55–067

106TH CONGRESS REPT. 106–29 " ! HOUSE OF REPRESENTATIVES 1st Session Part 2

FEDERAL RETIREMENT COVERAGE CORRECTIONS ACT

MARCH 5, 1999.—Committed to the Committee of the Whole House on the State of

the Union and ordered to be printed

Mr. ARCHER, from the Committee on Ways and Means,

submitted the following

REPORT

[To accompany H.R. 416]

[Including cost estimate of the Congressional Budget Office]

The Committee on Ways and Means, to whom was referred the

bill (H.R. 416) to provide for the rectification of certain retirement

coverage errors affecting Federal employees, and for other purposes, having considered the same, report favorably thereon without amendment and recommend that the bill do pass.

CONTENTS

Page

I. Summary and Background .............................................................................. 2

A. Purpose and Summary ........................................................................ 2

B. Background and Need for Legislation ................................................ 2

C. Legislative History ................................................................................ 3

II. Explanation of Social Security and Tax Provisions ....................................... 3

A. General Provisions (Title II) ............................................................... 3

B. Tax Provisions (Title IV) ..................................................................... 4

III. Vote of the Committee ..................................................................................... 5

IV. Budget Effects of the Bill ................................................................................. 6

A. Committee Estimates of Budgetary Effects ....................................... 6

B. Budget Authority and Tax Expenditures .......................................... 6

C. Cost Estimates Prepared by the Congressional Budget Office ........ 6

V. Other Matters To Be Discussed Under the Rules of the House ................... 13

A. Committee Oversight Findings and Recommendations .................... 13

B. Summary of Findings and Recommendations of the Committee

on Government Reform ...................................................................... 14

C. Constitutional Authority Statement .................................................. 14

D. Information Relating to Unfunded Mandates ................................... 15

E. Applicability of House Rule XXI5(b) .................................................. 15

F. Complexity Analysis ............................................................................ 15

VI. Changes in Existing Law Made by the Bill, as Reported ............................. 16
2

I. SUMMARY AND BACKGROUND

A. PURPOSE AND SUMMARY

H.R. 416, as amended, provides a method to correct errors in

misclassification of Federal employees which resulted in thousands

of Federal employees being erroneously placed in the wrong Federal retirement system. These retirement systems include: (1) the

Civil Service Retirement System (‘‘CSRS’’); (2) the Federal Employees Retirement System (‘‘FERS’’); (3) the Civil Service Retirement

System Social Security Offset Plan (‘‘CSRS Offset’’); or (4) Social

Security only. The bill applies to all Federal employees, including

former employees, annuitants and survivors. The bill extends the

same correction options to employees of the foreign service and intelligence agencies.

The bill provides a comprehensive solution to these retirement

coverage errors. In general, employees may choose between the retirement system they were mistakenly placed in or the system they

should have been placed in retroactive to the date of the error. Two

exceptions apply to this general rule. The first exception does not

permit an employee who was erroneously placed in CSRS to elect

to remain in it; the employee may elect instead to be enrolled in

the CSRS Offset system. The second exception applies to employees

who should have been enrolled in Social Security only. Unless such

employees are vested in the system in which they were mistakenly

placed, they may not elect to remain in such system.

The bill requires the employing agencies to take certain steps to

make the employee whole with respect to retirement plan benefits

under the correct plan. Depending on the precise circumstances of

the individual, these steps may include: (1) makeup contributions

to the plan by the employing agency (including contributions to the

Thrift Savings Plan (‘‘TSP’’) in lieu of elective deferrals the employee would have been eligible to make had the employee been

properly enrolled); (2) intra-fund or intra-Governmental transfers

of funds; and (3) certain makeup contributions by the employing

agency for social security taxes. The employing agencies will make

all necessary payments from appropriated funds. Employees who

were mistakenly permitted to contribute to the TSP would be able

to maintain their elective deferrals (plus earnings) in the TSP subject to the rules generally applicable to such plan. In some cases,

employees could forfeit benefits previously accrued (e.g., matching

contributions made to an individual mistakenly enrolled in FERS).

The bill amends the Social Security Act so CSRS-eligible employees

who choose FERS or Social Security coverage may receive Social

Security benefits.

B. BACKGROUND AND NEED FOR LEGISLATION

The Committee believes that legislation should be enacted in a

timely fashion in order to correct errors in misclassification of Federal employees into the wrong Federal retirement system. The bill

provides that individuals entitled to Social Security coverage who

were erroneously placed in the wrong Federal retirement system

receive credit for the period of retirement coverage error. The bill

also provides that no Federal retirement plan involved in the cor-
3

1 H.R. 416, as introduced on January 19, 1999, was referred to the Committee on Government

Reform and, in addition, to the Committee on Ways and Means for consideration of provisions

in their respective jurisdictions. (See also letter from the Committee on Government Reform to

the Committee on Ways and Means relating to the bill, dated February 4, 1999, which is included in Part V.B of this report.)

rection under the bill shall fail the retirement plan tax qualification rules by reason of such correction. Further, the bill provides

that no Federal employee involved in the correction shall be subject

to additional Federal tax consequences as a result of such correction.

C. LEGISLATIVE HISTORY

The Committee on Ways and Means marked up the revenue and

social security provisions of H.R. 416 (‘‘The Federal Retirement

Coverage Corrections Act’’) on February 11, 1999. The bill was ordered favorably reported by a voice vote, with a quorum present.

