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Sunday, October 02, 2011

The FERS Media Dam Breaks

While everybody is getting excited about a few thousand nutcases running around on Wall Street, the real domestic news of significance is that the media wall over federal retirement pensions broke last week.

USA Today:
Retirement programs for former federal workers — civilian and military — are growing so fast they now face a multitrillion-dollar shortfall nearly as big as Social Security's, a USA TODAY analysis shows.

The federal government hasn't set aside money or created a revenue source similar to Social Security's payroll tax to help pay for the benefits, so the retirement costs must be paid every year through taxes and borrowing.
It's a good article - read it. Now everyone's jumping on the bandwagon. ABC's picked up the story.

The most basic problem is the same as the SS/Medicare problem - there ain't no funds in the Trust Funds. I've mentioned the Treasury Direct Debt to the Penny website before. Here's a subpage that explains the funds for federal retirement programs. Those "special-issue Treasury securities" are the same type of instrument used to "save" all the SS excess payments.

To actually follow this, you need to go to this page, which has all the monthly statements of the public debt reports. Then click on the year/month you want. August 2011 is the last available. I download the excel file for primary dealers, which allows you to track exactly what is out there. Once you open up that file, you click on the sheet names "GAS" (short for Government Account Securities). Here you want to stop, check your BP, take antacids and that sort of thing. If you do not have a heart condition and are not a federal retiree, you may continue without making your will.

So now we are reading GAS, first column. The second column shows you retired securities, and that happens when the trusts are being drained. The amounts listed are in millions of dollars - add six zeroes. And you find here 139 billion in the Thrift Savings fund, Federal Retirement Thrift Investment Board. 828 billion for the Civil Service Retirement and Disability Fund, OPM. 162 billion DOD Medicare Eligible Retiree; 334 billion DOD Military Retirement Fund. DC Federal Pension fund, only about 3.2 billion. Deposit insurance right above that. Employees Life Insurance and Health Benefits funds, OPM, 18.6 billion and 39.6 billion.

Now we come to some of the general public entries: DI (SS Disability) 171 billion, dropping fast. Medicare HI (Medicare Part A) 259 billion, also dropping quite quickly. SS Old Age (SS retirement), 2.579 trillion, or 2,579 billion. A 102 billion for Medicare SMI, which includes Part D and Part B.

Now back to the government employees - 16.4 billion for the Foreign Service Retirement and Disability fund. Postal Service Retiree Health Benefits fund, 43.7 billion.

Anyway, the point is that ultimately all the accrued savings that people were led to believe were there have all vanished into the Great American Money Hole, a la The Onion. There are no funds there. Treasury will have to borrow all this money from the public - some public - in order to give back the money, or we will have to raise taxes. We literally cannot raise taxes enough, so we are going to default on a significant portion of these promises. The rich simply don't have nearly enough money to close the deficit, although there is room to raise their taxes. But it won't cover that much.

This is one of the huge reasons for our deficit, but it interests me that the very large retirement obligations for federal or military retirees have only just come into the discussion. If SS benefits are to be cut, Federal employee benefits should be cut also, and so should Federal retirement health benefits. If we are going to default, let's default on everyone equally!

Person by person, our liabilities for federal employees are much greater than our SS/Medicare liabilities, and any meaningful discussion of fiscal reform should included very significant cuts to federal retirement benefits for higher-income federal retirees. But this has not yet even been discussed, and my congratulations to USA Today.

My bottom line over fiscal reform is that whatever reforms are imposed upon the general public should also be imposed upon the government employees. They should have the same retirement age for full benefits as the general public, be eligible for retirement medical benefits at the Medicare eligibility age, have higher premiums imposed for medical retirement benefits on the same scale as for Medicare, etc.

I am shocked - shocked! to find this has been going on in our government.

Kudos to you, for pointing out " the rich" don't have enough money to even make a small dent in the tremendous fiscal hole our beloved Congressman has put us in. Shall we begin pension reform, MOM, by cancelling the entire pension and benefit program for retired Congressman, along with 100% confiscation of all post-Congressional earnings from lobbying?
It's tempting, but I think not. That's because I think we should plump for "equal". I do think Congressmen should get the exact same medical deal that the average retiree gets at the same time.

