Why increasing feds' retirement contributions may not help cut the deficit

Monday - 12/2/2013, 6:00am EST

Requiring federal employees to contribute more of their salary toward retirement is rumored to be among the proposals being considered by the House-Senate budget conference committee as an partial alternative to the sequestration budget cuts.

The proposal, which the Congressional Budget Office has concluded would bring in nearly $20 billion in increased federal revenues over 10 years, has drawn criticism from federal-employee unions.

But at least one think tank, known for its hawkish stance on reducing the deficit, says the proposal could end up not saving the government a dime.

The Committee for a Responsible Federal Budget says increasing federal employees' retirement contributions would be a "sensible reform that could improve the fiscal situation," according to a post on the committee's website. "But there is a risk that policymakers would double-count the saving, in which case such reform would actually increase the deficit," the group argues.

Will Congress double-count savings?

Here's why, according to CRFB.

Most current federal employees — those hired before January 2013 — contribute 0.8 percent of their salary toward their pensions. Federal agencies kick in the lion's share — an additional 11.9 percent.

Both employees' and agencies' share of the payments are funneled into the Civil Service Retirement and Disability Fund, which is later used to pay out benefits to employees when they retire.

However, employees' contributions are counted as revenue — new money coming into the government. Agencies' contributions, on the other hand, are considered discretionary outlays and counted as intragovernmental transfers — money moving from one part of the government to another.

If employees' share of retirement contributions were to increase, the government's share — which, remember, is counted as discretionary spending — would automatically decrease. That "creates room for the appropriation of additional spending," CRFB argues.

In other words, even though the government is receiving more incoming funds from federal employees who are forced to shoulder more of the burden of their pensions, the net effect on the deficit could be zero or even less, since Congress could simply spend the freed-up funds elsewhere.

"Essentially, policymakers can pocket the new revenue for deficit reduction or sequester relief and still allow agencies to replace intragovernmental transfers ... with real spending," the analysis stated. "The result — the same money would be used twice and the deficit would increase."

CFRB says the government is already double-counting savings generated by a measure passed by Congress last year to increase new hires' retirement contributions.

The think tank says if feds' retirement contributions are upped, lawmakers should block any double-counting of savings by either adjusting discretionary budget caps downward, barring the use of the increased revenue to pay down the sequestration cuts or holding agencies' share of retirements contributions constant but requiring them to help shore up unfunded liabilities in the legacy Civil Service Retirement System.

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