[Congressional Record Volume 141, Number 59 (Thursday, March 30, 1995)]
[House]
[Pages H4026-H4029]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


                    FEDERAL EMPLOYEE PENSION SYSTEM

  The SPEAKER pro tempore (Mr. Fox of Pennsylvania). Under the 
Speaker's announced policy of January 4, 1995, the gentleman from 
Maryland [Mr. Hoyer] is recognized for 60 minutes as the designee of 
the minority leader.
  Mr. HOYER. Mr. Speaker, as the Speaker knows, I came over to the 
floor during the course of a previous special order that a number of 
Members heard, and I had some concerns about the facts that were being 
discussed about the Federal employee pension system and I therefore 
want to make some remarks.
  Very frankly, those remarks will be in large part from a 
Congressional Research Service paper that was prepared when the 
questions raised by the gentleman from Florida [Mr. Mica], the chairman 
of the Civil Service Subcommittee, which he discussed on the floor 
today, were first raised.
  Those two questions include, first, the unfunded liability that is 
alleged to be present in the Civil Service Retirement System. For those 
who may not be fully familiar, Federal employees have effectively two 
retirement systems, one for those employees who were hired prior to 
January 1, 1984, and those who were hired subsequent to 1984.
  The Federal Employee Retirement System, known as FERS, is available 
to all employees, but is mandatory for those who came on board after 
January 1, 1984. It is a system that everybody agrees is fully funded. 
It is a system which for the first time incorporated Social Security 
within the retirement scheme for Federal employees as well as a thrift 
savings plan. So the employees since January 1, 1984, essentially have 
a 3-legged stool as their retirement benefit: the Federal Employment 
Retirement System itself, the Thrift Savings Plan to which employees 
and their employer contribute, and Social Security.
  The second question that has been raised was the question: Is the 
system now insolvent or will it become insolvent in the future? The 
answer to both these questions is no. That is critically important 
because that answer leads to the conclusion that there is not the 
necessity to act precipitously on this issue.
  In point of fact, the Republicans are acting precipitously, and 
notwithstanding the fact that the committee of jurisdiction, the 
committee formerly known as the Committee on Government Operations, had 
hearings in subcommittee on this issue, chaired by the gentleman from 
Florida, and considered a bill, which would have involved a 2\1/2\-
percent increase in the contribution that Federal employees make to 
their retirement system. Now that was for both those in the Civil 
Service Retirement System for employees before January 1, 1984, and 
those after, even though everyone agrees that those after January 1, 
1984, are in a system that is fully paid for, notwithstanding that the 
proposal is to increase their contribution as well.
  For those prior, it is 2\1/2\ percent. Ladies and gentlemen, a 2\1/
2\-percent increase for Federal employees in their contribution is on 
top of the 7 percent that they already contribute. They do not have 
Social Security. So this system is their sole retirement system.
  Their employer matches their contribution of 7 percent and an 
additional contribution is made to fully fund the system.
  I want to read from the CRS report in answer to those two questions 
about this system. I am not going to go into the background beyond what 
I have already stated.
  The CRS report says this: ``The liabilities of a retirement system 
are the costs of benefits promised to workers and retirees. A 
retirement system is fully funded if a trust fund holds assets 
approximately equal to the present value of all future benefit promises 
to which retirees and vested employees are entitled.'' Vesting in the 
Federal plan, by the way, requires 5 years of employment.
  ``Unfunded liabilities,'' the report goes on, ``are earned benefits 
for which assets have not been set aside in a retirement fund. As of 
the end of fiscal year 1993, the Federal retirement trust fund held 
$276.7 billion in assets for the CSRS, or about 34 percent of the long-
term CSRS pension liabilities.'' Thus, the unfunded CSRS liability was 
$538.3 billion. That is the sum of which the gentleman from Florida 
speaks.
  Normally one would say that is, and it is, a very large sum. And 
perhaps we ought to be worried about that. What do the experts say? 
``The unfunded liability developed because the CSRS funding laws have 
not required the Government to fund the system fully.'' That is unlike 
the private sector, and 
[[Page H4027]] the theory of course is that the Government is not going 
to go out of business; therefore, will not have immediate demands on 
all of its resources and, therefore, like Social Security, can pay it 
on a year-to-year basis.
  ``Nevertheless, the primary purpose of the Federal trust fund is not 
to provide a source of cash for the Government, but to provide budget 
authority to allow the Treasury to disburse monthly annuity checks 
without annual appropriations. The trust fund balance,'' and this is 
the important point, ``The trust fund balance is adequate to provide 
this budget authority on an ongoing basis.''
