[Senate Report 106-178]
[From the U.S. Government Publishing Office]
Calendar No. 309
106th Congress Report
SENATE
1st Session 106-178
_______________________________________________________________________
FEDERAL ERRONEOUS RETIREMENT
COVERAGE CORRECTIONS ACT
__________
R E P O R T
of the
COMMITTEE ON GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
to accompany
S. 1232
TO PROVIDE FOR THE CORRECTION OF RETIREMENT COVERAGE ERRORS UNDER
CHAPTERS 83 AND 84 OF TITLE 5, UNITED STATES CODE
October 8, 1999.--Ordered to be printed
__________
U.S. GOVERNMENT PRINTING OFFICE
79-010 WASHINGTON : 1999
COMMITTEE ON GOVERNMENTAL AFFAIRS
FRED THOMPSON, Tennessee, Chairman
WILLIAM V. ROTH, Jr., Delaware JOSEPH I. LIEBERMAN, Connecticut
TED STEVENS, Alaska CARL LEVIN, Michigan
SUSAN M. COLLINS, Maine DANIEL K. AKAKA, Hawaii
GEORGE VOINOVICH, Ohio RICHARD J. DURBIN, Illinois
PETE V. DOMENICI, New Mexico ROBERT G. TORRICELLI, New Jersey
THAD COCHRAN, Mississippi MAX CLELAND, Georgia
ARLEN SPECTER, Pennsylvania JOHN EDWARDS, North Carolina
JUDD GREGG, New Hampshire
Hannah S. Sistare, Staff Director and Counsel
Dan G. Blair, Senior Counsel
Michael L. Loesch, Counsel, Subcommittee on International Security,
Proliferation and Federal Services
Joyce A. Rechtschaffen, Minority Staff Director and Counsel
Lawrence B. Novey, Minority Counsel
Nanci E. Langley, Minority Deputy Staff Director,
Subcommittee on International Security, Proliferation and Federal
Services
Darla D. Cassell, Administrative Clerk
Calendar No. 309
106th Congress Report
SENATE
1st Session 106-178
======================================================================
FEDERAL ERRONEOUS RETIREMENT COVERAGE CORRECTIONS ACT
_______
October 8, 1999.--Ordered to be printed
_______
Mr. Thompson, from the Committee on Governmental Affairs, submitted the
following
R E P O R T
[To accompany S. 1232]
The Committee on Governmental Affairs, to which was
referred the bill (S. 1232) to provide for the correction of
retirement coverage errors under chapters 83 and 84 of Title 5,
United States Code, and for other purposes, having considered
the same, reports favorably thereon with an amendment and
recommends by voice vote that the bill as amended do pass.
CONTENTS
Page
I. Purpose..........................................................1
II. Background.......................................................2
III. Legislative History..............................................4
IV. Section-by-Section Analysis......................................4
V. Regulatory Impact Statement......................................6
VI. CBO Cost Estimate................................................7
VII. Executive Communications........................................14
VIII.Changes to Existing Law.........................................16
I. Purpose
The purpose of S. 1232, the Federal Erroneous Retirement
Coverage Corrections Act, is to provide for the correction of
certain retirement coverage errors affecting federal employees,
and certain service credit and Thrift Savings Plan portability
problems affecting Federal Reserve Board employees.
II. Background
In 1984, the Federal government made a transition from the
Civil Service Retirement System (CSRS) to the Federal Employees
Retirement System (FERS). As government agencies carried out
the complex job of applying two sets of transition rules,
errors occurred, and thousands of employees were placed in the
wrong retirement system--many learning that their pensions
would be less than expected.
The CSRS and the FERS are two distinct retirement systems.
The CSRS is a stand-alone defined benefit pension plan that
does not include Social Security coverage. Benefits are based
on a formula involving length of service, high-three average
salary and an accrual rate. The FERS is a three-tiered
retirement system combining Social Security, a defined benefit
component and a defined contribution component known as the
Thrift Savings Plan (TSP). The TSP is similar to 401(k) plans
as found in the private sector. In order for employees covered
by the FERS to have similar income replacement rates in
retirement to those covered by the CSRS, participation in the
Thrift Savings Plan, with its government match for employee
contributions, is necessary. (A third system, the ``CSRS-
Offset'' system, covers employees who vested in the CSRS before
separating from government service for more than one year. This
offset system is a hybrid, combining Social Security coverage
with a defined benefit component with the aggregate benefit
amount intended to equal the amount the employee would have
received under the CSRS.)
Under current statute, federal agencies have no choice but
to correct a retirement coverage error when it is discovered,
effectively forcing employees into a new retirement plan. Since
most of the retirement coverage errors involve employees
wrongfully placed in the CSRS or the CSRS-Offset system,
employees whose coverage is corrected often have not
participated in the TSP. Thus, the automatic correction of a
retirement coverage error can have a harmful impact on an
employee's financial ability to plan for retirement.
In the 105th Congress, Senator Cochran introduced S. 1710,
the Retirement Coverage Error Correction Act of 1998. S. 1710
was introduced on March 4, 1998, to provide for the correction
of retirement coverage errors affecting federal employees. On
March 20, 1998, the bill was referred to the Subcommittee on
International Security, Proliferation, and Federal Services.
