Order Code RS20927
Updated June 5, 2003
CRS Report for Congress
Received through the CRS Web
Federal Employees’ Retirement Benefits:
Bills in the 108th Congress
Patrick J. Purcell
Specialist in Social Legislation
Domestic Social Policy Division
The Federal Employees Retirement System Act of 1986 (P.L. 99-335) requires all
federal employees initially hired into permanent positions after 1983 to be covered by
the Federal Employees Retirement System (FERS). Federal employees hired before
1984 are covered by the Civil Service Retirement System (CSRS) unless they elected
to switch to FERS during “open seasons” held in 1987 and 1998. This report describes
the bills introduced in the 108th Congress that would affect participants in either CSRS
or FERS. It begins by summarizing laws enacted during the 107th Congress that affected
CSRS or FERS. This report will be updated as further legislative action occurs.
Laws Enacted in the 107th Congress
Voluntary Separation Incentive Payments. The Homeland Security Act of
2002 (P.L. 107-296) delegated to the Office of Personnel Management (OPM) authority
to review and approve requests from federal agencies to offer voluntary separation
incentive payments of up to $25,000 to employees in particular occupational groups,
organizational units, or geographic locations who retire or resign. The authority to offer
separation payments (“buyouts”) applies across all agencies. Buyouts can be used by
agencies seeking to reduce their total employment or to reshape their workforce to meet
critical agency needs. Agencies seeking approval from OPM must submit a plan that
describes the intended use of the buyouts. Payments are to be made from the agencies’
regular appropriations for salaries and are subject to all applicable federal, state, and local
income taxes. They are not included in the employee’s basic pay for purposes of
calculating the amount of his or her retirement annuity.
Voluntary Early Retirement Authority. Under both CSRS and FERS, a federal
employee is eligible for an immediate unreduced retirement annuity at age 55 with 30 or
more years of service. Under voluntary early retirement authority (VERA), the age and
service requirements are reduced to 20 years of federal service at age 50 or 25 years of
service, regardless of age. CSRS employees who retire under voluntary early retirement
authority have their retirement annuities permanently reduced by 1/6 of 1% for each full
Congressional Research Service ˜ The Library of Congress
month that they are under age 55 at the time of retirement. This is equivalent to a
reduction of 2% for each year that the person is under age 55 at retirement. Employees
with service under both CSRS and FERS have the reduction applied only to the CSRS
portion of their service. The Homeland Security Act (P.L. 107-296) provides that with
the approval of OPM, an agency undergoing restructuring or downsizing can offer
voluntary early retirement to employees in specific occupational groups, organizational
units, or geographic locations. Reductions in annuity amounts for early retirement will
continue to apply.
Contributions to the Thrift Savings Plan. The Economic Growth and Tax
Relief Reconciliation Act of 2001 (P.L. 107-16) allows individuals who are age 50 or
older to make additional contributions to a retirement plan authorized under section
401(k), 403(b), or 457 of the tax code. The maximum permitted additional contribution
is $2,000 in 2003, $3,000 in 2004, $4,000 in 2005, and $5,000 in 2006. This amount will
be indexed to inflation in years after 2006. P.L. 107-304 (November 27, 2002) will allow
additional contributions in these amounts to be made to the Thrift Savings Plan (TSP) by
federal employees age 50 or older.
Mandatory Retirement Age for Federal Firefighters. Most federal
employees can retire at age 55 (increasing to 57 for those born after 1970) if they have
completed 30 or more years of service. Federal law enforcement officers and firefighters
can retire at age 50 with 20 years of service. Those covered by FERS can retire at any age
with 25 years of service. Federal law enforcement officers also are subject to mandatory
retirement at age 57, or after 20 years of service if that occurs later. Until recently, federal
firefighters were required to retire at age 55. P.L. 107-27 (August 3, 2001) raised the
mandatory retirement age for federal firefighters from 55 to 57.
Non-appropriated Fund Instrumentalities. Individuals employed by nonappropriated fund instrumentalities (NAFIs) are not federal employees and therefore are
not eligible to participate in CSRS or FERS. NAFIs include, for example, the base
exchanges that operate on the grounds of many military installations. The National
Defense Authorization Act for FY2002 (P.L. 107-107) allows certain service previously
performed as an employee of a NAFI to be credited to CSRS or FERS for employees who
later became covered by CSRS or FERS through federal employment.
