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[Senate Report 108-108]
[From the U.S. Government Publishing Office]

                                                       Calendar No. 219
108th Congress                                                   Report
                                 SENATE
 1st Session                                                    108-108
_______________________________________________________________________

                                     

 
  AMENDING CHAPTER 84 OF TITLE 5, UNITED STATES CODE, TO PROVIDE THAT 
CERTAIN FEDERAL ANNUITY COMPUTATIONS ARE ADJUSTED BY 1 PERCENTAGE POINT 
  RELATING TO PERIODS OF RECEIVING DISABILITY PAYMENTS, AND FOR OTHER 
                                PURPOSES

                               __________

                              R E P O R T

                                 of the

         COMMITTEE ON GOVERNMENTAL AFFAIRS UNITED STATES SENATE

                              to accompany

                                 S. 481

  AMENDING CHAPTER 84 OF TITLE 5, UNITED STATES CODE, TO PROVIDE THAT 
CERTAIN FEDERAL ANNUITY COMPUTATIONS ARE ADJUSTED BY 1 PERCENTAGE POINT 
  RELATING TO PERIODS OF RECEIVING DISABILITY PAYMENTS, AND FOR OTHER 
                                PURPOSES

                 July 21, 2003.--Ordered to be printed

                                 ______

                     U.S. GOVERNMENT PRINTING OFFICE
                            WASHINGTON : 2003

                   COMMITTEE ON GOVERNMENTAL AFFAIRS

                   SUSAN M. COLLINS, Maine, Chairman
TED STEVENS, Alaska                  JOSEPH I. LIEBERMAN, Connecticut
GEORGE V. VOINOVICH, Ohio            CARL LEVIN, Michigan
NORM COLEMAN, Minnesota              DANIEL K. AKAKA, Hawaii
ARLEN SPECTER, Pennsylvania          RICHARD J. DURBIN, Illinois
ROBERT F. BENNETT, Utah              THOMAS R. CARPER, Delaware
PETER G. FITZGERALD, Illinois        MARK DAYTON, Minnesota
JOHN E. SUNUNU, New Hampshire        FRANK LAUTENBERG, New Jersey
RICHARD C. SHELBY, Alabama           MARK PRYOR, Arkansas

           Michael D. Bopp, Staff Director and Chief Counsel
             Jennifer Hemingway, Professional Staff Member
 Michael Russell, Staff Director, Subcommittee on Financial Management,
                 the Budget, and International Security
      Joyce A. Rechtschaffen, Minority Staff Director and Counsel
                  Lawrence B. Novey, Minority Counsel
Jennifer Tyree, Minority Counsel, Subcommittee on Financial Management,
                 the Budget, and International Security
                      Amy B. Newhouse, Chief Clerk

                                                        Calendar No. 219
108th Congress                                                   Report
                                 SENATE
 1st Session                                                    108-108

++======================================================================

  AMENDING CHAPTER 84 OF TITLE 5, UNITED STATES CODE, TO PROVIDE THAT 
CERTAIN FEDERAL ANNUITY COMPUTATIONS ARE ADJUSTED BY 1 PERCENTAGE POINT 
  RELATING TO PERIODS OF RECEIVING DISABILITY PAYMENTS, AND FOR OTHER 
                                PURPOSES
                                _______
                                

                 July 21, 2003.--Ordered to be printed

                                _______
                                

Ms. Collins, from the Committee on Governmental Affairs, submitted the 
                               following

                              R E P O R T

                         [To accompany S. 481]

    The Committee on Governmental Affairs, to which was 
referred the bill (S. 481) to amend chapter 84 of title 5, 
United States Code, to provide that certain Federal annuity 
computations are adjusted by 1 percentage point relating to 
periods of receiving disability payments, and for other 
purposes, having considered the same reports favorably thereon 
without an amendment and recommends that the bill do pass.