On May 13, 1998, the Subcommittee on International
Security, Proliferation, and Federal Services held a hearing to
examine S. 1710 and erroneous retirement coverage issues. The
following witnesses presented testimony at the hearing: William
E. Flynn, Associate Director for Retirement and Insurance at
the Office of Personnel Management; Roger W. Mehle, Executive
Director of the Federal Retirement Thrift Investment Board;
Dallas Salisbury, President of the Employee Benefit Research
Institute; and Daniel F. Geisler, President of the American
Foreign Service Association. Subsequently, the Subcommittee on
International Security, Proliferation and Federal Services
unanimously reported S. 1710 to the full Committee on
Governmental Affairs by polling letter on June 8, 1998.
However, preliminary cost estimates prepared by the
Congressional Budget Office raised questions regarding the
potential costs of the proposed legislation and additional
information and discussions were required to address these
issues. The bill was held in abeyance pending the outcome of
these discussions with the Office of Personnel Management, the
Congressional Budget Office and other interested stakeholders.
In the 106th Congress, Senator Cochran, along with Senator
Akaka, introduced S. 1232, the Federal Erroneous Retirement
Coverage Corrections Act. The Committee's work in the previous
Congress served as the foundation for this proposal, which is
designed to provide long-awaited relief to many federal
employees, retirees, survivors, and their families who, through
no fault of their own, find themselves the victims of
retirement coverage errors.
S. 1232 provides thorough and equitable relief to
employees, former employees, retirees, and survivors who are
affected by retirement coverage errors. It presents most
affected individuals with a choice between corrected retirement
coverage and the coverage the employee expected to receive,
without disturbing Social Security coverage law.
For each type of retirement coverage error, individuals are
furnished the opportunity to maintain their expected level of
retirement benefits without a change in their retirement
savings and planning. For example, current law requires FERS
eligible employees who were incorrectly placed in the CSRS-
Offset system to be automatically placed in FERS. However, S.
1232 would provide these employees with the option to be
corrected to FERS or remain in the CSRS-Offset system. Many
employees do not have the financial resources to make the
retroactive TSP contributions necessary to maintain their
expected level of retirement benefits under FERS. This
legislation provides these employees with equitable relief by
furnishing them the option to remain in the CSRS-Offset system
and receive the retirement benefits they expected. Among other
provisions, this legislation also provides certain employees
who missed an opportunity to contribute to the Thrift Savings
Plan due to a coverage error the opportunity to receive
interest on their TSP make-up contributions.
The Committee believes the Federal Erroneous Retirement
Coverage Corrections Actprovides a comprehensive solution to
the problems faced by federal employees due to retirement coverage
errors, and that it does so at a reasonable cost and without creating
unnecessary administrative burdens. By affording affected federal
employees the opportunity to be made whole, S. 1232 strikes the
appropriate balance between the needs of those affected by retirement
errors and federal agencies struggling to fulfill their mandates with
already tight budgets.
S. 1232 also addresses certain issues affecting only
employees of the Federal Reserve Board of Governors. First, the
bill authorizes Federal Reserve Board employees to receive
credit under the Federal Employees Retirement System (FERS) for
post-1988 Board employment should they leave the Federal
Reserve Board to take a position with another federal agency.
Current law prevents the transfer of credit for Federal Reserve
Board service after 1988. Thus, Federal Reserve Board employees
are potentially subject to reduced retirement benefits should
they begin working for another federal agency. S. 1232 corrects
this problem by providing retirement portability for Federal
Reserve Board employees.
Second, the bill permits employees who have transferred or
will transfer to the Federal Reserve Board to move the funds in
their Thrift Savings Plan (TSP) accounts to the Board's Thrift
Plan. Under current law federal employees participating in the
Thrift Savings Plan who transfer to the Federal Reserve Board
are not permitted to withdraw funds from their TSP accounts. S.
1232 corrects this situation by authorizing TSP withdrawals
under certain circumstances.
S. 1232 has been endorsed by the Administration and the two
largest federal employee unions, the American Federation of
Government Employees and the National Treasury Employees Union.
III. Legislative History
S. 1232 was introduced on June 17, 1999, by Senator
Cochran, for himself and Senator Akaka, and referred to the
Committee on Governmental Affairs. On June 21, 1999, the bill
was referred to the Subcommittee on International Security,
Proliferation, and Federal Services.
On July 16, 1999, the Subcommittee on International
Security, Proliferation, and Federal Services reported S. 1232
to the Committee on Governmental Affairs by polling letter. On
August 3, 1999, the Committee held a business meeting and voted
unanimously, by voice vote, to favorably report S. 1232 without
amendment.
S. 1232 has been cosponsored by Senators Thompson,
Lieberman, Warner, Sarbanes, Leahy, Robb, Jeffords and Snowe.
IV. Section-by-Section Analysis
Section 1: Provides the short title (``Federal Erroneous
Retirement Coverage Corrections Act'') and the table of
contents.
Section 2: Defines the terms used throughout the Act.
Section 3: Provides coverage under the Act for all errors
that have been in effect for at least three years of service
after December 31, 1986.
Section 4: Provides that elections made under this Act are
irrevocable.
Title I: Description of Retirement Coverage Errors and Measures for
Rectification
This title details the specific types of retirement
coverage errors and the remedies provided by the Act.
Subtitle A: Covers employees and annuitants who should have
been FERS covered, but were erroneously covered under CSRS or
CSRS Offset. These individuals are provided a choice between
correction to FERS or coverage under CSRS Offset. Includes
provisions that allow all employee contributions, and earnings
thereon, to remain in the TSP account if CSRS Offset is elected
by certain employees who were previously corrected.