We got ourselves into this fix together and we certainly can get ourselves out, but not by confiscating the money of rich people or by taking away $200 of a $900 SS check in a decade.

It seems like we have tried absolutely everything else but realism, so what have we got to lose?
I do consider it insidious and vicious to have federal employees contributing to a "thrift" plan that basically consists of IOUs from the federal government.

Not that this is any different than SS, but I don't think federal employees realize exactly what has been done. There's gonna be a whole lot of Tea Partiers before this is all done.

I think pension for Congressmen should consist of Medicare and the median SS check. No more, no less. Then at least they'll know what people are complaining about.
Same thing I said during the Obamacare debate: if it's good enough for us, it's good enough for them too. High time to get rid of these special deals for Fed employees. And when they say they paid for it, we should remind them of how they think means testing for Social Security is a great idea. And while we are at it, let's use the same working limits we use for Social Security. If they make more than $14,411 in a year, they get to star paying back their benefits.
Since the vast majority of the Federal government's
revenue is from taxes on labor, and the Federal government has actively pursued policies that lowered
worker's wages and encouraged companies to ship jobs overseas, is anyone really surprised ? Cheaper goods from China will still be too expensive when SS is cut.
we sold access to the US market and gutted our safety
net and obligations to all of labor at the same time.
how much "double dipping" is going on in these programs? I'd like an accounting of that before going further. I know it's a problem at the local/state level, does it also cross over at the state/federal level? I guess it's not surprising if it does but I'd just like an accounting. I know locally (if you're in the club) you can get hired for a day and qualify for a pension, I hope and presume the rules are more stringent at the federal level...
Anon PA
Anon PA,
I'm a double dipper. 21 years in the Navy - 13 active duty and 8 active Reserves. That qualified me for a pension starting at age 60. I was 42 when I finished that service and got nothing until I turned 60.

I also paid into Social Security for 44 years. I opted to begin receiving a reduced SS benefit at age 62. I'm 78 now, so have received benefits for 18 & 16 years respectively.

There is one thing about the government programs that are totally unrealistic and that is the COLAs. No private company can provide a defined benefit pension with COLAs. I earned a defined benefit pension from 25 years employment with a major airline. Federal regs forced me to retire at age 60. That pension didn't change until the company filed for chapter 11. Then it went down.

The fourth leg of my pension income is my IRA. I began investing in an IRA as soon as they became available in the 80s. Over 13 years and the subsequent 10years before I had to take required distributions my IRA grew to become the largest part of my assets.

I'm not rich, but I am comfortable. If they quit giving me COLAs and reduce my SS & Navy pensions by 15 - 20% it will not put me in the poor house, but I will have to watch my pennies much more closely. My airline pension was reduced by the bankruptcy filing in 2002, so I'm already familiar with being cut. I say a little prayer everyday that I have my IRA. It is my anchor. If I'm lucky I probably have another ten years to live and believe I have enough to get me to the end. At least that's my goal.

Now, should I feel guilty because I spent those 21 years in the Navy and eventually collected the promised pension? Or the SS pension? I found out about empty promises when the airline dumped its pension in bankruptcy. The same thing has happened with the Federal, State and local, pension programs. They just haven't recognized yet that they are bankrupt. It was too easy to over promise - give in to the demands of the Public Sector Unions.

The sooner we start the process of cutting the pensions the sooner this whole mess will be cleaned up. As one former governor said, "Either we deal with this now or the financial markets will deal with it for us." I think she's right.
Lots of financial myths in our modern economy all will surface if one lives long enough!
Lots of financial myths in our modern economy all will surface if one lives long enough!
Nothing to worry about.

Obama has a plan to harness fairy pharts to propel a massive increase in green energy jobs that provide the needed tax revenues to bring about buckets o' hopey changey.