H.R. 416 was ordered favorably reported by the House Committee on Government Reform on February 3, 1999.1

II. EXPLANATION OF SOCIAL SECURITY AND TAX

PROVISIONS

A. GENERAL PROVISIONS (TITLE II)

(Secs. 203, 204, 205, and 208 of the bill)

Present law

Under present law, Federal employees participate in one of four

retirement systems: CSRS, CSRS Offset, Social Security only, and

FERS. Individuals who are eligible for CSRS Offset, Social Security

only, or FERS receive Social Security coverage. Individuals who are

eligible for CSRS do not receive Social Security coverage. Under

the CSRS, CSRS Offset, and FERS retirement systems, both the

employee and the employing agency make contributions to the Civil

Service Retirement and Disability Fund (‘‘CSRDF’’).

For those employees enrolled in one of the retirement systems

with Social Security coverage, Social Security taxes are paid into

the general fund of the Treasury and transferred to the Social Security Trust Funds. If Social Security taxes should have been, but

were not paid with respect to an individual’s employment, the

taxes may be assessed subject to the statute of limitations of three

years. Similarly, improperly paid Social Security taxes may be refunded for the period within the statute of limitations.

Previously unrecorded earnings may be added to an individual’s

Social Security earnings record at any time. Improperly recorded

earnings may only be removed from an individual’s earnings record

for the period within the statute of limitations.

Reasons for change

The Committee believes it is appropriate to ensure that individuals entitled to Social Security coverage who were erroneously

placed in the wrong Federal retirement system receive credit for

the period of retirement coverage error.
4

Explanation of provisions

The bill provides that when an individual who was incorrectly

enrolled in CSRS changes to one of the retirement systems that

provides for Social Security coverage, the individual will receive

credit on his or her Social Security earnings record for earnings

retroactive to the date of the retirement coverage error. Under the

bill, the Social Security Trust Funds are made whole for any contributions that should have been made on behalf of the individual.

The bill provides that all of the amounts that should have been

paid into the Social Security Trust Funds from the time of the incorrect enrollment shall be transferred to the Trust Funds. The

amounts will be transferred to the Trust Funds from the individual’s account in CSRDF and, if that amount is not sufficient, from

the appropriated accounts of the agency. The bill provides conforming changes to the coverage provisions of the Social Security Act

and the Internal Revenue Code if an individual elects to remain in

the retirement system to which such individual was incorrectly enrolled.

If an individual who was incorrectly enrolled in a retirement system that has Social Security coverage elects to become enrolled in

CSRS, then, as under present law, Social Security taxes paid on behalf of the individual for the period subject to the statute of limitation (i.e., within the last 3 years) would be refunded to the agency

and to the employee. The bill provides that the agency shall deposit

in the CSRDF an amount equal to the shortfall in CSRS contributions that should have been made on behalf of the individual and

that the individual shall reimburse the agency for such deposits up

to the amount of Social Security taxes refundable to the individual.

As under present law, earnings on the individual’s Social Security

earnings record for the period subject to the statute of limitations

would be deleted, but earnings for prior periods would not.

The bill also provides authority for the Commissioner of Social

Security to obtain necessary information from agencies to notify the

Secretary of the Treasury to transfer into the Social Security Trust

Funds those Social Security taxes paid as a result of elections

under the bill, and to correct earnings records.

Effective date

The Social Security provisions are effective on the date of enactment.

B. TAX PROVISIONS (TITLE IV)

(Sec. 401 of the bill)

Present law

Under present law, Federal employees generally participate in

one of four retirement plans: CSRS, FERS, CSRS Offset, or Social

Security only. Participants in CSRS, CSRS Offset, and FERS may

participate in the Federal Thrift Savings Plan (‘‘TSP’’), which is

similar to a qualified cash or deferred arrangement under section

401(k) of the Internal Revenue Code. The Federal retirement plan

in which any person participates depends on a number of factors,

including the individual’s employment status and date of hire. The
5

rules governing participation in the TSP vary depending on the

Federal retirement plan (i.e., CSRS, CSRS-Offset, or FERS) under

which the individual is covered. The Federal retirement plans are

generally subject to the same rules applicable to tax-qualified retirement plans maintained by private sector-employers. These rules

include limits on the amount of elective deferrals that may be

made on behalf of an employee in a tax year under a section 401(k)

plan, such as the TSP, and an overall limitation on contributions

and benefits that may be provided to an employee under the plan.

The limit on the amount of elective deferrals that an employee may make to a section 401(k) plan for 1999 is $10,000. The overall

limit on contributions and benefits for an employee for a year is

different for defined benefit plans and defined contribution plans.

The limitation for an annual benefit under a defined benefit plan

is the lesser of (1) $130,000 (for 1999), or (2) 100 percent of the participant’s average compensation for his high three years. The limitation for annual contributions and other additions under a defined

contribution plan is the lesser of (1) $30,000, or (2) 25 percent of

the participant’s compensation.

Reasons for change

The Committee believes it is appropriate to correct errors in the

misclassification of Federal employees resulting in such employees

being erroneously placed in the wrong retirement system. The

Committee believes that no Federal retirement plan involved in the

correction should fail the retirement plan tax qualification rules by

reason of such correction. The Committee also believes that no Federal employee involved in the correction should be subject to additional tax consequences as a result of such correction.

Explanation of provisions

The bill provides that the Federal retirement plans will not fail

to be treated as qualified retirement plans under the Internal Revenue Code by reason of any action taken pursuant to the bill. Thus,

for example, the bill permits an employing agency to make up contributions on behalf of an employee, or former employee, who was

entitled to such contributions in prior years without violating the

applicable overall contribution and benefit limitations (sec. 415) for

the year in which the makeup contribution is made. However, the

amount contributed may not violate section 415 for the year for

which the contribution is made.

