am not here to preach
to anyone. My goal is to advocate for good policy change
basically.
As you know, Members of Congress are eligible to receive a
pension at the age of 62 after 5 years of Federal service.
However, if a Member has served for 25 years, they can receive
it as early as age 50. I can tell you that I have talked to
many of my constituents about this issue and am hard pressed to
recall one person that believes Congress should receive a
pension, let alone as early as age 50, and this especially
rings true when you consider that the earliest the folks back
home can retire and receive their Social Security benefits is
age 65.
The first bill I introduced as a Member of Congress is H.R.
2397. It simply ties a Member of Congress' eligibility to
receive pension benefits to the Social Security retirement age.
Regardless of whether or not you believe Congress should be
getting a pension, I hope that we can all agree that Members of
Congress who do elect to receive the pension benefits should
not be able to do so before their constituents can access
Social Security benefits.
I believe that this is a bipartisan effort with 26
cosponsors in the House, and then Senator Sherrod Brown of Ohio
has spearheaded the effort in the Senate. The Congressional
Retirement Age Act has the support of the National Taxpayers
Union and the Taxpayers Protection Alliance.
According to a preliminary CBO staff estimate, this
legislation would save $10 million to $15 million over 10
years. This is real money. At a time when we are facing a
national debt of more than $15 trillion, all the cost savings
we can get definitely count.
Again, I would just like to thank you for opportunity to
speak on this legislation today, and I would also like to thank
Chairman Ross and Congressman Chaffetz for cosponsoring H.R.
2397. I would welcome the support of all of the Members in
Congress on this bill and look forward to working together and
hope that we can advance the Congressional Retirement Age Act.
[The prepared statement of Hon. Robert T. Schilling
follows:]
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Mr. Ross. Thank you, Mr. Schilling.
Mr. Schilling. And I also have a----
Mr. Ross. A plane to catch?
Mr. Schilling. Yeah.
Mr. Ross. Have a safe trip.
Mr. Schilling. Thank you very much. Have a great one.
Mr. Ross. Thank you for taking the time.
The gentleman from Florida's Fifth Congressional District,
my colleague Mr. Nugent, you are recognized for 5 minutes.
STATEMENT OF HON. RICHARD B. NUGENT, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF FLORIDA
Mr. Nugent. Well, first of all, I would like to thank the
committee and particularly you, Chairman Ross, and Ranking
Member Lynch for allowing us to speak here today.
I came to D.C. in 2010 as a new Member at orientation week
like everybody else, and I met with the benefits office to talk
about the health care benefits, the Thrift Savings Plan, and
other pension plans. During that meeting, I turned down the
health insurance plan. I didn't think that I should have better
benefits than anybody at the Sheriff's Office where I just
retired. I did that because I believe I am here representing
the people of the Fifth District, Congressional District of
Florida. I am not here to enrich myself but, rather, serve my
community, my neighbors, and my Nation.
That is why to this day, my wife and I buy health
insurance, which we pay for out of our own pocket. This
decision costs us over $10,000 a year.
During that meeting, I also tried to opt out of the
congressional pension fund, FERS, for the same reason. I also
asked if there was a way to contribute to the Thrift Savings
Plan without getting a government match for my investment.
Frankly, I was shocked when the benefits representative told me
that I was legally required to accept a congressional pension
as long as I was here for at least 5 years. Similarly, I
couldn't contribute to the TSP without receiving a Federal
match of up to 5 percent. Even more, if I didn't put a single
penny, not a single penny into the TSP, the government would
still contribute to the match of 1 percent of my salary without
any cost to me.
Once I was sworn in, I dug into this issue further to try
to figure out why, exactly, I was legally prohibited from
choosing not to participate in the Federal Employee Retirement
System. What I found out was until 2004, Members of Congress
could opt out to decline coverage under the Federal Employee
Retirement System. In fact, to this day, anybody elected to
this body before September 30, 2003 continues to be able to
decline the Federal Employee Retirement System coverage. It is
only Members of the House of Representatives, not even
Senators, entering office of September 30, 2003 who are legally
obligated to participate in the Federal Employee Retirement
System. Why are Senators allowed to opt out and not
Representatives? Why are folks elected before September 30,
2003 allowed to opt out at this time but not after that date?
And, frankly, I really don't know.
What I do know is this, I was a cop for 38 years, and for
the last 10 of those years, I was sheriff of Hernando County,
Florida. That was my career, and what I am doing here in the
House of Representatives is serving my country. As I see it,
you get a pension for your career, not for your service.
Congress is not and will never be my career. That is why I
introduced H.R. 981, Congress is Not a Career Act.
This bill would simply put Members of Congress like me,
elected to the House of Representatives after September 2003,
on the same footing as those folks that were here longer than
us. I want to make it clear that Congress is Not a Career Act
does not require anybody to give up a pension. Additionally,
supporting my bill does not commit you to opting out of the
Federal Employee Retirement fund. It simply says that you will
have a choice.
H.R. 981 gives Members the choice of participating in the
Thrift Savings Plan without receiving the Federal match. Again,
the bill doesn't require anybody to do something nor does it
prohibit anybody from participating in anything. It simply says
that Members should have the option to invest in their future
without having the taxpayers contribute to that investment.
