[House Report 106-29]
[From the U.S. Government Publishing Office]



106th Congress                                             Rept. 106-29
1st Session             HOUSE OF REPRESENTATIVES              Part 2
_______________________________________________________________________


 
              FEDERAL RETIREMENT COVERAGE CORRECTIONS ACT

                                _______
                                

 March 5, 1999.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

_______________________________________________________________________


    Mr. Archer, from the Committee on Ways and Means, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 416]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Ways and Means, to whom was referred the 
bill (H.R. 416) to provide for the rectification of certain 
retirement coverage errors affecting Federal employees, and for 
other purposes, having considered the same, report favorably 
thereon without amendment and recommend that the bill do pass.

                                CONTENTS

                                                                   Page
 I. Summary and Background............................................2
        A. Purpose and Summary...................................     2
        B. Background and Need for Legislation...................     2
        C. Legislative History...................................     3
II. Explanation of Social Security and Tax Provisions.................3
        A. General Provisions (Title II).........................     3
        B. Tax Provisions (Title IV).............................     4
III.Vote of the Committee.............................................5

IV. Budget Effects of the Bill........................................6
        A. Committee Estimates of Budgetary Effects..............     6
        B. Budget Authority and Tax Expenditures.................     6
        C. Cost Estimates Prepared by the Congressional Budget 
            Office...............................................     6
 V. Other Matters To Be Discussed Under the Rules of the House.......13
        A. Committee Oversight Findings and Recommendations......    13
        B. Summary of Findings and Recommendations of the 
            Committee on Government Reform.......................    14
        C. Constitutional Authority Statement....................    14
        D. Information Relating to Unfunded Mandates.............    15
        E. Applicability of House Rule XXI5(b)...................    15
        F. Complexity Analysis...................................    15
VI. Changes in Existing Law Made by the Bill, as Reported............16

                       I. SUMMARY AND BACKGROUND

                         A. Purpose and Summary

    H.R. 416, as amended, provides a method to correct errors 
in misclassification of Federal employees which resulted in 
thousands of Federal employees being erroneously placed in the 
wrong Federal retirement system. These retirement systems 
include: (1) the Civil Service Retirement System (``CSRS''); 
(2) the Federal Employees Retirement System (``FERS''); (3) the 
Civil Service Retirement System Social Security Offset Plan 
(``CSRS Offset''); or (4) Social Security only. The bill 
applies to all Federal employees, including former employees, 
annuitants and survivors. The bill extends the same correction 
options to employees of the foreign service and intelligence 
agencies.
    The bill provides a comprehensive solution to these 
retirement coverage errors. In general, employees may choose 
between the retirement system they were mistakenly placed in or 
the system they should have been placed in retroactive to the 
date of the error. Two exceptions apply to this general rule. 
The first exception does not permit an employee who was 
erroneously placed in CSRS to elect to remain in it; the 
employee may elect instead to be enrolled in the CSRS Offset 
system. The second exception applies to employees who should 
have been enrolled in Social Security only. Unless such 
employees are vested in the system in which they were 
mistakenly placed, they may not elect to remain in such system.
    The bill requires the employing agencies to take certain 
steps to make the employee whole with respect to retirement 
plan benefits under the correct plan. Depending on the precise 
circumstances of the individual, these steps may include: (1) 
makeup contributions to the plan by the employing agency 
(including contributions to the Thrift Savings Plan (``TSP'') 
in lieu of elective deferrals the employee would have been 
eligible to make had the employee been properly enrolled); (2) 
intra-fund or intra-Governmental transfers of funds; and (3) 
certain makeup contributions by the employing agency for social 
security taxes. The employing agencies will make all necessary 
payments from appropriated funds. Employees who were mistakenly 
permitted to contribute to the TSP would be able to maintain 
their elective deferrals (plus earnings) in the TSP subject to 
the rules generally applicable to such plan. In some cases, 
employees could forfeit benefits previously accrued (e.g., 
matching contributions made to an individual mistakenly 
enrolled in FERS). The bill amends the Social Security Act so 
CSRS-eligible employees who choose FERS or Social Security 
coverage may receive Social Security benefits.

                 B. Background and Need for Legislation

    The Committee believes that legislation should be enacted 
in a timely fashion in order to correct errors in 
misclassification of Federal employees into the wrong Federal 
retirement system. The bill provides that individuals entitled 
to Social Security coverage who were erroneously placed in the 
wrong Federal retirement system receive credit for the period 
of retirement coverage error. The bill also provides that no 
Federal retirement plan involved in the correction under the 
bill shall fail the retirement plan tax qualification rules by 
reason of such correction. Further, the bill provides that no 
Federal employee involved in the correction shall be subject to 
additional Federal tax consequences as a result of such 
correction.

                         C. Legislative History

    The Committee on Ways and Means marked up the revenue and 
social security provisions of H.R. 416 (``The Federal 
Retirement Coverage Corrections Act'') on February 11, 1999. 
The bill was ordered favorably reported by a voice vote, with a 
quorum present.
    H.R. 416 was ordered favorably reported by the House 
Committee on Government Reform on February 3, 1999.1
---------------------------------------------------------------------------
    \1\ H.R. 416, as introduced on January 19, 1999, was referred to 
the Committee on Government Reform and, in addition, to the Committee 
on Ways and Means for consideration of provisions in their respective 
jurisdictions. (See also letter from the Committee on Government Reform 
to the Committee on Ways and Means relating to the bill, dated February 
4, 1999, which is included in Part V.B of this report.)
---------------------------------------------------------------------------

         II. EXPLANATION OF SOCIAL SECURITY AND TAX PROVISIONS

                    A. General Provisions (Title II)

               (Secs. 203, 204, 205, and 208 of the bill)

Present law

    Under present law, Federal employees participate in one of 
four retirement systems: CSRS, CSRS Offset, Social Security 
only, and FERS. Individuals who are eligible for CSRS Offset, 
Social Security only, or FERS receive Social Security coverage. 
Individuals who are eligible for CSRS do not receive Social 
Security coverage. Under the CSRS, CSRS Offset, and FERS 
retirement systems, both the employee and the employing agency 
make contributions to the Civil Service Retirement and 
Disability Fund (``CSRDF'').
    For those employees enrolled in one of the retirement 
systems with Social Security coverage, Social Security taxes 
are paid into the general fund of the Treasury and transferred 
to the Social Security Trust Funds. If Social Security taxes 
should have been, but were not paid with respect to an 
individual's employment, the taxes may be assessed subject to 
the statute of limitations of three years. Similarly, 
improperly paid Social Security taxes may be refunded for the 
period within the statute of limitations.
    Previously unrecorded earnings may be added to an 
individual's Social Security earnings record at any time. 
Improperly recorded earnings may only be removed from an 
individual's earnings record for the period within the statute 
of limitations.