The bill provides that no amount is includible in the income of

any individual for Federal tax purposes by reason of fund transfers

or government contributions made pursuant to the bill. In addition,

the bill provides that no amount shall be subject to employment

taxes under Subtitle C of the Internal Revenue Code by reason of

such transfers or contributions.

Effective date

The tax provisions are effective on the date of enactment.

III. VOTE OF THE COMMITTEE

In compliance with clause 3(b) of rule XIII of the Rules of the

House of Representatives, the following statement is made concern-
6

ing the vote of the Committee on Ways and Means in its consideration of the bill, H.R. 416.

MOTION TO REPORT THE BILL

The bill, H.R. 416, was ordered favorably reported by a voice vote

(with a quorum present).

IV. BUDGET EFFECTS OF THE BILL

A. COMMITTEE ESTIMATES OF BUDGETARY EFFECTS

In compliance with clause 3(d)(2) of rule XIII of the Rules of the

House of Representatives, the following statement is made concerning the estimated budget effects of H.R. 416, as reported by the

Committee on Ways and Means.

The bill, as reported, is estimated to have the following effect:

ESTIMATED REVENUE EFFECTS OF H.R. 416, THE ‘‘FEDERAL RETIREMENT COVERAGE

CORRECTIONS ACT,’’ AS APPROVED BY THE COMMITTEE ON WAYS AND MEANS

[Fiscal Years 1999–2003, in millions of dollars]

Provision Effective 1999 2000 2001 2002 2003 1999–

2003

Correction of Certain Retirement Coverage Errors Affecting Federal Employees.DOE Negligible Revenue Effect

Note.—Details may not add to totals due to rounding.

Legend for ‘‘Effective’’ column: DOE=date of enactment.

Source: Joint Committee on Taxation.

The Committee agrees with the Congressional Budget Office estimate of the spending effects of the bill, as amended. (See Part

IV.C., below.)

B. BUDGET AUTHORITY AND TAX EXPENDITURES

BUDGET AUTHORITY

In compliance with clause 3(c)(2) of rule XIII of the Rules of the

House of Representatives, the Committee states that the provisions

of the bill as reported involve changes in budget authority. (See

statement of the Congressional Budget Office in Part IV.C., below.)

TAX EXPENDITURES

In compliance with clause 3(c)(2) of rule XIII of the rules of the

House of Representatives, the Committee states that the revenue

provisions of the bill as reported may have a negligible effect on tax

expenditures.

C. COST ESTIMATE PREPARED BY THE CONGRESSIONAL BUDGET

OFFICE

In compliance with clause 3(c)(3) of rule XIII of the Rules of the

House of Representatives, requiring a cost estimate prepared by

the Congressional Budget Office, the Committee advises that the

Congressional Budget Office has submitted the following statement

on this bill.
7

U.S. CONGRESS, CONGRESSIONAL BUDGET OFFICE, Washington, DC, February 19, 1999.

Hon. BILL ARCHER,

Chairman, Committee on Ways and Means,

House of Representatives, Washington, DC.

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for H.R. 416, the Federal Retirement Coverage Corrections Act.

If you wish further details on this estimate, we will be pleased

to provide them. The CBO staff contact is Eric Rollins.

Sincerely,

DAN L. CRIPPEN, Director.

Enclosure.

H.R. 416—Federal Retirement Coverage Corrections Act

Summary: H.R. 416 would alter the procedures for correcting situations where federal employees have been mistakenly placed in

the wrong retirement system. Many of these retirement coverage

errors occurred between 1984, when the Civil Service Retirement

System (CSRS) was closed to new entrants, and 1987, when the

Federal Employees’ Retirement System (FERS) was created.

CBO estimates that federal agencies would bear discretionary

costs totaling $346 million over the 2000–2004 period, primarily because the bill would increase the size of makeup contributions to

the Thrift Savings Plan (TSP). The bill would also decrease direct

spending by $113 million; this drop in direct spending largely reflects makeup contributions to the Social Security trust funds,

which are off-budget. The bill would not have a significant impact

on federal retirement benefits during the next several years because the affected employees are generally still in the middle of

their careers. Because the bill would affect direct spending and receipts, pay-as-you-go procedures would apply.

The bill would require the District of Columbia and Gallaudet

University to correct instances where employees have been mistakenly enrolled in the wrong retirement system. This requirement

represents both an intergovernmental and a private-sector mandate as defined by the Unfunded Mandates Reform Act of 1995

(UMRA). However, CBO estimates that the cost of these mandates

would be minimal.

Estimated cost to the Federal Government:

The estimated budgetary impact of H.R. 416 is shown in the following table.

TABLE 1.—ESTIMATED BUDGETARY EFFECTS OF H.R. 416

By fiscal years, in millions of dollars—

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

CHANGES IN SPENDING SUBJECT TO APPROPRIATION

Makeup Contributions to TSP .......... 23 68 66 73 45 31 35 39 ¥6 ¥7

Makeup Payments to Social Security (1)1111111 ¥2 ¥2

Makeup Payments to the CSRDF ..... 6 20 17 18 13 11 11 12 ¥8 ¥9

Agency Retirement Contributions .... (1) (1) (1) ¥1 ¥1 ¥2 ¥2 ¥2 ¥2 ¥3

Employer TSP Contributions ............ (1) (1) ¥1 ¥1 ¥2 ¥2 ¥2 ¥2 ¥2 ¥3
8

TABLE 1.—ESTIMATED BUDGETARY EFFECTS OF H.R. 416—Continued

By fiscal years, in millions of dollars—

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Employer Social Security Contributions ............................................ (1) (1) (1)1111111

Total ................................... 29 88 83 90 56 40 45 50 ¥19 ¥23

CHANGES IN DIRECT SPENDING

On-Budget:

Makeup Payments to the

CSRDF ................................. ¥9 ¥30 ¥25 ¥27 ¥19 ¥16 ¥17 ¥19 12 13

Agency Retirement Contributions ................................... (1) (1)12222334

Transfers from CSRDF to Social Security ....................... 10 31 27 28 21 18 19 21 ¥12 ¥13

Subtotal .............................. 1 2 2 3 4 4 5 5 3 4

Off-Budget:

Makeup Payments to Social

Security ............................... (1) ¥2 ¥1 ¥1 ¥1 ¥1 ¥1 ¥133

Employer Social Security Contributions ............................ (1) (1) ¥1 ¥1 ¥1 ¥1 ¥2 ¥2 ¥2 ¥1

Transfers from CSRDF to Social Security ....................... ¥10 ¥31 ¥27 ¥28 ¥21 ¥18 ¥19 ¥21 12 13

Subtotal .............................. ¥10 ¥33 ¥28 ¥30 ¥23 ¥20 ¥22 ¥24 13 15

Total ................................... ¥9 ¥31 ¥26 ¥27 ¥19 ¥16 ¥17 ¥19 16 19

CHANGES IN REVENUES

On-Budget:

Employee Retirement Contributions ............................ (1) (1) ¥1 ¥1 ¥1 ¥1 ¥2 ¥2 ¥2 ¥1

Off-Budget:

Employee Social Security

Taxes .................................. (1) (1)11112221

Total ................................... (1) (1) (1) (1) (1) (1) (1) (1) (1) (1)

TOTAL COST OF H.R. 416

Direct Spending and Revenues ....... ¥9 ¥31 ¥26 ¥27 ¥19 ¥16 ¥18 ¥19 16 19

All Spending and Revenues ............ 20 57 56 63 37 24 27 30 ¥4 ¥4

1 Less than $500,000.

Notes: Components may not sum to totals because of rounding.

The mandatory costs of this legislation would fall within budget

functions 600 (Income Security), 650 (Social Security), and 950

(Undistributed Offsetting Receipts). Additional costs to employing

agencies would be discretionary and would be funded through appropriations throughout the budget.

Basis of estimate: H.R. 416 lays out procedures for correcting a

wide variety of retirement coverage errors. CBO estimates that the

bill would impose discretionary costs on agencies totaling $346 million over the 2000–2004 period. In addition, the bill would increase

on-budget direct spending by $12 million over the same period. Offbudget direct spending would decrease by $124 million, for a net

decrease in direct spending of $112 million. H.R. 416 would have

little impact on net revenues; on-budget revenues would decrease

by $3 million, while off-budget revenues would increase by $3 million. The estimate assumes that the Postal Service would increase
9

postal rates to offset its own costs related to the bill. The estimate

also assumes that the bill is enacted by October 1, 1999.

Background

There are two main retirement programs for full-time regular

federal employees. Most full-time employees hired before 1984 are

in the Civil Service Retirement System (CSRS), a defined benefit

plan that does not include Social Security. Those hired after 1983

are generally covered by the Federal Employees’ Retirement System (FERS), which features Social Security, a more limited defined

benefit, and the defined contribution Thrift Savings Plan (TSP)

with government matching contributions. Employees who return to

government service after 1987 and have five years of prior service

under CSRS may be covered by a hybrid plan known as CSRS Offset that features a combination of CSRS and Social Security benefits.

FERS employees may contribute up to 10 percent of their pay to

the TSP. They receive an automatic contribution from their employing agency equal to 1 percent of their pay and may also receive

an additional 4 percent in matching contributions. CSRS and CSRS

Offset employees may also participate in the TSP, but they may

only contribute up to 5 percent of their pay and do not receive any

government contributions.

Assumptions about retirement coverage errors

CBO estimated the number of retirement coverage errors that

have been made based on discussions with personnel offices in a

number of large government agencies, including the Postal Service

and the Departments of Defense, Veterans Affairs, and Agriculture.

These agencies comprise approximately 70 percent of the federal civilian workforce. On the basis of these discussions, CBO estimates

that approximately 18,000 coverage errors have occurred throughout the government, of which approximately 11,000 have already

been corrected. The two most common types of coverage errors appear to involve employees who should be in FERS but were accidentally put in CSRS, and employees with prior service who returned to government service and were misplaced in either FERS

or CSRS Offset.

H.R. 416 would also affect the speed with which agencies identify

and correct retirement coverage errors. CBO assumed that, under

current law, agencies would correct coverage errors at a constant

annual rate. H.R. 416 would direct agencies to identify any retirement coverage errors and correct them by December 31, 2001, but

would not impose any penalty on agencies that miss this deadline.

CBO assumed that agencies would correct their errors at a 20 percent faster annual rate than under current law, but that some errors would remain undiscovered until 2009. Agencies would also

stop correcting errors for the first six months of 2000 pending the

issuance of final regulations to implement H.R. 416.

Under current law, coverage errors are usually corrected by converting the employee to the proper retirement system, retroactive

to original date of the error. However, some employees who were

accidentally placed in FERS are able to remain in FERS by making

a retroactive election of FERS coverage. H.R. 416 would allow most
10

employees affected by coverage errors to choose whether they

would like to be placed in the proper retirement system or make

their current incorrect coverage permanent. All elections would be

irrevocable, and employees who did not make an election would retain their current coverage. Coverage errors lasting less than a

year would not be covered by the bill. CBO assumed that 80 percent of the employees whose errors have not yet been corrected

would choose to be placed in the proper retirement system.