                                CONTENTS

                                                                   Page
  I. Purpose and Summary..............................................1
 II. Background and Need for the Legislation..........................2
III. Legislative History..............................................5
 IV. Section-by-Section Analysis......................................6
  V. Evaluation of Regulatory Impact..................................6
 VI. CBO Cost Estimate................................................6
VII. Changes to Existing Law..........................................7

                         I. Purpose and Summary

    The bill would amend title 5 of the U.S. Code to help 
injured civilian federal workers recover the retirement 
benefits they lose while they are off the job receiving 
worker's compensation. Under current law, employees receiving 
worker's compensation are precluded from contributing to their 
retirement savings and from receiving matching funds from the 
government.
    Under S. 481, the loss would be offset by a larger 
contribution to the employees' direct pension benefit for the 
time they were receiving worker's compensation, as long as the 
employee eventually returns to work. The legislation would 
correct an inadvertent inequity in the calculation of 
retirement benefits for employees covered under the Federal 
Employees Retirement System (FERS) .

              II. Background and Need for the Legislation

    S. 481 was introduced by Senator George Allen of Virginia 
on February 27, 2003 to help those federal workers who were 
injured as a result of the terrorist attacks on September 11, 
2001. The most notable recipient of this legislation would be 
Louise Kurtz, an Army accountant who was severely burned on 
over 70 percent of her body and lost her hands and ears. Her 
plight was publicized by the Washington Post in 2002.\1\ Mrs. 
Kurtz has worked for the federal government for 14 years. As 
she is receiving workers' compensation, Mrs. Kurtz is unable to 
contribute to Social Security or the Thrift Savings Plan (TSP) 
because those contributions are taken from an employee's wages. 
This bar results in lost retirement benefits.
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    \1\ Donna St. George, Alive, but Not the Same; Pain, Loss Are 
Pentagon Survivor's New Reality, The Washington Post, September 10, 
2002, at A01.
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    S. 481 addresses the situation faced by Mrs. Kurtz and 
others which results from differences in the construction of 
the Civil Service Retirement System (CSRS) and the newer 
Federal Employees Retirement System (FERS). Despite the fact 
that the total retirement benefits under FERS were intended to 
be roughly equivalent to the benefits under CSRS, the reliance 
on TSP and Social Security puts FERS employees who receive 
workers' compensation at a distinct disadvantage. To ensure 
parity between CSRS and FERS in this matter, S. 481 would 
increase the rate at which the FERS direct benefit annuity 
accrues during a period of disability.

The Civil Service Retirement System and the Federal Employees 
        Retirement System

