Posted on 10/21/2010 8:21:00 AM PDT by FromLori
Around $66 billion in the hole
I don’t think there is anyone who looks at the issue of entitlements in the US who is not gravely concerned about the direction we are on. Economists of all stripes, damn near everyone in D.C. and a long list of academics have all highlighted the problems. But the same groups that are raising red flags are misleading us on when and how this problem will affect us. They say/think it is a tomorrow problem. Actually it is hitting us today. I want to focus on the Federal Employees Retirement System (“FERS”). This is a retirement program for federal workers. The program is similar to Social Security in a number of ways.
-FERS collects money from government workers and their employer. -The program pays benefits to eligible workers and their families. -FERS has a trust fund. Currently there is $775b of Special Issue Treasury securities in the fund. This is equivalent to 6% of our total debt and is therefore a very big deal. FERS holds as much of our paper as do the Chinese and the Federal Reserve.
-FERS is running a cash flow deficit. This is a new phenomenon. FERS is converting itself into a defined contribution plan that will address some of the problems. However the cash drain experienced in 2010 will not be reversed in the foreseeable future. It will increase. Some numbers from OMB:
The benefits paid in 2010 will come to $70b. Therefore total revenue exceeds expenses by a tidy $28b. This is the conclusion presented to the public. Clearly there is no problem with FERS. They are running a surplus! I look at it exactly the other way around.
Note: In fiscal 2010 our deficit was $1.3 trillion. Total expenses were $3.4t. Therefore ~40% of all federal expenses were funded by debt. I will use this percentage when adjusting for the FERS impact on our debt profile. Cash out at FERS was $70b. Cash in was only $4.0b. The difference of ~$66b is the real measure of what is happening at FERS. They are sucking down cash. A substantial portion of the deficit is funded with debt creation.
(A) The $17b of payments by Agencies is a paper transfer from the government agency that is the employer. Treasury turns this script into cash. Treasury has no money as we are running a deficit. The pro rata share that becomes debt is $7b (17*.40). The entire payment is recognized as a current budget expense.
(B) The $42b of interest is a non-cash item. It is just script. Think of it as borrowing from a HELOC. If you don’t pay cash each month they just add it on to the principal. In D.C. they call it the Intergovernmental Account (IG). Interest paid whether in script or cash is a current expense.
(C) The $32b of General Fund transfer is paid by Treasury. Again, Treasury will have to borrow $13b of that (32*.40) from the public to make the cash available to FERS so it can cash the retirement checks. The whole thing hits the budget.
(D) The money from Treasury (17 + 32 = 49b) is still short 17b from the 66b cash deficiency . Where does that come from? Treasury of course. FERS sells $17b of those Special Issue securities it holds back to Treasury. Once again, Treasury has to go to the public market to come up with this entire shortfall. This results in an increase in Debt Held by the Public (“DHBP”) and a decrease in the IG account. But this $17b does not find its way onto the current budget.
By my count: -FERS had a 2010 on budget cost of $89b. (A+B+C) =17+42+32=89 -FERS increased 2010 total debt by $62b. (A*.4) +(100% of B)+(C*.4) = 7+42+13=62. FERS caused an increase in the all-important DHBP of $37b. (A*.4)+(C*.4) +(100% of D) = 7+13+17=37.
I pick on FERS as it is a little known entitlement program. They paid out only $70b last year. Their big sister, Social security will lay out $700b. But in 2010 FERS had a larger impact on DHBP and total debt than SSA. In my book if you’re adding to the debt load you're adding to the problem.
In our big economy FERS won’t sink us. But it is just one piece of the puzzle on entitlements. When you put all of the pieces on the table and study them you would see that all of programs have their lines crossing, FERS is just the first to “cross over” in a big way. Cash is going to be King in the future. All entitlements will be eating cash. The problem is that there is absolutely no way to make them paygo without busting the economy. We are in the first year of a losing battle with entitlements. It will go on for another fifteen years or so. Blame the baby boomers. I expect that is exactly what we will do.
Sorry moderator here’s the link
http://www.businessinsider.com/federal-employees-pension-system-deficit-2010-10
I would start by cutting all pay and benefits in half for all nonmilitary and intelligence personnel.
I’m not necessarily questioning his numbers but he think he has his retirement systems wrong.
Feds hired pre-1984 were in the Civil Service Retirement System (CSRS) and that is a defined benefit program into which people paid a percentage that, I believe, was slightly higher than Social Security. They did not pay into social security and do not receive benefits unless they paid their quarters through another job.
FERS, which covers the rest of feds except for maybe some agency-specific retirement systems which might be out there, is based more on a 401k type of deal (Thrift Savings Plan) where employees pay Social Security, a little bit to CSRS and up to the IRS maximum into TSP. People who retire under this program will receive a small pension (not like CSRS but not nothing either), Social Security, and whatever they have in their TSP account.
It’s still a very large number but FERS itself is not a defined benefit program.
Sounds like marxism to me.