Reasons for change

    The Committee believes it is appropriate to ensure that 
individuals entitled to Social Security coverage who were 
erroneously placed in the wrong Federal retirement system 
receive credit for the period of retirement coverage error.

Explanation of provisions

    The bill provides that when an individual who was 
incorrectly enrolled in CSRS changes to one of the retirement 
systems that provides for Social Security coverage, the 
individual will receive credit on his or her Social Security 
earnings record for earnings retroactive to the date of the 
retirement coverage error. Under the bill, the Social Security 
Trust Funds are made whole for any contributions that should 
have been made on behalf of the individual.
    The bill provides that all of the amounts that should have 
been paid into the Social Security Trust Funds from the time of 
the incorrect enrollment shall be transferred to the Trust 
Funds. The amounts will be transferred to the Trust Funds from 
the individual's account in CSRDF and, if that amount is not 
sufficient, from the appropriated accounts of the agency. The 
bill providesconforming changes to the coverage provisions of 
the Social Security Act and the Internal Revenue Code if an individual 
elects to remain in the retirement system to which such individual was 
incorrectly enrolled.
    If an individual who was incorrectly enrolled in a 
retirement system that has Social Security coverage elects to 
become enrolled in CSRS, then, as under present law, Social 
Security taxes paid on behalf of the individual for the period 
subject to the statute of limitation (i.e., within the last 3 
years) would be refunded to the agency and to the employee. The 
bill provides that the agency shall deposit in the CSRDF an 
amount equal to the shortfall in CSRS contributions that should 
have been made on behalf of the individual and that the 
individual shall reimburse the agency for such deposits up to 
the amount of Social Security taxes refundable to the 
individual. As under present law, earnings on the individual's 
Social Security earnings record for the period subject to the 
statute of limitations would be deleted, but earnings for prior 
periods would not.
    The bill also provides authority for the Commissioner of 
Social Security to obtain necessary information from agencies 
to notify the Secretary of the Treasury to transfer into the 
Social Security Trust Funds those Social Security taxes paid as 
a result of elections under the bill, and to correct earnings 
records.

Effective date

    The Social Security provisions are effective on the date of 
enactment.

                      B. Tax Provisions (Title IV)

                         (Sec. 401 of the bill)

Present law

    Under present law, Federal employees generally participate 
in one of four retirement plans: CSRS, FERS, CSRS Offset, or 
Social Security only. Participants in CSRS, CSRS Offset, and 
FERS may participate in the Federal Thrift Savings Plan 
(``TSP''), which is similar to a qualified cash or deferred 
arrangement under section 401(k) of the Internal Revenue Code. 
The Federal retirement plan in which any person participates 
depends on a number of factors, including the individual's 
employment status and date of hire. The rules governing 
participation in the TSP vary depending on the Federal 
retirement plan (i.e., CSRS, CSRS-Offset, or FERS) under which 
the individual is covered. The Federal retirement plans are 
generally subject to the same rules applicable to tax-qualified 
retirement plans maintained by private sector-employers. These 
rules include limits on the amount of elective deferrals that 
may be made on behalf of an employee in a tax year under a 
section 401(k) plan, such as the TSP, and an overall limitation 
on contributions and benefits that may be provided to an 
employee under the plan.
    The limit on the amount of elective deferrals that an 
employee may make to a section 401(k) plan for 1999 is $10,000. 
The overall limit on contributions and benefits for an employee 
for a year is different for defined benefit plans and defined 
contribution plans. The limitation for an annual benefit under 
a defined benefit plan is the lesser of (1) $130,000 (for 
1999), or (2) 100 percent of the participant's average 
compensation for his high three years. The limitation for 
annual contributions and other additions under a defined 
contribution plan is the lesser of (1) $30,000, or (2) 25 
percent of the participant's compensation.

Reasons for change

    The Committee believes it is appropriate to correct errors 
in the misclassification of Federal employees resulting in such 
employees being erroneously placed in the wrong retirement 
system. The Committee believes that no Federal retirement plan 
involved in the correction should fail the retirement plan tax 
qualification rules by reason of such correction. The Committee 
also believes that no Federal employee involved in the 
correction should be subject to additional tax consequences as 
a result of such correction.

Explanation of provisions

    The bill provides that the Federal retirement plans will 
not fail to be treated as qualified retirement plans under the 
Internal Revenue Code by reason of any action taken pursuant to 
the bill. Thus, for example, the bill permits an employing 
agency to make up contributions on behalf of an employee, or 
former employee, who was entitled to such contributions in 
prior years without violating the applicable overall 
contribution and benefit limitations (sec. 415) for the year in 
which the makeup contribution is made. However, the amount 
contributed may not violate section 415 for the year for which 
the contribution is made.
    The bill provides that no amount is includible in the 
income of any individual for Federal tax purposes by reason of 
fund transfers or government contributions made pursuant to the 
bill. In addition, the bill provides that no amount shall be 
subject to employment taxes under Subtitle C of the Internal 
Revenue Code by reason of such transfers or contributions.

Effective date

    The tax provisions are effective on the date of enactment.