    The Civil Service Retirement System (CSRS) \2\ was 
established in 1920, 15 years before Congress created the 
Social Security system for workers in the private sector. 
Because CSRS was designed to provide adequate retirement and 
disability benefits on its own, federal employees were excluded 
from participating in Social Security.
---------------------------------------------------------------------------
    \2\ Pub. L. No. 66-215.
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    In the Social Security Amendments of 1983,\3\ Congress 
mandated participation in Social Security by all civilian 
federal employees initially hired on or after January 1, 1984. 
Because Social Security provides both retirement and disability 
benefits, and because enrolling federal workers in both CSRS 
and Social Security would have required each employee to 
contribute more than 13 percent of pay, Congress directed the 
development of a new federal employee retirement system with 
Social Security as the cornerstone. The result of these efforts 
was the Federal Employees Retirement System (FERS),\4\ which 
was enacted on June 6, 1986. The new system, patterned after 
the retirement programs typical of medium and large employers 
in the private sector, is comprised of three elements: (1) 
Social Security, (2) a defined benefit plan (the FERS basic 
annuity),\5\ and (3) a defined contribution plan (the Thrift 
Savings Plan). All permanent federal employees whose initial 
federal employment began after December 31, 1983, are covered 
by FERS, as are employees who voluntarily switched from CSRS to 
FERS during ``open seasons'' held in 1987 and 1998. Former 
federal employees who have completed at least five years of 
service under CSRS and are rehired after a break in service of 
less than one year can either join FERS or participate in both 
CSRS and Social Security through the ``CSRS offset plan.''
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    \3\ Pub. L. No. 98-21.
    \4\ Pub. L. No. 99-335.
    \5\ In a defined benefit plan, the amount of the retirement benefit 
is based on an employee's salary and number of years of service. With 
each year of service, a worker accrues a benefit equal to a fixed 
dollar amount or a percentage of pay. A defined contribution plan is 
like a savings account maintained on behalf of each participating 
employee. The amount of retirement benefits that a worker receives will 
depend on the balance in the account, which is the sum of 
contributions, plus interest, dividends, and capital gains (or losses).
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    Under FERS, workers who have completed at least 30 years of 
service can retire at age 55. The minimum retirement age will 
increase beginning with workers born in 1948, eventually 
reaching age 57 for those born in 1970 or later. Employees with 
20 or more years of service can retire at age 60 and those with 
at least five years of service can retire at age 62. Federal 
employees and former employees who have completed at least 10 
years of service, but fewer than 30 years of service, can 
receive a reduced FERS pension benefit at age 55.
    Under CSRS, the minimum retirement age is 55 for employees 
with 30 years of federal service, age 60 for those with 20 
years of service, and 62 for employees with at least five years 
of service. CSRS has no provision for early retirement with a 
reduced benefit, except for special circumstances such as a 
reduction in force.\6\
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    \6\ Agencies undergoing a reduction in force can, with the approval 
of the Office of Personnel Management, offer retirement to employees 
age 50 or older with 20 or more years of service or at any age with 25 
or more years of service.
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    Under both CSRS and FERS, the amount of an employee's 
retirement annuity is based on the average of the individual's 
highest three consecutive years of basic pay multiplied by 
their years of service and the rate at which benefits accrue 
for each year of service. Under FERS, this accrual rate is one 
percent of base pay per year.\7\ Accrual rates are higher under 
CSRS than under FERS because employees covered by CSRS do not 
pay Social Security payroll taxes or earn Social Security 
retirement benefits. Under CSRS the benefit accrual rate 
increases with length of service. Workers accrue benefits equal 
to 1.5 percent of high-three average pay for each of their 
first five years of service; 1.75 percent of high-three pay for 
years 6 through 10; and 2.0 percent of high-three pay for each 
year of service after the tenth year. This yields a pension 
equal to 56.25 percent of high-three average pay after 30 years 
of federal service under CSRS.
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    \7\ Workers with 20 years or more of service under FERS who work 
until at least age 62 are credited with an accrual rate of 1.1 percent 
for each year of service. For example, a worker covered by FERS who 
retires at 61 with 25 years of service will receive a FERS annuity 
equal to 25 percent of high-three average pay. Delaying retirement by 
one year would increase the annuity to 28.6 percent of high-three 
average pay (26  1.1 = 28.6).
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    For all federal workers covered by FERS, the agency where 
they are employed contributes an amount equal to 1 percent of 
the employee's base pay to the Thrift Saving Plan (TSP), even 
if the employee makes no voluntary contributions to the TSP. 
Beginning in July 2001, employees covered by FERS were allowed 
to contribute up to 11 percent of pay to the TSP, and employees 
covered by CSRS were allowed to contribute up to 6 percent of 
pay to the TSP. The maximum permissible contribution will rise 
by 1 percentage point each fiscal year until reaching 15 
percent for FERS and 10 percent for CSRS in FY2005. In fiscal 
year 2006, the percentage-of-pay limits will be eliminated, 
but, the contribution limits under section 402(g) of the 
Internal Revenue Code of 1986 will continue to apply. All 
employees covered by FERS receive ``agency automatic 
contributions'' of 1 percent of pay. Employee contributions are 
matched dollar-for-dollar on the first 3 percent of pay and at 
$.50 on the dollar on the next 2percent of pay. Thus, the 
maximum agency contribution is 5 percent of pay.\8\ These contributions 
are made on a pre-tax basis, and neither the employee's contribution 
nor any investment earnings are taxed until the money is withdrawn from 
the account. In addition, the first 5 percent of employee pay 
contributed to the TSP generates agency matching contributions. Workers 
covered by CSRS also may participate in the TSP, but their total 
contribution is limited to 7 percent of pay, and they receive no 
matching contributions from their employing agency.
---------------------------------------------------------------------------
    \8\ See also Pub. L. No. 107-304, which allows certain catch-up 
contributions to the Thrift Savings Plan to be made by participants age 
50 or over.
---------------------------------------------------------------------------
    Because enrollment in CSRS has been closed to new entrants 
since 1984, the proportion of federal workers covered by FERS 
has been rising and coverage under CSRS has been declining. 
Fiscal year 1995 was the first year in which a majority of 
civilian federal employees (51 percent) were covered by FERS. 
During FY2000, 62.4 percent of federal employees were covered 
by FERS.