Bills in the 108th Congress
Annuities Based on Part-time Employment. Employees covered by CSRS
who work part-time can experience disproportionately large cuts in their retirement
annuities as the result of a regulation adopted by OPM in response to the Comprehensive
Omnibus Budget Reconciliation Act of 1986 (P.L. 99-272). This law requires retirement
annuities for a federal worker whose career includes part-time employment to be based
on the rate of pay that would be paid for full-time service, with the employee’s service
time prorated for the actual number of hours worked. In its regulation, however, OPM
adopted an interpretation of this statute that also applies a lower rate of pay than would
be applied if these individuals had worked full-time for their entire careers. Section 203
of S. 129 (Voinovich) and H.R. 2191 (Moran) would amend 5 U.S.C. §8339 to clarify
that CSRS retirement annuities based in whole or in part on part-time service are to be
prorated only for the period of service that was performed on a part-time basis.
Law Enforcement Officer Status for Retirement. For purposes of retirement
benefits, title 5 of the U.S. Code defines a law enforcement officer as an individual whose
duties “are primarily the investigation, apprehension, or detention of individuals suspected
or convicted of offenses against the criminal laws of the United States.”1 Positions are
designated as those of a law enforcement officer by the heads of federal agencies under
the guidance of regulations published by OPM.2 In addition, Congress has designated
officers of the U.S. Capitol Police, the Supreme Court Police, and nuclear materials
couriers to be eligible for law enforcement officer retirement benefits. S. 640 (Leahy),
section 4122 of S. 22 (Daschle), and H.R. 2260 (Ros-Lehtinen) would amend 5 U.S.C.
§§ 8331(20) and 8401(17) to include Assistant United States Attorneys among the
statutorily defined categories of law enforcement officers for purposes of retirement
benefits. S. 816 (Mikulski) would expand the definition of federal law enforcement
officer to include (1) any federal employee whose duties include investigating and
apprehending individuals suspected or convicted of violating the criminal laws of the
United States and who is authorized to carry a firearm and (2) employees of the Internal
Revenue Service responsible for collecting delinquent taxes.
Disability Retirement for Federal Firefighters. H.R. 1101 (Rodriguez) and
S. 530 (Kerry) would establish a presumption of work-related disability for federal
firefighters who die or become disabled following a diagnosis of heart disease, lung
disease, certain cancers, or certain infectious diseases.
Retirement Annuities for Air Traffic Controllers. Air traffic controllers, law
enforcement officers, and federal firefighters covered by FERS contribute 1.3% of pay to
the Civil Service Retirement and Disability Trust Fund. Regular federal employees
contribute 0.8% of pay to the civil service trust fund. (All employees covered by FERS
also pay Social Security taxes equal to 6.2% of pay.) Air traffic controllers, law
enforcement officers, and firefighters covered by FERS accrue benefits equal to 1.7% of
pay for each of the first 20 years of service and 1.0% of pay for each year of service
beyond the 20th year. Regular federal employees covered by FERS accrue benefits equal
to 1.0% of pay for each year of service. Thus, the contribution rates and benefit accrual
rates that apply to air traffic controllers under FERS are identical to those that apply to
federal law enforcement officers and federal firefighters. Under both CSRS and FERS,
an air traffic controller is required to retire at age 56 or after completing 20 years of
service, if later. H.R. 1244 (Oberstar) would provide that service performed by an air
traffic controller who is transferred or promoted to a supervisory or staff position is to be
treated as controller service for retirement purposes.
Adjustment to Annuity Computations for Periods of Disability. Under the
Internal Revenue Code, employee contributions to the Thrift Savings Plan and privatesector 401(k) plans can be made only from earned income. Injured or disabled federal
employees are not permitted to contribute to the Thrift Savings Plan while collecting
disability payments or receiving disability compensation from the Office of Workers’
Compensation Programs. To reduce the shortfall in retirement benefits that can affect
federal employees who are injured or disabled while performing their jobs, H.R. 978 (Jo
5 U.S.C. §§ 8331(20) and 8401(17).
5 C.F.R. §§ 831.901-831.911 and §§ 842.801-842.809.
Ann Davis) and S. 481 (Allen) would increase the FERS basic retirement annuity from1%
of basic pay per year of service to 2% of basic pay for the duration of the disability.
