How safe is your pension? Can you say Detroit!

Given what has happened to the pension plan of city workers (as in a 4.5 percent cut for retired Detroit city workers) and workers in some other states, it’s fair to look at the state of Uncle Sam’s in-house retirement packages.

The primary plans (CSRS and FERS) are the gold-standard compared to virtually any private-sector pension plan.

CSRS retirees receive guaranteed, defined benefits based on the final 3-year average salary and length of service. Somebody who puts in 30 years receives a starting pension equal to about 55 percent of final salary. After 41 years on the job, the annuity is equal to about 80 percent of salary. And then there is guaranteed inflation protection. FERS employees receive a smaller federal annuity and cost of living adjustments can be one percentage point less than the actual increase in inflation. But FERS workers, who pay less for their benefits, have a more generous 401k plan because they are eligible for up to 5 percent in matching contributions from the government.

In the past couple of years, Congress and the White House have raised the contribution rate for FERS employees hired in 2013 and 2014. But they haven’t touched benefits of retirees, or pre-2013 hires. Yet!

But stay tuned!

Earlier this week, Congress agreed on a $1.1 trillion spending bill designed, among other things, to avoid a repeat of the last government shutdown. Tucked away in the bill is language that would permit cuts in benefits for “current retirees” who are in “stressed” multi-employer pension plans. Lots of readers picked up on that language and asked, what’s up?

We turned to Jessica Klement, legislative director of the National Active and Retired Federal Employees. She said it is not a problem “yet” for federal retirees, but that NARFE and other pro-fed groups are keeping an eye on it. And any other plans to “fix” public pension plans — especially CSRS and FERS.

Here’s the information NARFE is sending out to members who have questions about the new stopgap spending bill, and other efforts to “reform” pension benefits:

“We’ve had some involvement with this issue through the Leadership Council of Aging Organizations (LCAO). It sets a very bad precedent, and therein lies our concern. Currently, this is an issue limited to multi- employer plans, some of which are at-risk of insolvency, for reasons connected to how the federal pension insurance system works for those plans as opposed to even single-employer private pensions and different from federal employee pension funding.

“That said, this is an issue limited to multi-employer plans for reasons connected to how the federal pension insurance system works for those plans as opposed to even single-employer private pensions, and different from federal employee pension funding.

“Essentially, because multi-employer plans (often negotiated by unions with multiple employers in a single industry) spread the risk of failure by individual employers amongst many, they were thought to essentially self- insure against the risk of business failure. But the assumption fails when an entire industry fails or declines, which has happened in some circumstances, leading to underfunding. Exacerbating the problem is that the amount of private pensions insured by the Pension Benefit Guarantee Corporation (a government entity) is much lower for these multi-employer plans than for single-employer plans (around $13,000 annually as opposed to about $59,000 annually for a 65-year-old retiree), so the consequences of one of these plans failing could be pretty catastrophic for the beneficiaries.

“With the way FERS funding is set-up (agency plus employee contributions must equal the dynamic normal cost of pension liabilities), the CSRDF is required by law to be adequately funded on an annual and accrued basis, and the funds are not subject to market risk.”

        Read more: Mike Causey

NEARLY USELESS FACTOID:

The volume of fresh water in the Great Lakes is 6 quadrillion gallons, which is one-fifth of the world’s fresh water.

Source: Great Lakes Facts and Figures

By Michael O’Connell

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