Inequality between FERS and CSRS when receiving workers' compensation

    Under both CSRS and FERS, when an individual receives 
workers' compensation benefits under Subchapter I of title 5, 
United States Code, and returns to duty under retirement 
coverage, that period of time is creditable service in the 
subsequent computation of retirement benefits.\9\ Since CSRS is 
a one-tier, defined benefit system, an individual's retirement 
income is the same as if the individual had continued in 
employment during the period he or she received workers' 
compensation. However, pensions of workers covered under FERS 
comprise three separate sources: the FERS direct benefit, 
Social Security, and the TSP. The FERS direct benefit alone 
represents only about half of an employee's retirement, and the 
TSP contribution and the Social Security benefit was designed 
to supplement the remainder of the retirement package. During 
periods of workers' compensation, there can be no employer or 
employee contributions to the TSP and no wage credits are 
earned toward Social Security benefits.\10\ This inequity 
places a FERS employee at a distinct disadvantage compared to a 
similarly situated CSRS employee, since the FERS employee 
receives one-half of the credit towards retirement while on 
disability that a CSRS employee receives.
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    \9\ 5 U.S.C. Sec. 8332(f), 8411(d).
    \10\ See Sec. Sec. 1401 and 3101 of the Internal Revenue Code of 
1986 and 5 U.S.C. Sec. 8432.
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    When the FERS program was created, it was the intent of 
Congress to ensure that the total retirement benefits under 
FERS were roughly equivalent to those benefits under CSRS. 
Since TSP and Social Security represent approximately 1 percent 
of post-retirement income for each year of service, S. 481 
would ensure parity in the computation of the worker's 
retirement annuity under the FERS direct benefit by increasing 
the rate at which annuity accrues during a period of disability 
by one percent of base pay. The extra percentage point 
dedicated to the FERS direct benefit would offset the temporary 
losses to Social Security and Thrift Savings Plan.
    In a March 5, 2003 letter to Senator Peter Fitzgerald, 
Chairman of the Subcommittee on Financial Management, the 
Budget, and International Security, the Director of the Office 
of Personnel Management (OPM), Kay Coles James, stated, ``we 
believe that this proposal offers a reasonable solution to a 
problem that is not widespread, but is of great significance 
for the few federal employees affected by it. We support its 
enactment.'' OPM further advised that ``increased outlays from 
the Retirement Fund would not be material'' under this bill.

                        III. Legislative History

    S. 481 was introduced by Sen. George Allen of Virginia on 
February 27, 2003, and was referred to the Senate Committee on 
Governmental Affairs. The bill is cosponsored by Sen. Daniel 
Akaka of Hawaii, Sen. Hillary Clinton of New York, Sen. Richard 
Durbin of Illinois, Sen. Ted Stevens of Alaska, and Sen. John 
Warner of Virginia.
    On May 12, 2003, the members of the Governmental Affairs 
Subcommittee on Financial Management, the Budget, and 
International Security (FMBIS) unanimously polled out S. 481 to 
the full Committee.
    The Committee convened on June 17, 2003, to consider S. 481 
with other legislative and executive items. No amendments were 
offered to the bill. The Committee ordered the bill reported 
favorably to the full Senate, as part of an en bloc voice vote. 
Senators present were as follows: Collins, Lieberman, 
Voinovich, Coleman, Fitzgerald, Sununu, Levin, Akaka, Durbin, 
Lautenberg, and Pryor.
    S. 481 is similar to S. 2936, which Senator Allen 
introduced during the 107th Congress on September 13, 2002. On 
October 8, 2002, S. 2936 was favorably polled out of the 
Governmental Affairs Subcommittee on International Security, 
Proliferation, and Federal Services. No hearings were held on 
the bill. On October 9, 2002, the Committee met in open session 
to consider the bill. At that time, Senator Akaka offered an 
amendment which made technical corrections to the bill. The 
Committee ordered favorably reported the bill S. 2936, as 
amended, a quorum being present. S. 2936 was then passed by the 
Senate under a unanimous consent agreement. The Senate-passed 
bill was referred to the House Committee on Government Reform. 
The 107th Congress adjourned sine die without taking further 
action on the bill.
    The main difference between the two versions is the time 
requirement for disability to qualify for the adjustment. In S. 
2936, the adjustment would have been offered to employees who 
received disability benefits for at least one year; while in S. 
481, those workers who have received workers' compensation 
benefits for at least two months would qualify for the 
computation adjustment.