Most of the employees whose coverage errors have already been

corrected would also be given the option of returning to the retirement system in which they were incorrectly placed. However, employees who were mistakenly placed in CSRS and have already

been placed in FERS would be able to elect only CSRS Offset coverage. CBO assumed that 80 percent of these employees would

elect to remain in their current coverage.

Effects on discretionary spending

Makeup Contributions to TSP. Employees who are incorrectly

covered by CSRS rather than FERS are unable to participate fully

in the TSP. Under current law, when an individual’s coverage is

corrected to FERS, the employing agency makes a lump-sum deposit into his TSP account equal to the government contributions

and related earnings that would have been made to the employee’s

previous TSP contributions under FERS rules. If the employee did

not have a TSP account, only a deposit for the automatic 1-percent

contribution is made. Earnings are calculated using the individual’s

own fund allocation decisions (if he had a TSP account) or the G

Fund rate (otherwise). Employees may provide makeup contributions to their TSP accounts out of future pay,. These makeup contributions receive agency matching contributions (up to the 5-percent FERS maximum) and related earnings as if the contributions

had been made at the proper time. However, back earnings are

paid only on the agency’s matching funds, not the employee’s

makeup contributions.

H.R. 416 would change the way that makeup TSP contributions

are calculated, and would apply to employees mistakenly covered

by CSRS or CSRS Offset whose coverage is changed to FERS. Employees whose coverage was corrected to FERS prior to the bill’s

enactment would also be eligible. Under the bill, agencies would

make a lump-sum payment to TSP representing past employee contributions as well as the automatic 1-percent agency contributions

and agency matching contributions. The amount representing employee contributions would be calculated using the average contribution rate for FERS employees who participated in TSP, and

would be paid whether or not the employee already has a TSP account (subject to the 10-percent annual limit on FERS contributions and the Internal Revenue Service’s annual dollar limit on

contributions to tax-deferred savings plans). Agencies would also

pay past earnings on all three amounts. These earnings would be

calculated using the employee’s own TSP fund allocation choices. If

the employee did not have a TSP account, a composite rate representing the average allocation of all FERS employees contributing to TSP would be used.
11

Based on historical data provided by the Federal Retirement

Thrift Investment Board, CBO estimates that these provisions

would increase the average TSP makeup payment by $85,000 in

2000. Employees whose coverage errors were corrected to FERS in

the past would receive smaller payments of about $35,000. These

amounts would be higher in later years due to additional foregone

returns and contributions. CBO estimates that the additional cost

of TSP makeup contributions would be $275 million over the 2000–

2004 period.

Makeup Payments to Social Security. Agencies are currently responsible for paying makeup Social Security payroll taxes covering

the last 3 years, 3 months, and 15 days for employees whose coverage is changed from CSRS to FERS or CSRS Offset. CBO estimates that these makeup payments would increase by $4 million

during the 2000–2004 period. This rise primarily reflects the impact that the bill would have on speeding up the correction of coverage errors.

Makeup Payments to the Civil Service Retirement and Disability

Fund (CSRDF). Under H.R. 416, any necessary adjustments to past

agency retirement contributions to the CSRDF would be completely

retroactive, as under current law. Agencies would also have to reimburse the CSRDF for certain transfers from the CSRDF to the

Social Security trust funds. As noted earlier, agencies are responsible for makeup Social Security payroll taxes covering the last 3

years, 3 months, and 15 days. If an employee was erroneously covered for a long period of time, H.R. 416 would require the CSRDF

to transfer to the Social Security trust funds an amount equal to

the agency’s payroll taxes for that additional period that should

have gone to Social Security but went instead to the CSRDF. The

agency would then be required to reimburse the CSRDF for the

makeup employer taxes transferred to Social Security. CBO estimates that agency makeup payments to the CSRDF would increase

by $74 million between 2000 and 2004 under the bill.

Agency Retirement Contributions. The amount that agencies contribute towards their employees’ retirement would decrease slightly

because, relative to current law, the bill would shift some employees out of FERS into CSRS Offset, which requires lower agency retirement contributions.

Employer TSP Contributions. The additional employees who

would shift out of FERS into CSRS Offset under H.R. 416 would

no longer be eligible for the automatic and matching TSP contributions available under FERS, lowering agency spending on TSP contributions by $4 million over the 2000–2004 period.

Employer Social Security Contributions. Employer contributions

to Social Security would increase by $2 million between 2000 and

2004 due to the speeding up of retirement corrections. These contributions would not be affected by the decision of some employees

to switch from FERS to CSRS Offset since both types of coverage

include Social Security.

Effects on direct spending (on-budget)

Makeup Payment of Retirement Contributions. The increase in

agency makeup payments to the CSRDF would be reflected in the

budget both as additional agency outlays and as offsetting receipts
12

to the CSRDF. As a result, receipts to the trust fund would increase by $110 million between 2000 and 2004. The increase in receipts is larger than the increase in agency makeup payments because the receipts figure includes payments by the Postal Service.

Agency Retirement Contributions. The increase in agency retirement contributions under the bill would decrease CSRDF receipts

by $5 million over the 2000–2004 period. The decrease in receipts

is larger than the decrease in agency retirement contributions because the receipts figure includes payments by the Postal Service.

Transfers from the Civil Service Trust Fund to Social Security.

Under H.R. 416, the CSRDF would make payments to the Social

Security trust funds for certain back payroll taxes. CSRDF would

be required to transfer amounts equal to any employee payroll

taxes and employer payroll taxes beyond the current statute of limitations of 3 years, 3 months, and 15 days that should have gone

to Social Security but instead went to the CSRDF. As noted above,

agencies would reimburse the CSRDF for transfers of employer

payroll taxes. CBO estimates that transfers from the CSRDF to the

Social Security trust funds would total $117 million over the 2000–

2004 period. Although these transfers are intragovernmental, the

payments would be on-budget, and the receipt of these funds by Social Security would be off-budget.