                       III. VOTE OF THE COMMITTEE

    In compliance with clause 3(b) of rule XIII of the Rules of 
the House of Representatives, the following statement is made 
concerning the vote of the Committee on Ways and Means in its 
consideration of the bill, H.R. 416.

                       motion to report the bill

    The bill, H.R. 416, was ordered favorably reported by a 
voice vote (with a quorum present).

                     IV. BUDGET EFFECTS OF THE BILL

              A. Committee Estimates of Budgetary Effects

    In compliance with clause 3(d)(2) of rule XIII of the Rules 
of the House of Representatives, the following statement is 
made concerning the estimated budget effects of H.R. 416, as 
reported by the Committee on Ways and Means.
    The bill, as reported, is estimated to have the following 
effect:

 ESTIMATED REVENUE EFFECTS OF H.R. 416, THE ``FEDERAL RETIREMENT COVERAGE CORRECTIONS ACT,'' AS APPROVED BY THE
                                           COMMITTEE ON WAYS AND MEANS
                                [Fiscal Years 1999-2003, in millions of dollars]
----------------------------------------------------------------------------------------------------------------
                                                                                                           1999-
                 Provision                           Effective          1999   2000   2001   2002   2003   2003
----------------------------------------------------------------------------------------------------------------
Correction of Certain Retirement Coverage    DOE                           Negligible Revenue Effect
 Errors Affecting Federal Employees.
----------------------------------------------------------------------------------------------------------------
Note.--Details may not add to totals due to rounding.

Legend for ``Effective'' column: DOE=date of enactment.

Source: Joint Committee on Taxation.

    The Committee agrees with the Congressional Budget Office 
estimate of the spending effects of the bill, as amended. (See 
Part IV.C., below.)

                B. Budget Authority and Tax Expenditures

                            budget authority

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee states that the 
provisions of the bill as reported involve changes in budget 
authority. (See statement of the Congressional Budget Office in 
Part IV.C., below.)

                            tax expenditures

    In compliance with clause 3(c)(2) of rule XIII of the rules 
of the House of Representatives, the Committee states that the 
revenue provisions of the bill as reported may have a 
negligible effect on tax expenditures.

      C. Cost Estimate Prepared by the Congressional Budget Office

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, requiring a cost estimate 
prepared by the Congressional Budget Office, the Committee 
advises that the Congressional Budget Office has submitted the 
following statement on this bill.

                                     U.S. Congress,
                               Congressional Budget Office,
                                 Washington, DC, February 19, 1999.
Hon. Bill Archer,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 416, the Federal 
Retirement Coverage Corrections Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Eric Rollins.
            Sincerely,
                                          Dan L. Crippen, Director.
    Enclosure.

H.R. 416--Federal Retirement Coverage Corrections Act

    Summary: H.R. 416 would alter the procedures for correcting 
situations where federal employees have been mistakenly placed 
in the wrong retirement system. Many of these retirement 
coverage errors occurred between 1984, when the Civil Service 
Retirement System (CSRS) was closed to new entrants, and 1987, 
when the Federal Employees' Retirement System (FERS) was 
created.
    CBO estimates that federal agencies would bear 
discretionary costs totaling $346 million over the 2000-2004 
period, primarily because the bill would increase the size of 
makeup contributions to the Thrift Savings Plan (TSP). The bill 
would also decrease direct spending by $113 million; this drop 
in direct spending largely reflects makeup contributions to the 
Social Security trust funds, which are off-budget. The bill 
would not have a significant impact on federal retirement 
benefits during the next several years because the affected 
employees are generally still in the middle of their careers. 
Because the bill would affect direct spending and receipts, 
pay-as-you-go procedures would apply.
    The bill would require the District of Columbia and 
Gallaudet University to correct instances where employees have 
been mistakenly enrolled in the wrong retirement system. This 
requirement represents both an intergovernmental and a private-
sector mandate as defined by the Unfunded Mandates Reform Act 
of 1995 (UMRA). However, CBO estimates that the cost of these 
mandates would be minimal.
    Estimated cost to the Federal Government:
    The estimated budgetary impact of H.R. 416 is shown in the 
following table.

                                TABLE 1.--ESTIMATED BUDGETARY EFFECTS OF H.R. 416
----------------------------------------------------------------------------------------------------------------
                                                     By fiscal years, in millions of dollars--
                                 -------------------------------------------------------------------------------
                                   2000    2001    2002    2003    2004    2005    2006    2007    2008    2009
----------------------------------------------------------------------------------------------------------------
                                  CHANGES IN SPENDING SUBJECT TO APPROPRIATION

Makeup Contributions to TSP.....      23      68      66      73      45      31      35      39      -6      -7
Makeup Payments to Social          (\1\)       1       1       1       1       1       1       1      -2      -2
 Security.......................
Makeup Payments to the CSRDF....       6      20      17      18      13      11      11      12      -8      -9
Agency Retirement Contributions.   (\1\)   (\1\)   (\1\)      -1      -1      -2      -2      -2      -2      -3
Employer TSP Contributions......   (\1\)   (\1\)      -1      -1      -2      -2      -2      -2      -2      -3
Employer Social Security           (\1\)   (\1\)   (\1\)       1       1       1       1       1       1       1
 Contributions..................
                                 -------------------------------------------------------------------------------
      Total.....................      29      88      83      90      56      40      45      50     -19     -23

                                           CHANGES IN DIRECT SPENDING

On-Budget:
    Makeup Payments to the CSRDF      -9     -30     -25     -27     -19     -16     -17     -19      12      13
    Agency Retirement              (\1\)   (\1\)       1       2       2       2       2       3       3       4
     Contributions..............
    Transfers from CSRDF to           10      31      27      28      21      18      19      21     -12     -13
     Social Security............
                                 -------------------------------------------------------------------------------
      Subtotal..................       1       2       2       3       4       4       5       5       3       4
                                 ===============================================================================
Off-Budget:
    Makeup Payments to Social      (\1\)      -2      -1      -1      -1      -1      -1      -1       3       3
     Security...................
    Employer Social Security       (\1\)   (\1\)      -1      -1      -1      -1      -2      -2      -2      -1
     Contributions..............
    Transfers from CSRDF to          -10     -31     -27     -28     -21     -18     -19     -21      12      13
     Social Security............
                                 -------------------------------------------------------------------------------
      Subtotal..................     -10     -33     -28     -30     -23     -20     -22     -24      13      15
                                 ===============================================================================
      Total.....................      -9     -31     -26     -27     -19     -16     -17     -19      16      19