Subtitle B: Covers employees who should have been covered
by a retirement plan (CSRS, CSRS Offset, or FERS), but were
erroneously covered by Social Security only. In all cases,
coverage is corrected to the appropriate plan so that the
employee has retirement coverage.
Subtitle C: Covers employees who should have been covered
by Social Security only, but were erroneously covered by CSRS
or CSRS Offset. These individuals are provided a choice between
correction to Social Security only or coverage under CSRS
Offset.
Subtitle D: Covers employees who should have been covered
by CSRS, CSRS Offset, or Social Security only, but were
erroneously covered by FERS. These individuals are provided a
choice between correction to the appropriate plan or coverage
under FERS. Includes provisions that allow all employee
contributions, and earnings thereon, to remain in the TSP
account if coverage other than FERS is elected.
Subtitle E: Covers employees who should have been covered
by CSRS Offset, but were erroneously covered by CSRS. Coverage
is corrected to CSRS Offset to conform with Social Security
coverage law.
Subtitle F: Covers employees who should have been covered
by CSRS, but were erroneously covered by CSRS Offset. Coverage
is corrected to CSRS to conform with Social Security coverage
law.
Title II: General Provisions
Section 201: Requires that all government agencies make
reasonable efforts to identify and notify individuals affected
by retirement coverage errors.
Section 202: Authorizes OPM, SSA, and TSP to obtain any
information necessary to carry out the responsibilities of this
Act.
Section 203: Provides for payment of interest on certain
deposits made by employees that, due to correction of a
retirement coverage error, are returned to the employee. Allows
retirement credit for certain periods of service without
payment of a service credit deposit. Provides that the
retirement or survivor benefit is actuarially reduced by the
amount of deposit owed.
Section 204: Provides that the employing agency pays any
employer OASDI taxes due for the period of erroneous coverage,
subject to the three-year statute of limitations in the
Internal Revenue Code. OPM will transfer excess employee
retirement deductions to the OASDI Trust Funds to fund the
employee share of the OASDI taxes. In no case will an employee
be required to pay additional OASDI taxes.
Section 205: Provides that certain employees who missed an
opportunity to contribute to TSP due to a coverage error may
receive interest on their own TSP make-up contributions.
``Lost'' interest will be paid by the employing agency. Note:
Current law already provides that certain employees who missed
an opportunity to contribute to TSP due to a coverage error may
receive agency matching contributions on TSP make-up
contributions, agency automatic one percent contributions to
TSP, and interest on both.
Section 206: Provides that employing agencies may not
remove excess agency retirement contributions from the Civil
Service Retirement and Disability Fund.
Section 207: Requires that agencies obtain written approval
from OPM before placing certain employees under CSRS coverage.
Section 208: Authorizes the Director of OPM to extend
deadlines, reimburse individuals for reasonable expenses
incurred by reason of the coverage error or for losses, and
waive repayments required under the Act.
Section 209: Authorizes OPM to prescribe regulations to
administer the Act.
Title III: Other Provisions
Section 301: Makes remedies provided under the Act also
available to employees of the Foreign Service and the Central
Intelligence Agency.
Section 302: Authorizes payments from the Civil Service
Retirement and Disability Fund for administrative expenses
incurred by OPM and for other payments required under the Act.
Section 303: Allows individuals to bring suit against the
United States Government for matters not covered under this
Act.
Section 304: Provides that the Act is effective from the
date of enactment.
Title IV: Tax Provisions
Section 401: Provides that transfers and payments of
contributions under this Act will not result in an income tax
liability for affected employees.
Title V: Miscellaneous Retirement Provisions
Section 501: Allows portability of service credit between
Federal Reserve service and FERS.
Section 502: Provides technical amendments to chapter 84 of
title 5, United States Code, that allow certain transfers to
other federal retirement systems to be treated as separations
from federal service for TSP purposes.
V. Regulatory Impact Statement
Paragraph 11(b)(1) of rule XXVI of the Standing Rules of
the Senate requires that each report accompanying a bill
evaluate ``the regulatory impact which would be incurred in
carrying out this bill.''
S. 1232 would change the way the government of the District
of Columbia corrects errors associated with the incorrect
enrollment of employees in federal retirement plans. This
requirement would constitute an intergovernmental mandate as
defined by the Unfunded Mandates Reform Act (UMRA). However,
costs associated with making those corrections would be
minimal, as only a small number of District of Columbia
employees have been affected by errors addressed by the bill.
Consequently, the Congressional Budget Office (CBO) estimates
that the total cost of the mandate would be minimal and would
not exceed the thresholds established in UMRA.
S. 1232 would also create a new private-sector mandate by
requiring Gallaudet University to rectify errors where
employees were improperly covered under CSRS or FERS. Because
only a small number of Gallaudet University employees have been
affected by such errors and the cost per correction would be
low, CBO estimates that the cost of the mandate would be small.
VI. Congressional Budget Office Cost Estimate
U.S. Congress,
Congressional Budget Office,
Washington, DC, August 24, 1999.
Hon. Fred Thompson,
Chairman, Committee on Governmental Affairs,
U.S. Senate, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for S. 1232, the Federal
Erroneous 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,
Barry B. Anderson
(For Dan L. Crippen, Director).
Enclosure.