  Let me repeat that sentence. ``The trust fund balance is adequate to 
provide this budget authority on an ongoing basis.'' In other words, 
there is no crisis. There is no risk to Federal employee retirees in 
not having their retirement paid.
  The report goes on to say this: ``The combined funded and unfunded 
liabilities of the CSRS, $815 billion in fiscal year 1993, is the 
amount the Government would have to pay all at one time if everyone who 
is or whoever has been a vested CSRS participant could demand a check 
for the present value of all benefits to which they would be entitled 
from that time throughout retirement until their death, taking into 
account future pay raises they might receive, and cost-of-living 
adjustments after retirement.'' This is key.
  ``This event,'' and I am quoting, ``cannot happen in the Federal 
retirement system.'' This event cannot happen in the Federal retirement 
system. In other words, the gentleman from Florida creates a false 
premise, and that is that the unfunded liability can be called upon to 
be paid all in one lump sum. Repeat the sentence. ``This event cannot 
happen in the Federal retirement system. Federal pension obligations 
cannot come due all at one time, unlike the situation that arises in 
the private sector when an employer goes out of business and must pay 
all promised obligations at once.'' In other words, what we have said 
to large and middle and small corporations, if you promise your 
employees a pension benefit, if you say it is going to be ``x,'' then 
you need to contribute a sum sufficient to ensure that even if you go 
out of business; in other words, if there is no additional cash-flow 
into your business out of which you could pay retiree benefits. In the 
eventuality you go out of business you must have resources sufficient 
to meet the obligation to your employees.
  Very frankly, ladies and gentlemen, if the Federal Government goes 
out of business, the Federal retirees' pension is not going to be worth 
much anyway. Very frankly, nobody else's pension is going to be worth 
much either if the Federal Government goes out of business.
  Some of the Government's liabilities represent payments due to 
current retirees who receive their benefits 1 month at a time 
throughout retirement. Others represent payments that will not commence 
for years to come, because the workers are not yet eligible to retire.
  By the time they become eligible, others currently retired will have 
died. Thus, unlike private employers, the Government need not fully 
prefund the retirement system in order to insure against having to pay 
off all earned benefits simultaneously.
  This is not a game, this is not legerdemain, this is not fiscal 
sleight of hand. This is simply the fact that the actuarial facts lead 
us to conclude.
  The report goes on to say that some are concerned, and we have heard 
it on the floor today, ``that the existence of unfunded Federal pension 
liabilities has, or will have in the future, an effect on the budget 
deficit and/or the need for tax revenues. The annual budget cost to the 
Government of CSRS can never be more than the sum of the checks written 
to annuitants one month at a time.''
  In other words, you are not going to have to pay out an obligation 
all at one time. ``Thus the liabilities of the system, funded or 
unfunded, will never require payments from the Treasury in excess of 
the benefits payable to living, retired workers or survivors.'' This is 
critical in understanding that there is not a crisis, that there is not 
a need to move precipitously, that there is not a need to move without 
deliberate consideration by the committee of jurisdiction.
  That has not happened. As a matter of fact, my friend, the acting 
Speaker, knows that did not happen because he was at the committee and 
serves on this committee. What happened was there were some relatively 
abbreviated hearings. It then came to the committee for markup. The 
committee adjourned because they did not have the votes to pass the 
legislation.
  Now that is not to say that everybody was against it, but there were 
on both sides of the aisle some very thoughtful Members who said I want 
to make sure that this is the right thing to do before acting to 
adversely affect 2 million civilian workers who work for the Federal 
Government, and to increase their contributions by a total of 2\1/2\ 
percent over 3 years, tantamount to a 10-percent tax increase for 
somebody making $20,000, $30,000, or $40,000, and working for the 
Federal Government.
  However, the report goes on, ``The cash to pay monthly benefits comes 
from general revenues, and paying monthly benefits creates an outlay 
from the budget and therefore contributes to the budget deficit, as 
does any Government spending.'' It is as a contribution, when you have 
an employee and you make contributions toward their health benefits, 
toward their retirement benefits if you are in the private sector, a 
stock option, deferred payments, 401(k), whatever that might be. 
Clearly that is a cost.
                              {time}  1700

  No one says it is not a cost, but it is a cost of doing business. It 
is a cost of having employees. Consequently, the report goes on, in 
times of tight budgets, Congress often considers benefit cuts in order 
to reduce spending. In other words, we reach into the pocket of Federal 
employees and take out some of their money.
  You say how much have we done? From January 1981, if we followed the 
law to this day, Federal employees would have received in pay and 
benefits, health care and retirement benefits, $163 billion more than 
they have received.
