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FEDERAL BENEFITS: ARE WE MEETING

EXPECTATIONS?

HEARING

BEFORE THE

SUBCOMMITTEE ON FEDERAL WORKFORCE,

POSTAL SERVICE, AND THE DISTRICT

OF COLUMBIA

OF THE

COMMITTEE ON OVERSIGHT

AND GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

AUGUST 2, 2007

Serial No. 110–200

Printed for the use of the Committee on Oversight and Government Reform

(

Available via the World Wide Web: http://www.gpoaccess.gov/congress/index.html

http://www.house.gov/reform

(II)

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

HENRY A. WAXMAN, California, Chairman

TOM LANTOS, California

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

BRIAN HIGGINS, New York

JOHN A. YARMUTH, Kentucky

BRUCE L. BRALEY, Iowa

ELEANOR HOLMES NORTON, District of

Columbia

BETTY MCCOLLUM, Minnesota

JIM COOPER, Tennessee

CHRIS VAN HOLLEN, Maryland

PAUL W. HODES, New Hampshire

CHRISTOPHER S. MURPHY, Connecticut

JOHN P. SARBANES, Maryland

PETER WELCH, Vermont

TOM DAVIS, Virginia

DAN BURTON, Indiana

CHRISTOPHER SHAYS, Connecticut

JOHN M. MCHUGH, New York

JOHN L. MICA, Florida

MARK E. SOUDER, Indiana

TODD RUSSELL PLATTS, Pennsylvania

CHRIS CANNON, Utah

JOHN J. DUNCAN, JR., Tennessee

MICHAEL R. TURNER, Ohio

DARRELL E. ISSA, California

KENNY MARCHANT, Texas

LYNN A. WESTMORELAND, Georgia

PATRICK T. MCHENRY, North Carolina

VIRGINIA FOXX, North Carolina

BRIAN P. BILBRAY, California

BILL SALI, Idaho

JIM JORDAN, Ohio

PHIL SCHILIRO, Chief of Staff

PHIL BARNETT, Staff Director

EARLEY GREEN, Chief Clerk

DAVID MARIN, Minority Staff Director

SUBCOMMITTEE ON FEDERAL WORKFORCE, POSTAL SERVICE, AND THE DISTRICT OF

COLUMBIA

DANNY K. DAVIS, Illinois

ELEANOR HOLMES NORTON, District of

Columbia

JOHN P. SARBANES, Maryland

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio, Chairman

WM. LACY CLAY, Missouri

STEPHEN F. LYNCH, Massachusetts

KENNY MARCHANT, Texas

JOHN M. MCHUGH, NEW YORK

JOHN L. MICA, Florida

DARRELL E. ISSA, California

JIM JORDAN, Ohio

TANIA SHAND, Staff Director

(III)

C O N T E N T S

Page

Hearing held on August 2, 2007 ............................................................................. 1

Statement of:

Chaikind, Hinda, Specialist in social legislation, Domestic Social Policy

Division, Congressional Research Service; and Patrick Purcell, Specialist in Income Security, Domestic Social Policy Division, Congressional

Research Service ........................................................................................... 99

Chaikind, Hinda ........................................................................................ 99

Purcell, Patrick .......................................................................................... 113

Kelley, Colleen, national president, National Treasury Employees Union;

J. David Cox, national secretary-treasurer, American Federation of

Government Employees; and Margaret Baptiste, president, National

Active and Retired Federal Employees Association ................................... 68

Baptiste, Margaret .................................................................................... 76

Cox, J. David ............................................................................................. 75

Kelley, Colleen ........................................................................................... 68

Moran, Hon. James P., a Representative in Congress from the Commonwealth of Virginia ......................................................................................... 7

Springer, Linda, Director, Office of Personnel Management; Patrick

McFarland, Inspector General, Office of Personnel Management, accompanied by Timothy Watkins, Office of the Office of the Inspector General, Department of Health and Human Services; Jill Henderson, Office

of Personnel Management Group Chief Overseeing Audits of Pharmacy

Benefit Managers; Amy Parker, Office of the Inspector General Special

Agent on Medco Investigation; and Gregory Long, executive director,

Federal Retirement Thrift Investment Board ............................................ 17

Long, Gregory ............................................................................................ 35

McFarland, Patrick ................................................................................... 27

Springer, Linda .......................................................................................... 17

Letters, statements, etc., submitted for the record by:

Baptiste, Margaret, president, National Active and Retired Federal Employees Association, prepared statement of ................................................ 79

Chaikind, Hinda, Specialist in social legislation, Domestic Social Policy

Division, Congressional Research Service, prepared statement of ........... 102

Davis, Hon. Danny K., a Representative in Congress from the State

of Illinois, prepared statement of ................................................................ 3

Davis, Hon. Tom, a Representative in Congress from the Commonwealth

of Virginia, prepared statement of .............................................................. 15

Kelley, Colleen, national president, National Treasury Employees Union,

prepared statement of ................................................................................... 70

Long, Gregory, executive director, Federal Retirement Thrift Investment

Board, prepared statement of ...................................................................... 38

McFarland, Patrick, Inspector General, Office of Personnel Management,

prepared statement of ................................................................................... 30

Moran, Hon. James P., a Representative in Congress from the Commonwealth of Virginia, prepared statement of .................................................. 10

Purcell, Patrick, Specialist in Income Security, Domestic Social Policy

Division, Congressional Research Service, prepared statement of ........... 115

Springer, Linda, Director, Office of Personnel Management, prepared

statement of ................................................................................................... 21

(1)

FEDERAL BENEFITS: ARE WE MEETING

EXPECTATIONS?

THURSDAY, AUGUST 2, 2007

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON FEDERAL WORKFORCE, POSTAL

SERVICE, AND THE DISTRICT OF COLUMBIA,

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM,

Washington, DC.

The subcommittee met, pursuant to notice, at 2:15 p.m. in room

2154, Rayburn House Office Building, Hon. Danny K. Davis (chairman of the subcommittee) presiding.

Present: Representatives Davis of Illinois, Norton, Lynch, and

Marchant.

Staff present: Tania Shand, staff director; Caleb Gilchrist, professional staff member; Lori Hayman, counsel; Cecelia Morton, clerk;

Ashley Buxton, intern; Mason Alinger, minority deputy legislative

director; and Alex Cooper, minority professional staff member.

Mr. DAVIS OF ILLINOIS. The subcommittee will come to order.

Welcome Ranking Member Marchant, members of the subcommittee, hearing witnesses, and all of those in attendance. Welcome to the Subcommittee on the Federal Workforce, Postal Service, and the District of Columbia hearing entitled, ‘‘Federal Benefits: Are We Meeting Expectations?’’

Hearing no objection, the Chair, ranking member, and subcommittee members will each have 5 minutes to make opening

statements, and all Members will have 3 days to submit statements for the record.

We will begin. I expect that our other very distinguished witness

will be here momentarily, but we will begin.

Welcome Ranking Member Marchant, members of the subcommittee, hearing witnesses, and all those in attendance. Much

like the Federal pay hearing the subcommittee held on Tuesday, today’s hearing will get an overview of insurance and retirement benefits available to Federal workers. Future hearings will focus on

the existing benefits programs discussed today. However, the Federal Government must keep current in the types of benefits it offers employees, if it is to attract and maintain a quality work force.

The Federal Government’s life and health insurance programs

were created in the mid-1950’s and the early 1960’s. The mid1980’s brought us a new retirement system called FERS, and the

late 1990’s, early 2000’s, ushered in paid organ donor leave, longterm care and dental/vision insurance. In some cases the Government shares benefit costs; in others, the employee pays all.

2

While we examine the administration and operation of existing

programs, we must begin discussions on future benefit options for

our Federal employees.

Today I will be circulating a draft legislative proposal to Federal

employee stakeholders that would provide 8 weeks of paid leave for

the birth or adoption of a child and 4 weeks of paid leave for elder

care or the serious health condition of a spouse or child. The proposal will also increase the age from 22 to 25 that young adults can

receive health insurance benefits under the FEHBP.

I look forward to working with the Office of Personnel Management and employee groups over the recess so this cradle to independence legislation can be introduced in the fall.

On March 14th I introduced H.R. 1518 to allow employees of federally qualified health centers to obtain health coverage under the

Federal Employees Health Benefits Program. It is my hope that

this legislation draws attention to the fact that health centers

across this country are finding it more and more difficult to provide

affordable health insurance to their own employees.

I understand that Representatives Tom Davis and Jim Moran

have legislative proposals of their own that would benefit Federal

employees. I look forward to hearing their recommendations and

the recommendations of OPM and the employee groups on how to

improve the Federal Government’s benefits programs.

[The prepared statement of Hon. Danny K. Davis follows:]

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Mr. DAVIS OF ILLINOIS. I now yield to the ranking member, Mr.

