The Corner

Looking for Cuts? Consider Federal-Employee Benefits

With both a government shutdown and a potential default looming this fall, Congress and the White House are gearing up for another round of budget negotiations. In searching for ways to save, both sides should take a close look at federal-employee benefits.

Federal employees receive greater compensation than comparably skilled private-sector workers. Reducing federal compensation to market levels should therefore have only a minimal effect on recruitment and retention of qualified workers. It would save money without a significant reduction in services.

But what is the best way to pursue reform? After James Sherk, Andrew Biggs, and I began calling attention to the federal-pay problem back in 2010, lawmakers responded by denying federal workers a cost-of-living increase for three straight years. I remain ambivalent about these so-called pay “freezes.” (“Freeze” is a misnomer, since federal employees still earned regular step increases and merit-based raises during that time.) While the “freeze” certainly saves money, it’s a blunt instrument that doesn’t reform the structure of the compensation system in a meaningful way.

The federal government needs a less costly pay system, but it also needs a more flexible one. Wages are compressed between the lowest and highest earners, and the health and retirement benefits are far more generous than what large private-sector firms offer. Cutting back on benefits and developing a more market-based wage system should be the goals of any reform.

To that end, I propose a first step for budget negotiators to consider: phase out the defined-benefit portion of the Federal Employees Retirement System (FERS). Employees hired under FERS currently receive both a 401(k)-style defined-contribution plan (with generous federal matching funds) and a traditional defined-benefit pension. The defined-benefit pension is dying out in the private sector, and its persistence in FERS is an unnecessary luxury. In fact, the CBO noted that much of the federal-benefits premium can be ascribed to the pension.

Stop new FERS pension accruals for all federal employees who are not near retirement, and gradually convert their already-accrued benefits into 401(k) contributions. (The pension plan for currently retired and nearly-retired workers would remain unchanged.) This could save around $150 billion over ten years, depending on implementation and accounting, and still leave federal employees with generous 401(k)-style benefits. It’s the type of substantial but not-too-painful cut that budget negotiators should be looking for.

Jason Richwine is a public-policy analyst and a contributor to National Review Online.

Most Popular

Politics & Policy

Yes, They Are Coming for Your Guns

At the Democratic-primary debate in Houston last night, Beto O’Rourke formally killed off one of the gun-control movement’s favorite taunts: The famous “Nobody is coming for your guns, wingnut.” Asked bluntly whether he was proposing confiscation, O’Rourke abandoned the disingenuous euphemisms that have ... Read More
White House

Politico Doubles Down on Fake Turnberry Scandal

It's tough to be an investigative reporter. Everybody who feeds you a tip has an axe to grind. Or, alternatively, you find yourself going, "I wonder if . . . ?" You put in your research, you talk to lots of people, you accumulate a huge pile of information, but you still haven't proved your hypothesis. A wise ... Read More
Culture

Four Cheers for Incandescent Light Bulbs

It brought me much -- indeed, too much -- joy to hear of the Trump administration's rollback of restrictions on incandescent light bulbs, even if the ban will remain in place. The LED bulbs are terrible. They give off a pitiable, dim, and altogether underwhelming "glow," one that never matched the raw (if ... Read More