S. 1232--Federal Erroneous Retirement Coverage Corrections Act
Summary
S. 1232 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 this bill would decrease discretionary
spending by $42 million over the 2000-2004 period, primarily
because of lower agency contributions to the Civil Service
Retirement and Disability Fund (CSRDF). The resulting drop in
receipts by the CSRDF would also increase direct spending by
$42 million over the same period. The bill would have only a
minor 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.
Because the District of Columbia would be required to
continue retirement coverage for some employees who have been
mistakenly enrolled in the wrong retirement system, S. 1232
contains an intergovernmental mandate as defined by the
Unfunded Mandates Reform Act (UMRA). S. 1232 would also create
a new private-sector mandate by requiring Gallaudet University
to rectify errors where employees were improperly covered under
CSRS or FERS. CBO estimates that the cost of these mandates
would be small and would not exceed the threshold established
in UMRA.
Estimated cost to the Federal Government
The estimated budgetary impact of S. 1232 is shown in the
following table.
TABLE 1. ESTIMATED BUDGETARY EFFECTS OF S. 1232
----------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
-------------------------------------------------------------------------------
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
----------------------------------------------------------------------------------------------------------------
CHANGES IN SPENDING SUBJECT TO APPROPRIATION
Makeup Contributions to TSP..... -1 16 3 -3 -4 -5 -5 -6 -7 -8
Makeup Payments to Social (1) (1) 0 0 0 0 0 0 0 0
Security.......................
Makeup Payments to the CSRDF.... -3 2 -4 -4 -4 -4 -5 -5 -5 -6
Agency Retirement Contributions. (1) -2 -3 -5 -6 -6 -7 -7 -8 -8
Employer TSP Contributions...... -1 -3 -6 -7 -7 -8 -8 -9 -10 -10
Employer Social Security (1) (1) 0 0 0 0 0 0 0 0
Contributions..................
-------------------------------------------------------------------------------
Total..................... -5 13 -10 -19 -21 -23 -25 -28 -30 -32
CHANGES IN DIRECT SPENDING
On-Budget:
Makeup Payments to the CSRDF 5 -2 5 6 6 7 7 8 8 9
Agency Retirement (1) 2 4 8 9 9 10 11 12 13
Contributions..............
Transfers from CSRDF to -3 3 0 0 0 0 0 0 0 0
Social Security............
-------------------------------------------------------------------------------
Subtotal.................. 2 3 9 13 15 16 17 19 20 22
===============================================================================
Off-Budget:
Makeup Payments to Social 1 -1 0 0 0 0 0 0 0 0
Security...................
Employer Social Security (1) (1) 0 0 0 0 0 0 0 0
Contributions..............
Transfers from CSRDF to 3 -3 0 0 0 0 0 0 0 0
Social Security............
-------------------------------------------------------------------------------
Subtotal.................. 4 -4 0 0 0 0 0 0 0 0
===============================================================================
Total..................... 6 -1 9 13 15 16 17 19 20 22
CHANGES IN REVENUES
On-Budget:
Employee Retirement (1) (1) (1) (1) (1) (1) (1) (1) (1) (1)
Contributions..............
Off-Budget:
Employer Social Security (1) (1) 0 0 0 0 0 0 0 0
Taxes......................
-------------------------------------------------------------------------------
Total..................... (1) (1) (1) (1) (1) (1) (1) (1) (1) (1)
TOTAL COST OF S. 1232
Direct Spending and Revenues.... 6 -1 9 13 15 16 17 19 20 21
All Spending and Revenues....... 1 12 -1 -5 -6 -7 -8 -9 -10 -11
----------------------------------------------------------------------------------------------------------------
\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). This estimate
assumes that S. 1232 is enacted by October 1, 1999.
Basis of estimate
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 officials 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.
Under current law, coverage errors are usually corrected by
converting the employee to the proper retirement system,
retroactive to the 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.
S. 1232 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 incorrect coverage
permanent. Employees who have been incorrectly covered by CSRS
could elect only CSRS Offset or FERS. Employees whose coverage
errors have not been corrected would have 180 days after the
discovery of the error to make an election; employees whose
coverage errors have already been fixed would have 18 months
after the issuance of final implementing regulations to make
their election. All elections would be irrevocable, and
employees who did not make an election would remain in their
current coverage. Coverage errors lasting less than three years
would not be covered by the bill. CBO assumed that under the
bill agencies would stop correcting coverage errors for the
first six months of 2000 pending the issuance of final
regulations to implement the bill, and that they would finish
processing the resulting backlog by the end of 2001.
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
contributions 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.
The bill would require agencies to pay lost earnings on
employee makeup contributions to the TSP for employees who
elect FERS coverage. (Employees whose coverage had been
corrected to FERS before the bill's enactment would receive
makeup earnings on any makeup contributions made prior to
enactment.)
CBO assumed that these employees' choice of retirement
coverage would be strongly influenced by whether or not they
had made significant contributions to the TSP while they were
incorrectly covered by CSRS or CSRS Offset. Most employees with
little or no priorTSP contributions would need to make
retroactive contributions for a substantial amount of time--as much as
eight or nine years--in order to make up the contributions they would
have made under FERS. For these employees, CSRS Offset coverage would
be relatively attractive. In contrast, employees with significant prior
TSP contributions might need only two to three years to catch up. As a
result, many of these employees would still choose to have their
coverage corrected to FERS.