Marchant, for his opening statement.

Mr. MARCHANT. Thank you, Mr. Chairman. Thanks for convening

this second hearing on the status of the Federal employees pay and

benefits.

Earlier this week the subcommittee learned about the Federal

Government’s basic pay setting policies, as well as its various policies and practices regarding locality pay, cost of living adjustments,

and other compensation and incentives.

Today the subcommittee will hear from personnel experts about

the Federal employee health and retirement benefits. As I mentioned at Tuesday’s hearings, there is a tremendous amount of

turnover in the Federal work force today, and these hearings will

help the subcommittee get a better sense of what changes, if any,

need to be made to the current system.

As we discuss the status of the Federal employees pension and

health care, I believe we also must be mindful of the financial impact that changes to Federal employee benefits could have on the

Federal budget. I trust the experts will keep this perspective in

mind as we discuss any potential changes to improve health and

retirement benefits of Federal employees.

I look forward to hearing from all the witnesses today.

Thank you, Mr. Chairman.

Mr. DAVIS OF ILLINOIS. Thank you very much, Mr. Marchant.

Delegate Norton, do you have a statement?

Ms. NORTON. Only a brief statement, Mr. Chairman, which has

to begin with gratitude for you for holding these comprehensive

hearings on pay, last week on benefits, employee and retirement

benefits this week. I don’t remember the last time, frankly, that we

have had comprehensive hearings on our employee and retirement

benefits, and yet what you are doing today could not be more timely.

You say the expectations, are we meeting expectations, we would

have to ask of whom. The expectation of employees who, after all,

most of whom could retire today? By they way, most of whom could

get top dollar in the private sector. Or do we mean new people? Do

we mean people coming out of college? Do we mean expectations

of people who the private sector is fighting tooth and nail to get?

There is a difference between what is expected of us today and

what was expected when I was a kid growing up in this town and

a Government job was considered a good job. It was considered a

good job in no small part because its benefits were superior to the

benefits of the private sector at that time to make up for lower pay.

Well, the private sector is still, for many of the employees of the

kind who are now employed today, and certainly of the kinds of

workers we need to attract, private sector is still a better deal. It

is a better deal for wages, it is a better deal for health care, and

it is a better deal for benefits.

We have had hearings in prior years, even when we were in the

minority, about the shock waves going through the Government

with the retirement of the Baby Boom. We had this artificial windfall of some of the most talented people in the United States who

chose to come to Government, that came to Government in part because of the era in which they grew up. This was the era of the

6

great movements, the era of Government service. But also because

there were so many of them that there were enough of them to go

around. But they produced fewer children, Mr. Chairman, and

there are not enough to go around now, not if you mean go around

to the private sector, which every day of the week is trying to get

the best of them to come while we, frankly, are doing too little to

get those same workers to come.

Finally, Mr. Chairman, if I may say so, you and I and a number

of us on this side have cosponsored a bill for years now just to raise

the retirement benefits from 75 percent of what the employee pays

to 80 percent, and we have not gotten to first base on that. Meanwhile, the other side spent all the money on tax cuts for the rich

and on invading another country, and one wonders if we will get

there in time.

If you were to ask me the single most important thing we could

do to catch up, I think I would focus on health benefits, because

that is where most Americans feel most dubious today. Health benefits go up so quickly compared to compensation in private and

public compensation.

On the other hand, Mr. Chairman, for competitive reasons, alone,

we need to take an across-the-board serious understanding that we

don’t have the kinds of funds that we should have, that should be

available to us, but looking across the board at what we will have

to do just to be a competitive employer in the 21st century, and

looking at benefits, it is a very good place to start.

Thank you very much, Mr. Chairman.

Mr. DAVIS OF ILLINOIS. Thank you very much, Delegate Norton.

Mr. Lynch.

Mr. LYNCH. Thank you, Mr. Chairman.

I want to associate myself with your opening statement, your remarks, and simply add that our ability to attract dedicated and

highly capable employees really will depend on—obviously, we can’t

compete with the private sector in terms of dollar-for-dollar on salary. While we deal with many of the same subjects here in the

Congress and many of our regulatory agencies deal with the same

subject matters—technology, biotech, the FDA, different agencies

in Government—where on the regulatory side it still requires us to

have highly intelligent folks who are willing to work for this Government.

It is frustrating at times when you see how much progress industry has made, especially over the last 50 years, things that we

never even dreamed about, and yet basically the Government’s side

of things is basically the same. We have lost the powdered wigs.

That is about it. But we are still operating on a 19th century

model.

We have to be able to attract bright, competent, innovative people to help us with the regulatory side of Government, and we need

to be able to attract the best and brightest employees who are dedicated.

I think the way we can close the gap in some respects, given the

fact that we can’t compete on a wage basis or a salary basis, is the

benefits that we might be able to employ and to give to our employees. We could be a kinder, gentler Government to our workers and

encourage them and appreciate them. That is the way we will

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bring people onboard, because I think there really is a goodness in

the American people to serve their Government. I see it at the VA

every day. They are not making as much money, the nurses, the

therapists, the docs over at the VA, but they take their reward in

large part from the good that they are doing for our servicemen.

You can go across every single agency in our Government and

see people doing the same thing, and we need to reward that. I

think this is a great hearing, it is a great way to address the inequity sometimes of some of our Federal employees. I am not surprised, Mr. Chairman, that you are the one to bring this to the

committee, and I appreciate your doing so.

I yield back the balance of my time.

Mr. DAVIS OF ILLINOIS. Thank you very much, Mr. Lynch.

We will now proceed to our first panel of witnesses and our distinguished colleague will be the first witness, the Honorable James

Moran, who was elected to his ninth term in the U.S. House of

Representatives after a distinguished career of local public policy

decisionmaking. He was elected to the House of Representatives to

his ninth term in 2006. He is a member of the Appropriations Committee, where he serves on the Defense and Interior Subcommittee,

and one of the outstanding leaders in the House of Representatives,

Representative Moran.

STATEMENT OF HON. JAMES MORAN, A REPRESENTATIVE IN

CONGRESS FROM THE COMMONWEALTH OF VIRGINIA

Mr. MORAN. Thank you very much for your kind words, Chairman Davis. It is a pleasure to appear before you, ranking member

and Congressman Lynch. My good friend, I really appreciate your

holding this hearing on the retirement benefits available to Federal

employees.

I am proud to represent more than 40,000 Virginians who serve

our country as Federal civil servants, as well as 60,000 Federal retirees in my District. Protecting the strength and the integrity of

the Federal work force and the quality of life of all beneficiaries is

obviously an appropriate priority.

During the past several years we have worked with the Office of

Personnel Management, who is well represented here by its Director, Linda Springer. She has been very helpful with us. I want to

thank her, as well as the labor organizations who are also represented here today, representing millions of Federal employees

and retirees. NARFEA is represented, as well.

What we are doing is introducing legislation that will fix an inequity in the current annuity computations within the Federal retirement system.

About a decade ago Congress amended the Civil Service Retirement System for workers with part-time service. Some part-time

employees were switching to full-time work for their last 3 years

in order to receive their high three annual average salaries. By

doing so, they received the same amount of retirement annuity as

those who worked their entire career full time, so they were gaming the retirement system by switching to full time only at the very

end of their careers. That forced the Congress to create the current

methodology for determining part-time retirement benefits.

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Today a part-time salary is assigned by its full-time equivalent

salary, and then the benefit is pro-rated by the proportion of a fulltime career that a part-time employee actually works. The new law

is intended to allow an employee to receive a high three salary during the period of part-time service, therefore encouraging part-time

service at the end of a career. This often happens when a senior

level workers cuts back on his or her hours. The disproportionate

share of these workers appears to be women who leave the Federal

service to care for others in their family.

Unfortunately, there are two major problems with the implementation of this new law. First, the law didn’t specify that the calculation of full-time equivalent salary would apply to all part-time service before and after the implementation of the law. The result of

this omission is the retirement benefits are calculated in two parts:

one part based on retirement law for pre-1986 work, and another

part based on retirement law for post-1986 work.

It also has another adverse consequence. As a result of these two

different annuity calculations, there is a financial disincentive for

Federal employees to take part-time work at the end of their careers. Retirement annuity calculations are sometimes hundreds of

dollars less because employees have taken part-time work during

the late stages of their career, which is a problem for us because

we are trying to keep these very experienced people who may not

want to work full time but they will lend their expertise, particularly transitioning to younger employees for various responsibilities.

Now, the subcommittee’s members’ heads are probably spinning

over this, because it is difficult to grasp how these annuity calculations occur, but you can imagine what it is like for a retiree. They

are told that there are two different calculations. How much did

you work pre-1986, post-1986? How much was part-time? How

much was full-time? It is an overly complex formula that has led

to some serious computational errors.