Effects on direct spending (off-budget)

H.R. 416 would affect offsetting receipts to the Social Security

trust funds in three ways. First, agency makeup payments would

be slightly accelerated, increasing receipts by $5 million between

2000 and 2004. Second, receipts from employer Social Security contributions would rise by $3 million during this period. In both of

these instances, the increase in receipts is larger than the increase

in discretionary spending because the receipts figure includes payments by the Postal Service. Finally, transfers from the Civil Service trust fund for back taxes would increase receipts by $117 million during the 2000–2004 period.

Effects on revenues

Employee Retirement Contributions. Because of the speeding up

of retirement corrections, employee retirement contributions would

decrease by $3 million over the 2000–2004 period. Employees

would be moved more rapidly out of CSRS, which requires 7 percent employee contributions, and into CSRS Offset or FERS, which

both require 0.8 percent employee contributions.

Employee Social Security Taxes. By moving from CSRS to CSRS

Offset or FERS, employees would also become covered by Social Security. The speeding up of retirement corrections thus would increase receipts of employee Social Security taxes by $3 million between 1999 and 2003.

Pay-as-you-go considerations: The provisions of H.R. 416 would

affect on-budget direct spending and revenues and therefore be

subject to pay-as-you-go procedures. The pay-as-you-go procedures

cover only the current year, budget year, and the succeeding four

years. The pay-as-you-go effects of the bill are shown in Table 2.
13

TABLE 2.—SUMMARY OF PAY-AS-YOU-GO EFFECTS

By fiscal year, in millions of dollars—

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Change in outlays ............................................... 1 2 2 3 4 4 5 5 3 4

Change in receipts .............................................. 0 0 ¥1 ¥1 ¥1 ¥1 ¥2 ¥2 ¥2 ¥1

Intergovernmental and private-sector impact: H.R. 416 would require the government of the District of Columbia and Gallaudet

University to correct errors associated with the incorrect enrollment of employees in certain retirement plans. This requirement is

both an intergovernmental and a private-sector mandate as defined

by UMRA. However, costs associated with those corrections would

be minimal, and only a small number of employees of the District

of Columbia and Gallaudet University have been affected by the errors addressed by the bill. Consequently, CBO estimates that the

total cost of the mandates would be minimal.

Comparison with other estimates: An identical version of H.R.

416 was reported by the House Committee on Government Reform

on February 3, 1999.

H.R. 416 is similar to H.R. 3249, which was approved by the

House of Representatives in the 105th Congress. The only major

difference between the two bills is that H.R. 3249 also included a

provision authorizing an open season for federal employees covered

by the Foreign Service Retirement and Disability System to switch

into the newer Foreign Service Pension System.

CBO estimated that H.R. 3249 would impose discretionary costs

on agencies totaling $443 million and reduce direct spending by

$135 million over the 1999–2003 period. The main reason that the

discretionary impact of H.R. 416 is lower than that for H.R. 3249

is that CBO lowered its estimate of the additional TSP makeup

contributions that would be paid to employees whose coverage had

already been corrected to FERS prior to the bill’s enactment.

Estimate prepared by: Federal cost: Eric Rollins; Impact on

State, local, and tribal governments: Leo Lex; and impact on the

private sector: John Harris.

Estimate Approved by: Paul N. Van de Water, Assistant Director

for Budget Analysis.

V. OTHER MATTERS TO BE DISCUSSED UNDER THE

RULES OF THE HOUSE

A. COMMITTEE OVERSIGHT FINDINGS AND RECOMMENDATIONS

With respect to clause 3(c)(1) of rule XIII of the Rules of the

House of Representatives (relating to oversight findings), the Committee advises that it was the result of the Committee’s oversight

activities with respect to the misclassification of Federal employees

into the wrong Federal retirement system that the Committee concluded that it is appropriate and timely to enact the provisions contained in the bill as reported.
14

B. SUMMARY OF FINDINGS AND RECOMMENDATIONS OF THE

COMMITTEE ON GOVERNMENT REFORM

With respect to clause 3(c)(4) of rule XIII of the Rules of the

House of Representatives, the Committee on Ways and Means advises that the Committee on Government Reform ordered H.R. 416

favorably reported on February 3, 1999. The Committee on Government Reform submitted the following letter regarding H.R. 416.

HOUSE OF REPRESENTATIVES,

COMMITTEE ON GOVERNMENT REFORM,

Washington, DC, February 4, 1999.

Hon. BILL ARCHER,

Chairman, Committee on Ways and Means, Longworth House Office

Building, Washington, DC.

DEAR MR. CHAIRMAN: I am writing with regard to the Federal

Retirement Coverage Corrections Act, H.R. 416, which has been referred to the Committee on Ways and Means in addition to the

Committee on Government Reform. The Committee on Government

Reform ordered this bill reported by a unanimous voice vote on

February 3, 1999, and it has strong bipartisan support on this

Committee. The bill has been tentatively scheduled for House consideration during the week of February 22, 1999.

Title IV of H.R. 416 includes tax provisions that were drafted in

close consultation with the Ways and Means tax staff and experts

from the Joint Committee on Taxation. This bill is essentially the

same as H.R. 3249, the bill the House passed last year after it was

marked up by both this Committee and Ways and Means.

This measure is extremely important to the estimated 18,000

thousand active and retired federal employees who have been

placed in the wrong retirement system. Under current law, these

errors are ‘‘corrected’’ by transferring the affected employees from

the wrong retirement system to the correct one. Because current

law does not include make whole relief, such corrections inflict

great financial and emotional damage on the innocent victims of

these agency errors. Please advise me whether the Committee on

Ways and Means would be willing to refrain from asserting its jurisdiction over this measure so it may be taken to the floor expeditiously.