Peace out.
Jimmy J,
I'm currently in the Navy and am about half way to retirement time. While I agree that obligations that have been made and that people have planned their life around should be honored, we do need to stop the double dipping. It is not at all uncommon for someone in the military to retire and then move seemlessly into the same job as a GS or contractor, or to fill a different roll that came about on their watch.
People in the real military, i.e. those who spend long deployments away from their family or who ruin their knees jumping from airplanes, should retire at 20 years. They have given their youth and their body doing a hard job that the nation needs done. We shouldn't and can't extend retirement time for them because, frankly, you don't want broken down 55 year-olds fighting the nation's wars. However, desk-driving, non-deploying no-loads should not be able to retire for at least forty years. My rule would be that every year you spend in a non-deployable job counts as half a year toward retirement.
I fear that by the time I retire the public will resent military retirees so much that I will not be able to mention my service out loud.

You have described one of the problems vis a vis military pensions very well. For those who have spent many years at sea and on combat deployments the word "service" is most applicable. It is not a job, it's an honorable calling. However, as you point out, many in the military are essentially military bureaucrats who fly a desk or computer on an eight to five basis. A change of station means a paid move from one part of CONUS to the other. It may well be that 35 years or more might be more appropriate to qualify for a full pension in those situations.

My neighbor is a fellow who owned his own business for 25 years. Sold it to bigger outfit for a nice chunk of cash. Being 50, he looked around and found out he could qualify for a reduced pension but with full medical benefits at the Post Office by delivering mail for ten years. I don't blame him for taking advanttage of that offer. I blame the politicians and bureaucrats for not spending the taxpayer's dolars wisely.

Congressional pensions are another case of unwise use of taxpayer dollars. Way too much pay for too little service. The biggest benefit is the medical, which is far superior to Medicare.

There are many more I'm sure.
This was not suppose to happen til the 2030 time frame, if you recall the crepe hangers 3-5 yrs ago, before
the crash. The crash has moved the
time table up considerably and this
is before Obamacare kicks in. The time table to completely flattened
federal budget will compress even further once Obamacare starts chewing through 75-100B/yr in 5-6 yrs. And then there is this little graph:
I heartily disagree that Congressional pensions are too fat. On the contrary, I think they're too small. A two-term Congressman, or a one-term Senator, should receive a no-deductible medical plan and a $500K/yr cash pension, with COLA. In other words, once you've done your service, you're set for life.

Oh, and there's one catch--get caught accepting ANYTHING from a lobbyist or "bundler", or anything else that could be a bribe, and you lose the pension.
I should add, if you get caught lobbying, you lose the pension.

The idea is that when you're in Congress, you're a politician. When you leave, GET OUT!
And once you're in office, put judges in place that won't ever find sufficient evidence of bribes...?

It would happen gradually, but if the reward is high enough, it'll eventually devolve into cronyism.
Neil - you must be an honest man. You have a touching belief in the ability of politicians to monitor each other's behavior.

In practice, what you get is Congress Critters of all stripes defending the inviolate sanctity of a Congress Critter's office even when the Congress Critter has already been caught with the cash in the freezer.

They are not going to permit that type of monitoring, and they make the rules. They get away with obvious crimes all the time as it is.

Also, the big payola is stuff like venture participations in companies and so forth in exchange for votes in office.
The point is to keep the honest ones honest, and to attract honest politicians in the first place. Let's face it, Congress is a dead-end job if you don't engage in graft. Perhaps we should make the pay in line with that reality.
It also makes sense that if we want Congress critters to serve only a couple of terms, that most of the pay should come after they leave office.
The kind of people who run our societies into the ground are the people who are adept at winning elections and playing the games as required.

However, they do not know much about anything else and only listen to information that will make them look good and get them re elected.

That is no way to run a planet.
No one begrudges Pension benefits to our armed forces except perhaps the political wing of the Government. Thats what this is about. Out of control Entitlements for politicians who already make bundles of money on the system.
By allowing these horse thieves golden pensions, unreal salaries, protections normal citizens never see. We have created a new brand of Political class aristocrat. Its our fault to for now stopping this before the piggies took over.
The Forces on the other hand put their lives on the line, not limo's.
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