Federal retirees, though, are starting to get the picture: parttime work hurts your retirement. So my legislation will restore full

credit for part-time work for 1986 and clarify how the full-time

equivalent pay is to be applied. It will provide a simplified annuity

computation in cases involving part-time service for all CSRS employees. In doing so, this proposal will effectively eliminate the adverse effect of part-time service performed late in an employee’s career.

This change of the law can help stem the wave of retirement the

Federal Government faces imminently. It has been well documented and this subcommittee knows all too well that over the

next decade, as the Baby Boom generation nears retirement age,

the OPM has shown us that we are going to have a crisis of manpower. Approximately 60 percent of the Government’s 1.6 million

white collar employees and 90 percent of its Federal executives will

be eligible for retirement over the next decade. Since a leading factor that influences the retention of senior personnel is a worker’s

retirement package, I am optimistic that fixing this part-time inequity can provide some help to address this impending worker

shortage.

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Over the past several sessions of Congress we have submitted

this proposal to change the recommend calculation of not only future retirees but for current retirees that may have suffered a reduction in pension benefits as a result of part-time work.

We would have preferred that the legislation that may ultimately

gain favor in this subcommittee contain a retroactive component for

the current retirees, but I recognize that such a provision would

weaken the bill’s chances of success. Applying the annuity calculation retroactively could significantly exacerbate the depth that the

CSRS retirement fund already faces. Ultimately, that debt will be

passed on to the Federal Employees Retirement System [FERS], as

the last CSRS employees retire. At some point Congress is going

to have to then either increase taxes or limit benefits.

So, as important as it is to right the inequity of the current parttime calculation, we don’t want to add to the burdens of the next

generation.

Now, I understand that dropping the retroactive provision may

lose some support from the Federal retirees that are experiencing

this retirement inequity, but I do think that the only way that this

legislation moves forward is with bipartisan cooperation and coordination. The changes that we have offered as an amendment reflect

this effort. A perfect bill should not be the downfall of a good one.

Mr. Chairman and ranking member and Ms. Norton and Mr.

Lynch, I want to thank you for the opportunity to be heard.

In orchestrating this hearing, I want to thank Ms. Tania Shand,

who has reached out to our office. She has ensured that our questions and concerns are answered in a very professional and timely

manner.

I do think this proposal will correct a longstanding obstacle to

part-time service and help agencies retain qualified Federal employees nearing retirement, so I do ask for your support. It is important. This legislation could affect up to 600,000 current Federal

employees, 30 percent of the Federal work force. Now, of course,

that figure decreases over time as CSRS employees move over to

FERS. It will cost about $18 million over a 5-year period, but it

doesn’t require any additional appropriations. The funds come to

the CSRS financial count through an intergovernmental transfer.

Of course, FERS is not impacted.

Now, I am more than happy to answer any questions, but I do

think it is important to create this parity between FERS and

CSRS.

Mr. Chairman, that concludes my statement.

[The prepared statement of Hon. James P. Moran follows:]

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Mr. DAVIS OF ILLINOIS. Thank you, Representative Moran.

Let me just ask you, What has been the general reaction, both

inside the Congress as well as among the employee groups, to your

proposal?

Mr. MORAN. They are very supportive of this proposal because

the CSRS retiree that take part-time service at the end of their careers are potentially losing hundreds of dollars per month because

of this part-time inequity. You know, over time it is a big deal. It

really affects their quality of life, and so there is very strong support among all those organizations and individuals representative

of the Federal work force and its retirees.

Mr. DAVIS OF ILLINOIS. Thank you very much.

Let me ask Mr. Marchant if he has questions.

Mr. MARCHANT. Thank you.

The retirees that will be affected by the new plan there will be

certain people that have already retired that this will affect their

check?

Mr. MORAN. Yes.

Mr. MARCHANT. Is it a large number?

Mr. MORAN. No, not really. We are not going retroactively back

to——

Mr. MARCHANT. So everybody would be held harmless that has

already retired that is getting their——

Mr. MORAN. That is my understanding. I expect Keith

Bumgardner, who has done my staff work here for me, to tell me

if I say anything wrong.

Mr. MARCHANT. And, as far as the way it works now just functionally, the last 3 years, is it the amount of time that you work

the day? Is it half time? Three-quarter time? Or is it the amount

of pay that sets the limit?

Mr. MORAN. It had been the amount of pay, and that is why people were switching who had worked part time throughout their careers, switching to full time for the last 3 years, and then getting

as much as people who had worked full time their entire career.

Mr. MARCHANT. Yes.

Mr. MORAN. That is why the Congress fixed it. But then they had

two different calculations, and it actually penalized people who

went to part time. So we are trying to make it more consistent

now, and we have a proportionate calculation now that makes it

fair and does it the same way they do it in the other retirement

system. Basically, we achieve parity between the two retirement

systems.

Mr. MARCHANT. Thank you.

Mr. DAVIS OF ILLINOIS. Mr. Lynch.

Mr. LYNCH. Thank you, Mr. Chairman.

Congressman Moran, I appreciate your bringing this forward. I

certainly am supportive of the measure. I realize you have made

some compromises here in your own legislation, and I think that

is courageous.

I do want to say that, from my own experience, even on my own

staff, trying to keep people on part time long enough to train the

new employees is critical. My office manager in Boston just retired

recently, and I begged her to stay. She worked part time for quite

a while training the new people coming in the door, and she had

14

a wealth of experience, having been with Congressman Moakley for

about 25 years. I cried when she left, because she was just terrific

in bringing in the new people and teaching them the professional

standards.

That is happening all across Government. I think your bill, by

putting real value on the service, the part-time service of these employees, very experienced, very expertise, at the end of their careers will not only allow them to transition slowly into retirement,

but also will benefit us greatly in training new employees.

I am with you on the bill. You might have to explain to me again

some of the calculations here at another time. I won’t do that on

the chairman’s time. But I appreciate your good work on this and

I yield back the balance of my time.

Mr. MORAN. Thank you so much, Mr. Lynch.

Mr. DAVIS OF ILLINOIS. Thank you, Mr. Lynch, and thank you,

Representative Moran for coming.

Mr. MORAN. Thank you, Mr. Chairman.

Mr. DAVIS OF ILLINOIS. We appreciate your testimony.

Mr. MORAN. Thank you.

Mr. DAVIS OF ILLINOIS. I know that Mr. Davis was not able to

get here. Without objection, we will enter his statement into the

record and he will have opportunity to amplify on it should he desire.

[The prepared statement of Hon. Tom Davis follows:]

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Mr. DAVIS OF ILLINOIS. We will now proceed to our second panel:

The Honorable Linda Springer, the Honorable Patrick McFarland,

and Mr. Gregory Long.

I will proceed with the introduction of our witnesses.

The Honorable Linda Springer is the eighth Director of the U.S.

Office of Personnel Management. She was unanimously confirmed

by the U.S. Senate in June 2005. As OPM Director, Ms. Springer

is responsible for the Federal Government’s human resource planning benefit programs, services, and policies for the 1.8 million employee civilian work force worldwide. We thank you again, Ms.

Springer.

The Honorable Patrick McFarland has been the Inspector General of the Office of Personnel Management since August 1990. He

provides leadership that is independent, nonpartisan, and objective

in the pursuit of waste, fraud, and abuse, and mismanagement in

programs administered by the OPM. Welcome, Mr. McFarland.

Mr. Gregory Long is the Director of the Federal Retirement

Thrift Investment Board. Before joining the TSP, Mr. Long spent

7 years with CityStreet, where he served as Director of Marketing

for the American Bar Association Retirement Funds. In that position, he oversaw all marketing, sales, and product development activities for a program that provides 401(k) services to over 4,000

law firms nationwide. Thank you very much, Mr. Long. We appreciate your coming.

It is the custom of this committee that all witnesses be sworn.

[Witnesses sworn.]

Mr. DAVIS OF ILLINOIS. The record will show that the witnesses

answered in the affirmative.

We thank you all for coming and we will begin, Ms. Springer,

with you.

STATEMENTS OF LINDA SPRINGER, DIRECTOR, OFFICE OF

PERSONNEL MANAGEMENT; PATRICK MCFARLAND, INSPECTOR GENERAL, OFFICE OF PERSONNEL MANAGEMENT, ACCOMPANIED BY TIMOTHY WATKINS, OFFICE OF THE OFFICE

OF THE INSPECTOR GENERAL, DEPARTMENT OF HEALTH

AND HUMAN SERVICES; JILL HENDERSON, OFFICE OF PERSONNEL MANAGEMENT GROUP CHIEF OVERSEEING AUDITS

OF PHARMACY BENEFIT MANAGERS; AMY PARKER, OFFICE

OF THE INSPECTOR GENERAL SPECIAL AGENT ON MEDCO

INVESTIGATION; AND GREGORY LONG, EXECUTIVE DIRECTOR, FEDERAL RETIREMENT THRIFT INVESTMENT BOARD

STATEMENT OF LINDA SPRINGER

Ms. SPRINGER. Thank you, Mr. Chairman. Good afternoon to you

and members of the subcommittee. Thank you for inviting me back

again for the second time this week to discuss, in this case, Federal

employee benefits.