Thank you for your prompt consideration of this important matter. I appreciate your support and very valuable assistance in

crafting a satisfactory remedy, and I look forward to working with

you on this and many other important matters during this Congress.

Sincerely,

DAN BURTON, Chairman.

C. CONSTITUTIONAL AUTHORITY STATEMENT

With respect to clause 3(d)(1) of rule XIII of the Rules of the

House of Representatives (relating to Constitutional authority), the

Committee states that the Committee’s action in reporting this bill

is derived from Article I of the Constitution, Section 7 (‘‘All bills for

raising revenue shall originate in the House of Representatives’’)

and Section 8 (‘‘The Congress shall have the power to lay and col-
15

lect taxes, duties, imposts and excises, to pay the debts . . . of the

United States’’), and from the 16th Amendment to the Constitution.

D. INFORMATION RELATING TO UNFUNDED MANDATES

This information is provided in accordance with section 423 of

the Unfunded Mandates Act of 1995 (P.L. 104–4). The Committee

has determined that the revenue provisions of H.R. 416, contain no

private sector mandates or intergovernmental mandates within the

meaning of the Unfunded Mandates Act of 1995.

E. APPLICABILITY OF HOUSE RULE XXI5(b)

Rules XXI5(b) of the Rules of the House of Representatives provides that a ‘‘bill or joint resolution, amendment, or conference report carrying a Federal income tax rate increase may not be considered as passed or agreed to unless so determined by a vote of not

less than three-fifths of the Members voting, a quorum being

present. In this paragraph the term ‘‘Federal income tax rate increase’’ means any amendment to subsection (a), (b), (c) (d), or (e)

of section 1, or to section 11(b) or 55(b), of the Internal Revenue

Code of 1986, that imposes a new percentage as a rate of tax and

thereby increases the amount of tax imposed by any such section.’’

The Committee has carefully reviewed the provisions of the bill,

and states that the provisions of the bill as reported do not involve

any Federal income tax rate increase within the meaning of the

rule.

F. COMPLEXITY ANALYSIS

Clause (h)(1) XIII of the Rules of the House of Representatives

provides that, ‘‘it shall not be in order to consider a bill or joint resolution reported by the Committee on Ways and Means that proposes to amend the Internal Revenue Code of 1986 unless—(A) the

report includes a tax complexity analysis prepared by the Joint

Committee on Internal Revenue Taxation in accordance with section 4022(b) of the Internal Revenue Service Restructuring and Reform Act of 1998; or (B) the chairman of the Committee on Ways

and Means causes such a tax complexity analysis to be printed in

the Congressional Record before consideration of the bill or joint

resolution.’’

Section 4022(b) of the Internal Revenue Service Reform and Restructuring Act of 1998 (the ‘‘IRS Reform Act’’), requires the Joint

Committee on Taxation (‘‘Joint Committee’’) (in consultation with

the Internal Revenue Service and the Department of the Treasury)

to provide a tax complexity analysis. The complexity analysis is required for all legislation reported by the Senate Committee on Finance, the House Committee on Ways and Means, or any committee of conference if the legislation includes a provision that directly

or indirectly amends the Internal Revenue Code (the ‘‘Code’’) and

has widespread applicability to individuals or small businesses.

The staff of the Joint Committee has determined that a complexity analysis is not required under section 4022(b) of the IRS Reform

Act because the bill contains no provisions that amend the Internal
16

Revenue Code and that have widespread applicability to individuals or small businesses.

VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS

REPORTED

In compliance with clause 3(g) of rule XIII of the Rules of the

House of Representatives, changes in existing law made by the bill,

as reported, are shown as follows (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):

SECTION 210 OF THE SOCIAL SECURITY ACT

DEFINITION OF EMPLOYMENT

SEC. 210. For the purposes of this title—

Employment

(a) The term ‘‘employment’’ means any service performed after

1936 and prior to 1951 which was employment for the purposes of

this title under the law applicable to the period in which such service was performed, and any service, of whatever nature, performed

after 1950 (A) by an employee for the person employing him, irrespective of the citizenship or residence of either, (i) within the

United States, or (ii) on or in connection with an American vessel

or American aircraft under a contract of service which is entered

into within the United States or during the performance of which

and while the employee is employed on the vessel or aircraft it

touches at a port in the United States, if the employee is employed

on and in connection with such vessel or aircraft when outside the

United States, or (B) outside the United States by a citizen or resident of the United States as an employee (i) of an American employer (as defined in subsection (e) of this section), or (ii) of a foreign affiliate (as defined in section 3121(l)(6) of the Internal Revenue Code of 1986 of an American employer during any period for

which there is in effect an agreement, entered into pursuant to section 3121(l) of such Code, with respect to such affiliate, or (C) if it

is service, regardless of where or by whom performed, which is designated as employment or recognized as equivalent to employment

under an agreement entered into under section 233; except that, in

the case of service performed after 1950, such term shall not

include—

(1) * * *

* * * * * * *

(5) Service performed in the employ of the United States or

any instrumentality of the United States, if such service—

(A) * * *

* * * * * * *

(H) service performed by an individual—

(i) on or after the effective date of an election by

such individual, under section 301 of the Federal Employees’ Retirement System Act of 1986, section 307 of

the Central Intelligence Agency Retirement Act (50
17

U.S.C. 2157), or the Federal Employees’ Retirement

System Open Enrollment Act of 1997 to become subject to the Federal Employees’ Retirement System provided in chapter 84 of title 5, United States Code, øor¿