                                               CHANGES IN REVENUES

On-Budget:
    Employee Retirement            (\1\)   (\1\)      -1      -1      -1      -1      -2      -2      -2      -1
     Contributions..............
Off-Budget:
    Employee Social Security       (\1\)   (\1\)       1       1       1       1       2       2       2       1
     Taxes......................
                                 -------------------------------------------------------------------------------
      Total.....................   (\1\)   (\1\)   (\1\)   (\1\)   (\1\)   (\1\)   (\1\)   (\1\)   (\1\)   (\1\)

                                             TOTAL COST OF H.R. 416

Direct Spending and Revenues....      -9     -31     -26     -27     -19     -16     -18     -19      16      19
All Spending and Revenues.......      20      57      56      63      37      24      27      30      -4      -4
----------------------------------------------------------------------------------------------------------------
\1\ Less than $500,000.

Notes: Components may not sum to totals because of rounding.

    The mandatory costs of this legislation would fall within 
budget functions 600 (Income Security), 650 (Social Security), 
and 950 (Undistributed Offsetting Receipts). Additional costs 
to employing agencies would be discretionary and would be 
funded through appropriations throughout the budget.
    Basis of estimate: H.R. 416 lays out procedures for 
correcting a wide variety of retirement coverage errors. CBO 
estimates that the bill would impose discretionary costs on 
agencies totaling $346 million over the 2000-2004 period. In 
addition, the bill would increase on-budget direct spending by 
$12 million over the same period. Off-budget direct spending 
would decrease by $124 million, for a net decrease in direct 
spending of $112 million. H.R. 416 would have little impact on 
net revenues; on-budget revenues would decrease by $3 million, 
while off-budget revenues would increase by $3 million. The 
estimate assumes that the Postal Service would increase postal 
rates to offset its own costs related to the bill. The estimate 
also assumes that the bill is enacted by October 1, 1999.

Background

    There are two main retirement programs for full-time 
regular federal employees. Most full-time employees hired 
before 1984 are in the Civil Service Retirement System (CSRS), 
a defined benefit plan that does not include Social Security. 
Those hired after 1983 are generally covered by the Federal 
Employees' Retirement System (FERS), which features Social 
Security, a more limited defined benefit, and the defined 
contribution Thrift Savings Plan (TSP) with government matching 
contributions. Employees who return to government service after 
1987 and have five years of prior service under CSRS may be 
covered by a hybrid plan known as CSRS Offset that features a 
combination of CSRS and Social Security benefits.
    FERS employees may contribute up to 10 percent of their pay 
to the TSP. They receive an automatic contribution from their 
employing agency equal to 1 percent of their pay and may also 
receive an additional 4 percent in matching contributions. CSRS 
and CSRS Offset employees may also participate in the TSP, but 
they may only contribute up to 5 percent of their pay and do 
not receive any government contributions.

Assumptions about retirement coverage errors

    CBO estimated the number of retirement coverage errors that 
have been made based on discussions with personnel offices in a 
number of large government agencies, including the Postal 
Service and the Departments of Defense, Veterans Affairs, and 
Agriculture. These agencies comprise approximately 70 percent 
of the federal civilian workforce. On the basis of these 
discussions, CBO estimates that approximately 18,000 coverage 
errors have occurred throughout the government, of which 
approximately 11,000 have already been corrected. The two most 
common types of coverage errors appear to involve employees who 
should be in FERS but were accidentally put in CSRS, and 
employees with prior service who returned to government service 
and were misplaced in either FERS or CSRS Offset.
    H.R. 416 would also affect the speed with which agencies 
identify and correct retirement coverage errors. CBO assumed 
that, under current law, agencies would correct coverage errors 
at a constant annual rate. H.R. 416 would direct agencies to 
identify any retirement coverage errors and correct them by 
December 31, 2001, but would not impose any penalty on agencies 
that miss this deadline. CBO assumed that agencies would 
correct their errors at a 20 percent faster annual rate than 
under current law, but that some errors would remain 
undiscovered until 2009. Agencies would also stop correcting 
errors for the first six months of 2000 pending the issuance of 
final regulations to implement H.R. 416.
    Under current law, coverage errors are usually corrected by 
converting the employee to the proper retirement system, 
retroactive to original date of the error. However, some 
employees who were accidentally placed in FERS are able to 
remain in FERS by making a retroactive election of FERS 
coverage. H.R. 416 would allow most employees affected by 
coverage errors to choose whether they would like to be placed 
in the proper retirement system or make their current incorrect 
coverage permanent. All elections would be irrevocable, and 
employees who did not make an election would retain their 
current coverage. Coverage errors lasting less than a year 
would not be covered by the bill. CBO assumed that 80 percent 
of the employees whose errors have not yet been corrected would 
choose to be placed in the proper retirement system.
    Most of the employees whose coverage errors have already 
been corrected would also be given the option of returning to 
the retirement system in which they were incorrectly placed. 
However, employees who were mistakenly placed in CSRS and have 
already been placed in FERS would be able to elect only CSRS 
Offset coverage. CBO assumed that 80 percent of these employees 
would elect to remain in their current coverage.