The Federal Government has long been recognized as a leader in

employee-sponsored benefits, and that helps us to maintain a competitive advantage, both when we are recruiting and retaining top

talent to work for our country.

The Office of Personnel Management has primary responsibility

with respect to these programs, and, with respect to your topic

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today, we can report that, based on the most recent Federal

Human Capital Survey, we are largely meeting expectations with

respect to benefits. In a variety of categories, ratings have increased, ratings of employee satisfaction.

This has been recognized in the private sector, as well. The Gallup Organization has done surveys as recently as last fall that indicate that one of the attractors of the work force to Federal employment is our benefit programs.

Just to put the size of these in perspective, let me comment that

we run the world’s largest single employer-sponsored health insurance program. We run a retirement system that has nearly threequarters of a trillion dollars in assets. And we have paid out benefits from our major programs totaling about $92 billion, over $91

billion just in 1 year. So these are major, major programs.

The description of our activities with respect to each of these programs is in my written statement, so I will just touch on a few

highlights and then spend more time with our legislative initiatives.

With respect to retirement, as you have heard, the SERS plan is

the older of the two plans. There are about 650,000 employees covered by SERS, and over 2 million covered by the FERS plan. With

the impending retirement wave, it is important that OPM be able

to service all of these retirees and new retirees with the most accuracy and timeliness as we can so, as you know, we have been working on a retirement systems modernization project that will transform our processing from a paper-based system that relies on

150,000 file drawers of paper records that could start in this room

and end to end go all the way up I–95 to Baltimore and come back

to this room again. So converting from that type of system to a cutting-edge, state-of-the-art system will help to ensure that we can

give Federal employees the type of service they deserve when it

comes to their retirement.

We are on target to roll that out in February 2008, and we appreciate the support, particularly of this subcommittee, as we move

forward in that effort.

Our life insurance program, again, the Nation’s largest group life

insurance program, covers over 4 million Federal employees and

many of their family members. In fiscal year 2006, approximately

90,000 claims were paid under our life insurance program, and $2.3

billion dispersed.

Health insurance benefits—the Federal program, again, the largest single employer-sponsored health insurance program in the

world. We have over 284 plan choices from approximately 130 private sector plans. We negotiate with each of those programs and

provide those plan choices across the country. They feature the full

range of options—HMOs, high deductible plans, fee-for-service

plans. Those choices and that commitment to choice is a hallmark

of the Federal program.

One of the very, very important features is the fact that employees are able to carry that coverage into retirement, and, unlike

many of their counterparts in the private sector, they retain the

full subsidy. That is something we look at. We look at competitors.

I can tell you that the private sector has backed off in many cases

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ment, but we have continued that, so, in effect, we have improved

our position by continuing it, whereas other employers have backed

away from it.

We have done a good job, we believe, in maintaining premium

rates. For this year that we are in, 2007, those rates only went up

by 1.8 percent, the lowest increase in 11 years. We saw, over the

past 5 years, rate increases that were lower than the average for

the industry. There are some who would say that is because we released reserves. The level of reserves is determined by the insurers,

and they are the ones that came to us. In effect, that represented

an overpayment by employees, and so it is entirely fair to give that

back in the way of a smaller premium increase.

We are doing a lot in the way of making medical records accessible to the advanced health information technology that will allow

for better care. We have also worked to have our carriers, our

health plans, provide information about quality of the providers, as

well as cost, through Web sites, and that is something we are continuing to do.

In 2006 we published new regulations to allow OPM’s Office of

the Inspector General the right to audit provider contracts, including prescription benefits management companies. I know you are

going to be hearing a report from Inspector General McFarland

about their success, which has been substantial. That helps us to

maintain a rate of over 99 percent accuracy in the payment of the

Federal health plan benefit payments. We appreciate the work of

the Inspector General.

Our Federal long-term care program was authorized in 2000 by

the Congress, and we, again, have the largest group insurance program of its type in the country.

Last year, as you know, we added dental and vision. We currently have 400,000 enrollments in the dental program and more

than 300,000 in vision. Those enrollments are indicative of the interest people have in maintaining good care before bad things happen. By those regular checkups, they are able to forestall things

that otherwise might progress to a more serious stage, so it is very

important to have participation.

The one area that I believe we have a shortcoming in our health

program is short-term disability. People today in our programs

have to cobble together a combination of sick leave, other paid

leave, and donated leave to support times when they are too sick

or hurt to work for longer periods of time. That includes maternity.

I know there is a great deal of interest by Members in dealing

with this and addressing it, and that is something that we all

share. What the right answer for that is is something we look forward to working with you on, but we acknowledge and believe candidly that it is something that needs to be dealt with because it is

an important area. And programs exist. There is no need to have

to cobble something together.

Our legislative proposal, our most important one that I will highlight is the part-time reemployment proposal. I am happy to hear

Mr. Lynch mention the experience he had with retaining the services of a very valued employee. This proposal, along with the one

that we have successfully worked on with Congressman Moran,

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ployees. In this case, the one you heard was about keeping people

before they retire. In this case this would allow us to bring back

annuitants without a penalty to them so that they could work, be

paid for their work, still get their annuity—which, by the way, is

not double dipping. It is two different streams of service—but

would allow us to have their services to train new employees. That

is valued service, as Mr. Lynch has indicated.

So that is our major one. There are other improvements that we

have suggested and that I would be happy to answer any questions

on.

Thank you, Mr. Chairman.

[The prepared statement of Ms. Springer follows:]

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Mr. DAVIS OF ILLINOIS. Thank you very much for that, Ms.

Springer.

Mr. McFarland.

STATEMENT OF PATRICK MCFARLAND

Mr. MCFARLAND. Mr. Chairman, members of the subcommittee,

thank you for the opportunity to appear before you today to discuss

OPM’s Office of the Inspector General audit and investigative efforts in helping to safeguard the benefits of the Federal Government employees and retirees in waste, fraud, and abuse.

If I may, immediately behind me is Timothy Watkins. We

partnered with HHS OIG in developing the corporate integrity

agreement that I will talk about. To your right, Jill Henderson is

the organization’s group chief who oversees the audits of the PBMs.

And Amy Parker is a special agent on the Medco investigation.

The U.S. Office of Personnel Management administers benefits

from its trust funds for all Federal employees and retirees participating in the Civil Service Retirement System and Federal Employees Retirement System, Federal Employees Health Benefits Program, and the Federal Employees Group Life Insurance Program.

These programs cover over 8 million current and retired Federal civilian employees, including eligible family members, and disperse

approximately $91 billion annually from the program trust funds.

The majority of our auditing and enforcement activities are spent

in protecting these trust funds, particularly the Federal Employees

Health Benefits Program. Since fiscal year 1997, these activities

have produced over $306 million in judicially ordered recoveries,

and over $1 billion in recommended recoveries through our audits

of the participating FEHBP health plans.

Today I want to inform you of one of our recently concluded investigations. We participated in an 8-year investigation of Medco

Health Solutions, Inc., Medco, the largest pharmacy benefit manager in the United States. This was a joint investigation with the

U.S. Attorney’s Office for the Eastern District of Pennsylvania, as

well as the Offices of Inspector General at the Department of

Health and Human Services and the Department of Defense.

The investigation was initiated after a former Medco employee

filed a qui tam lawsuit alleging that Medco defrauded the FEHBP

and other health programs. At that time, Medco contracted with

the FEHBP to provide mail order prescription drugs to Federal employees, retirees, and their eligible family members insured under

the Blue Cross/Blue Shield Association Federal employees program

and other FEHBP plans.

The joint investigation concluded that Medco falsely reported

their turn-around work performance agreement under the FEHBP

carrier contracts. They dispensed prescriptions without properly

performing drug utilization reviews that protect the patient. They

falsified paper or electronic records relating to the dispensing process. They improperly used pharmacy technicians and other nonpharmacist personnel to perform functions which legally must be

performed by a pharmacist or under a pharmacist’s direct supervision. They billed the Government for prescriptions that were

never filled or ordered. They mailed prescriptions to patients with

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less than the number of pills prescribed but charged for the full

amount.

They made false statements to patients that their mail order prescriptions had not been received when, in fact, the prescription had

been received and then canceled in order to appear to meet contractually required turn-around times. They favored Merck drugs over

the other manufacturer’s drugs in switching programs, even when

the Merck drugs were more expensive. And they made false statements to the United States during the investigation of Medco’s illegal conduct.