Most employees covered by CSRS have not made regular
contributions to the TSP. According to the Federal Retirement
Thrift Investment Board, only 22 percent of CSRS employees made
contributions to the TSP in 1989 (the earliest year of data
available). This percentage has since risen but did not exceed
50 percent until 1996. CBO estimates that only a third of
employees erroneously placed in CSRS or CSRS Offset have made
significant contributions to the TSP, and assumed that 80
percent of these employees would elect FERS coverage. Two-
thirds of employees incorrectly placed in CSRS or CSRS Offset
have little or no TSP contributions, and CBO assumed that 80
percent of these employees would elect CSRS Offset coverage.
Overall, 60 percent of these employees would elect CSRS Offset
coverage and 40 percent would elect FERS.
Effects on discretionary spending
Makeup Contributions to the TSP. S. 1232 would have two
effects on the makeup contributions that agencies pay to the
TSP. Agencies would not have to pay makeup contributions for
employees who elect CSRS Offset coverage instead of FERS, but
payments for individuals who elect FERS coverage would be
higher than under current law. This latter effect would
predominate in 2001 and 2002, when agencies would pay
additional lost earnings on the makeup contributions made by
employees whose coverage errors were corrected before the
bill's enactment. In later years, annual agency spending on
makeup contributions would decline because many employees would
elect CSRS Offset coverage and not be eligible for makeup TSP
contributions. CBO estimates that overall agency spending on
makeup TSP contributions would increase by $11 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 for employees
whose coverage is changed from CSRS to FERS or CSRS Offset.
Since agencies would stop correcting coverage errors in the
first six months of 2000 (and thus make fewer corrections than
under current law), CBO estimates that makeup payments would
decrease slightly in that year. However, makeup payments would
be slightly higher in 2001 as agencies work through the backlog
of uncorrected errors.
Makeup Payments to the CSRDF. Under current law,
adjustments to past agency contributions to the CSRDF are
completely retroactive. Agencies contribute 8.51 percent of
basic pay for employees covered by CSRS or CSRS Offset and 10.7
percent of basic pay for most employees under FERS. Agencies
thus make additional contributions for employees whose coverage
is changed from CSRS or CSRS Offset to FERS and receive a
partial refund of their retirement contributions for employees
whose coverage is changed from FERS to CSRS or CSRS Offset.
This bill would have similar requirements, except that agencies
could no longer receive partial refunds of their contributions.
Since many employees who would be switched to FERS coverage
under current law would elect CSRS Offset coverage under the
bill, the payments that agencies make for retroactive
adjustments would decrease by $13 million over the 2000-2004
period.
Agency Retirement Contributions. The amount that agencies
contribute toward their employees' retirement would decline by
$16 million over the 2000-2004 period as more employees are
covered by CSRS Offset rather than FERS compared to current
law.
Employer TSP Contributions. The employees who elect CSRS
Offset coverage under S. 1232 would no longer be eligible for
the automatic and matching TSP contributions available under
FERS, lowering agency spending on TSP contributions by $24
million over the 2000-2004 period.
Employer Social Security Contributions. Agency payments of
Social Security payroll taxes would decline by negligible
amounts in 2000 and 2001, due primarily to timing differences
in the number of coverage errors corrected.
Effects on direct spending (on-budget)
Makeup Payments to the CSRDF. The decrease in agency makeup
payments to the CSRDF would lower both agency outlays and
offsetting receipts to the CSRDF. As a result, receipts to the
trust fund would decrease by $20 million over the 2000-2004
period. The decrease in receipts is larger than the decrease in
agency makeup payments because the receipts figure includes
payments by the Postal Service. (The estimate assumes that
changes in costs to the Postal Service would be offset by
changes in postal rates.)
Agency Retirement Contributions. The decrease in agency
retirement contributions under the bill would decrease CSRDF
receipts by $23 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 CSRDF to Social Security. Employees who
have been mistakenly covered by CSRS when they should have been
in CSRS Offset or FERS have been contributing 7 percent of
their basic pay to the CSRDF, instead of contributing 0.8
percent to the CSRDF and 6.2 percent to Social Security. When
the coverage error is corrected under current law, the 6.2
percent in erroneous CSRS contributions (up to the Social
Security taxable maximum) is generally transferred to the
Social Security trust funds. S. 1232 would continue this
practice, but transfers from the CSRDF to Social Security would
decrease by $3 million in 2000 and rise by $3 million in 2001
due to timing effects.
Effects on direct spending (off-budget)
CBO estimates that S. 1232 would reduce offsetting receipts
to the Social Security trust funds by $4 million in 2000 and
increase receipts by $4 million 2001. These effects reflect the
fact that agencies would correct fewer coverage errors in 2000
under S. 1232 but would catch up to their current-law pace by
the end of 2001.
Effects on revenues
Employee retirement contributions, which are on-budget,
would be slightly higher under the bill because it would allow
a small number of employees who would ordinarily be covered
only by Social Security to participate in FERS or CSRS Offset
as well. The amount of the increase would be less than $200,000
annually. Employee Social Security taxes, which are off-budget,
would be slightly lower in 2000 and 2001 due to the bill's
impact on slowing down the correction of coverage errors in
those years.