Effects on discretionary spending

    Makeup Contributions to TSP. Employees who are incorrectly 
covered by CSRS rather than FERS are unable to participate 
fully in the TSP. Under current law, when an individual's 
coverage is corrected to FERS, the employing agency makes a 
lump-sum deposit into his TSP account equal to the government 
contributions and related earnings that would have been made to 
the employee's previous TSP contributions under FERS rules. If 
the employee did not have a TSP account, only a deposit for the 
automatic 1-percent contribution is made. Earnings are 
calculated using the individual's own fund allocation decisions 
(if he had a TSP account) or the G Fund rate (otherwise). 
Employees may provide makeup contributions to their TSP 
accounts out of future pay,. These makeup contributions receive 
agency matching contributions (up to the 5-percent FERS 
maximum) and related earnings as if the contributions had been 
made at the proper time. However, back earnings are paid only 
on the agency's matching funds, not the employee's makeup 
contributions.
    H.R. 416 would change the way that makeup TSP contributions 
are calculated, and would apply to employees mistakenly covered 
by CSRS or CSRS Offset whose coverage is changed to FERS. 
Employees whose coverage was corrected to FERS prior to the 
bill's enactment would also be eligible. Under the bill, 
agencies would make a lump-sum payment to TSP representing past 
employee contributions as well as the automatic 1-percent 
agency contributions and agency matching contributions. The 
amount representing employee contributions would be calculated 
using the average contribution rate for FERS employees who 
participated in TSP, and would be paid whether or not the 
employee already has a TSP account (subject to the 10-percent 
annual limit on FERS contributions and the Internal Revenue 
Service's annual dollar limit on contributions to tax-deferred 
savings plans). Agencies would also pay past earnings on all 
three amounts. These earnings would be calculated using the 
employee's own TSP fund allocation choices. If the employee did 
not have a TSP account, a composite rate representing the 
average allocation of all FERS employees contributing to TSP 
would be used.
    Based on historical data provided by the Federal Retirement 
Thrift Investment Board, CBO estimates that these provisions 
would increase the average TSP makeup payment by $85,000 in 
2000. Employees whose coverage errors were corrected to FERS in 
the past would receive smaller payments of about $35,000. These 
amounts would be higher in later years due to additional 
foregone returns and contributions. CBO estimates that the 
additional cost of TSP makeup contributions would be $275 
million over the 2000-2004 period.
    Makeup Payments to Social Security. Agencies are currently 
responsible for paying makeup Social Security payroll taxes 
covering the last 3 years, 3 months, and 15 days foremployees 
whose coverage is changed from CSRS to FERS or CSRS Offset. CBO 
estimates that these makeup payments would increase by $4 million 
during the 2000-2004 period. This rise primarily reflects the impact 
that the bill would have on speeding up the correction of coverage 
errors.
    Makeup Payments to the Civil Service Retirement and 
Disability Fund (CSRDF). Under H.R. 416, any necessary 
adjustments to past agency retirement contributions to the 
CSRDF would be completely retroactive, as under current law. 
Agencies would also have to reimburse the CSRDF for certain 
transfers from the CSRDF to the Social Security trust funds. As 
noted earlier, agencies are responsible for makeup Social 
Security payroll taxes covering the last 3 years, 3 months, and 
15 days. If an employee was erroneously covered for a long 
period of time, H.R. 416 would require the CSRDF to transfer to 
the Social Security trust funds an amount equal to the agency's 
payroll taxes for that additional period that should have gone 
to Social Security but went instead to the CSRDF. The agency 
would then be required to reimburse the CSRDF for the makeup 
employer taxes transferred to Social Security. CBO estimates 
that agency makeup payments to the CSRDF would increase by $74 
million between 2000 and 2004 under the bill.
    Agency Retirement Contributions. The amount that agencies 
contribute towards their employees' retirement would decrease 
slightly because, relative to current law, the bill would shift 
some employees out of FERS into CSRS Offset, which requires 
lower agency retirement contributions.
    Employer TSP Contributions. The additional employees who 
would shift out of FERS into CSRS Offset under H.R. 416 would 
no longer be eligible for the automatic and matching TSP 
contributions available under FERS, lowering agency spending on 
TSP contributions by $4 million over the 2000-2004 period.
    Employer Social Security Contributions. Employer 
contributions to Social Security would increase by $2 million 
between 2000 and 2004 due to the speeding up of retirement 
corrections. These contributions would not be affected by the 
decision of some employees to switch from FERS to CSRS Offset 
since both types of coverage include Social Security.

Effects on direct spending (on-budget)

    Makeup Payment of Retirement Contributions. The increase in 
agency makeup payments to the CSRDF would be reflected in the 
budget both as additional agency outlays and as offsetting 
receipts to the CSRDF. As a result, receipts to the trust fund 
would increase by $110 million between 2000 and 2004. The 
increase in receipts is larger than the increase in agency 
makeup payments because the receipts figure includes payments 
by the Postal Service.
    Agency Retirement Contributions. The increase in agency 
retirement contributions under the bill would decrease CSRDF 
receipts by $5 million over the 2000-2004 period. The decrease 
in receipts is larger than the decrease in agency retirement 
contributions because the receipts figure includes payments by 
the Postal Service.
    Transfers from the Civil Service Trust Fund to Social 
Security. Under H.R. 416, the CSRDF would make payments to the 
Social Security trust funds for certain back payroll taxes. 
CSRDF would be required to transfer amounts equal to any 
employee payroll taxes and employer payroll taxes beyond the 
current statute of limitations of 3 years, 3 months, and 15 
days that should have gone to Social Security but instead went 
to the CSRDF. As noted above, agencies would reimburse the 
CSRDF for transfers of employer payroll taxes. CBO estimates 
that transfers from the CSRDF to the Social Security trust 
funds would total $117 million over the 2000-2004 period. 
Although these transfers are intragovernmental, the payments 
would be on-budget, and the receipt of these funds by Social 
Security would be off-budget.