During the investigation, Medco and the U.S. Government

agreed to a permanent injunction against several practices. This

consent decree, which did not resolve the issue of restitution and

monetary damages, was entered into in April 2004. In October

2006, the Federal Government and Medco entered into a settlement agreement to resolve alleged false claims acts violations totaling $155 million. Of this amount, $137 million related directly to

the FEHBP. The remainder involved other Federal programs, including Medicare. As a result of the settlement, the FEHBP trust fund received $97

million in restitution. In addition, $40 million in multiple damages

associated with the false claims were returned to the U.S. Treasury. This amount represents the largest single recovery by our office.

Because of the growing importance of drug benefits to the health

of FEHBP enrollees and the financial integrity of the trust fund,

we pursued additional oversight. Due to the substantial impact

Medco and other PBMs could have on the FEHBP, we partnered

with the HHS OIG in having Medco sign a corporate integrity

agreement, referred to as a CIA. The HHS OIG, with our assistance, is monitoring the corporate integrity agreement with Medco.

We felt this was the best and most efficient way to protect the

FEHBP, in part because the outstanding program the HHS OIG

has developed to implement and monitor corporate integrity agreements.

This is not the first PBM that our office has investigated for allegedly defrauding the FEHBP. Our office, in coordination with the

HHS OIG and the U.S. Attorney’s Office for the Eastern District

of Pennsylvania, conducted a 6-year joint investigation of the PBM

AdvancePCS that administered prescription drug benefits for some

of the FEHBP plans and Medicare plus choice organizations. This

case was resolved in September 2005 with a civil settlement in

which AdvancePCS paid $137 million to the Federal Government.

Of this amount, $54 million was returned to the FEHBP trust

funds.

Mr. Chairman, this statement described a detail of two of our

longest and most-complex health care fraud cases that not only affected the health and well-being of Federal employees, retirees, and

their families, but also allowed the FEHBP to recover $151 million.

We continue to investigate a great number of complex FEHBP

health care fraud cases and involve billions of dollars.

The efforts of our investigators and auditors are critical in preventing waste, fraud, and abuse within OPM programs. For example, results of our past PBM audits have highlighted that much reVerDate 11-MAY-2000 12:26 Nov 16, 2009 Jkt 000000 PO 00000 Frm 00032 Fmt 6633 Sfmt 6633 U:\DOCS\52884.TXT KATIE PsN: KATIE
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mains to be done to improve oversight and controls regarding

PBMs participating in the FEHBP. In this regard, we are working

with OPM to identify methods to ensure that the FEHBP derives

the safest and best possible pharmaceutical services at a fair price.

We feel very strongly that our rigorous, ongoing oversight of organizations participating in the FEHBP provides a sentinel effect

that helps reduce erroneous and fraudulent payments in the $32

billion a year Federal health program.

A special note is the positive and cooperative relationship between our office and OPM leadership in pursuit of trust fund integrity.

I would be glad to answer any questions that you have.

[The prepared statement of Mr. McFarland follows:]

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Mr. DAVIS OF ILLINOIS. Thank you very much, Mr. McFarland.

Mr. Long.

STATEMENT OF GREGORY LONG

Mr. LONG. Good afternoon, Chairman Davis, members of the subcommittee. My name is Greg Long. I am the executive director of

the Federal Retirement Thrift Investment Board, and I am also the

managing fiduciary of the Thrift Savings Plan. I welcome this opportunity to summarize my statement.

The TSP is a voluntary savings and investment plan that allows

Federal and Postal employees and members of the Uniformed Services to accumulate savings for their retirement. It currently has approximately 3.8 million individual accounts, and the Thrift Savings

Fund has now grown to over $224 billion in assets.

Participants may invest in any or all five of the core investment

funds and the five lifecycle funds. TSP administrative expenses are

borne by the participants, not the taxpayers.

The FERS participation rate stands at 85.8 percent. For CSRS

employees it is about 69 percent. For the Uniformed Services, after

only 5 years of availability, now stands at 25.6 percent.

The TSP is administered by the Federal Retirement Thrift Investment Board, which was established as an independent Federal

agency. There are approximately 70 employees of that agency. With

input from the executive director, the statutory Employee Thrift

Advisory Council, Board staff, the five board members establish the

policies under which the TSP operates.

First, it provides that all moneys in the Thrift Savings Fund are

held in trust. The executive director and the board members are required to act prudently and solely in the interest of TSP participants and their beneficiaries. This fiduciary responsibility gives the

board members and the agency a unique status within Government.

FERSA also requires the Secretary of Labor to establish a program of fiduciary compliance audits, and it mandates that the

Board contract with the private accounting firm to conduct an annual audit, and it also authorizes the 15 member Employee Thrift

Advisory Council. The Council includes representatives of the

major Federal and Postal unions, other employee organizations,

and the Uniformed Services.

The agency has always enjoyed an extraordinarily cooperative relationship with the Office of Personnel Management. By law, OPM

has statutory responsibility for the overall retirement education for

the Federal work force and the training of retirement counselors at

the Federal employing agencies.

The Board is the entity that ensures the efficient delivery of benefits and services to plan participants. They are located in the executive branch, but are not part of the administration.

The TSP is a participant-directed plan. Each participant decides

how to invest the funds in his or her accounts. The TSP funds now

include Treasury securities, corporate bonds, the entire U.S. stock

market, and stocks of developed countries in Europe, Australia,

and the Far East.

In August 2005 the TSP introduced lifecycle funds, the L Funds,

which are invested in various combinations of the five statutory

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funds. Participants benefit from having professionally designed

asset allocation models that are appropriate for their particular investment horizon. We are pleased with the reception of the L

Funds. As of June, over 515,000 TSP participants have invested

more than $21 billion in the L-funds.

The Board contracts with Barclays Global Investors [BGI], to

manage the F, the C, the S, and I Fund assets. BGI is the largest

investment manager of index funds in the United States, with almost $2 trillion in assets under management.

Although we invite proposals from all qualified providers, only

those asset management companies capable of efficiently handling

our very large cash-flows could satisfy the minimum qualifications

required. We know that there are many excellent vendors who

would like to perform services for the TSP but are unable to satisfy

the extraordinary demands which an operation of our size requires.

In this regard, Mr. Chairman, you and others have expressed interest on behalf of smaller companies. We appreciate that interest and

do all that we can to fashion our RFPs to achieve the broadest possible competition, consistent with the fiduciary’s duty to act solely

in the interest of participants.

By law, TSP investment policies must provide for both prudent

investments and low administrative cost. From the beginning of

each fund’s existence through December 31, 2006, the G, the F, the

C, S, and I funds have provided compound annual returns net of

expenses of 6.6 percent, 7.3 percent, 11.9 percent, 10 percent, and

9 percent, respectively.

For calendar year 2006, the net plan administrative expenses

were 0.03 percent. What this means is that the 2006 net investment return to participants was reduced by approximately $0.30

for every $1,000 of account balance. These costs compare very favorably with the typical private sector 401(k) plan.

Many improvements made by Congress during the plan’s 20 year

history have kept pace with the best features of 401(k) plans offered by private sector employers; however, neither participant expectations nor the Congress stand still. When Congress passed the

Pension Protection Act last August, we carefully examined it for

potential TSP improvements. The Board members recently voted to

seek statutory authority to institute automatic enrollment and to

make default investments in an age-appropriate L Fund.

Both of these changes, which private sector plans are encouraged

to make under the Pension Protection Act, will improve the TSP.

Our own survey of TSP participants, which found that only 3 percent of respondents were dissatisfied, nevertheless found strong

support for these two changes. We hope that the Congress will favorably consider these proposals.

The Board members further decided at the June meeting to more

carefully examine the possibility of establishing a Roth feature for

the TSP and to revisit this issue within 2 years.

The Board also continues to pursue administrative program enhancements, including improvements that guard against the constant threat of computer fraud.

Early this year we replaced our four-digit PIN number with an

eight-character alpha-numeric password for the TSP Web site.

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Later this year we will replace our current Social Security number

identifier with a computer-generated account number.

In closing, Mr. Chairman, I would like to thank you and the

members of this subcommittee for your interest in the TSP and all

benefits provided to Federal employees. Since coming to the agency

last year, I have gained an enormous appreciation for how well this

program meets the needs of employees, and I remain committed to

moving forward, together with the Congress, the administration,

the Council, OPM, the employing agencies, and others to continue

to meet the evolving needs of Federal employees.

That concludes my comments.

[The prepared statement of Mr. Long follows:]

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Mr. DAVIS OF ILLINOIS. Thank you very much, Mr. Long.

We will proceed directly to questions.

Director Springer, I will begin with you. The President’s fiscal

year 2008 budget proposed the Blue Cross/Blue Shield and the Indemnity Benefit Plan be allowed to offer health savings accounts

in the FEHBP. As you know, the Federal employee and retiree organizations that will testify later this afternoon are concerned that

further expansion of HSAs could increase premiums for comprehensive plans, since relatively healthy enrollees with higher incomes

could be siphoned off into these HSAs.