                    IV. Section-by-Section Analysis

Section 1. Annuity computation adjustments for periods of disability

    Under the Internal Revenue Code, employee contributions to 
the Thrift Savings Plan (TSP) can be made only from earned 
income. Federal employees who are injured on the job cannot 
contribute to the Thrift Savings Plan while receiving 
compensation from the Office of Workers' Compensation Programs 
for work-related injuries. S. 481 would amend section 8415 of 
title 5 to reduce the shortfall in retirement benefits that can 
affect federal employees who are injured while performing their 
jobs and are unable to contribute to the TSP while receiving 
worker's compensation payments. The amendment would increase 
the basic retirement annuity under the Federal Employees' 
Retirement System (FERS) from 1 percent of basic pay per year 
of service to 2 percent of basic pay. The increase would be for 
the duration of any period of creditable federal service, 
lasting at least two months, during which a federal employee 
receives compensation for work-related injuries under chapter 
81 of title 5.

                   V. Evaluation of Regulatory Impact

    Paragraph 11(b)(1) of rule XXVI of the Standing Rules of 
the Senate requires that each report accompanying a bill 
evaluate the ``regulatory impact which would be incurred in 
carrying out this bill.'' Carrying out S. 481 would have no 
regulatory impact.

                         VI. CBO Cost Estimate

S. 481--A bill to amend chapter 84 of title 5, United States Code, to 
        provide that certain Federal annuity computations are adjusted 
        by 1 percentage point relating to periods of receiving 
        disability payments, and for other purposes

    Summary: S. 481 would increase federal retirement benefits 
for certain employees who suffer a workplace injury and then 
return to work for the federal government. Specifically, the 
legislation would apply to employees who are covered by the 
Federal Employees' Retirement Program (FERS) and collect worker 
compensation payments under the Federal Employees' Compensation 
Act (FECA) for at least two months before returning to work. 
CBO estimates this legislation would increase direct spending 
on retirement benefits by $1 million in 2004, $16 million 
during the 2004-2008 period, and $68 million during the 2004-
2013 period.
    S. 481 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act (UMRA) 
and would impose no costs on state, local, or tribal 
governments.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of S. 481 is shown in the following table. The 
costs of this legislation fall within budget function 600 
(income security).

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                                                       By fiscal year, in millions of dollars--
                                    ----------------------------------------------------------------------------
                                      2003   2004   2005   2006   2007   2008   2009   2010   2011   2012   2013
----------------------------------------------------------------------------------------------------------------
                                           CHANGES IN DIRECT SPENDING

Federal retirement benefits:
    Estimated budget authority.....      0      1      2      3      4      6      7      9     10     12     14
    Estimated outlays..............      0      1      2      3      4      6      7      9     10     12     14
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Basis of estimate