Effects on direct spending (off-budget)

    H.R. 416 would affect offsetting receipts to the Social 
Security trust funds in three ways. First, agency makeup 
payments would be slightly accelerated, increasing receipts by 
$5 million between 2000 and 2004. Second, receipts from 
employer Social Security contributions would rise by $3 million 
during this period. In both of these instances, the increase in 
receipts is larger than the increase in discretionary spending 
because the receipts figure includes payments by the Postal 
Service. Finally, transfers from the Civil Service trust fund 
for back taxes would increase receipts by $117 million during 
the 2000-2004 period.

Effects on revenues

    Employee Retirement Contributions. Because of the speeding 
up of retirement corrections, employee retirement contributions 
would decrease by $3 million over the 2000-2004 period. 
Employees would be moved more rapidly out of CSRS, which 
requires 7 percent employee contributions, and into CSRS Offset 
or FERS, which both require 0.8 percent employee contributions.
    Employee Social Security Taxes. By moving from CSRS to CSRS 
Offset or FERS, employees would also become covered by Social 
Security. The speeding up of retirementcorrections thus would 
increase receipts of employee Social Security taxes by $3 million 
between 1999 and 2003.
    Pay-as-you-go considerations: The provisions of H.R. 416 
would affect on-budget direct spending and revenues and 
therefore be subject to pay-as-you-go procedures. The pay-as-
you-go procedures cover only the current year, budget year, and 
the succeeding four years. The pay-as-you-go effects of the 
bill are shown in Table 2.

                                   TABLE 2.--SUMMARY OF PAY-AS-YOU-GO EFFECTS
----------------------------------------------------------------------------------------------------------------
                                                          By fiscal year, in millions of dollars--
                                           ---------------------------------------------------------------------
                                             2000   2001   2002   2003   2004   2005   2006   2007   2008   2009
----------------------------------------------------------------------------------------------------------------
Change in outlays.........................      1      2      2      3      4      4      5      5      3      4
Change in receipts........................      0      0     -1     -1     -1     -1     -2     -2     -2     -1
----------------------------------------------------------------------------------------------------------------

    Intergovernmental and private-sector impact: H.R. 416 would 
require the government of the District of Columbia and 
Gallaudet University to correct errors associated with the 
incorrect enrollment of employees in certain retirement plans. 
This requirement is both an intergovernmental and a private-
sector mandate as defined by UMRA. However, costs associated 
with those corrections would be minimal, and only a small 
number of employees of the District of Columbia and Gallaudet 
University have been affected by the errors addressed by the 
bill. Consequently, CBO estimates that the total cost of the 
mandates would be minimal.
    Comparison with other estimates: An identical version of 
H.R. 416 was reported by the House Committee on Government 
Reform on February 3, 1999.
    H.R. 416 is similar to H.R. 3249, which was approved by the 
House of Representatives in the 105th Congress. The only major 
difference between the two bills is that H.R. 3249 also 
included a provision authorizing an open season for federal 
employees covered by the Foreign Service Retirement and 
Disability System to switch into the newer Foreign Service 
Pension System.
    CBO estimated that H.R. 3249 would impose discretionary 
costs on agencies totaling $443 million and reduce direct 
spending by $135 million over the 1999-2003 period. The main 
reason that the discretionary impact of H.R. 416 is lower than 
that for H.R. 3249 is that CBO lowered its estimate of the 
additional TSP makeup contributions that would be paid to 
employees whose coverage had already been corrected to FERS 
prior to the bill's enactment.
    Estimate prepared by: Federal cost: Eric Rollins; Impact on 
State, local, and tribal governments: Leo Lex; and impact on 
the private sector: John Harris.
    Estimate Approved by: Paul N. Van de Water, Assistant 
Director for Budget Analysis.

     V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE

          A. Committee Oversight Findings and Recommendations

    With respect to clause 3(c)(1) of rule XIII of the Rules of 
the House of Representatives (relating to oversight findings), 
the Committee advises that it was the result of the Committee's 
oversight activities with respect to the misclassification of 
Federal employees into the wrong Federal retirement system that 
the Committee concluded that it is appropriate and timely to 
enact the provisions contained in the bill as reported.

    B. Summary of Findings and Recommendations of the Committee on 
                           Government Reform

    With respect to clause 3(c)(4) of rule XIII of the Rules of 
the House of Representatives, the Committee on Ways and Means 
advises that the Committee on Government Reform ordered H.R. 
416 favorably reported on February 3, 1999. The Committee on 
Government Reform submitted the following letter regarding H.R. 
416.

                          House of Representatives,
                            Committee on Government Reform,
                                  Washington, DC, February 4, 1999.
Hon. Bill Archer,
Chairman, Committee on Ways and Means, Longworth House Office Building, 
        Washington, DC.
    Dear Mr. Chairman: I am writing with regard to the Federal 
Retirement Coverage Corrections Act, H.R. 416, which has been 
referred to the Committee on Ways and Means in addition to the 
Committee on Government Reform. The Committee on Government 
Reform ordered this bill reported by a unanimous voice vote on 
February 3, 1999, and it has strong bipartisan support on this 
Committee. The bill has been tentatively scheduled for House 
consideration during the week of February 22, 1999.
    Title IV of H.R. 416 includes tax provisions that were 
drafted in close consultation with the Ways and Means tax staff 
and experts from the Joint Committee on Taxation. This bill is 
essentially the same as H.R. 3249, the bill the House passed 
last year after it was marked up by both this Committee and 
Ways and Means.
    This measure is extremely important to the estimated 18,000 
thousand active and retired federal employees who have been 
placed in the wrong retirement system. Under current law, these 
errors are ``corrected'' by transferring the affected employees 
from the wrong retirement system to the correct one. Because 
current law does not include make whole relief, such 
corrections inflict great financial and emotional damage on the 
innocent victims of these agency errors. Please advise me 
whether the Committee on Ways and Means would be willing to 
refrain from asserting its jurisdiction over this measure so it 
may be taken to the floor expeditiously.
    Thank you for your prompt consideration of this important 
matter. I appreciate your support and very valuable assistance 
in crafting a satisfactory remedy, and I look forward to 
working with you on this and many other important matters 
during this Congress.
            Sincerely,
                                              Dan Burton, Chairman.

