[House Report 110-770]
[From the U.S. Government Publishing Office]





110th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     110-770

======================================================================



 
 CLARIFYING THE METHOD FOR COMPUTING CERTAIN ANNUITIES UNDER THE CIVIL 
          SERVICE RETIREMENT SYSTEM BASED ON PART-TIME SERVICE

                                _______
                                

 July 24, 2008.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

  Mr. Waxman, from the Committee on Oversight and Government Reform, 
                        submitted the following

                              R E P O R T

                             together with

                        [To accompany H.R. 2780]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Oversight and Government Reform, to whom 
was referred the bill (H.R. 2780) to amend section 8339(p) of 
title 5, United States Code, to clarify the method for 
computing certain annuities under the Civil Service Retirement 
System which are based on part-time service, and for other 
purposes, having considered the same, report favorably thereon 
with an amendment and recommend that the bill as amended do 
pass.

                                CONTENTS

                                                                   Page
Purpose and Summary..............................................     2
Background and Need for Legislation..............................     2
Legislative History..............................................     3
Section-by-Section...............................................     3
Explanation of Amendments........................................     4
Committee Consideration..........................................     4
Rollcall Votes...................................................     4
Application of Law to the Legislative Branch.....................     4
Statement of Oversight Findings and Recommendations of the 
  Committee......................................................     4
Statement of General Performance Goals and Objectives............     4
Constitutional Authority Statement...............................     4
Federal Advisory Committee Act...................................     5
Unfunded Mandates Statement......................................     5
Earmark Identification...........................................     5
Budget Authority and Congressional Budget Office Cost Estimate...     5
Changes in Existing Law Made by the Bill, as Reported............     7

  The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. COMPUTATION OF CERTAIN ANNUITIES BASED ON PART-TIME SERVICE.

  Section 8339(p) of title 5, United States Code, is amended by adding 
at the end the following:
  ``(3) In the administration of paragraph (1)--
          ``(A) subparagraph (A) of such paragraph shall apply with 
        respect to service performed before, on, or after April 7, 
        1986; and
          ``(B) subparagraph (B) of such paragraph--
                  ``(i) shall apply with respect to that portion of any 
                annuity which is attributable to service performed on 
                or after April 7, 1986; and
                  ``(ii) shall not apply with respect to that portion 
                of any annuity which is attributable to service 
                performed before April 7, 1986.''.

SEC. 2. APPLICABILITY.

  The amendment made by this Act shall be effective with respect to any 
annuity, entitlement to which is based on a separation from service 
occurring on or after the date of enactment of this Act.

                          Purpose and Summary

    H.R. 2780, a bill to adjust the method for computing 
certain annuities which are based on part-time service, was 
introduced by Rep. James Moran on June 19, 2007. The bill would 
correct an inequitable annuity reduction that currently occurs 
if certain federal employees work part-time at the end of their 
career. This inequity can create personnel problems in federal 
agencies because it can lead individuals who are eligible to 
retire, or who will shortly be eligible, to avoid working on a 
part-time basis, even if it would otherwise be in the 
government's interest.

                  Background and Need for Legislation

    H.R. 2780 addresses an issue created by a 1986 law (Sec. 
15204 of P.L. 99-272, the Consolidated Omnibus Budget 
Reconciliation Act of 1985) affecting federal employees in the 
Civil Service Retirement System (CSRS). The law was enacted to 
end a practice under which federal employees who had worked on 
a part-time basis throughout most of their careers were allowed 
to switch to full-time employment at the very end of their 
careers and calculate their annuity based on their salary from 
just those full-time salary years. This practice resulted in 
inappropriately high annuities for some part-time federal 
employees. The 1986 law fixed that problem but created another.
    Under the 1986 law, federal employees who work on a part-
time basis at the end of their careers but who worked most of 
their careers on a full-time basis could receive a reduction in 
their annuity computation for some of the years in which they 
worked full-time. This is because the law provides that the 
annuity for the years of service performed prior to 1986 is 
calculated based on a part-time salary even if the employee 
worked full-time in those years. As a result, the value of pre-
1986 service in the annuity computation is significantly 
greater if the employee works full-time at the end of their 
career.
    A hypothetical example may help illustrate the problem. Two 
employees started full-time federal employment in 1969. Each 
has an identical career, retiring in 2003 after 34 years of 
service, except that each worked part-time for three years at a 
different point during their career. Employee A worked half-
time from 1998 through 2000 and employee B worked half-time at 
the very end of her career, from 2001 through 2003.
    Each employee in this hypothetical has the same high-three 
used in the computation of the annuity for the post-86 service. 
The full-time salary for each was $100,000 per year during 
their final three years of service, and $80,000 for the 
preceding three year period. The system produces equal 
annuities for the post-86 service, approximately $31,000.
    However, the computation of the annuity for the 17 years of 
pre-1986 service will be very different. Each employee will be 
entitled to about 30% of high-three for that period of service. 
The problem is that because the pre-86 rules will apply, they 
will have different high-three average salaries. Under the pre-
86 rules, because employee A worked full-time during the high-
three period, his high-three is $100,000. Thus, the annuity for 
his pre-86 service will be $30,000.
    However, employee B will be much worse off. Under the pre-
86 rules, the average salary for the last three years will be 
only $50,000 because she was working a $100,000 job half time. 
Thus, the actual high-three period to be used will be the 
preceding three-year period for which the average is only 
$80,000. Under the pre-86 rules, because employee B worked 
half-time during the final three-year period, the annuity for 
her pre-86 service will be only $24,000, (approximately 30% of 
$80,000).
    The total annuity of employee A will be $61,000, while the 
total annuity of employee B will be about $55,000. This anomaly 
is illogical and unfair. H.R. 2780 would simply require the use 
of the same high-three for all pre-86 service. This would 
create fairness, and eliminate the current disincentive for 
CSRS covered employees to work on a part-time basis near the 
end of their careers.
    H.R. 2780 would permit the use of high-three average salary 
computations for full-and part-time work whether the work was 
performed before or after 1986, eliminate the adverse effect of 
part-time service performed late in an employee's career, and 
provide a simplified annuity computation in cases involving 
part-time service.

