[House Report 105-757]
[From the U.S. Government Publishing Office]



105th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     105-757
_______________________________________________________________________


 
    CIVIL SERVICE RETIREMENT SYSTEM ACTUARIAL REDEPOSIT ACT OF 1998

_______________________________________________________________________


October 1, 1998.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

  Mr. Burton of Indiana, from the Committee on Government Reform and 
                   Oversight, submitted the following

                              R E P O R T

                        [To accompany H.R. 2566]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Government Reform and Oversight, to whom was 
referred the bill (H.R. 2566) to amend title 5, United States 
Code, to expand the class of individuals under the Civil 
Service Retirement System eligible to elect the option under 
which the deposit which is normally required in connection with 
a refund previously taken may instead be made up through an 
actuarially equivalent annuity reduction, having considered the 
same, report favorably thereon with amendments and recommend 
that the bill as amended do pass.
  The amendments (stated in terms of the page and line numbers 
of the introduced bill) are as follows:
  Page 1, line 5, strike ``1997'' and insert ``1998''.
  Page 2, line 14, strike ``1997'' and insert ``1998''.

                                CONTENTS

                                                                   Page
  I. Summary of Legislation...........................................2
 II. Background and Need for the Legislation..........................2
III. Legislative Hearings and Committee Actions.......................2
 IV. Committee Hearings and Written Testimony.........................3
  V. Explanation of the Bill..........................................3
 VI. Compliance With Rule XI..........................................3
VII. Budget Analysis and Projections..................................3
VIII.Cost Estimate of the Congressional Budget Office.................3

 IX. Specific Constitutional Authority for This Legislation...........7
  X. Committee Recommendation.........................................7
 XI. Congressional Accountability Act; Public Law 104-1...............7
XII. Unfunded Mandates Reform Act; Public Law 104-4, Sect. 423........8
XIII.Federal Advisory Committee Act (5 U.S.C. App.) Section 5(b)......8

XIV. Changes in Existing Law..........................................8

                    I. Short Summary of Legislation

    This legislation would expand the class of federal 
employees under the Civil Service Retirement System (CSRS) who 
may elect to receive actuarially reduced annuities in lieu of 
redepositing the amount of retirement contributions previously 
refunded to them, plus interest.

              II. Background and Need for the Legislation

    A limited number of federal employees were impacted by 
changes in the requirements regarding redeposits of refunds for 
service for those who leave federal service, withdraw their 
retirement, and then subsequently return to federal service. 
These retirement law changes regarding redeposits of refunds 
were contained in the 1990 Omnibus Budget Reconciliation Act 
(OBRA). As a result of those changes, employees who had 
received a refund for a period of service that ended after 
October 1, 1990 could not elect to receive an actuarially 
reduced annuity in order to receive credit for such service. 
They could only redeposit the refund with interest.
    Pertinent regulations concerning OBRA were in transition 
from November 1989 until February 1990. In the absence of 
published regulations, former employees could not be informed 
of the consequences of the new statute if they applied for 
refunds of contributions. Thus, the information available was 
inadequate to understand the change in redeposit rules if they 
were to gain reinstatement to federal service. After 
reinstatement, these employees encountered problems resulting 
from withdrawals of deposits between the enactment of OBRA and 
the adoption of relevant regulations.
    In order to address these problems, H.R. 2566 allows 
employees who have received refunds for service to ``buy back'' 
CSRS credit by electing to receive actuarially adjusted 
annuities. They may also elect to repay the refunded retirement 
contributions with interest. This applies to all employees 
whose retirement annuity begins after the date of enactment of 
this Act. The Act does not apply to annuities beginning before 
the date of enactment.

            III. Legislative Hearings and Committee Actions

    The Committee held no legislative hearings on H.R. 2566. 
Rep. Constance A. Morella (MD) introduced H.R. 2566 on 
September 26, 1997. On September 26, 1997, the bill was 
referred to the Committee on Government Reform and Oversight. 
The bill was referred to the Subcommittee on Civil Service on 
October 1, 1997. The Subcommittee on Civil Service considered 
the bill on July 21, 1998 and forwarded the bill by voice vote 
to the Committee on Government Reform and Oversight. On July 
23, 1998, the Committee on Government Reform and Oversight 
considered the bill. An amendment to the title was offered by 
Rep. Constance A. Morella. The amendment passed by voice vote. 
By voice vote, the Committee ordered H.R. 2566 to be reported 
to the House.

              IV. Committee Hearings and Written Testimony

    The Committee did not hold any hearings related to this 
legislation.

       V. Explanation of the Bill as Reported: Section-by-Section

                         Section 1. Short title

    This section designates the short title of the bill as the 
``Civil Service Retirement System Actuarial Redeposit Act of 
1998.''