Full Agency Funding of CSRS Annuities. The Civil Service Retirement
Amendments of 1969 (P.L. 91-93) require participating employees and their employing
agencies each to contribute an amount equal to 7.0% of basic pay to the Civil Service
Retirement and Disability Fund to finance retirement benefits under CSRS. The combined
contribution of 14% of employee pay does not fully finance the retirement benefits
provided under the Civil Service Retirement System. The costs of the CSRS that are not
financed by the 7.0% employee and 7.0% agency contributions are attributable mainly to
increases in future CSRS benefits that result from (1) employees’ annual pay raises, and
(2) CSRS annuitants’ annual cost-of-living adjustments. In actuarial terms, the employee
and agency contributions totaling 14% of pay are equal to the static normal cost of CSRS
benefits.3 This is the benefit that would be paid if employees received no future pay raises
and annuitants received no future cost-of-living adjustments. The dynamic normal cost
of CSRS pensions includes the cost of financing future benefit increases that result from
pay raises and cost-of-living adjustments.4 The dynamic normal cost of the CSRS has
been estimated by OPM to be an amount equal to 24.4% of employee pay.
Each year, the U.S. Treasury is required by law to contribute to the Civil Service
Retirement and Disability Fund an amount that covers some of the 10.4 percentage point
difference between the 14% of pay contributed by employees and their employing
agencies and the 24.4% normal cost of the program. (The Treasury’s contribution does
not cover the cost of retiree COLAs.) This is a direct transfer from the general revenues
of the Treasury, and does not pass through individual agency budgets. The remaining cost
of the CSRS constitutes an unfunded liability of the system that eventually will be borne
by the Treasury when CSRS annuities are paid to retirees and their surviving dependents.
Section 301 of H.R. 180 (Ryan) would charge each federal agency the full cost of CSRS
benefits on an accrual basis, as is done under the Federal Employees Retirement System
(FERS). Each agency would contribute to the CSRDF an amount equal to 17.4% of
payroll, which represents the dynamic normal cost of CSRS minus the required employee
contribution of 7.0% of pay. This proposal was included in the President’s budget for
FY2003 and the budget for FY2004. The Office of Management and Budget (OMB)
states that it “would require agencies to fund the full Government share of the accruing
cost of pensions . . . as they are earned by all Federal civilian and military employees.”5
Pensions for Members Expelled from Congress. H.R. 1098 (Miller/FL)
provides that, if an individual is expelled from Congress, any previous service performed
by that individual as a Member of Congress shall be not credited under CSRS or FERS
for purposes of determining either eligibility for an annuity or the amount of an annuity.
A pension plan’s normal cost is the level percentage of pay that, invested today at a particular
real rate of interest will be sufficient to fully finance the retirement benefits under the plan.
Two other elements of a pension plan’s dynamic normal cost are increases in benefits that
result from (1) new or expanded benefits and (2) newly covered groups of workers.
OMB News Release 2001-47, October 15, 2001.
Indexing Deferred Annuities. The basic retirement annuity under both CSRS
and FERS is based on the average of the three highest consecutive years of basic pay. The
amount of basic pay used in the calculation of the annuity is the rate of basic pay in the
years that the individual was employed. H.R. 432 (Velazquez) would provide that in the
case of an individual who is eligible to receive a deferred annuity, i.e. an annuity that
begins a year or more after separation from service, the average pay used in the
computation of the annuity will be increased by the percentage adjustments in the rates
of pay in the general schedule that have been made since the date of the employee’s
separation from service. The bill also provides that the widow or widower of a former
employee who was eligible for a deferred annuity, but whose death preceded the
commencement of the annuity, would be eligible for a survivor annuity under CSRS. A
similar provision is already in law with respect to survivor annuities under FERS.
Rights of Former Spouses under Federal Retirement Programs. Subtitle
C of S. 9 (Daschle) would provide (1) that the widow or widower of a former employee
who was eligible for a deferred annuity but whose death preceded the commencement of
the annuity would be eligible for a survivor annuity under CSRS, and also that a former
spouse of a former employee would be eligible for a survivor annuity if such was
provided for at the election of the former employee or under the terms of a court order or
court-approved property settlement; (2) that payment of an annuity under CSRS or FERS
to an alternate payee may include payment to a former spouse; (3) that benefits awarded
after an appeal to the Merit Systems Protection Board shall include interest; (4) that
income averaging may be applied for tax purposes when a lump sum payment is made as
the result of a correction to an annuity under CSRS or FERS; and, (5) that in applying the
order of precedence for distributing the Thrift Savings Plan (TSP) account of a deceased
employee or former employee, “the widow or widower of the decedent shall be the first
party entitled to receive (instead of any designated beneficiary)” the account balance.