Given the fact that these employee groups have expressed concerns, could you tell us why the administration continues to support this proposal, since relatively few employees have joined the

HSAs?

Ms. SPRINGER. Yes, Mr. Chairman. We do have, as you mention,

a few options of that type today, but none are associated with the

Blue Cross and Blue Shield system. The Blues represent over half

of our membership in the Federal health plan, so there is a very

strong brand identity. I think that my expectation would be that

we would see minimal enrollment in those types of plans today

until it is available through the Blue Cross/Blue Shield system, because the first level of decisionmaking is to associate yourself with

the brand.

But adding it and allowing that capability for the Blue Cross and

Blue Shield system we think is important because we think that

a plan of our type, the largest offered in the world by a single employer, should have a full range of choice, and we think that only

offering it in those very limited circumstances where it is available

today doesn’t provide that full range of choice.

Ultimately, we will deal with the experience, but we think that

the population across the system of the Blues, all of the three options that will be available will still be substantial in all three.

Mr. DAVIS OF ILLINOIS. Thank you very much.

As you know, OPM’s Inspector General found that Medco Health

Solutions engaged in fraud in the FEHBP. However, OPM has decided not to bar Medco from the program. Could you explain?

Ms. SPRINGER. Yes. Medco actually is under contract, I believe,

or will be directly with the Blue Cross and Blue Shield, not with

us directly. Now, indirectly that means some services will be provided by them to people who are enrolled in the Blue Cross/Blue

Shield system, but we have not directly contracted with Medco.

I visited with Inspector General McFarland and I learned that

Blue Cross/Blue Shield had engaged in that contract with them, because I had the same concern that I think you are expressing.

There are a number of safeguards in place. The senior management

team has changed at Medco. There are a variety of things that I

have been told will give them enough comfort to have engaged in

it, that contract, but we will be keeping a very watchful eye on it

through the work of the Inspector General.

Mr. DAVIS OF ILLINOIS. Let me ask what changes would you recommend to improve the Federal Employees Health Benefits Program, and what concerns do you have, if any, about the effects of

increased enrollment and potential adverse selection issues for

high-deductible health plans and health savings accounts?

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Ms. SPRINGER. Well, the first part of your question as far as

changes, the thing that I really and truly believe that we need to

look at at the top of the list is the short-term disability benefit, to

include maternity. As I say, that is not a benefit that we provide

today. We have found that companies of 200 employees or more 80

percent of the time offer a short-term disability program. We do

not, and I think it is disgraceful.

That would be my No. 1 issue to attack.

With respect to the participation issue, again, with high-deductible plans I think that there are circumstances where that works

and is appropriate. I think there are other people where that is not

a good option. But I think that it is important to offer it so that

we are state-of-the-art. A plan like ours should offer the full range

of choice.

Mr. DAVIS OF ILLINOIS. Is it true that employees pay all of the

disability benefit’s costs?

Ms. SPRINGER. We have not transmitted a proposal to the Congress yet about that. We are still trying to craft the right proposal

to send to you. I know that there are several proposals here. There

is interest. We would like to work together with you.

Balancing cost with the benefit is obviously a concern, and one

thing we can offer for sure, though, is our negotiating power in getting a good rate, and certainly the tax benefit that comes with a

pre-tax contribution of payment, even if it is employee pay all.

Mr. DAVIS OF ILLINOIS. As a sort of a side question, I have introduced legislation to allow community health centers to participate

in the FEHBP. Are you familiar with these centers?

Ms. SPRINGER. I have become familiar with your proposal and

learned a little bit about the centers just by reading the testimony

that was submitted on it.

Mr. DAVIS OF ILLINOIS. And as of now you don’t have any concerns about that?

Ms. SPRINGER. Well, I don’t want to speak for the administration.

Because it has just come to our attention, we would have to review

that, and we will do that.

Mr. DAVIS OF ILLINOIS. Thank you very much.

I will go to Mr. Marchant.

Mr. MARCHANT. Thank you.

Ms. Springer, you stated earlier that the increase in the premium was 1.8 this year, but that was as a result of an overpayment from the previous year?

Ms. SPRINGER. That was a contributing factor, but not the only

factor. There are a number of things that have helped us to control

costs in the plan, but that was a factor. It would have been higher

had that not been the case.

Mr. MARCHANT. What would have been the rate of increase without that overpayment?

Ms. SPRINGER. It would have been a little over 6 percent increase, which still would have been pretty favorable increase.

Mr. MARCHANT. Yes. Explain to me the issue about the $3,000

exclude on the health premiums for public safety officers.

Ms. SPRINGER. I am going to need a little help on that, if I may.

Mr. MARCHANT. OK.

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Ms. SPRINGER. May I have someone get back to you on that, Mr.

Marchant?

Mr. MARCHANT. Absolutely.

Ms. SPRINGER. I don’t want to give you an incomplete answer,

and I need a little help with that.

Mr. MARCHANT. You have answered the other question, what

would your top priority be. You have answered that with the disability.

Ms. SPRINGER. I answered that, yes, with respect to just the

health plan, which I think that was the way that was raised. Certainly nothing is a higher priority to us than the reemployed annuitant proposal that we have that would allow us to have the benefit

of the knowledge and experience of annuitants who want to come

back and help train that next generation.

I know that there has been overwhelming support for this. Polls

show over 80 percent of employees want it. The Chief Human Capital Officers representing the hiring agencies want it. There was a

little bit of question about do these people take the place of new

employees. Well, when you are facing a shortage of 600,000 potential positions turning over due to retirement, as Congressman

Moran said, this is just a drop in the bucket in filling that, and it

actually helps these new people to come in and learn from the masters, and then they go on and the new people are remaining. So

that and the short-term disability.

Mr. MARCHANT. And the last question I will ask you is: with the

greater number of veterans that are leaving the service today and,

in many instances, the probability of a lot of those injured veterans

coming into the Federal work force, have you contemplated the fact

that many of them will be disabled? And do you feel like there are

an adequate number of jobs that will be available to a disabled vet

in the Federal system?

Ms. SPRINGER. We do believe there will be. Right now veterans

make up a quarter, about 450,000 members, of the Federal work

force, and some agencies obviously have greater participation than

others, and we encourage all of them. One of the things we do is

highlight veterans’ preference and work with our agencies. But

with respect to disabled veterans particularly, we have established

over the past 2 years programs onsite at Walter Reed, at Brook

Army Medical Center, and we will be starting one at Fort Collins

at the three medical facilities there for the Armed Services to counsel them on jobs in the Federal Government, on writing resumes,

on interviewing.

We have people that we staff onsite. I have been to Brook Army

Medical Center. I have been to the Center for the Intrepid to visit

those wounded warriors. They are terrific people, and we want

them.

Yesterday I just filmed a video to be played for the Navy. We

want these people. There is a place for them, whether disabled or

not, and we are very happy to have them. We have indicated by

our presence onsite at the hospitals.

Mr. MARCHANT. Thank you very much.

Mr. DAVIS OF ILLINOIS. Thank you very much, Mr. Marchant.

We will go to Ms. Norton.

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Ms. NORTON. Ms. Springer, I am looking for ways that might be

considered more realistic to try to encourage the adjustment of benefits so that somebody will want to come work for the Federal Government, so we will be competitive. Even with FEHBP, you have

250,000 or so people who don’t subscribe to this plan because they

can’t afford it. Those are people who work for the Federal Government and giving up a plan that some of us see as decent because

we can afford it, and only because we can afford it.

The 72 percent that the Federal Government now pays on average, when was that percentage set?

Ms. SPRINGER. I don’t know when that was set. I could get back

to you. I don’t know exactly when the 72 percent——

Ms. NORTON. Well, I think the reason that you can’t think about

when it was set is because it was so long ago.

Ms. SPRINGER. I just don’t happen to know. That is all.

Ms. NORTON. No, it is not that you don’t happen to know. I didn’t

expect you to come up with it off the top of your head. Somebody

ought to know. I don’t know when the FEHBP was, in fact, established, but it strikes me that—and I don’t know the date, myself—

but it strikes me that the Government has rested on its laurels on

72 percent and said just take that, premiums will go up, and be

satisfied with it.

So you don’t intend to recommend any increase in the Government share of FEHBP, do you?

Ms. SPRINGER. We do not. I could tell you why, but we do not.

Ms. NORTON. That being the case, it is certainly not because you

consider it adequate or competitive——

Ms. SPRINGER. We do.

Ms. NORTON [continuing]. With employees of the caliber we have.

Let me go on. One way to make up for that, it seems to me,

would have been for OPM to have asked for the subsidy for Medicare Part D. It would have had the effect of reducing the premiums

somewhat overall and, of course, of helping to keep up with the

hugely growing prices of drugs in the first place, but the Federal

Government has chosen not to participate, and therefore to have an

effect, at least, on premiums which, as you have just testified, you

do not intend to increase as to the Government’s portion.

