Pay Freeze & Retirement

Wednesday - 12/1/2010, 4:00am EST

If the Law of Unintended Consequences kicks in (as it often does) President Obama's 2-year pay freeze could hinder the hunt for the best-and-brighest talent and clog the promotion pipeline in federal offices from Hyattsville to Honolulu.

Like it or not, the pay freeze is a smart political move.

Numerically, the 1.8 million people directly impacted by any freeze are a drop in the bucket compared to the number of angry, frustrated voters who have already had their salaries frozen, reduced or lost their jobs and whose unemployment benefits, literally, ran out yesterday.

Opponents of the pay freeze argue that its projected savings of $28 billion over 5 years is a drop in Uncle Sam's bucket. Maybe. But as the late Leslie Neilsen would probably have said, "it's our drop and it's our bucket." As in, it doesn't matter. The gesture - reining in some government spending - is what counts. It was Page One in virtually every newspaper in America and was top of the hour news on those TV networks that understood its implications.

So what next? Assuming Congress doesn't overturn the pay freeze (it could but probably won't), federal workers won't get a pay raise in January 2011 or January 2012. They will still be eligible for promotions (and the raises that go with them), for within grade (longevity) raises, etc. Workers will continue at their current locality rate of pay. It will not increase (or decrease) during the freeze period.

One of the unintended consequences of a 2-year pay freeze is that some feds, maybe a lot of them, who had planned to retire in the next couple of years will hang onto their jobs. Partly because job prospects outside of government are not all that good, and because of the impact of a pay freeze will have an impact on their retirement benefit. Annuities are based on length of service and the high-3 year average salary. If pay is frozen, the high-3 won't go up (unless they get promotions or a WGI).

As you can imagine, many feds are reacting to the pay-freeze plan. A few say they understand and are willing to make the sacrifice. Others say they will do their job, put in their time, but nothing more. As in no extra effort. But a sizable number say the freeze means they will not be retiring for some time. Better to stay on the job and earn money (even if it doesn't enhance their high-3) than retire. Several have noted that federal retirees didn't get a cost of living adjustment this year, and won't get a COLA next year either. Example:

  • "...I also wanted to say how this effects me, I was planning on retiring in 2 years or so, this pay freeze will directly affect my retirement checks until the day that I check out. My high 3 will not be what I had hoped it to be and the reason I am staying a few extra years was for that point, but now that is gone. Will I stay another 3 years past 2013? Well I hope not but at this point I just don't know. So Mike you see how this freeze affects one Federal Employee and I am sure I'm not the only one wanting to retire within the next 3 years. As always...thanks for the great job you do and keep it up!!!!!!" Craig in California

  • "I had planned to retire in January 2012 and I am in the process of mentoring a very bright (educated but ignorant of many things) intern to take my place. As things stand as of today I plan on being around until they carry me out of the office. Once my intern figures this out I guess I will need a food-taster whenever it is her turn to get coffee." Martina The Lifer

  • "President Obama evidently thinks more of GM and Wall Street, who he bailed out, than he does his own employees. I'm not sure why federal employees, who have done nothing wrong, have to pay for the sins of Fannie Mae, Freddie Mac, GM, Wall Street, Congress, etc., all of whom do not know how to properly handle their own finances. The scenario is that private industry and Wall Street screw up royally with their money, then beg the public sector to bail them out, which Congress did. Then the President punishes public sector employees....Got it...." Ray in Texas