Other provisions
Title V of the bill contains a number of provisions that
would better integrate CSRS and FERS with the retirement plans
of the Board of Governors of the Federal Reserve System. The
bill would allow federal employees who have prior service with
the Federal Reserve Board to receive full credit for that
service under FERS. The Bill would also allow individuals who
switch jobs from other federal agencies to the Federal Reserve
Board to withdraw their balances in the TSP. Finally, S. 1232
would exempt from FERS coverage certain employees who return to
federal employment after a break in service and have five or
more years of service under the Federal Reserve Board's
counterpart to CSRS. CBO estimates that these provisions would
affect only a handful of employees and would not have a
significant effect on the federal budget.
Pay-as-you-go-considerations
The provisions of S. 1232 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......................... 2 3 9 13 15 16 17 19 20 22
Change in receipts........................ 0 0 0 0 0 0 0 0 0 0
----------------------------------------------------------------------------------------------------------------
Intergovernmental and private-sector impact
S. 1232 would change the way the government of the District
of Columbia corrects errors associated with the incorrect
enrollment of employees in federal retirement plans. This
requirement would constitute an intergovernmental mandate as
defined by UMRA. However, costs associated with making those
corrections would be minimal, and only a small number of
District of Columbia employees have been affected by errors
addressed by the bill. Consequently, CBO estimates that the
total cost of the mandate would be minimal and would not exceed
the thresholds established in UMRA.
S. 1232 would also create a new private-sector mandate by
requiring Gallaudet University to rectify errors where
employees were improperly covered under CSRS or FERS. Because
only a small number of Gallaudet University employees have been
affected by such errors and the cost per correction would be
low, CBO estimates that the cost of the mandate would be small.
Comparison with other estimates
In March 1999, the house of Representatives approved H.R.
416, which would also alter the procedures for correcting
retirement coverage errors. CBO estimated that H.R. 416 would
increase discretionary spending by $346 million and reduce
direct spending by $113 million over the 2000-2004 period. The
drop in direct spending largely reflects additional receipts by
the Social Security trust funds, which are off-budget.
CBO's estimate for H.R. 416 differs from that for S. 1232
for two main reasons. First H.R. 416 has different provisions
regarding the makeup TSP payments that agencies would make for
employees who were incorrectly covered by CSRS or CSRS Offset
when they should have been in FERS. Under the House bill,
agencies would make lump-sum payments that include imputed
employee contributions for the period of erroneous coverage
plus lost earnings. These payments would be significantly
larger than those required under the Senate bill. Second, H.R.
416 would require agencies to make additional retroactive
contributions to the Social Security trust funds. Together,
these two factors increase discretionary spending and reduce
off-budget direct spending relative to the provisions in S.
1232.
Estimate prepared by: Federal cost: Eric Rollins; impact on
state, local, and tribal governments: Leo Lex; impact on the
private sector: John Harris.
Estimate approved by: Paul N. Van de Water, Assistant
Director for Budget Analysis.
VII. Executive Communications
Office of Personnel Management,
Washington, DC.
Hon. Fred Thompson,
Chairman, Committee on Governmental Affairs,
Senate, Washington, DC.
Dear Mr. Chairman: I am writing to offer the views of the
Office of Personnel Management (OPM) on S. 1232, the ``Federal
Erroneous Retirement Coverage Corrections Act,'' as introduced
in the Senate on June 17, 1999. We deeply appreciate the
attentive and sincere effort on the part of the Committee on
Governmental Affairs to craft an equitable solution to the
problems created by erroneous retirement coverage
determinations. I believe that S. 1232 provides comprehensive
and equitable relief at a reasonable cost to the Federal
Government.
Under current law, Federal agencies have no choice but to
correct a retirement coverage error when it is discovered,
effectively ``forcing'' the employee into a new retirement
plan. For many employees, the correction of a retirement
coverage error can have devastating consequences on an
employee's financial circumstances. I have heard heartbreaking
accounts from Federal employees and their families who find
they are affected by a retirement coverage error.
While the format of the bill has changed to mirror the
House of Representatives' coverage correction bill (H.R. 416),
S. 1232 is in fact closely based on the Administration's
proposal for an appropriate and comprehensive solution to the
problem of erroneous retirement coverage. S. 1232 and the
Administration's proposal both provide employees affected by a
retirement coverage error with a choice between corrected
retirement coverage and the benefit the employee expected to
receive. S. 1232 further parallels the Administration's
proposal by keeping the administrative burden and cost of the
remedy to a minimum. While S. 1232 differs from the
Administration's proposal in some areas, OPM has no objection
to the changes concerning the ability of employees to elect
their coverage. S. 1232 provides a remedy that deals with all
significant issues concerning the classification of employees.
Employees, former employees, retirees, and survivors alike are
covered by this proposal.
Following is a discussion of the differences between the
Administration's proposal and S. 1232.
Thrift Savings Plan
S. 1232 provides that an employee who, due to a retirement
coverage error, makes retroactive contributions to the Thrift
Savings Plan (TSP) will receive lost earnings on the make-up
contributions. The lost earnings will be based on the
employee's TSP investment history, or the G Fund rate, if there
is no employee history. S. 1232 requires that the lost earnings
be paid by the employing agency.
S. 1232 also contains provisions that permit excess
employee contributions to remain in the employee's TSP account
after correction of a retirement coverage error. Currently,
certain retirement coverage error corrections require that any
employee TSP contributions that exceed 5 percent of salary be
returned to the employee. Although this return is not
considered an early withdrawal from a qualified retirement
plan, the excess employee TSP contributions are refunded in one
lump-sum and could significantly increase an employee's tax
burden for that calendar year. S. 1232 simply provides that the
excess employee TSP contributions may remain in the employee's
TSP account, thereby maintaining the tax-deferred status of
those contributions until the employee chooses to withdraw from
the account.