U.S. Postal Service Funding of CSRS. In November 2002, OPM notified the
U.S. Postal Service (USPS) that because past contributions have been earning interest at
a higher rate than presumed in the statutory funding formula, the USPS will eventually
overfund its obligation to CSRS by $71 billion. On April 2, 2003, the Senate passed S.
380 (with an amendment) by unanimous consent. On April 8, 2003, S. 380 was passed
by the by the House of Representatives by a vote of 424 - 0. It became P.L. 108-018 on
April 23, 2003. The law requires the Postal Service to contribute annually to the CSRDF
on behalf of employees covered by CSRS an amount equal to the dynamic normal cost
of CSRS (24.4% of payroll) minus the amount contributed by employees (7.0% of pay).
Thus, the required Postal Service contribution will be equal to 17.4% of payroll. Because
the dynamic normal cost of CSRS includes the effects of future employee pay raises and
retiree COLAs, the law repeals prior provisions of law that required the Postal Service to
amortize over 30 years and 15 years, respectively, the increases in future CSRS annuities
that result from annual employee pay raises and retiree COLAs. The result will be that the
Postal Service’s payments to CSRS will be reduced, but its financial obligations to CSRS
will be fully met.6 The law requires OPM to estimate any “supplemental liability” of the
Postal Service with respect to CSRS benefits, which the Postal Service must amortize
(pay off, with interest) over 40 years. OPM will compute the amount of any savings
resulting from enactment of the legislation. Any savings realized in fiscal years 2003 and
For more information on S. 380 and H.R. 735, see CRS Report RL31684.
2004 will be used to reduce the debt owed by the Postal Service to the Federal Financing
Bank of the Treasury.
Allowing payment of CSRS and FERS benefits to certain trusts under
the Social Security Act. Eligibility for benefits under state Medicaid programs is
usually limited to individuals whose income and assets do not exceed limits established
under state or federal law. Section 1917(d)(4) of the Social Security Act (42 U.S.C.
1396p(d)(4)) allows certain disabled individuals to qualify for benefits under Medicaid
by placing assets that would otherwise exceed the eligibility limit into a qualifying trust.
Title 5 of the U.S. Code allows CSRS or FERS benefits that are payable to a minor or a
disabled adult to be paid that individual’s guardian or legally designated fiduciary. S. 776
(Campbell) would authorize OPM to pay CSRS or FERS benefits for a minor or disabled
adult into a trust that qualifies under section 1917(d)(4) of the Social Security Act.
Department of Defense Personnel Policies. Under current law, a federal
agency undergoing restructuring or downsizing can – with the approval of OPM – offer
voluntary early retirement to employees in specific occupational groups, organizational
units, or geographic locations who are age 50 or older and have at least 20 years of service,
or are any age and have at least 25 years of service. Also with the approval of OPM, a
federal agency may offer voluntary separation incentive payments of up to $25,000 to
employees who retire or resign. The full amount must be repaid if individual is
re-employed by the federal government within five years. H.R. 1588 (Hunter) and S.
1166 (Collins) would authorize the Secretary of Defense – without OPM review – to offer
(1) early retirement to employees who are age 50 or older with 20 years of service or any
age with 25 years of service and (2) separation incentive pay of up to $25,000 to DOD
employees who retire or resign. Re-employment within DOD would be prohibited for 12
months after receipt of separation pay unless the prohibition is waived by the Secretary
case-by-case. Anyone who is re-employed by the federal government within 5 years of
receiving separation pay would be required to repay the full amount to the DOD.
H.R. 1588 also would provide that if a retired federal employee who is receiving an
annuity from the Civil Service Retirement and Disability Fund becomes employed by the
Department of Defense, his or her annuity would continue. The employee would not
accrue additional credit under either CSRS or FERS during this period of re-employment.
H.R. 1588 also would allow the Secretary of Defense to appoint American citizens age 55
or older into positions in the excepted service (i.e., not part of the competitive civil
service) for a period not to exceed two years (plus a possible additional two-year
reappointment.) The appointed individual could not displace another DOD employee or
be in reduction-in-force status from an equivalent job in DOD, and must be qualified for
the job, “as determined by the Secretary.” An individual appointed to such a position who
is receiving an annuity, pension, Social Security, retired pay or similar payment would not
have such payment reduced as a result of the appointment.