          Section 2. Expansion of Class of Eligible Individuals

    This section expands the class of individuals who are 
eligible to elect an actuarially reduced annuity rather than 
redeposit the amount of Civil Service Retirement System 
contributions previously refunded to them, with interest.
    Subsection (a) amends clause (I) of title 5, United States 
Code, section 8334 (d)(2)(A) to encompass all employees who 
have received a refund of retirement contributions.
    Subsection (b) amends clause (ii) by substituting the date 
of the enactment of this Act for ``December 2, 1990.''
    Subsection (c) provides that this Act does not apply to 
annuities beginning before the date this Act is enacted.

                      VI. Compliance With Rule XI

    Pursuant to rule XI, clause 2(l)(3)(A) of the Rules of the 
House of Representatives, under the authority of rule X, clause 
2(b)(1) and clause 3(f), the results and findings from 
Committee oversight activities are incorporated in the bill and 
this report.

                  VII. Budget Analysis and Projections

    The budget analysis and projections required by section 
308(a) of the Congressional Budget Act of 1974 are contained in 
the estimate of the Congressional Budget Office.

         VIII. Cost Estimate of the Congressional Budget Office

                                     U.S. Congress,
                               Congressional Budget Office,
                                Washington, DC, September 15, 1998.
Hon. Dan Burton,
Chairman, Committee on Government Reform and Oversight,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 2566, the Civil 
Service Retirement System Actuarial Redeposit Act of 1998.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Eric Rollins.
            Sincerely,
                                              James L. Blum
                                   (For June E. O'Neill, Director).
    Enclosure.

H.R. 2566--Civil Service Retirement System Actuarial Redeposit Act of 
        1998

    Summary: H.R. 2566 would change the way that retirement 
annuities are calculated for certain federal employees who are 
covered by the Civil Service Retirement System (CSRS). The bill 
would affect employees who have received a refund of retirement 
contributions for a prior period of service that ended after 
October 1, 1990. Under current law, these employees must repay 
their contributions with interest in order to have the prior 
service included in their annuity calculation. H.R. 2566 would 
allow these employees to take instead an actuarially equivalent 
reduction in their benefit.
    CBO estimates that this bill would increase direct spending 
by $90 million over the 1999-2003 period due to higher spending 
on refunds of retirement contributions. The bill would also 
decrease revenues by $8 million over the same period because 
fewer employees would make redeposits for retirement 
contributions that they withdrew in the past. Over the long 
run, this bill would increase net spending because employees 
who would not repay their contributions under current law would 
receive higher benefits under the bill. Because this bill would 
affect direct spending, pay-as-you-go procedures would apply.
    H.R. 2566 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act of 1995 
(UMRA) and would not affect the budgets of state, local, or 
tribal governments.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of H.R. 2566 is shown in Table 1.

                                TABLE 1. ESTIMATED BUDGETARY EFFECTS OF H.R. 2566
                                    [By fiscal year, in millions of dollars]
----------------------------------------------------------------------------------------------------------------
                                             1999   2000   2001   2002   2003   2004   2005   2006   2007   2008
----------------------------------------------------------------------------------------------------------------
                                           CHANGES IN DIRECT SPENDING
Refunds of retirement contributions.......     12     16     19     21     23     25     23     21     19     16
CSRS retirement benefits..................  (\1\)  (\1\)  (\1\)  (\1\)     -1     -1     -1     -1     -1     -1
                                           ---------------------------------------------------------------------
      Subtotal............................     12     16     18     21     23     24     22     20     18     15
                                               CHANGES IN REVENUES
Employee redeposits for prior service.....     -1     -1     -2     -2     -2     -3     -3     -4     -4     -4
                                                   TOTAL COST
Direct spending and revenues..............     13     17     20     22     25     26     24     22     19     17
----------------------------------------------------------------------------------------------------------------
\1\ Less than $500,000.
This estimate assumes that H.R. 2566 is enacted on October 1, 1998.
Note. Components may not sum to totals because of rounding.