                          Legislative History

    On August 31, 2007, the Subcommittee on Federal Workforce, 
Postal Service, and the District of Columbia held a hearing on 
H.R. 2780. On September 18, 2007, the Subcommittee reported 
H.R. 2780 with an amendment striking the provision that 
provided for the re-computation of the annuities for federal 
employees who retired prior to enactment of the bill, with an 
estimated savings of $2.1 billion dollars.

                           Section-by-Section


Section 1: Computation of certain annuities based on part-time service

    This section would amend section 8339(p) of title 5, United 
States Code, by adding at the end a new paragraph 3. This new 
paragraph provides that subparagraph (B) of paragraph (p)(1), 
which deals with the computation annuities for part-time 
service, shall not apply to that portion of any annuity which 
is attributable to service performed before April 7, 1986.

Section 2: Applicability

    This section provides that the amendment made by this Act 
shall be effective with respect to any annuity which is based 
on a separation from service occurring on or after the date of 
enactment of this Act.

                       Explanation of Amendments

    No amendments were offered during Committee consideration 
of H.R. 2780.

                        Committee Consideration

    The Committee held a business meeting on March 13, 2008, to 
consider H.R. 2780 and ordered the bill to be reported 
favorably on a voice vote.

                             Rollcall Votes

    No rollcall votes were held.

              Application of Law to the Legislative Branch

    Section 102(b)(3) of Public Law 104-1 requires a 
description of the application of this bill to the legislative 
branch where the bill relates to terms and conditions of 
employment or access to public services and accommodations. The 
bill does not relate to employment or access to public services 
and accommodations.

  Statement of Oversight Findings and Recommendations of the Committee

    In compliance with clause 3(c)(1) of rule XIII and clause 
(2)(b)(1) of rule X of the Rules of the House of 
Representatives, the Committee's oversight findings and 
recommendations are reflected in the descriptive portions of 
this report and include an inequity in the calculation of 
annuities for certain federal employees.

         Statement of General Performance Goals and Objectives

    In accordance with clause 3(c)(4) of rule XIII of the Rules 
of the House of Representatives, the Committee's performance 
goals and objectives are reflected in the descriptive portions 
of this report, including improving the effectiveness of the 
civil service.

                   Constitutional Authority Statement

    Under clause 3(d)(1) of rule XIII of the Rules of the House 
of Representatives, the Committee must include a statement 
citing the specific powers granted to Congress to enact the law 
proposed by H.R. 2780. Article I, section 8, clause 18 of the 
Constitution of the United States grants the Congress the power 
to enact this law.

                     Federal Advisory Committee Act

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

                      Unfunded Mandates Statement

    Section 423 of the Congressional Budget and Impoundment 
Control Act (as amended by section 101(a)(2) of the Unfunded 
Mandates Reform Act, P.L. 104-4) requires a statement on 
whether the provisions of the report include unfunded mandates. 
In compliance with this requirement the Committee has received 
a letter from the Congressional Budget Office included herein.

                         Earmark Identification

    H.R. 2780 does not include any congressional earmarks, 
limited tax benefits, or limited tariff benefits as defined in 
clause 9(d), 9(e), or 9(f) of rule XXI.

                           Committee Estimate

    Clause 3(d)(2) of rule XIII of the Rules of the House of 
Representatives requires an estimate and a comparison by the 
Committee of the costs that would be incurred in carrying out 
H.R. 2780. However, clause 3(d)(3)(B) of that rule provides 
that this requirement does not apply when the Committee has 
included in its report a timely submitted cost estimate of the 
bill prepared by the Director of the Congressional Budget 
Office under section 402 of the Congressional Budget Act.