(ii) on or after the effective date of an election by

such individual, under regulations issued under section 860 of the Foreign Service Act of 1980, to become

subject to the Foreign Service Pension System provided in subchapter II of chapter 8 of title I of such

Actø;¿, or

(iii)(I) described in section 111(a)(3) of the Federal

Retirement Coverage Corrections Act, on or after the effective date of an election (or deemed election) by such

individual under section 111(b)(2) of such Act;

(II) described in section 131(a)(1) of such Act, on or

after the effective date of an election (or deemed election) by such individual under subsection (b)(2) or

(c)(1) of section 131 of such Act; or

(III) described in section 151(a) of such Act, on or

after the effective date of an election (or deemed election) by such individual under subsection (b)(2) or

(c)(1) of section 151 of such Act;

* * * * * * *

SECTION 3121 OF THE INTERNAL REVENUE CODE OF

1986

SEC. 3121. DEFINITIONS.

(a) * * *

(b) EMPLOYMENT.—For purposes of this chapter, the term ‘‘employment’’ means any service, of whatever nature, performed (A) by

an employee for the person employing him, irrespective of the citizenship or residence of either, (i) within the United States, or (ii)

on or in connection with an American vessel or American aircraft

under a contract of service which is entered into within the United

States or during the performance of which and while the employee

is employed on the vessel or aircraft it touches at a port in the

United States, if the employee is employed on and in connection

with such vessel or aircraft when outside the United States, or (B)

outside the United States by a citizen or resident of the United

States as an employee for an American employer (as defined in

subsection (h)), or (C) if it is service, regardless of where or by

whom performed, which is designated as employment or recognized

as equivalent to employment under an agreement entered into

under section 233 of the Social Security Act; except that such term

shall not include—

(1) * * *

* * * * * * *

(5) service performed in the employ of the United States or

any instrumentality of the United States, if such service—

(A) * * *

* * * * * * *
18

(H) service performed by an individual—

(i) on or after the effective date of an election by

such individual, under section 301 of the Federal Employees’ Retirement System Act of 1986 or section 307

of the Central Intelligence Agency Retirement Act (50

U.S.C. 2157), to become subject to the Federal Employees’ Retirement System provided in chapter 84 of

title 5, United States Code, øor¿

(ii) on or after the effective date of an election by

such individual, under regulations issued under section 860 of the Foreign Service Act of 1980, to become

subject to the Foreign Service Pension System provided in subchapter II of chapter 8 of title I of such

Act; or

(iii)(I) described in section 111(a)(3) of the Federal

Retirement Coverage Corrections Act, on or after the effective date of an election (or deemed election) by such

individual under section 111(b)(2) of such Act;

(II) described in section 131(a)(1) of such Act, on or

after the effective date of an election (or deemed election) by such individual under subsection (b)(2) or

(c)(1) of section 131 of such Act; or

(III) described in section 151(a) of such Act, on or

after the effective date of an election (or deemed election) by such individual under subsection (b)(2) or

(c)(1) of section 151 of such Act;

* * * * * * *

TITLE 5—UNITED STATES CODE

* * * * * * *

PART III—EMPLOYEES

* * * * * * *

Subpart G—Insurance and Annuities

* * * * * * *

CHAPTER 83—RETIREMENT

* * * * * * *

SUBCHAPTER III—CIVIL SERVICE RETIREMENT

* * * * * * *

§ 8348. Civil Service Retirement and Disability Fund

(a) There is a Civil Service Retirement and Disability Fund. The

Fund—

(1) * * *

(2) is made available, subject to such annual limitation as

the Congress may prescribe, for any expenses incurred by the
19

Office in connection with the administration of this chapter,

chapter 84 of this title, and other retirement and annuity

østatutes;¿ statutes (including the provisions of the Federal Retirement Coverage Corrections Act that relate to this subchapter); and

(3) is made available, subject to such annual limitation as

the Congress may prescribe, for any expenses incurred by the

Merit Systems Protection Board in the administration of appeals authorized under sections 8347(d) and 8461(e) of this

øtitle.¿ title and the Federal Retirement Coverage Corrections

Act.

* * * * * * *

CHAPTER 84—FEDERAL EMPLOYEES’ RETIREMENT

SYSTEM

* * * * * * *

SUBCHAPTER III—THRIFT SAVINGS PLAN

* * * * * * *

§ 8432. Contributions

(a) * * *

* * * * * * *

(h) No transfers or contributions may be made to the Thrift Savings Fund except as provided in this chapter or section 8351 of this

øtitle.¿ title or the Federal Retirement Coverage Corrections Act.

* * * * * * *

§ 8437. Thrift Savings Fund

(a) There is established in the Treasury of the United States a

Thrift Savings Fund.

(b) The Thrift Savings Fund consists of the sum of all amounts

contributed under section 8432 of this title and all amounts deposited under section 8479(b) of this title, increased by the total net

earnings from investments of sums in the Thrift Savings Fund or

reduced by the total net losses from investments of the Thrift Savings Fund, and reduced by the total amount of payments made

from the Thrift Savings Fund (including payments for administrative øexpenses).¿ expenses), as well as contributions under the Federal Retirement Coverage Corrections Act (and lost earnings made

up under such Act).

* * * * * * *
20

(d) Administrative expenses incurred to carry out this subchapter

(including the provisions of the Federal Retirement Coverage Corrections Act that relate to this subchapter) and subchapter VII of

this chapter shall be paid first out of any sums in the Thrift Savings Fund forfeited under section 8432(g) of this title and then out

of net earnings in such Fund.

* * * * * * *

Æ