    The costs of this legislation fall within budget function 
600, Income Security.
    Basis of estimate: Most federal employees hired before 1984 
are covered by the Civil Service Retirement System, a 
retirement plan that offers a defined benefit that does not 
include Social Security. Under CSRS, employees generally 
contribute 7 percent of their basic pay to the Civil Service 
trust fund. Employees who leave government service for more 
than 31 days and are not immediately eligible for retirement 
benefits can have their retirement contributions refunded to 
them.
    Payment of a refund usually voids the employee's right to 
any retirement benefits related to that period of service. 
However, employees who later return to government work may 
still have the prior service included in their annuity 
calculation. If the prior service ended before October 1, 1990, 
an employee may get credit for that service by taking an 
actuarially equivalent reduction in his or her retirement 
annuity or by redepositing his or her refunded contributions 
with interest. If the prior service ended after October 1, 
1990, an employee may receive credit for that service only by 
redepositing his or her refunded contributions with interest. 
H.R. 2566 would allow all prior periods of service for current 
CSRS employees to be credited through the actuarial reduction 
method.
            Direct Spending
    Refunds of Retirement Contributions. Under the bill, some 
employees who would otherwise leave their retirement 
contributions in the Civil Service trust fund would have 
greater incentive to take a refund upon leaving government 
service. This could be particularly true for people who 
anticipate returning to government service later in their 
career. Employees who took a refund would receive a significant 
amount of money (refunds of $10,000 or more are not unusual for 
CSRS employees). If they later returned to government 
employment, they would still be able to include this prior 
service in their annuity calculation in exchange for an 
actuarial reduction, which for most employees would be less 
than 10 percent. For example, an employee retiring at age 60 
with 20 years of service (10 of which have been refunded) would 
face a reduction of about 8 percent.
    Past experience suggests that federal employees are quite 
willing to trade a smaller annuity in exchange for an immediate 
lump-sum payment. Between 1986 and 1990, federal employees 
could receive an alternative form of annuity (AFA) when they 
retired. (The AFA has since been limited to employees who are 
terminally ill.) Retiring employees who chose the AFA received 
a lump-sum payment equal to the retirement contributions that 
they had made over their career. In exchange, their retirement 
annuities were reduced by an actuarially equivalent amount--
typically 10 percent to 15 percent. About 80 percent of 
retiring employees elected the AFA when it was widely 
available.
    About 67 percent of CSRS employees who quit without being 
eligible for an immediate annuity get a refund of their 
retirement contributions. CBO assumed that under the bill this 
figure would increase to 70 percent in 1999 and then gradually 
rise to 75 percent over the following five years. CBO estimates 
that the number of additional people who would take refunds 
under the bill would be less than 4,000. This increase would 
raise spending on refunds by $91 million over the 1999-2003 
period.
    CSRS Retirement Benefits. Under the bill, retirement 
benefits for individual employees could either rise or fall, 
depending on whether or not the employees would make a 
redeposit for their prior service under current law. Benefits 
would decline for employees who would have made a redeposit but 
decide instead under the bill to take an actuarial reduction in 
their annuity. In contrast, benefits for employees who had no 
intention of making a redepositwould rise, because they would 
be allowed to include additional service in their annuity calculation.
    The bill would affect the benefits of only a small fraction 
of the approximately 1.2 million employees covered by CSRS. 
According to the Office of Personnel Management (OPM) about 
17,200 CSRS employees have a prior period of service and were 
rehired after October 1, 1990. However, many of these employees 
completed their prior service before that date and would not be 
affected by the bill. CBO assumed that about one-third of the 
17,200 employees, or 5,700, have a prior period of service that 
ended after October 1, 1990. OPM information indicates that 
about two-thirds of CSRS employees who quit withdraw their 
retirement contributions. CBO thus estimated that about 3,800 
current employees would be affected by the bill. The bill would 
also affect about an additional 4,300 people with prior CSRS 
service who will be rehired over the 1999-2003 period.
    CBO assumed that affected employees who would retire during 
the 1999-2003 period have an average of six years of current 
service. CSRS allows employees to retire at age 55 with a 
minimum of 30 years of service, at age 60 with at least 20 
years of service, or at age 62 with at least five years of 
service. Since employees with a break in service usually have 
less total service than career government employees, many 
affected employees would be retiring under the age 60/20 years 
option. They would thus have a significant amount, perhaps 15 
years or more, of prior refunded service. At a minimum, since 
CSRS-covered employees were first hired no later than 1982, 
affected employees would have at least eight years of prior 
service. For some employees, the refund received from the prior 
service could be about $25,000.
    CBO assumed that 70 percent of the employees affected by 
the bill would have made a redeposit but decide instead to take 
an actuarial reduction. For employees with this much prior 
refunded service, the reduction would be approximately 10 
percent, or $125 a month.
    In contrast, CBO assumed that this bill would increase 
benefits for about 10 percent of the affected employees. The 
amount of the increase would be substantial, since prior 
service for affected employees would represent more than half 
of their total service. Furthermore, CSRS retirement benefits 
equal 1.5 percent of average pay for each of the first five 
years of service, 1.75 percent of pay for each of the next five 
years of service, and 2 percent for each additional year beyond 
that. As a result, the additional service would often be 
credited at a higher rate than the employee's current service, 
making it even more valuable. CBO estimates that monthly 
benefits for these employees would rise by about $600.
    Overall, CBO estimates that retirement benefits for the 
employees affected by the bill would decrease by about 2.5 
percent, lowering spending on CSRS retirement benefits by $1 
million over the 1999-2003 period.
            Revenues
    The redeposits that employees make to receive credit for 
prior service would decrease under the bill because most 
employees affected by the bill would opt for the reduced 
annuity. CBO assumed that under the bill the number of 
employees who elect to make a redeposit would drop 80 percent. 
This figure is consistent with the percentage of federal 
employees who chose the AFA option back in the late 1980s. This 
drop would reduce redeposits, which are treated as revenues, by 
$8 million over the 1999-2003 period.
    Pay-as-you-go considerations: Section 252 of the Balanced 
Budget and Emergency Deficit Control Act sets up pay-as-you-go 
procedures for legislation affecting direct spending or 
receipts. The net changes in outlays and governmental receipts 
that are subject to pay-as-you-go procedures are shown in Table 
2. For the purposes of enforcing the pay-as-you-go procedures, 
only the effects in the current year, the budget year, and the 
succeeding four years are counted.