  Now that sounds like a lot of money, and it is a lot of money. But 
during that time we have probably spent, I suppose, in that 14 years, 
somewhere in the neighborhood of approximately $1 trillion per year, or 
$14 trillion, approximately.
  So you can see that it is a relatively small percentage of our cost 
of doing business, but it is a legitimate cost of doing business.
  The report goes on to say this: Does the CSRS face insolvency? That 
was another concern raised by the gentleman from Florida. The report 
goes on to say that currently about half of the Federal work force 
participates in this program, and as the number of CSRS-covered workers 
declines, the assets in the trust fund will decline, not because of the 
payroll contribution from workers but primarily because of Government 
payments themselves declining.
  It goes on: When Members of Congress wrote the new FERS law in 1986, 
they understood there would have to be a financial transition from CSRS 
to the FERS program. That is the pre-1984 program to the post-1984 
program.
  The law provides for one trust fund in which both assets of the old 
system and the new system are combined. Therefore, there is no separate 
CSRS trust fund that will be depleted. In other words, the gentleman 
from Florida is talking about a system that is integrated with a system 
that we all agree is fully paid for.
  Second, Congress established a system whereby benefit payments under 
CSRS will be authorized by FERS trust fund securities, as needed, until 
there are no more CSRS benefits to be paid. In short, the system, as 
reformed in 1986, contemplated exactly the situation we are in today 
and provided for the funding of that system, to wit: The conclusion, 
there is no crisis, there is no insolvency. And although technically 
there is an unfunded liability because the Government is never going to 
go out of business short of a catastrophe for the country, there will 
never be a call on the assets of any fund except, as the report 
previously indicated, on a month-to-month basis.
  In summary, Mr. Speaker, by definition, under the financing 
arrangement set out in current law, the system is not now and never 
will be insolvent or 
[[Page H4028]] without adequate budget authority for payment of 
benefits. That is the critical component of this debate.
  Under the financing arrangement set out in current law, without 
change, the system is not now and never will be insolvent or without 
adequate budget authority for payment of benefits.
  Again, because the budget cost of the system can never exceed the 
cost of monthly benefits to living annuitants, the cash required from 
the treasury or taxpayers will never exceed the cost of these monthly 
benefits. As a result, there is no crisis.
  The Federal Government is paying a reasonable sum
   for the benefits of its employees. Can we debate as to whether or 
not we ought to modify this system for those who come into the system 
or those who have been in it for such a short time they are not vested 
in the system? Of course we can. That is responsible. We have a budget 
deficit in this Nation. We need to deal across the board with how the 
Government spends money. That is appropriate to do so.

  My friend from Virginia, Mr. Moran, has just arrived with me on the 
floor.
  We do not object to that. What we do object to and, very frankly, 
what the gentleman from Pennsylvania [Mr. Clinger] the chairman of the 
committee objected to, was having this issue not dealt with by the 
substantive committee of jurisdiction, and having it taken up by the 
Committee on Rules without any debate, without any hearings. Just put 
into the tax bill on the premise that we are going to pay for a tax cut 
for other Americans by increasing the taxes on Federal employees.
  Mr. Clinger, when that occurred in the last Congress--Mr. Speaker, 
you will be, I know, pleased to hear this--wrote to then chairman 
Conyers, chairman of the Committee on Government Operations, now the 
newly named committee, the Committee on Government Reform and 
Oversight--we have had a revolution, and I cannot keep up with the 
names all the time--in a letter dated July 12, 1994, in which then 
ranking member Clinger criticizes the gentleman from Michigan [Mr. 
Conyers] for taking a bill to the Committee on Rules that has not been 
reported out of the Committee on Government Operations. That is exactly 
what has happened here.
  In light of the report that has been issued, Mr. Speaker, which I 
have just read from extensively, it is clear that there is not a 
crisis. To the extent there is an issue, we ought to debate that issue 
honestly, openly, ask experts to come in, Federal employees to come in, 
and others to come in and say, ``This is how we think you ought to do 
the system.'' We are prepared to do that.
  But I would hope, Mr. Speaker, that you and others would urge the 
Committee on Rules on Tuesday not to include this in the tax bill, to 
give us time to consider it. I would urge you to join the gentleman 
from New York [Mr. Solomon] the chairman of the Committee on Rules, who 
when Mr. Moran and I, Mrs. Morella, and Mr. Wolf, in a bipartisan way, 
along with the ranking member Cardiss Collins, testified before the 
Committee on Rules, Mr. Solomon, the chairman of the Committee on 
Rules, said, ``I do not think this ought to be in this bill. We haven't 
considered it. We are not the committee of jurisdiction. We are not 
sure of the issues in this bill. And it does not, in any event, appear 
to me to be fair to Federal employees.''