                 C. Constitutional Authority Statement

    With respect to clause 3(d)(1) of rule XIII of the Rules of 
the House of Representatives (relating to Constitutional 
authority), the Committee states that the Committee's action in 
reporting this bill is derived from Article I of the 
Constitution, Section 7 (``All bills for raising revenue shall 
originate in the House of Representatives'') and Section 8 
(``The Congress shall have the power to lay and collect taxes, 
duties, imposts and excises, to pay the debts . . . of the 
United States''), and from the 16th Amendment to the 
Constitution.

              D. Information Relating to Unfunded Mandates

    This information is provided in accordance with section 423 
of the Unfunded Mandates Act of 1995 (P.L. 104-4). The 
Committee has determined that the revenue provisions of H.R. 
416, contain no private sector mandates or intergovernmental 
mandates within the meaning of the Unfunded Mandates Act of 
1995.

                 E. Applicability of House Rule XXI5(b)

    Rules XXI5(b) of the Rules of the House of Representatives 
provides that a ``bill or joint resolution, amendment, or 
conference report carrying a Federal income tax rate increase 
may not be considered as passed or agreed to unless so 
determined by a vote of not less than three-fifths of the 
Members voting, a quorum being present. In this paragraph the 
term ``Federal income tax rate increase'' means any amendment 
to subsection (a), (b), (c) (d), or (e) of section 1, or to 
section 11(b) or 55(b), of the Internal Revenue Code of 1986, 
that imposes a new percentage as a rate of tax and thereby 
increases the amount of tax imposed by any such section.'' The 
Committee has carefully reviewed the provisions of the bill, 
and states that the provisions of the bill as reported do not 
involve any Federal income tax rate increase within the meaning 
of the rule.

                         F. Complexity Analysis

    Clause (h)(1) XIII of the Rules of the House of 
Representatives provides that, ``it shall not be in order to 
consider a bill or joint resolution reported by the Committee 
on Ways and Means that proposes to amend the Internal Revenue 
Code of 1986 unless--(A) the report includes a tax complexity 
analysis prepared by the Joint Committee on Internal Revenue 
Taxation in accordance with section 4022(b) of the Internal 
Revenue Service Restructuring and Reform Act of 1998; or (B) 
the chairman of the Committee on Ways and Means causes such a 
tax complexity analysis to be printed in the Congressional 
Record before consideration of the bill or joint resolution.''
    Section 4022(b) of the Internal Revenue Service Reform and 
Restructuring Act of 1998 (the ``IRS Reform Act''), requires 
the Joint Committee on Taxation (``Joint Committee'') (in 
consultation with the Internal Revenue Service and the 
Department of the Treasury) to provide a tax complexity 
analysis. The complexity analysis is required for all 
legislation reported by the Senate Committee on Finance, the 
House Committee on Ways and Means, or any committee of 
conference if the legislation includes a provision that 
directly or indirectly amends the Internal Revenue Code (the 
``Code'') and has widespread applicability to individuals or 
small businesses.
    The staff of the Joint Committee has determined that a 
complexity analysis is not required under section 4022(b) of 
the IRS Reform Act because the bill contains no provisions that 
amend the Internal Revenue Code and that have widespread 
applicability to individuals or small businesses.

       VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

  In compliance with clause 3(g) 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 210 OF THE SOCIAL SECURITY ACT

                        definition of employment

    Sec. 210. For the purposes of this title--

                               Employment

  (a) The term ``employment'' means any service performed after 
1936 and prior to 1951 which was employment for the purposes of 
this title under the law applicable to the period in which such 
service was performed, and any service, of whatever nature, 
performed after 1950 (A) by an employee for the person 
employing him, irrespective of the citizenship or residence of 
either, (i) within the United States, or (ii) on or in 
connection with an American vessel or American aircraft under a 
contract of service which is entered into within the United 
States or during the performance of which and while the 
employee is employed on the vessel or aircraft it touches at a 
port in the United States, if the employee is employed on and 
in connection with such vessel or aircraft when outside the 
United States, or (B) outside the United States by a citizen or 
resident of the United States as an employee (i) of an American 
employer (as defined in subsection (e) of this section), or 
(ii) of a foreign affiliate (as defined in section 3121(l)(6) 
of the Internal Revenue Code of 1986 of an American employer 
during any period for which there is in effect an agreement, 
entered into pursuant to section 3121(l) of such Code, with 
respect to such affiliate, or (C) if it is service, regardless 
of where or by whom performed, which is designated as 
employment or recognized as equivalent to employment under an 
agreement entered into under section 233; except that, in the 
case of service performed after 1950, such term shall not 
include--
          (1) * * *

           *       *       *       *       *       *       *

          (5) Service performed in the employ of the United 
        States or any instrumentality of the United States, if 
        such service--
                  (A) * * *

           *       *       *       *       *       *       *

                  (H) service performed by an individual--
                          (i) on or after the effective date of 
                        an election by such individual, under 
                        section 301 of the Federal Employees' 
                        Retirement System Act of 1986, section 
                        307 of the Central Intelligence Agency 
                        Retirement Act (50 U.S.C. 2157), or the 
                        Federal Employees' Retirement System 
                        Open Enrollment Act of 1997 to become 
                        subject to the Federal Employees' 
                        Retirement System provided in chapter 
                        84 of title 5, United States Code, [or]
                          (ii) on or after the effective date 
                        of an election by such individual, 
                        under regulations issued under section 
                        860 of the Foreign Service Act of 1980, 
                        to become subject to the Foreign 
                        Service Pension System provided in 
                        subchapter II of chapter 8 of title I 
                        of such Act[;], or
                          (iii)(I) described in section 
                        111(a)(3) of the Federal Retirement 
                        Coverage Corrections Act, on or after 
                        the effective date of an election (or 
                        deemed election) by such individual 
                        under section 111(b)(2) of such Act;
                          (II) described in section 131(a)(1) 
                        of such Act, on or after the effective 
                        date of an election (or deemed 
                        election) by such individual under 
                        subsection (b)(2) or (c)(1) of section 
                        131 of such Act; or
                          (III) described in section 151(a) of 
                        such Act, on or after the effective 
                        date of an election (or deemed 
                        election) by such individual under 
                        subsection (b)(2) or (c)(1) of section 
                        151 of such Act;

           *       *       *       *       *       *       *

                              ----------                              


           SECTION 3121 OF THE INTERNAL REVENUE CODE OF 1986

SEC. 3121. DEFINITIONS.

