Forecasting the retirement wave: What's behind the flubbed predictions?

Wednesday - 5/29/2013, 5:00am EDT

Jeff Neal, senior vice president, ICF International

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The federal retirement tsunami — a massive exodus of thousands of Uncle Sam's most experienced employees — has been predicted for the past dozen years.

Headlines inside the Beltway frequently trumpeted the crisis, with one expert warning of a "human-capital time bomb" ticking away at agencies across the government.

Over the years, though, the feared federal retirement tsunami failed to materialize as the catastrophic event many had prophesied.

In our special report, "Retirement Conundrum," Federal News Radio reexamines why the predicted retirement tsunami never washed ashore the way many predicted and what's likely to happen next.

"It does seem to be emerging as more of a slow trickle as opposed to a massive opening of the water faucets," said Peter Leeds, a senior research psychologist at the Merit Systems Protection Board's Office of Policy and Evaluation. His office has studied how the retirement wave would affect the ranks of government supervisors and managers.

Still, a recent uptick in the number of federal employees filing for retirement has fueled renewed speculation of a governmentwide brain-drain as droves of senior employees start heading for the exits.

Retirements of federal employees have been on the rise since 2009, reaching more than 110,872 total federal retirements in fiscal 2012 (including those of U.S. Postal Service employees).

Since the start of the most recent fiscal year in October, the Office of Personnel Management has received more than 79,600 claims, including a deluge of retirement applications in January and February. That's a 21 percent increase over the same stretch of time in 2012 and 31 percent more than OPM expected to receive.

The current rise in claims has been fueled by very specific circumstances, namely a "surge of retirement cases" from the U.S. Postal Service, Ken Zawodny, OPM's associate director of Retirement Services, testified at a House subcommittee hearing earlier this month.

On average, about 25,000 to 27,000 Postal Service employees file for retirement each year, according to USPS data provided to Federal News Radio. But in just the first quarter of this current fiscal year, already more than 30,700 USPS employees have filed for retirement, many through early-out incentives offered as part of the financially troubled Postal Service's efforts to reduce the size of its workforce.

Are demographics destiny?

The hard truth is that the demographic trends in the federal workforce all point in one direction.

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Today's workforce is older than it was a decade ago and many more federal employees are nearing the end of 30- and 35-year federal careers.

In 2000, the federal government employed about 94,000 workers who were 60 or older. In 2012, that had grown to more than 262,000. Similarly, the number of federal employees on the rolls with 35 years of service or more doubled by the end of 2012, to nearly 70,000.

Over the next few years, even more federal employees will become eligible to retire. About 30 percent of the entire federal workforce (on board by the end of 2011) will become eligible to retire by 2016, according to GAO.

The retirement-eligibility rate is even higher at particular agencies — 40 percent of employees at the Department of Housing and Urban Development and the Small Business Administration are either already eligible to retire or will become eligible by 2016.

With all these statistics indicating a coming wave of retirements, why has it failed to materialize?

For one, some experts caution about reading too much into retirement-eligibility statistics.

"If you're assuming the federal workforce is static and fast forward five years, a very large number of people will be eligible to retire," said Jeff Neal, former chief human capital officer at the Homeland Security Department and now a senior vice president at ICF International. "But, in reality, if you fast forward five years, a lot of those people would have retired already (or) would have been replaced with people who aren't eligible to retire, and that number wouldn't be accurate."

For example, a 2008 report by OPM (surveying an earlier cohort of the federal workforce) estimated that 60 percent of the workforce would be eligible to retire by 2016 — more than double GAO's recent assessment.

Neal said he thinks an overly exaggerated focus on retirement eligibility statistics was the main culprit in some of the more calamitous predictions of the past dozen years.

"When people see those big numbers, they make some assumptions about retirement that are really not based on facts," Neal said. "They're based on a pretty warped view of what those numbers really mean."

Economic downturn stopped wave in its tracks

Analyzing long-term trends in retirement is made difficult by the lack of consistent, publicly accessible data. The Office of Personnel Management maintains a few different resources for tracking federal retirements, all of which capture slightly different data, making apples-to-apples comparisons problematic. For this article, unless otherwise stated, Federal News Radio has used data from a special OPM-run website called FedScope, which lists retirements for executive-branch agencies and a handful of legislative-branch agencies, but excludes the Postal Service.

In fiscal 2012, according to this data, 69,215 federal employees put in for retirement. That's well above the number who retired in either of the previous two years, but it's hardly unprecedented. In fiscal 2007, almost as many employees — 62,366 — filed for retirement. In fact, in each of the three years between 2005 and 2007, retirements topped 60,000, according to OPM data.

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The outlier in recent years is fiscal 2009 when, in the wake of the recession and devastating stock market crash, just 46,100 federal employees put in for retirement.

In that light, the recent increase in claims doesn't appear to be a shot across the bow in a coming explosion of retirements but a return to a more gradual swell that materialized in 2005 — and was stopped in its tracks by the economic downturn.

OPM, for its part, has not been particularly adept at forecasting future federal retirements. In a 2008 report (predating the financial crash), which contained a 10- year projection of federal retirements, OPM estimated claims would peak in 2009 before tapering back downward.

Retirements dropped in 2009 because many federal employees staved off retirement for longer than they otherwise would have, experts told Federal News Radio. The stock market's dismal performance dealt a blow to employees' Thrift Savings Plan accounts and the stagnant private job market made it harder for retired feds to go on to second careers in the private sector.

But the ailing economy is now beginning to improve, while Wall Street's recent record highs have boosted feds' retirement savings.

At the same time, federal employees are enduring their third year of frozen salaries and slashed budgets.

"Some of those trends that encourage retention are not really in the government's favor anymore," said Robert Goldenkoff, director of strategic issues at the Government Accountability Office, whose office has studied the effect of a retirement wave on governmentwide critical skills gaps.

For example, the pay freeze, which Congress recently extended into its third year, has removed at least one incentive for some seasoned federal employees to stay in their jobs beyond the time that they're eligible to retire, Neal said.

"People tend to stay around beyond retirement eligibility for a variety of reasons," Neal said. "Sometimes, it's just because they like the work they do and like the people they work with. Sometimes it's because they're trying to increase the annuity they're going to get when they retire."

But with no salary increases over the past three years (and none in sight for the future), the calculation used to determine their annuities has flatlined, he said.

"If the pay freeze continues ... and the nonfederal job market continues to improve, those things will put more pressure on retirement," Neal said.

John Palguta, vice president for policy at the Partnership for Public Service and a long-time observer of the federal workforce, agreed.

"I don't use the word tsunami because that seems more cataclysmic than what we're experiencing," he said. "But definitely, we're seeing a retirement wave."

Botched forecast?

For these reasons, the long-feared and long-predicted federal retirement tsunami turned out to be more of a mirage on the horizon than a clear-and-present-danger. The increasing numbers of older and retirement-eligible federal employees has fueled a lot of speculation, but in the end, turned out to obscure the true federal retirement forecast.

And while the recent uptick in retirement has revived old worries, many experts have cooled to the tsunami rhetoric, altogether.

"I don't think we're ever going to see that," said Dave Snell, a federal benefits expert at the National Active and Retired Federal Employees Association (NARFE). "I think we're going to see a hefty number of retirements from people that have gotten to that point in life where they feel confident they can retire and have income security after retirement. But is it going to be everybody at once? No, I don't think so."

MORE FROM THE SPECIAL REPORT, RETIREMENT CONUNDRUM:

Part 2: Sequestration threatens OPM's low-tech plan to beat retirement backlog

Part 3: Agencies fight uphill battle to retain critical knowledge and skills