The Administration's proposal would not amend current law
with regard to the TSP.
Payment of retirement contributions
S. 1232 stipulates that any excess employer retirement
contributions created by an employee election will remain in
the Civil Service Retirement and Disability Fund (CSRDF). It
also provides that if, due to a retirement coverage error, an
agency has failed to withhold sufficient employee retirement
contributions from salary, the agency, rather than the
employee, must pay the additional employee retirement
contributions due to the CSRDF.
The Administration's proposal would not amend current law
with regard to payment of retirement contributions.
Social Security
S. 1232 provides that all excess employee retirement
contributions would be transferred from the CSRDF to the Social
Security Trust Funds and that employees would not be liable for
any back Old Age, Survivors, and Disability Insurance (OASDI)
taxes. Employing agencies will be required to pay into the
Social Security Trust Funds the employer share of the Social
Security taxes, subject to the current statute of limitations
found in the Internal Revenue Code. These provisions, in
concert with other provisions in the bill concerning the
reporting of wages to Social Security and existing provisions
of the Social Security Act, will, in most cases, provide the
Social Security Trust Funds with more than the amount of taxes
required under current law. I support the general approach
taken in the bill regarding Social Security taxes and transfers
to the Social Security Trusts Funds, but recognize that there
are some technical issues to resole. I'm happy to work with the
Committee to assist in drafting the necessary technical
amendments.
The Administration's proposal would amend current law by
requiring transfers to the Social Security Trust Funds from the
CSRDF and correspondingly reducing the general fund transfers
to the Social Security Trust Funds that would otherwise occur.
The Administration's proposal would clearly provide that
neither the employee nor the employing agency would owe any
back OASDI taxes or, unlike S. 1232, any amounts equivalent
thereto.
Technical amendments
S. 1232 also contains a number of technical amendments that
are improvements over the Administration's proposal. It extends
the remedy provisions to a small class of individuals
erroneously covered by the Federal Employees Retirement System
that were inadvertently excluded from the Administration's
proposal. The bill applies the service credit deposit
provisions found in the Administration's proposal to other
similarly situated employees. These technical enhancements
further address the inequities created by errors in retirement
coverage determinations.
Summary
In summary, I have no objection to the Senate's passage of
S. 1232 with the amendments as noted above. It will provide
long-awaited relief to many federal employees and their
families who, through no fault of their own, find they are
affected by a retirement coverage error.
The Office of Management and Budget advises that there is
no objection to the submission of this report from the
standpoint of the Administration's program.
Sincerely,
Janice R. Lachance, Director.
VIII. Changes to Existing Law
In compliance with paragraph 12 of rule XXVI of the
Standing Rules of the Senate, 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
material is printed in italic, existing law in which no change
is proposed is shown in roman):
TITLE 5, UNITED STATES CODE
* * * * * * *
PART III--EMPLOYEES
* * * * * * *
Subpart G--Insurance and Annuities
* * * * * * *
CHAPTER 83--RETIREMENT
* * * * * * *
Subchapter III--Civil Service Retirement
* * * * * * *
Sec. 8351. Participation in the Thrift Savings Plan
(a) * * *
(b)(1) Except as otherwise provided in this subsection, the
provisions of subchapters III and VII of chapter 84 of this
title shall apply with respect to employees and Members making
contributions to the Thrift Savings Fund under subsection (a)
of this section.
* * * * * * *
[(11)] (8) In applying section 8432b to an employee
contributing to the Thrift Savings Fund after being restored to
or reemployed in a position subject to this subchapter,
pursuant to chapter 43 of title 38--
(A) reference in such section to contributions under
section 8432(a) shall be considered a reference to
employee contributions under this section;
(B) the contribution rate under section
8432b(b)(2)(A) shall be the maximum percentage
allowable under subsection (b)(2) of this section; and
(C) subsections (c) and (d) of section 8432b shall be
disregarded.
(9) For the purpose of this section, separation from
Government employment includes a transfer described in section
8431.
* * * * * * *
CHAPTER 84--FEDERAL EMPLOYEES' RETIREMENT SYSTEM
Subchapter I--General Provisions
Sec.
8401. Definitions.
* * * * * * *
Subchapter III--Thrift Savings Plan
8431. Certain transfers to be treated as a separation.
* * * * * * *
Subchapter I--General Provisions
* * * * * * *
Sec. 8402. Federal Employees' Retirement System; exclusions
(a) The provisions of this chapter comprise the Federal
Employees' Retirement System.