Don’t you think that if you are not going to increase the share

you have to look at other lower-cost ways such as participating in

Medicare Part D to try to stay competitive with the kind of private

sector employers who want the same people that we want?

Ms. SPRINGER. You have raised, I think, four questions in there.

One is about our participation and the affordability; one about the

Medicare subsidy; one about would we raise the subsidy, the 72

percent, and increases——

Ms. NORTON. No, you said you wouldn’t.

Ms. SPRINGER [continuing]. And increases in price.

Ms. NORTON. You said you wouldn’t.

Ms. SPRINGER. I just want to elaborate, if I may, a little on that

so you have the complete answer.

With respect to participation, 85 percent of the people who are

eligible do participate. Another 4 percent have spouses in the

FEHBP through whom they get their coverage. Another 9 percent

have coverage elsewhere, probably from a prior employer. So there

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is really only 2 percent who are not covered one way or the other,

but 90 percent almost are covered through the FEHBP. So participation is high.

With respect to the competitiveness of the plan, we believe that

it is competitive. We believe when we look at other employers what

we see is that they are backing off from their subsidy, in many

cases, and so in effect that means by us staying at 72 percent——

Ms. NORTON. On the contrary, Ms. Springer.

Ms. SPRINGER [continuing]. We are staying——

Ms. NORTON. Ms. Springer, that is true. I am thinking about employees of the kind we need.

Ms. SPRINGER. Yes.

Ms. NORTON. You have many, many Fortune 500 employers who

pay for 100 percent.

Ms. SPRINGER. I do not know of many who pay 100 percent. I

know in the experience we have looked at that, particularly in retirement, that they are decreasing the share of the employer.

Ms. NORTON. I am not talking about retirement. That is bad

enough. I understand the difference in retirement and I understand

what we do. I am thinking about the fact that the Government, in

fact, understood that it wasn’t always able, given the level of employee we have, to be competitive in benefits, to be competitive in

wages, but it would do things like thrift savings, for example,

which is the kind of thing you think about, well, maybe the pay

isn’t as good, but there is the Thrift Savings Account.

Or, again, I am focusing on health benefits. To name a benefit

that if it were, in fact, changed, this without going from 72 percent

to the 80 percent that people like me want, might, nevertheless,

have at least a marginal effect, particularly on keeping certain employees who are already here, such as the benefit that some employers have again of the caliber of the Federal Government that

would say a kid doesn’t age out at 22 but, say, ages out at 26, so

that one of the most troublesome age groups still remains covered

because you are covered by your FEHBP plan.

What I am trying to get at is if there is not something around

the edges, if we keep at increases like, hey, you can have your own

vision and dental plan if you pay for it 100 percent; hey, how about

a long-term plan, which you actually market even when not all employers will need it. How about a long-term plan if you pay for it?

I mean, if anything, you are devolving benefits to the point that

you can have anything you want to as a group if you pay for it as

a group, and you have not thought about even around the margins

of how you might, in fact, if you can’t, in fact, raise the level of benefits forthrightly.

Ms. SPRINGER. Well, nothing comes without a cost. There is a

price tag to all those things, and ultimately the decision will have

to be made where we put what is the right level amount of cost

and what is the right place to invest. You must be seeing something different than we do, but we do not see that this is a barrier

to retaining or hiring people. People see this in our surveys as a

competitive advantage. The satisfaction level with benefits has

gone up in our most recent survey compared to the last one.

All I can say is we think that it is still positioned properly.

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Ms. NORTON. I will go. I just want to say I think this is the most

short-sighted notion of your competitive position relative to particularly the kinds of people you are going to have to recruit to become

workers in the future.

Mr. DAVIS OF ILLINOIS. Thank you very much. We will return.

[Recess.]

Mr. DAVIS OF ILLINOIS. Thank you all very much. The subcommittee will return to order.

We will try and finish up with this panel. Let me thank all of

you for continuing to have been here and for being here. We always

say that this is the week that we try to get as many things done

as we possibly can, and everybody is racing, hopefully, for a recess

that we still don’t know when it is going to take place, but we suspect that it will be some time before next week.

Let me just ask, Mr. McFarland, due to the complexity of the

prescription benefit managers, that is the PBM contracts, what

challenges and obstacles have you encountered in performing your

audits, and what are your recommendations for eliminating these

obstacles?

Mr. MCFARLAND. Mr. Chairman, let me mention five points here,

and then I will mention what we think we can do to help resolve

this.

First of all, your point is well taken. Auditing these PBM contracts has proven to be a great challenge. In addition to the normal

delays in requesting data from the carriers, both PBMs we have

audited, Medco and CareMark, were reluctant to provide the claims

and administrative data necessary to perform the audits.

Overall, our PBM audits revealed that the major issue was not

contract compliance, but rather the weaknesses found within the

contracts, themselves.

Some of the specifics that we have encountered are the five that

I mentioned. First, the PBMs contract directly with the insurance

carriers and not with OPM; therefore, OPM has limited control

over the terms of these contracts, especially related to pricing and

fees. Carriers pay PBMs based on a negotiated rate which may

have no relationship to the actual price paid for the drugs; therefore, we could not determine accurately the amount of profit made

on Federal business, nor can we determine if a price is fair and

reasonable.

Contracts are complex, and the specific pricing terms are difficult

to understand. OPM should require full disclosure from the PBM

regarding pricing terms, including rebates generated from the Federal business.

Each FEHBP carrier negotiates the terms, pricing methods, rebates, administrative fees, etc., of its contract with the PBM; therefore, there is no consistency among these contracts.

Finally, little incentive for the carriers to negotiate the best price

for the pharmacy services, since OPM reimburses them for all costs

charged by the PBMs.

Now, as far as the potential solutions, I speak in the singular,

but for the great majority of my comments I am referring to a cooperative venture with the program office at OPM and our office. To

that end, the first suggestion would be the possibility of changing

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the language in the Federal employees health benefits acquisition

regulations to include large providers as subcontractors.

Second, to assess the benefits and risks—and I emphasize the

risk—of carving out pharmacy benefits and having OPM contract

directly with the PBMs for these services and benefits.

Finally, reimburse PBMs based on the actual cost of the drugs

dispensed.

The OIG has identified many areas that require change in the

current contract language and/or areas that require greater oversight. We are still currently analyzing the contracts and the process of administering pharmacy benefits through the FEHBP. At the

conclusion of this process, we will provide our findings and recommendations to OPM and work with the appropriate contracting

officials to strengthen the controls and oversight regarding

FEHBP’s pharmacy benefits.

Those are the solutions that we are working toward in concert

with OPM.

Mr. DAVIS OF ILLINOIS. Thank you very much.

Let me ask you, Mr. Long, what is the average percent of pay

contributed by TSP participants? Has it been going up or down?

And how do the contributions of younger and lower-paid employees

compare with others in the program?

Mr. LONG. Mr. Chairman, we did some homework on this a few

months back and we prepared a report that is available on our Web

site. It is called the Participant Behavior and Demographics Report, in which we took a look at activity from 2000 through 2005.

To specifically answer your question, the rate of salary deferral

among FERS employees stands at 8.6 percent at the end of 2005.

Over the last 5 years I am very pleased to say that has been

steadily increasing. Specifically, the younger and lower-paid employees, the challenge there is, first, to get them participating in

the plan, and then, second, to get them participating at higher

rates. We have seen over the years that participation among most

age groups is fairly stable, but we have seen some slight increases

of participation among the younger and lower-paid. We are very

pleased to see that. They are contributing at a lower rate than the

more highly paid and older employees. They are at about 6.4 percent of pay.

Mr. DAVIS OF ILLINOIS. And let me ask you, what are your views

on adding socially responsible investment funds to the TSP?

Mr. LONG. This is an issue which has received a bit of press lately, and it is one that I have been doing a bit of homework on since

I joined the Board about a year and a half ago. I gather that over

the years there have been many proposals to divest in certain types

of securities that are considered bad or over-invest in certain types

of securities that are considered good.

The congressional designers of the TSP 20 years ago clearly came

out and said that social and political considerations should not be

used in the TSP. Certainly, we shouldn’t be using participant

money to further those goals. That is a position which I agree with

and the Board agrees with.

What we can’t do is there is no particular social or political goal

that everybody is going to agree with, so you would end up with

a hodgepodge of multiple different goals, and that would really

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cause significant problems, especially when we work in a passive

management index. Our funds are designed to cover broad segments, and in this case you would be trying to pluck out certain

securities that create significant problems, as well as cost.

Finally, I would say that the promise that was made to TSP participants was that when you invest your money the fiduciaries will

invest it only for your best interest without consideration of social

or political goals, and that would change the game.