                             TABLE 2. SUMMARY OF PAY-AS-YOU-GO EFFECTS OF H.R. 2566
                                    [By fiscal year, in millions of dollars]
----------------------------------------------------------------------------------------------------------------
                                             1999   2000   2001   2002   2003   2004   2005   2006   2007   2008
----------------------------------------------------------------------------------------------------------------
Change in outlays.........................     12     16     18     21     23     24     22     20     18     15
Change in receipts........................     -1     -1     -2     -2     -2     -3     -3     -4     -4     -4
----------------------------------------------------------------------------------------------------------------

    Intergovernmental and private-sector impact: H.R. 2566 
contains no intergovernmental or private-sector mandates as 
defined in the Unfunded Mandates Reform Act of 1995 (UMRA) and 
would not affect the budgets of state, local, or tribal 
governments.
    Estimate prepared by: Federal cost: Eric Rollins; Impact on 
State, local, and tribal governments: Marc Nicole; Impact on 
the private sector: Matthew Eyles.
    Estimate approved by: Paul N. Van de Water, Assistant 
Director for Budget Analysis.

       IX. Specific Constitutional Authority for This Legislation

    Clauses 1 and 18 of Article 1, Sec. 8 of the Constitution 
grant Congress the power to enact this law.

                      X. Committee Recommendation

         Committee on Government Reform and Oversight Rollcall

    Date: July 23, 1998.
    Amendment No. 1.
    Description: Amendment to the title.
    Offered by: Hon. Constance A. Morella (MD).
    Voice Vote: Yea.
    Final Passage of H.R. 2566.
    Offered by: Hon. Constance A. Morella (MD).
    Voice Vote: Yea.

    XI. Congressional Accountability Act; Public Law 104-1; Section 
                               102(b)(3)

    This bill applies to legislative branch employees who 
participate in CSRS.

    XII. Unfunded Mandates Reform Act; Public Law 104-4; Section 423

    H.R. 2566 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act of 1995 
(UMRA) and would not affect the budgets of state, local, or 
tribal governments.

   XIII. Federal Advisory Committee Act (5 U.S.C. App.) Section 5(b)

    The Committee finds that H.R. 2566 does not establish or 
authorize the establishment of an advisory committee within the 
definition of 5 U.S.C. App., Section 5(b).

       XIV. Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3 of rule XIII of the Rules of the 
House of Representatives, changes in existing law made by the 
bill, as reported, are shown as follows (existing law proposed 
to be omitted is enclosed in black brackets, new matter is 
printed in italic, existing law in which no change is proposed 
is shown in roman):

              SECTION 8334 OF TITLE 5, UNITED STATES CODE

Sec. 8334. Deductions, contributions, and deposits

  (a) * * *

           *       *       *       *       *       *       *

  (d)(1) Each employee or Member who has received a refund of 
retirement deductions under this or any other retirement system 
established for employees of the Government covering service 
for which he may be allowed credit under this subchapter may 
deposit the amount received, with interest. Credit may not be 
allowed for the service covered by the refund until the deposit 
is made.
  (2)(A) This paragraph applies with respect to any employee or 
Member who--
          [(i) separates before October 1, 1990, and receives 
        (or elects, in accordance with applicable provisions of 
        this subchapter, to receive) a refund (described in 
        paragraph (1)) which relates to a period of service 
        ending before October 1, 1990;]
          (i) has received a refund described in paragraph (1);
          (ii) is entitled to an annuity under this subchapter 
        (other than a disability annuity) which is based on 
        service of such employee or Member, and which commences 
        on or after [December 2, 1990] the date of the 
        enactment of the Civil Service Retirement System 
        Actuarial Redeposit Act of 1998; and

           *       *       *       *       *       *       *


                                
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