Rethink federal pensions
By imposing a US hiring freeze as one of his first official acts President Reagan demonstrated the type of good management that will be necessary to bring excessive federal costs under control. But if Mr. Reagan is to be successful in checking and reversing "the growth of government," tough decisions will have to be made regarding a principal source of that growth -- federal pension benefits.
Federal pensions (for the US civil service and Pentagon) are imposing an increasingly heavy burden on taxpayers. Moreover, these costs will grow sharply in the years ahead. Add in the often equally generous pensions for state and municipal employees, and it quickly becomes apparent why the total future governmental pension liability now runs in the hundreds of billions of dollars.
Certainly civil servants should receive an appropriate and guaranteed pension. But something is askew when they are allowed to enjoy benefits grossly out of line with those received by workers for positions of a similar nature in the private sector.
Thanks to congressional largess, and the clout of public employee unions, federal pension benefits in many cases outstrip those of private pension plans, as well as benefits collected by social security recipients. Sometimes the differences in monetary returns run into the hundreds of thousands of dollars per individual. Because of the longevity of federal pensions, which start at an early age, a military officer in his early 50s, for example, can in some cases look forward to pensions that will exceed $500,000 in value. A private industry employee, retiring at age 62, looks forward to a more typical pension with a value of $135,000, if even that much. Moreover, many retired civil servants go to work in the private sector and then later qualify for social security as well as their federal pension.
The unfairness of bloated government pensions, however, has an even more disturbing element. Sky-high pension costs are draining tax dollars away from necessary social and military expenditures. Total manpower costs alone now swallow up half the entire Pentagon budget. The Carter administration's proposed budget for fiscal 1982 (which will be revised by the Reagan administration) designates $16 billion for military retirement costs alone, out of overall manpower expenditures of $89 billion.
Retirement inequities between the public and private sectors should no longer be tolerated, and should be frontally addressed by Mr. Reagan and the 97th Congress.
For the long haul, Congress should seriously consider requiring that at some future date new civil service workers be integrated into the larger social security system, rather than being part of the separate civil service retirement program. In seeking such "universal coverage," Congress would of course have to ensure that promised benefits for workers in the current federal retirement program remain intact.
Also, Congress should take a hard look at the total compensation package offered by the federal government. By lowering pension benefits, for example, might lawmakers be able actually to increase current salaries, a step that could help recruit able young professional persons into government service? We are not unmindful that a generous pension system has been one of the attractions of public employment, but we feel that a good salary system should be the primary magnet.
Immediate reforms could include these:
* Scrap the current system of allowing twice-a-year cost-of-living adjustments for federal pensions. Social security recipients (with their far more meager checks) have their benefits adjusted only once a year.
* Revise the formula used to compute cost-of-living adjustments. Currently federal pensions are linked 100 percent to the Consumer Price Index. As we have noted before, the CPI overstates the US inflation rate because of the weight it gives to mortgage interest rates and home prices. Congress should consider restructuring the CPI, or linking cash-benefit programs to another escalator, such as the Personal Consumption Deflator.
It might also allow only partial cost-of-living adjustment (say, 85 percent as against 100 percent). We recognize that "partial adjustment" would in effect change the philosophy of the federal retirement program. Hence, any change in the formula would have to be undertaken with great care.
* Require federal employees to step up contribution levels to their pension and life insurance funds. Currently, by one estimate, if a typical government employee were to put into his retirement plan that amount of salary needed to pay his future pension benefits, the amount contributed would total 36 percent of salary. But employees and the agencies for which they work together pay in a combination of only 14 percent (7 percent from each). The differential, it must not be forgotten, will be made up by taxpayers.
* Weight the possibility of extending the number of work years needed for retirement. Military officials, for example, can retire after 20 years' service. Civil service officials can retire at age 55 after 30 years' service. By contrast, the retirement age for most civilian employees is between 62 and 65 .
In calling for federal pension reform, we are not suggesting that federal civil servants be in any way disadvantaged or financially penalized. What is paramount, rather, is that public employment -- and public service in general -- not be made the vehicle for special advantages denied Americans as a whole and thus be regarded as a source of easy income because the American taxpayer pays for it.