As you all may know, all three of my sons are active duty
members of the U.S. Army. They and their brothers and sisters
of arms also have a TSP program that they can contribute to.
However, the majority of service members do not receive any
type, any type of Federal match for their TSP contribution. I
can't fathom receiving a TSP match while my kids and other
service members fighting for our freedoms don't get a match of
their own.
The Congress is Not a Career Act is not about denying
anybody benefits they are rightly entitled to. It is about
allowing those of us who don't view this institution as a
career and don't think we should get a pension for serving our
country, who don't think we should be enriching ourselves while
sitting in the People's House the ability to opt out of the
Federal Employee Retirement System and the Federal match to our
Thrift Savings Plan. I was amazed that you become vested in the
Federal system after simply 5 years.
With that, I really want to thank this committee for
listening to all of us today in regards to how we can
restructure and bring sanity back to the Federal Government.
When we are at an all-time low, it is about us acting to
restore faith in this body that we so proudly serve, the public
of this United States, and with that, I yield back the balance
of my time.
[The prepared statement of Hon. Richard B. Nugent follows:]
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Mr. Ross. Thank you, Mr. Nugent.
I now recognize the gentleman from Illinois's 10th
Congressional District, Mr. Dold, for 5 minutes.
STATEMENT OF HON. ROBERT J. DOLD, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF ILLINOIS
Mr. Dold. I certainly want to thank the committee.
And Chairman Ross, thank you for holding the hearing.
Ranking Member Lynch, thank you.
I am here today to talk a little bit about the
Congressional Integrity and Pension Forfeiture Act, which is
really an expansion of a law that was signed the Honest
Leadership and Open Government Act in 2007, and while you have
a copy of my statement, what I thought I would do is just
summarize the gist of it and why we are putting forth this
bipartisan piece of legislation.
Right now, you have the ability to, if you are a felon, to
receive a pension from the taxpayers of the United States.
Congressional Research Service has said over the past 50 years
that we have had Members of Congress that have been convicted
of at least 16 different felonies, including receiving illegal
gratuities, bribery, conspiracy, extortion, income tax evasion,
embezzlement, theft of public funds, and yet these individuals
would be eligible to receive a pension, at least until 2007,
and that law became the law of the land.
Unfortunately, it only covers Members of Congress while
currently serving. We have had other instances and other
instances more recently in the State of Illinois where we have
had former Members of Congress that have gone on to hold
elective office and become--and I believe should be held to a
higher standard by their constituents that have violated the
law and become felons, and yet they are still eligible to
receive their pensions from the American taxpayer. I think this
is wrong.
I think that if you violate a public trust and commit a
felony under the certain areas that have been provided,
expanded, that you should forfeit that pension. Right now, we
are talking about not a big sum of money--it is about $800,000
a year that if this law were to have been enacted would not
have to be paid out to former Members of Congress.
I think this is a commonsense piece of legislation, one
that should pass the House by 435 votes and pass the Senate
unanimously.
We continually hear about how Congress is passing laws that
are not holding themselves up to that law first and foremost,
and I hear that back in my district regularly, and I am
confident that most of you do as well. We need to be held, I
think, to a higher standard. And if we violate that public
trust, we should absolutely have skin in the game to say we
will not be able to receive taxpayer funded pensions for the
remainder of our lives.
Now, I recognize that there is some misconceptions about
what the pensions are out there for Members of Congress, that
you vest in 5 years and that it is 1.7 percent, so it is not a
huge sum of money, but what it does do is it lets the American
public know that we, indeed, in this body will hold ourselves
to a higher standard.
This is an expansion of the already existing Honest
Leadership and Open Government Act. I think it makes a lot of
sense. It is one that I think we should act on actually
immediately, and I don't want to belabor the point, so I am
happy to answer your questions, and thank you again for the
opportunity to join you.
[The prepared statement of Hon. Robert J. Dold follows:]
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Mr. Ross. Thank you, Mr. Dold, and in the interest of time
and pursuant to a previous agreement, we will not be asking
questions of the Members, but I believe, Mr. Connolly, you
would like to make a statement?
Mr. Connolly. No, Mr. Chairman. Well, thank you. I just
wanted to participate.
I am very interested in hearing our colleagues and
certainly will take their proposals under advisement. I
continue to believe on the broader point in terms of public
service, you know, we have fine, upstanding civil servants who
serve this country, whether they wear the uniform or they
don't. And I would hope that we here in Congress, as we talk
about benefits and compensation, provide the dignity and
respect those civil servants have earned and that we make sure
that we take care to ensure that their compensation is fair and
reflects that dignity and respect.
And with that, I yield back, Mr. Chairman.
Mr. Ross. Thank you, Mr. Connolly.
I want to thank the Members for appearing today and thank
you for your efforts and look forward to working with you on
these pieces of legislation. This subcommittee now stands
adjourned. Thank you.
[Whereupon, at 11:25 a.m., the subcommittee was adjourned.]
[The prepared statements of Hon. Elijah E. Cummings and
Hon. Gerald E. Connolly and additional information submitted
for the hearing record follow:]
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