(b) The provisions of this chapter shall not apply with
respect to--
(1) * * *
[(2)(A) any employee or Member who has separated from
the service after--
[(i) having been subject to subchapter III of
chapter 83 of this title, or subchapter I of
chapter 8 of the Foreign Service Act of 1980;
and
[(ii) having completed at least 5 years of
civilian service creditable under subchapter
III of chapter 83 of this title, or at least 5
years of civilian service creditable under
subchapter I of the Foreign Service Act of 1980
(determined without regard to any such deposit
or redeposit requirement under either such
subchapter, or any requirement that the
individual become subject to either such
subchapter after performing the service
involved); or]
(2)(A) any employee or Member who has separated from
the service after--
(i) having been subject to--
(I) subchapter III of chapter 83 of
this title;
(II) subchapter I of chapter 8 of
title I of the Foreign Service Act of
1980; or
(III) the benefit structure for
employees of the Board of Governors of
the Federal Reserve System appointed
before January 1, 1984, that is a
component of the Retirement Plan for
Employees of the Federal Reserve
System, established under section 10 of
the Federal Reserve Act; and
(ii) having completed--
(I) at least 5 years of civilian
service creditable under subchapter III
of chapter 83 of this title;
(II) at least 5 years of civilian
service creditable under subchapter I
of chapter 8 of title I of the Foreign
Service Act of 1980; or
(III) at least 5 years of civilian
service (other than any service
performed in the employ of a Federal
Reserve Bank) creditable under the
benefit structure for employees of the
Board of Governors of the Federal
Reserve System appointed before January
1, 1984, that is a component of the
Retirement Plan for Employees of the
Federal Reserve System, established
under section 10 of the Federal Reserve
Act,
determined without regard to any deposit or redeposit
requirement under either such subchapter or under such
benefit structure, or any requirement that the
individual become subject to either such subchapter or
to such benefit structure after performing the service
involved; or
* * * * * * *
[(d) Paragraph (2) of subsection (b) shall not apply to an
individual who becomes subject to subchapter II of chapter 8 of
title I of the Foreign Service Act of 1980 (relating to the
Foreign Service Pension System) pursuant to an election and who
subsequently enters a position in which, but for such paragraph
(2), he would be subject to this chapter.]
(d) Paragraph (2) of subsection (b) shall not apply to an
individual who--
(1) becomes subject to--
(A) subchapter II of chapter 8 of title I of
the Foreign Service Act of 1980 (relating to
the Foreign Service Pension System) pursuant to
an election; or
(B) the benefit structure in which employees
of the Board of Governors of the Federal
Reserve System appointed on or after January 1,
1984, participate, which benefit structure is a
component of the Retirement Plan for Employees
of the Federal Reserve System, established
under section 10 of the Federal Reserve Act
(and any redesignated or successor version of
such benefit structure, if so identified in
writing by the Board of Governors of the
Federal Reserve System for purposes of this
chapter); and
(2) subsequently enters a position in which, but for
paragraph (2) of subsection (b), such individual would
be subject to this chapter.
* * * * * * *
Subchapter II--Basic Annuity
* * * * * * *
Sec. 8411. Creditable service
(a) * * *
(b) For the purpose of this chapter, creditable service of
an employee or Member includes--
(1) * * *
* * * * * * *
(3) except as provided in subsection (f) or (h), any
civilian service (performed before January 1, 1989,
other than any service under paragraph (1) or (2))
which, but for the amendments made by subsections
(a)(4) and (b) of section 202 of the Federal Employees'
Retirement System Act of 1986, would be creditable
under subchapter III of chapter 83 of this title
(determined without regard to any deposit or redeposit
requirement under such subchapter, any requirement that
the individual become subject to such subchapter after
performing the service involved, or any requirement
that the individual give notice in writing to the
official by whom the individual is paid of such
individual's desire to become subject to such
subchapter); [and]
(4) a period of service (other than any service under
any [of the proceeding provisions] other paragraph of
this subsection and other than military service) that
was creditable under the Foreign Service Pension System
described in subchapter II of chapter 8 of the Foreign
Service Act of 1980, if the employee or Member waives
credit for such service under the Foreign Service
Pension System and makes a payment to the Fund equal to
the amount that would have been deducted from pay under
section 8422(a) had the employee been subject to this
chapter during such period of service (together with
interest on such amount computed under paragraphs (2)
and (3) of section 8334 (e)) [.]; and
(5) a period of service (other than any service under
any other paragraph of this subsection, any military
service, and any service performed in the employ of a
Federal Reserve Bank) that was creditable under the
Bank Plan (as defined in subsection (i)), if the
employee waives credit for such service under the Bank
Plan and makes a payment to the Fund equal to the
amount that would have been deducted from pay under
section 8422 (a) had the employee been subject to this
chapter during such period of service (together with
interest on such amount computed under paragraphs (2)
and (3) of section 8334 (e)).
Paragraph (5) shall not apply in the case of any employee as to
whom subsection (g) (or, to the extent subchapter III of
chapter 83 is involved, section 8332 (n)) otherwise applies.
* * * * * * *
(i) For purposes of subsection (b)(5), the term ``Bank
Plan'' means the benefit structure in which employees of the
Board of Governors of the Federal Reserve System appointed on
or after January 1, 1984, participate, which benefit structure
is a component of the Retirement Plan for Employees of the
Federal Reserve System, established under section 10 of the
Federal Reserve Act (and any redesignated or successor version
of such benefit structure, if so identified in writing by the
Board of Governors of the Federal Reserve System for purposes
of this chapter).
* * * * * * *
Subchapter III--Thrift Savings Plan
Sec. 8431. Certain transfers to be treated as a separation
(a) For purposes of this subchapter, separation from
Government employment includes a transfer from a position that
is subject to one of the retirement systems described in
subsection (b) to a position that is not subject to any of
them.
(b) The retirement systems described in this subsection
are--
(1) the retirement system under this chapter;
(2) the retirement system under subchapter III of
chapter 83; and
(3) any other retirement system under which
individuals may contribute to the Thrift Savings Fund
through withholdings from pay.
* * * * * * *