            Direct spending
    Under current law, most federal employees who participate 
in the FERS program earn retirement benefits at the rate of 1 
percent for each year of creditable service. Time spent on FECA 
is considered creditable service under FERS. (In contrast, 
Social Security ignores time spent on the FECA rolls, and FECA 
participants cannot contribute to the Thrift Savings Plan.) S. 
481 would increase the annual accrual rate from 1 percent to 2 
percent during any period in which a FERS employee has 
collected FECA benefits, provided the employee spent a total of 
at least two months on FECA. Fractions of a year spent 
receiving FECA benefits would be credited at the higher accrual 
rate on a pro-rated basis. The legislation would only apply to 
federal workers who separate from federal service after the 
bill is enacted, regardless of when the FECA benefits were 
received. Therefore, outlays for retirement benefits would 
increase as those workers who have previously collected FECA 
benefits begin to retire.
    Based on data provided by the Department of Labor, CBO 
projects that between 4,500 and 5,500 FERS employees return to 
federal service each year after having spent at least two 
months receiving FECA benefits. The average amount of time on 
FECA for these workers is about six months. Based on this 
information, CBO estimates S. 481 would increase direct 
spending on retirement benefits by $1 million in 2004, $16 
million during the 2004-2008 period, and $68 million during the 
2004-2013 period. For the purposes of this cost estimate, CBO 
assumes the legislation will become effective in October 2003.
            Spending subject to appropriation
    FERS is financed on an accrual basis with agencies and 
employees sharing the cost of financing the program. The 
contribution rate for employees is fixed in law, but the 
percent of payroll that agencies pay toward FERS is determined 
by the actuarial costs of the program. Increasing FERS benefits 
would cause the program's actuarial costs to increase, which 
could cause agency agency contributions to increase. Any 
increase in agency retirement contributions would be classified 
as spending subject to appropriation. However, CBO estimates 
that the cost increases projected to occur under S. 481 would 
not be large enough to require a change in agency contribution 
rates.
    Intergovernmental and private-sector impact: S. 481 
contains no intergovernmental or private-sector mandates as 
defined in UMRA and would impose no costs on state, local, or 
tribal governments.
    Estimate prepared by: Federal costs: Geoffrey Gerhardt; 
Impact on the private sector; Paige Piper/Bach; Impact on 
state, local, and tribal governments: Majorie Miller.
    Estimate approved by: Peter H. Fontaine, Deputy Assistant 
Director for Budget Analysis.

                      VII. Changes to Existing Law

    In compliance with rule XXVI paragraph 12 of the Standing 
Rules of the Senate, the following provides a print of the 
statute or the part or section thereof to be amended or 
replaced (existing law proposed to be omitted is enclosed in 
black brackets, new matter is printed in italic, existing law 
in which no change is proposed is shown in roman):

                           UNITED STATES CODE

             TITLE 5--GOVERNMENT ORGANIZATION AND EMPLOYEES

                          PART III--EMPLOYEES

                   Subpart G--Insurance and Annuities

            CHAPTER 84--FEDERAL EMPLOYEES' RETIREMENT SYSTEM

                      Subchapter II--Basic Annuity

SEC. 8415. COMPUTATION OF BASIC ANNUITY.

           *       *       *       *       *       *       *

    [i] (k) In computing an annuity under this subchapter [5 
USCS 8410 et seq.], the total service of an employee who 
retires from the position of a registered nurse with the 
Veterans Health Administration on an immediate annuity, or dies 
while employed in that position leaving any survivor entitled 
to an annuity, includes the days of unused sick leave to the 
credit of that employee under a formal leave system, except 
that such days shall not be counted in determining an average 
pay or annuity eligibility under this subchapter [5 USCS 8410 
et seq.].
    (l) In the case of any annuity computation under this 
section that includes, in the aggregate, at least 2 months of 
credit under section 8411(d) for any period while receiving 
benefits under subchapter I of chapter 81, the percentage 
otherwise applicable under this section for that period so 
credited shall be increased by 1 percentage point.

           *       *       *       *       *       *       *

SEC. 8422. DEDUCTIONS FROM PAY; CONTRIBUTIONS FOR OTHER SERVICE.

           *       *       *       *       *       *       *

    (d)(1) Under such regulations as the Office may prescribe, 
amounts deducted under subsection (a) shall be entered on 
individual retirement records.
    (2) Deposit may not be required for days of unused sick 
leave credited under section 8415 [(i)] (k).

                                
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