Deficit panel considering changes in pensions, FEHBP

Steep cuts to the government's contributions to federal employees' pensions and a major change to the Federal Employees Health Benefits Program are among deficit reduction measures being considered by the White House deficit commission.

The National Commission on Fiscal Responsibility and Reform's final report released Wednesday also proposes a two-year window during which agencies could offer employees' buyouts. And it recommends agencies have more power to shift employees around to increase efficiency and productivity.

The report also calls on Congress to give the U.S. Postal Service the ability to move to a five-day delivery schedule and to close post offices more easily than it currently can.

These recommendations are in addition to those in a draft report released Nov. 10 including a three-year federal pay freeze and 10 percent cut in the federal work force.

The 18-member commission is expected to vote on the report Friday. Fourteen members must vote for the report for it to be sent to Congress for consideration.

The report — titled "The Moment of Truth" — said that federal employees should contribute more to their pension plans. Feds currently contribute 1/14 of the cost of their pensions, but the report said they should contribute half of the cost. The report expects this would save $4 billion in 2015, and $51 billion through 2020.

Retirees' pensions — both under the Civil Service Retirement System and the Federal Employees Retirement System — should be based on the highest five years of salaries, instead of the current method of using the highest three, the report said. This would save $500 million in 2015, and $5 billion through 2020.

And cost of living adjustments for civilian and military retirees would be deferred until they reach age 62, if the report's recommendations are enacted. CSRS employees get COLAs as soon as they retire, regardless of age, as do FERS employees who are law enforcement officers, firefighters, air traffic controllers, special CIA employees, and military reserve technicians who lost their military status due to medical reasons. All other FERS employees do not receive COLAs until they turn 62.

But the government would track what those affected retirees' pensions would have been if the COLAs were not deferred. And when they turn 62, the government would adjust their future pension payments to what they would have been if the full COLAs had not been deferred. This would save $5 billion in 2015 and $17 billion through 2020.

The report said FEHBP should be transformed into a premium support system. Under this program, federal employees would receive a fixed subsidy from the government they can use to purchase health insurance from competing insurers. The subsidy would grow by no more than the gross domestic product, plus one percentage point, each year. This could save $2 billion in 2015 and $18 billion through 2020, the report said.

A 2006 Congressional Budget Office report on a proposed premium support system for Medicare said that under the plan, beneficiaries who enroll in plans whose premiums exceeded the government's contribution would pay the difference between the two. Those who enroll in lower-cost plans would receive additional benefits or a rebate. The plan is intended to hold down federal spending by fostering competition between plans and encouraging beneficiaries to be more frugal, but critics say it could raise premiums and cost beneficiaries more money. The report said if FEHBP's experiment with premium support works, it could be expanded to Medicare.

The report also said agencies should carve out a portion of their budgets for cancellation and find ways to shift from inefficient, unproductive spending to productive, results-based investment. The buyouts and expanded personnel realignment authority would be a good tool to improve productivity, the report said.

While the finished report sets a 10 percent target for cutting the federal work force, it does not single out government contractors as the draft report had. The draft proposal recommended cutting 250,000 contractors other than defense contractors, claiming it would save $18.4 billion by 2015