[Congressional Record Volume 142, Number 24 (Tuesday, February 27, 1996)]
[Extensions of Remarks]
[Pages E214-E215]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




     LEGISLATION TO ADJUST FEDERAL DEFERRED ANNUITIES FOR INFLATION

                                 ______


                          HON. JAMES P. MORAN

                              of virginia

                    in the house of representatives

                       Tuesday, February 27, 1996

  Mr. MORAN. Mr. Speaker, today, I am introducing legislation that 
indexes Federal annuities for inflation at the time the employees 
separates. Currently, if an employee leaves the Federal service before 
retirement he has the option of taking his pension contributions back 
in a lump sum or keeping them in the retirement trust fund. If he 
leaves the contributions in, he will receive an annuity when he turns 
62. If he takes them out, he can reinvest them in an IRA.
  It would be more beneficial for the employee and the Government if 
the employee left his contributions in the retirement system and earned 
an annuity at 62. The current system, however, does not encourage the 
employee to leave the contributions in since the annuity is not indexed 
for inflation. Thus if an employee with 20 years of service leaves the 
Government to take another job at age 45, he has the option of taking 
his money out of the trust fund, the 7 percent of his salary that he 
contributed over the past 20 years, or leaving the money in the trust 
fund and receiving his earned annuity when he turns 62, 36 percent of 
the average of highest 3 years of salary. Since the annuity is not 
indexed, there is no reason to leave the money in. If the high three 
averages $50,000, in the above case, the annuity would be $17,000 at 
separation. But after 17 years of average inflation, this $17,000 would 
have the spending power of only about $9,000. Under the legislation I 
am introducing today, an annuity of $17,000 would maintain the spending 
power of $17,000.
  The proposal would break the ``golden handcuffs'' that keep older 
Federal employees in the civil service. Since the old Civil Service 
Retirement pension is not transferable, older employees with 
significant years of service cannot afford to leave the civil service. 
If they did, they would have to enter a new pension service and begin 
saving for retirement anew. They would not have the years of investment 
in Social Security or a 401(k) to rely on. So they stay in the civil 
service. FERS was created specifically to address this portability 
problem but it is not enough. Currently, approximately 50 percent of 
the Federal work force is in FERS. Those who are not are the older 
employees we want to leave.
  Under this legislation, older CSRS employees can leave the Federal 
Government and take a job elsewhere because they will not 

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lose their pension. While they will not continue to accrue CSRS 
benefits, they will have earned a decent retirement income on which 
they could rely. The proposal will help Federal downsizing and 
reorganization efforts by allowing older employees to leave.
  The proposal would also save money for the Federal Government. If the 
employee leaves his annuity in the trust fund, there is no outlay from 
the Federal Government when the employee separates. The immediate 
savings are significant. The CBO estimates that this proposal would 
save more than $3 billion over 7 years.
  This is the only provision that will effectively reduce the Federal 
work force without RIF's. Buyouts are only an option if the employee is 
close to retirement or already retirement eligible. They do not pare 
the work force as much as push out those who can already leave. For 
those Federal employees 40 and over, they are not an option. These 
employees, however, can find good opportunities outside the Federal 
work force because they are the most hirable. They do not leave, 
however, because they will lose the 15 or more years they have invested 
in the Civil Service Retirement System.

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