Step 1 should be to ABOLISH ALL FEDERAL RETIREMENT PROGRAMS... They are not SPECIAL, they can have Social Security just like everyone else.
This presents a great opportunity to shrink the gov’t. Give the fed employees the option to retire early with lower pension benefits. Then, don’t replace them.
sfl
As a federal worker (Civil Service Retrement System) and not a Federal Employee Retrement System, I have to agree with you. We paid our retirement from the start, and it has been in the stock markets.
The FERS employees can put a full 5% of their salary into their retirement and get up to 5% contributed by the governemt - you and me - that goes into their pocket when they retire. They get that and social security.
Failing Pensions....great government ‘excuse’ to seize 401k’s and IRA’s in the name of Fairness.
I have known about the FERS problem since the mid 1990s. The trust fund is a fiction as is the trust fund for Social Security and Medicare. FERS is just a pay as you go plan. Plan contributions are either spent on current benefits or other government needs. Effectively, the taxpayer has borrowed from the plan. Borrowed funds can only be repaid by future borrowing, tax increases, or reductions in spending in other programs. The federal government should never have been allowed to create a defined benefit plan.
Defenders of FERS indicate that its benefit levels are lower than most state plans. The benefit levels are deceiving however. Federal employees contribute little to FERS (0.8 percent). The employer contributes 11.2 percent. If a FERS employee retires before Social Security retirement age (62 for reduced benefits), the FERS employee receives the Social Security payments until reaching the minimum Social Security age. In addition, FERS employees also have an additional 401K type plan with 5 percent employer contributions. FERS employees also have early retiree medical benefits, a very valuable benefit. In sum, federal employees have a cadillac retirement plan.
Federal salary levels are now well above private sector salary levels in many areas. Federal salaries have still increased during the recession. Federal salaries have never been reset like the private sector. For example, I have a friend working as a middle manager in a federal government agency in Denver. He makes $130,000, a salary level that he could not come close to achieving in the private sector in Denver.
Federal salaries are heavily influenced by the government spending bubble in DC. Government spending has made the DC area into an oasis during this recession. Both government employees and contractors in the DC area have done extremely well during the recession.
It is time for major reform to federal pensions. The federal government does not even account for its unfunded liabilities. The federal government must get out of the retirement business. Federal employees should receive a 401K contribution. Federal employees should be expected to work until normal retirement age unless they can provide enough retirement savings through their 401K for early retirement. Federal employees should not have early retiree medical benefits.
Pulling FERS out for this sort of special anal-ysis does not advance our understanding of what is going on.
FERS? I think it maybe CSRS as that is a Defined Benefit plan that is in trouble. FERS is a defined Benefit portion of Federal Employee’s who came on board in 1982 and after.. It is a very small portion of entire retirement package for Federal employee’s as the TSP (Thrift Savings Plan) is what funds most of these employees retirement which is similiar to a private sector 401k . Also FERS is only 28 years old, I don’t know many employees who have retired who are FERS employees. However, many employees under CSRS and they are going to be retiring in droves in the next few years and will be insovlent.
Typical on this site who don’t know anything about Federal employment.. If you are a Federal employee hired after 1983, you are on Social Security and on a 401k plan. I
Federal can contribute 15% of their salary not 5%
I bet every single one of them earns more than $130,000 per annum.
Check current job postings for Qwest at: http://www.salarylist.com/all-real-jobs-salary-at-qwest-cyber-solutions-llc.htm
At the time, I had 9+ years in ,and opted to stay under CSRS--and took early retirment about 20 years later. But a lot of my fellow emplyees--back in '85--chose to switch to FERS. All of us, however, were given the opportunity to sign up for TSP--which is separate entity that ALL government employees MAY opt into, and thereby set aside allotments which are basically investments in stocks and bonds--low and high risk.
Until just a few years ago, the returns on those investments netted Federal employess--including Congress critters--a nice little nest egg! But you NEVER hear any Democrat mention TSP--because it reveals what hypocrites they are when they bash Repubs who dare to talk about "privatizing Social Security".
It does not suprise me that FERS is in trouble--just like PERS is in so many states. Am not sure, tho, about what's going on with CSRS--since it's been 20 years since any Fed employee could sign up for that plan. I'm sure the number of retirees still under it are diminishing at a rapid rate, unlike those under FERS. Whatever happens in the future, the Pubs better get serious about cutting back "entitlement" spending and convince the American public--including Federal employees--that it's the only way to "save" the golden goose that's been pumping out their precious nest eggs!
Yes, you are correct. I must have missed the 1 when I posted that. The feds match up to 5%.
P.S.—FERS IS Social Security; the only difference is that Fed employees have the option of investing in a Thrift Savings Plan (TSP) account, and having 5% matched by the Fed. Unless they are under CSRS—and then there’s no matching funds(IIRC). And—as has been mentioned, the Fed pays part of the premiums for the health care plans they offer (and you can be sure those plans will—at least for Congress critters—be EXEMPTED from Obama’s health care plan)!!!!
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