  (a) * * *
  (b) Employment.--For purposes of this chapter, the term 
``employment'' means any service, of whatever nature, performed 
(A) by an employee for the person employing him, irrespective 
of the citizenship or residence of either, (i) within the 
United States, or (ii) on or in connection with an American 
vessel or American aircraft under a contract of service which 
is entered into within the United States or during the 
performance of which and while the employee is employed on the 
vessel or aircraft it touches at a port in the United States, 
if the employee is employed on and in connection with such 
vessel or aircraft when outside the United States, or (B) 
outside the United States by a citizen or resident of the 
United States as an employee for an American employer (as 
defined in subsection (h)), or (C) if it is service, regardless 
of where or by whom performed, which is designated as 
employment or recognized as equivalent to employment under an 
agreement entered into under section 233 of the Social Security 
Act; except that such term shall not include--
          (1) * * *

           *       *       *       *       *       *       *

          (5) service performed in the employ of the United 
        States or any instrumentality of the United States, if 
        such service--
                  (A) * * *

           *       *       *       *       *       *       *

                  (H) service performed by an individual--
                          (i) on or after the effective date of 
                        an election by such individual, under 
                        section 301 of the Federal Employees' 
                        Retirement System Act of 1986 or 
                        section 307 of the Central Intelligence 
                        Agency Retirement Act (50 U.S.C. 2157), 
                        to become subject to the Federal 
                        Employees' Retirement System provided 
                        in chapter 84 of title 5, United States 
                        Code, [or]
                          (ii) on or after the effective date 
                        of an election by such individual, 
                        under regulations issued under section 
                        860 of the Foreign Service Act of 1980, 
                        to become subject to the Foreign 
                        Service Pension System provided in 
                        subchapter II of chapter 8 of title I 
                        of such Act; or
                          (iii)(I) described in section 
                        111(a)(3) of the Federal Retirement 
                        Coverage Corrections Act, on or after 
                        the effective date of an election (or 
                        deemed election) by such individual 
                        under section 111(b)(2) of such Act;
                          (II) described in section 131(a)(1) 
                        of such Act, on or after the effective 
                        date of an election (or deemed 
                        election) by such individual under 
                        subsection (b)(2) or (c)(1) of section 
                        131 of such Act; or
                          (III) described in section 151(a) of 
                        such Act, on or after the effective 
                        date of an election (or deemed 
                        election) by such individual under 
                        subsection (b)(2) or (c)(1) of section 
                        151 of such Act;

           *       *       *       *       *       *       *

                              ----------                              


TITLE 5--UNITED STATES CODE

           *       *       *       *       *       *       *


PART III--EMPLOYEES

           *       *       *       *       *       *       *


Subpart G--Insurance and Annuities

           *       *       *       *       *       *       *


CHAPTER 83--RETIREMENT

           *       *       *       *       *       *       *


SUBCHAPTER III--CIVIL SERVICE RETIREMENT

           *       *       *       *       *       *       *


Sec. 8348. Civil Service Retirement and Disability Fund

  (a) There is a Civil Service Retirement and Disability Fund. 
The Fund--
          (1) * * *
          (2) is made available, subject to such annual 
        limitation as the Congress may prescribe, for any 
        expenses incurred by the Office in connection with the 
        administration of this chapter, chapter 84 of this 
        title, and other retirement and annuity [statutes;] 
        statutes (including the provisions of the Federal 
        Retirement Coverage Corrections Act that relate to this 
        subchapter); and
          (3) is made available, subject to such annual 
        limitation as the Congress may prescribe, for any 
        expenses incurred by the Merit Systems Protection Board 
        in the administration of appeals authorized under 
        sections 8347(d) and 8461(e) of this [title.] title and 
        the Federal Retirement Coverage Corrections Act.

           *       *       *       *       *       *       *


CHAPTER 84--FEDERAL EMPLOYEES' RETIREMENT SYSTEM

           *       *       *       *       *       *       *


SUBCHAPTER III--THRIFT SAVINGS PLAN

           *       *       *       *       *       *       *


Sec. 8432. Contributions

  (a) * * *

           *       *       *       *       *       *       *

  (h) No transfers or contributions may be made to the Thrift 
Savings Fund except as provided in this chapter or section 8351 
of this [title.] title or the Federal Retirement Coverage 
Corrections Act.

           *       *       *       *       *       *       *


Sec. 8437. Thrift Savings Fund

  (a) There is established in the Treasury of the United States 
a Thrift Savings Fund.
  (b) The Thrift Savings Fund consists of the sum of all 
amounts contributed under section 8432 of this title and all 
amounts deposited under section 8479(b) of this title, 
increased by the total net earnings from investments of sums in 
the Thrift Savings Fund or reduced by the total net losses from 
investments of the Thrift Savings Fund, and reduced by the 
total amount of payments made from the Thrift Savings Fund 
(including payments for administrative [expenses).] expenses), 
as well as contributions under the Federal Retirement Coverage 
Corrections Act (and lost earnings made up under such Act).

           *       *       *       *       *       *       *

  (d) Administrative expenses incurred to carry out this 
subchapter (including the provisions of the Federal Retirement 
Coverage Corrections Act that relate to this subchapter) and 
subchapter VII of this chapter shall be paid first out of any 
sums in the Thrift Savings Fund forfeited under section 8432(g) 
of this title and then out of net earnings in such Fund.

           *       *       *       *       *       *       *


                                
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