The Corner

Ryan-Murray: A Sensible Step on Federal Pensions

As expected from a compromise in which neither side makes any real sacrifices, the Ryan-Murray plan contains a number of budgetary gimmicks. It even trots out the old “waste, fraud, and abuse” savings. (Why do we need a “compromise” to get rid of waste?) I’ll leave it to NRO’s health-care experts to hash this out, but I suspect that the extension of cuts to Medicare providers into 2022 and 2023 — apparently the main offset to the new spending – is unrealistic and probably will never materialize. So we have a familiar situation in which Congress wants to spend more money today in exchange for a flimsy promise that it might spend less money a decade from now.

Ryan-Murray does, however, contain some genuine cuts to federal-employee pensions. Workers in the Federal Employees Retirement System (FERS) receive both 401(k)-style benefits and the “FERS annuity,” which is a small traditional pension. Most federal employees contribute 0.8 percent of their pay toward the pension. However, Congress recently created the “revised FERS annuity,” which requires workers hired after 2012 to make a 3.1 percent contribution. Ryan-Murray would now require employees hired after 2013 to pay 4.4 percent — toward what I guess we should call the “revised revised FERS annuity.”

Are the cuts good policy? The answer depends entirely on how federal-employee compensation compares with fair market levels. If federal workers are currently paid below what comparably skilled private-sector workers receive, then further cuts could jeopardize the quality of the future civil service. But if federal workers are paid above market levels, then a small reduction in compensation could save money with minimal pain.

Public-employee unions don’t want us to think about the question in such rational terms. For them, cuts of any kind indicate a “war on public employees” meant to “demonize” and “discredit” them, as one breathless Huffington Post writer recently opined.

But the truth is that federal compensation is above market levels, and much of the premium is due to the existence of the FERS annuity. That’s why I argue it should be completely phased out. Ending the FERS annuity would save around $150 billion over ten years and still leave federal employees with a generous 401(k)-type plan. Convoluted as it is, the portion of Ryan-Murray that reduces pension generosity is a tiny step in the right direction.

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