  I pointed out to the chairman of the Committee on Rules that if there 
had been a proposal to change the rules on somebody who served 18 years 
in the United States Marine Corps--which the chairman of the Rules 
Committee is a marine himself and justifiably incredibly proud of the 
Corps--and said, ``We are going to change the rules on you,'' I told 
Chairman Solomon, ``You would be on the roof yelling and screaming and 
hollering.'' And he said, ``You are right.''
  Now I want to yield to my friend, the ranking member on the 
Subcommittee on Civil Service, who has done an outstanding job in 
fighting this fight, making the case, educating Members, asking that we 
consider this matter in a deliberate fashion. Mr. Speaker, I yield to 
my friend from Virginia.
  Mr. MORAN. I thank my very good friend from Maryland and also thank 
him for his leadership on this issue and so many issues of importance 
to Federal employees and, in fact, to the American people, because the 
way in which we treat the people who serve our constituents reflects 
well on how much we respect our constituents and in fact on ourselves, 
because the people who make this institution and the legislative branch 
and the executive branch are all affected by this legislation.
  But it seems to me there are two principles at stake here on this 
issue. One is fairness, and the other is integrity.
  With regard to fairness, we will have before us a tax cut bill. The 
purpose of that bill is to relieve the tax burden on other Americans, 
middle class. And the principal beneficiaries happen to be the 
wealthiest class of Americans. But the purpose is to relieve their tax 
burden.
  How unfair to relieve their tax burden by increasing the taxes of one 
group of American people, who happen to serve the American people by 
working for the Federal Government, 2 million people that we are 
talking about. In fact, their taxes would go up by 35 percent if they 
participate in the Civil Service retirement system, since they are 
currently paying 7 percent and it is a 2.5 percent increase, that is 35 
percent of the base that they are currently paying that they would pay 
in addition. That money goes to paying for a tax cut for other 
Americans.
  If, however, they happen to participate in the Federal employees 
retirement system, the new system where they currently pay 0.8, what 
they would contribute after this change increases by over 300 percent 
to 3.3 percent, which is an enormous increase.
  But does it go to the retirement system itself? No. Because that is 
not the purpose of it, to fix any retirement system. The purpose of it 
is to finance a tax cut for other Americans. We are singling out one 
group of Americans in order to finance a tax cut for another group of 
Americans. How unfair.
  But beyond that, let us talk about integrity, the integrity of this 
institution is what I am referring to. From 1984 to 1986, this Congress 
worked on the Federal retirement plan, brought in all the experts. Both 
the House and the other body led that effort. The gentleman from the 
other body, Senator Stevens,
 was one of the most important leaders, as well as the gentleman from 
Maryland [Mr. Hoyer] and others.

  I was not in the Congress at the time. But Mr. Hoyer knows who they 
were, those who were involved. But they came up with a system that was 
based upon the best knowledge that existed both in the private sector 
and in the public sector, a system that was designed to pay for itself.
  That is why the CSRS system, the Civil Service Retirement System, is 
being phased out, because it had been calculated on static basis, not a 
dynamic basis. It had not taken into account merit promotions, locality 
pay increases, cost-of-living increases, and so on. It was calculated 
on a basis that was inadequate. Thus, it was not fully paying for 
itself.
  So what they decided was to come up with a new system, and to take 
care of inflation, as the private sector does, use the Social Security 
System, assuming Social Security System provides annual cost-of-living 
increases. So that is what they did. Federal employees who elected the 
new system pay 7 percent into Social Security and 0.8 percent into the 
FERS plan. Those employees who chose to stay with the old system pay 7 
percent into that system, but they do not have the assurance of cost-
of-living increases.
  So, it was balanced, it was a difficult choice. They made the choice, 
but they made it within the context that this Congress, this branch of 
Government, established. And that context was a commitment that we will 
not change the rules of the game. Once you make a decision, we are not 
going to tamper with your retirement plan. We will set it in concrete. 
We know it is designed to pay for itself.
  So once you make this decision, ``you can rest assured you can make 
your retirement plans based upon this commitment that we make today,'' 
back when the legislation was enacted in 1986.
  Some Members chose to stay in the old plan, and other Members chose 
to stay in the new plan. You know, Mr. Speaker, the fact is that those 
calculations worked out exactly as it was anticipated.
