Pension, health care programs could be cut next

Thursday - 12/2/2010, 7:00am EST

WFED's Jason Miller reports on the Federal Drive

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By Jason Miller
Executive Editor
Federal News Radio

Federal employees should prepare for a tough 2011.

Just two days after President Obama proposed a two-year pay freeze for civilian employees, the National Commission on Fiscal Responsibility and Reform issued its final set of recommendations Wednesday and is taking aim at host of federal employee programs from health care to pensions to the overall size of the workforce.

And while the panel is just making recommendations, committee members, who consist of several lawmakers on both sides of the aisle, promised to push through most of the suggestions over the next year.

"I think this is a critically important moment and whether or not we get 14 votes--and I very much hope we do--I think this will provide a guide post for decisions that must be made," said Sen. Kent Conrad (D-N.D.), chairman of the Budget Committee. "And the sooner they are made, the better for this country."

The commission will vote on the final recommendations on Friday. Erskine Bowles, co-chairman of the panel, asked for final decisions by 11 a.m.

"The President looks forward to reviewing their work at that conclusion of their votes, which I think will be toward the end of the week, and evaluate their proposals and those votes as we move forward and put together a budget of our own for next year," said Robert Gibbs, White House press secretary during his briefing with reporters Wednesday. "So let me not get too far out on the commission until they've had a chance to complete their work, as we've said before."

Several recommendations will impact federal agencies and their employees in the short and long term.

In the short term, the commission suggested:

  • A three-year pay freeze. The freeze would impact feds and civilians in the Defense Department. The commission estimates the cost savings to be $20.4 billion by 2015.

  • Reduce federal workforce through attrition. For every three workers who leave, an agency can hire two new workers. The goal is to cut the federal workforce by 10 percent or 200,000 workers over the next five years to save $13.2 billion.

  • Reduce travel and vehicle budgets. The commission wants agencies to have travel budgets of 80 percent of their 2010 figure and reduce the number of vehicles by 20 percent by 2015.

  • Sell off excess federal property. The panel recommends the General Services Administration loosen agency restrictions for selling unused buildings and land.

  • Bring federal pensions in line with private sector.The recommendation includes moving from a high-three to a high-five calculation of retiree benefits. The commission wants to bring the pension program more in-line with private sector programs, defer cost of living adjustment (COLA) for retirees in the current system until they are 62 and adjust the ratio of employer/employee contributions so they are equal. The savings target over 10 years would be $70 billion.

  • Change the Federal Employee Health Benefits program. The commission recommends turning the FEHB into a defined contribution premium support program that offers federal employees a fixed subsidy that grows by no more than 1 percent over the GDP each year. For federal retirees, the subsidy could pay a portion of the Medicare premium.

Paul Posner, a professor at George Mason University and a former director of federal budget policy at the Government Accountability Office, said the proposed changes to the pension program stands out as one of the most significant potential changes.

"The federal, state and local pensions are very good deals for employees, and the problem is politically is they are out of step with the rest of the workforce and that creates a political vulnerability for federal employees," he said. "I think what you see with some of these recommendations about relooking at retirement, most of the private workforce doesn't have a pension at all or a defined contribution 401k kind of pension. We have these defined benefit plans where future taxpayers are on the hook to make good on it. As we stare at these deficits at the federal and state level, that whole bargain is going to have to be renegotiated."

Posner said federal agencies have been insulated from many of the budgetary pressures that state and local governments are facing. He said even though the total dollars from cutting federal programs or the workforce is small compared to the larger picture, the changes offer both symbolic and actual short term savings.

"When the federal government asks for financial sacrifice of others in society it has to also contribute itself," he said. "It sound symbolic, but it's also important because it's a way to share the sacrifice. In the 1990s, we took some cuts. In the Reagan period, we took some cuts. It's all part of a careful staging for developing support of what you are trying to do."