     Budget Authority and Congressional Budget Office Cost Estimate

    With respect to the requirements of clause 3(c)(2) of rule 
XIII of the Rules of the House of Representatives and section 
308(a) of the Congressional Budget Act of 1974 and with respect 
to requirements of clause 3(c)(3) of rule XIII of the Rules of 
the House of Representatives and section 402 of the 
Congressional Budget Act of 1974, the Committee has received 
the following cost estimate for H.R. 2780 from the Director of 
the Congressional Budget Office:

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, July 10, 2008.
Hon. Henry A. Waxman,
Chairman, Committee on Oversight and Government Reform,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed estimate for H.R. 2780, a bill to amend 
section 8339(p) of title 5, United States Code, to clarify the 
method for computing certain annuities under the Civil Service 
Retirement System which are based on part-time service.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Sam 
Papenfuss.
            Sincerely,
                                                   Peter R. Orszag.
    Enclosure.

H.R. 2780--A bill to amend section 8339(p) of title 5, United States 
        Code, to clarify the method for computing certain annuities 
        under the Civil Service Retirement System which are based on 
        part-time service.

    H.R. 2780 would alter the way retirement benefits under the 
Civil Service Retirement System (CSRS) are calculated for 
workers with part-time service. The bill would apply to workers 
who performed work prior to April 7, 1986, and who retire from 
part-time service after the bill is enacted.
    CBO estimates that the change would increase direct 
spending by $1 million in 2009 and $63 million over the 2009-
2018 period. The estimated budgetary impact of H.R. 2780 is 
shown in the following table. The costs of this legislation 
fall within budget function 600 (income security). Implementing 
the bill would not have a significant effect on discretionary 
spending. Enacting the bill would not affect revenues.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                       By fiscal year, in millions of dollars--
                                                             -------------------------------------------------------------------------------------------
                                                               2009   2010   2011   2012   2013   2014   2015   2016   2017   2018  2009-2013  2009-2018
--------------------------------------------------------------------------------------------------------------------------------------------------------
Estimated Budget Authority..................................      1      2      4      5      6      7      8      9     10     11       18         63
Estimated Outlays...........................................      1      2      4      5      6      7      8      9     10     11       18         63
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Under current law, benefits for CSRS workers with part-time 
service are calculated using a two-step process--the 
calculation of an annuity for service prior to April 7, 1986, 
and a separate calculation related to service on or after that 
date. The worker's retirement benefit is the sum of those two 
annuities.
    For workers who were employed prior to April 7, 1986, the 
current formula uses the worker's actual earnings over his or 
her entire career (whether full-time or part-time) to determine 
which three years' salaries are counted in calculating the 
annuity for service prior to the above date. Thus, years of 
part-time service might not be used for that calculation, even 
though the hourly salary in those years might be among the 
highest three.
    For work on or after April 7, 1986, the formula uses a 
deemed salary (what the worker would have been earning if the 
worker had been working full time) to determine benefits and 
applies a pro-rata factor to adjust for part-time service. 
Because salaries tend to increase over time, part-time service 
at the end of a career is likely to have a higher hourly rate 
than part-time service at the beginning of a career. Thus, the 
current formula effectively treats new retirees with part-time 
service early in their careers more favorably than those whose 
part-time service comes at the end of their careers.
    Under H.R. 2780, CSRS benefits would be calculated by 
treating all part-time service according to the formula 
currently used to determine benefits for service performed on 
or after April 7, 1986. To ensure that benefits under the new 
formula would not be smaller than benefits calculated under the 
current formula, part-time service performed prior to April 7, 
1986, would be credited as full time. CBO estimates this 
provision would affect benefits for several thousand new CSRS 
retirees each year and that more federal workers would shift to 
part-time service before retiring. Depending on an individual 
employee's work history, benefits for those retirees could, on 
average, increase by up to $2,000 in 2009; that average 
increase would decline to about $500 in 2018.
    H.R. 2780 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act and 
would impose no costs on state, local, or tribal governments.
    The CBO staff contact for this estimate is Sam Papenfuss. 
This estimate was approved by Peter H. Fontaine, Assistant 
Director for Budget Analysis.

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) 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 (new matter is 
printed in italic and 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. 8339. Computation of annuity

  (a) * * *

           *       *       *       *       *       *       *

  (p)(1) * * *

           *       *       *       *       *       *       *

  (3) In the administration of paragraph (1)--
          (A) subparagraph (A) of such paragraph shall apply 
        with respect to service performed before, on, or after 
        April 7, 1986; and
          (B) subparagraph (B) of such paragraph--
                  (i) shall apply with respect to that portion 
                of any annuity which is attributable to service 
                performed on or after April 7, 1986; and
                  (ii) shall not apply with respect to that 
                portion of any annuity which is attributable to 
                service performed before April 7, 1986.

           *       *       *       *       *       *       *


                                  
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