  [[Page H4029]] To show you what a good job they did, what has 
happened between then and now is exactly what they calculated would 
happen. As the gentleman from Maryland [Mr. Hoyer] said, we have a 
system that is financially solvent and, in fact, last year there was a 
$60 billion reduction in the unfunded liability. In fact, $63 billion 
was paid into the system, $36 billion was paid out, exactly what was 
calculated would happen.
  It is working. It is exactly what was anticipated. The Federal 
employees are doing their part, and their employer, the Federal 
Government is doing its part.
  In fact, if any change should be made, we should recognize that the 
static system that they based it upon has actually not required as much 
funding as they estimated. It has gone down from about 12 percent of 
payroll down to about 10 percent. The dynamic system, taking into 
account all the changes that could occur, actually went down from 36 to 
25 percent.
                              {time}  1715

  So, if we should make any change, that change should be to reduce 
Federal employees' contributions. But what are we doing? We are being 
driven by other political considerations. We are choosing one group of 
only 2 million people to take money from them to pay for tax cuts for a 
larger group of people. I personally do not think this tax cut is in 
the Nation's best interests.
  But I will tell the Speaker and anyone that is listening that they 
should not be complicit in this unfairness, this violation, this breach 
of the kind of integrity that this institution has established over 200 
years. To think that we would make a commitment to all those Federal 
employees, upon which they based their decision, and now we would 
violate it? I cannot believe that that could happen or that our leaders 
are even considering that.
  We ought to consider, Mr. Speaker, that we are not just talking about 
the Federal employees themselves. We are talking about their families 
because that is what retirement is all about. Mr. Speaker, you do not 
contribute to a retirement system for your own interests, nor does the 
gentleman from Maryland [Mr. Hoyer], nor does anybody in the room 
today. The reason we contribute to a retirement system is to ensure 
there will be financial security for our spouses, for our children. 
That is our commitment to them. That is the commitment that Federal 
employees make to their families. And now to think that these 
retirement plans that have influenced the direction that their lives 
have taken, that have influenced their decision to stay in the Federal 
Government based upon a commitment we made, would be breached; we 
cannot allow this to happen.
  Mr. Speaker, I thank my good friend from Maryland for yielding me the 
time, and I thank him for taking the time to make our case before the 
American people.
  Mr. HOYER. I thank my good friend from Virginia, and I would close 
now, Mr. Speaker. Many of the Members of this body talk about the 
Contract With America. I think it has been an important document in the 
sense that it has set an agenda. Obviously some of it I do not agree 
with; some I have agreed with. But, as we have a Contract With America 
in terms of some of us having signed a document and said, if we are 
elected, this is what we are going to do, it seems to me as well we 
have a moral and ethical contract with those whom we ask to serve their 
country as Federal employees, as employees of this House, employees of 
the Federal service, and that contract essentially says that, if you 
work with us and if you perform well, we will do certain things. We 
will pay you a salary, we will automatically adjust that salary from 
time to time, and we will provide a retirement system for you, and we 
will give you health benefits.
  Those are the three benefits that Federal employees have. There are 
no stock options obviously as there are not in public service, and 
although that is, perhaps, not a legally enforceable contract in the 
sense that our Federal employees, and our staff in this Chamber, and in 
this House and across the way in the Senate cannot take us to court and 
say, you know, we have worked for 5, or 10 or 15 years because you told 
us that this was the deal, this was the consideration, this is how you 
would treat us. Although they cannot take us to court, in my opinion 
that is amoral contract that we have with our people, and just as so 
many of your party, Mr. Speaker, have argued that we ought to keep the 
contract that we signed in September 1994, we ought to keep our 
contract with our employees, and if we make changes, it is fair to do 
so to those we hire anew and say this is the arrangement. We have 
changed it because we found it was too expensive, and so we are 
changing it, and so when you come on board, when you come on as an 
employee, understand there are new rules, and even for those who are 
not now vested in the system, who do not now have, in effect, a reason 
to say this is now mine, the 5-year vesting, we could say to them, 
look, you have not vested yet, and we are going to change, but for 
those folks who are vested in this system, it is unconscionable for us 
to now say we did not tell you the truth, we are going to change the 
rules, we are not going to meet our commitment to you, your 
compensation will be less than we promised.
  I hope we do not do that, Mr. Speaker.
  I had not intended to talk today on this issue, but Mr. Mica, one of 
his colleagues, took a special order to discuss this issue, and I 
wanted the full context of this issue to be discussed today because 
next week this issue will be on the front burner. I hope the Speaker of 
the House, Mr. Gingrich, Mr. Solomon, the chairman of the Committee on 
Rules, and others, decide to take this out of the tax bill, to put it 
back to your committee, Mr. Speaker, have hearings, consider this, and 
take such action as we then deem appropriate.


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