Mr. DAVIS OF ILLINOIS. Thank you all so very much. We again

appreciate your patience and your willingness to stay while we go

through our machinations, but it is all a part of the process. Thank

you, indeed. We appreciate it.

I wonder if we could actually go to panel four. I know that Ms.

Kelley has to catch a plane, and if we could accommodate her we

would like to do that, so if we could go to panel four.

While we are exchanging, I will just go ahead and introduce the

panelists.

Colleen Kelley is the president of the National Treasury Employees Union, the Nation’s largest independent Federal sector union,

representing employees in 31 different Government agencies. As

the union’s top elected official, she leads the NTEU’s efforts to

achieve the dignity and respect Federal employees deserve. Ms.

Kelley represents the NTEU before Federal agencies, in the media,

and testifies before Congress on issues of importance to NTEU

members and Federal employees.

J. David Cox is the national secretary-treasurer of the American

Federation of Government Employees. He was elected during the

union’s 37th convention in August 2006.

Ms. Margaret Baptiste of Mount Pleasant, SC, is the first woman

to be elected national president of the National Association of Retired Federal Employees and the first spouse of a Federal retiree

to hold the position. Mrs. Baptiste is the former president of the

South Carolina National Association of Retired Federal Employees

Federation.

Thank you all so much for being here.

It is the custom of this committee to swear in witnesses.

[Witnesses sworn.]

Mr. DAVIS OF ILLINOIS. The record will reflect that each of the

witnesses answered in the affirmative.

Of course, you know our procedure. Your entire statement will be

included into the record. If you would summarize in 5 minutes, the

green clock means that you start. When it begins to get yellow you

are down to 1 minute. Of course, red means that you are to cease.

Thank you all very much. We will begin with you, Ms. Kelley.

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STATEMENTS OF COLLEEN KELLEY, NATIONAL PRESIDENT,

NATIONAL TREASURY EMPLOYEES UNION; J. DAVID COX,

NATIONAL SECRETARY-TREASURER, AMERICAN FEDERATION OF GOVERNMENT EMPLOYEES; AND MARGARET

BAPTISTE, PRESIDENT, NATIONAL ACTIVE AND RETIRED

FEDERAL EMPLOYEES ASSOCIATION

STATEMENT OF COLLEEN KELLEY

Ms. KELLEY. Thank you very much, Chairman Davis, Ranking

Member Marchant. I appreciate the opportunity to speak with you

today about Federal employee benefit and retirement programs.

The question you asked, are we meeting expectations, is a relevant and an important one for all Federal employees. It is difficult

to say that we are meeting expectations when every day Federal

employees are asked to do more with less and face an often hostile

administration that does not seem to value the work done by Federal employees every day.

We appreciate those Members of Congress like yourself, Mr.

Chairman, who put substantial time and effort into improving

working conditions for Federal employees. NTEU is actively working on a number of these proposals.

First, increasing the coverage for dependents in FEHBP to age

25. Thank you very much for your draft legislation, Mr. Chairman.

Young adults are the fastest-growing age group among the uninsured, and while the current law does provide health insurance

until age 22, 22 year olds are seldom in a position to obtain health

insurance themselves. Several States have enacted legislation to

avert this health crisis. Because young adults are healthier than

older adults, it is possible that adding more of them to a pool of

health care participants may even lower the average cost for group

insurance. NTEU looks forward to working with you to have your

proposal enacted into law.

Paid parental leave, NTEU has long been an advocate for parental leave and was instrumental in the successful passage of the

Family and Medical Leave Act of 1993. Since that time, it has become clear that many who would take advantage of time off to care

for a baby have not because they were unable to forego their income. A benefit that you cannot take advantage of is not much of

a benefit.

Most industrialized nations already provide paid family leave.

Mr. Chairman, we will do all we can to help enact your draft legislation in making this a reality.

We have been fortunate in the 110th Congress to have many

issues advanced by NTEU that were introduced as legislation, and

in most cases with bipartisan support. These include: Premium

conversion to allow Federal and military retirees to use pre-tax dollars to pay for their health insurance premiums; recapture credit,

allowing individuals who return to the Government service after

receiving a refund of their retirement contributions to recapture

credit for the service covered by that refund; annuity and part-time

service, correcting the glitch in the 1986 law that changed that financial management that Congressman Moran spoke to. NTEU is

supportive of that change, but we are concerned about the elimiVerDate 11-MAY-2000 12:26 Nov 16, 2009 Jkt 000000 PO 00000 Frm 00072 Fmt 6633 Sfmt 6633 U:\DOCS\52884.TXT KATIE PsN: KATIE
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nation of the retroactivity clause, and we will work with this committee and with Mr. Moran on that issue.

Pension offset and windfall elimination, changing the Social Security provisions that prevent Federal retirees from receiving the

full Social Security benefits to which they are entitled; cost of

health insurance, where there has been some discussion today already. NTEU continues to be very concerned about the escalating

cost of health insurance for Federal employees, and we ask for your

help in persuading the Office of Personnel Management to pursue

two items that could lower health benefit premiums for Federal

workers.

First, which was talked about earlier, the Medicare drug subsidy.

If OPM had applied for the drug subsidy to which it is entitled

under Medicare, it would have lowered the average 2006 FEHBP

premium by 2.6 percent. We need a legislative measure to require

OPM to apply for that subsidy.

Second, negotiating the drug prices. OPM negotiates with carriers for the best overall health care package, but the carriers negotiate for the best drug prices. We would like to see OPM negotiate

for the drug prices, trying to bring those costs down.

In addition, we are working to achieve the passage of H.R. 1256

introduced by Congressmen Hoyer and Wolf, which would increase

the level of Government contributions under FEHBP from 72 percent to 80 percent. Federal employees are paying a constantly increasing share of their paycheck for health insurance premiums for

their families, often at the same time watching their coverage decline.

Since 2001, FEHBP premiums have risen by 50 percent. Had the

OPM not dipped into the reserve funds for the current year, Federal participants would have realized increases, as we heard from

Director Springer, of over 6 percent. Making FEHBP premiums

more affordable is a priority for NTEU.

Finally, Mr. Chairman, in regard to the Federal Retirement

Thrift Savings Plan, Congress established TSP investment policy

by passing the Federal Employees Retirement System Act, which

wisely left the management of the fund to the Thrift Investment

Board, the only group that has a fiduciary responsibility to the

fund’s investors. They take it seriously, and that fund is a great

success. We believe that they should take the lead in deciding on

new investments in the future.

Thank you very much. I would be happy to answer any questions.

[The prepared statement of Ms. Kelley follows:]

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Mr. DAVIS OF ILLINOIS. Thank you very much.

We will go to Mr. Cox.

STATEMENT OF J. DAVID COX

Mr. COX. Thank you, Mr. Chairman and members of the subcommittee, for the opportunity to testify today.

Federal employee benefits need to be considered in the context

of overall compensation. The shortcomings in Federal salaries

make it increasingly difficult for Federal employees to afford the

cost of fully participating in all the benefit programs made available to them through OPM. The list of benefits available for Federal employees sounds impressive. The new list of new benefits

sounds pretty impressive, too, until you realize the new benefits

are all employee pays all.

But this approach is just the logical conclusion of the attitude

OPM currently has toward all Federal employee benefits. This attitude is that benefits should be made available to Federal employees for purchase; that is, they should not be paid for by the employer. They seem to think that at most the employer should negotiate a group discount. This has been the case with long-term care

insurance, as well as the newest benefits for vision and dental insurance.

AFT strongly opposes OPM’s approach. Until major national

health care reform is enacted, we believe that it is our employers’

responsibility to finance coverage generously enough so that every

Federal employee and retiree and all their dependents have comprehensive and affordable coverage. This means financing at the

rate of at least 80 percent so that even the lowest-rated Federal

employees can afford coverage for themselves and their families.

We also believe that dental and vision coverage are fundamental

components of health care, and it is a disgrace that Federal Government has carved out these two categories of coverage into separate employee-pays-all plans.

Comprehensive dental and vision belong in a standard benefits

package that should be required offering in the Federal Employees

Health Benefits Program and should be subsidized at the same

rate as other health care services.

In 2000, OPM initiated long-term care insurance as a first employee-pays-all benefit, or pseudo-benefit. Then came the Bush administration, and this time the employee-pays-all insurance idea

was applied to health care benefits previously considered part of a

comprehensive package and subsidized at the same rate as other

health care services. Although the plans that provide vision and

dental benefits have not yet dropped this coverage, enrollees are

bracing for this eventuality, as coverage of these services is not included in the statutory requirements for benefits.

AFGE opposes the carve-out of dental and vision coverage in the

strongest possible terms. Both dental and vision care are fundamental to good health and to the ability to function in any work

environment. Earlier this year, we became aware of not only a

tragic consequence that happened of lack of access to dental care,

but also how closely dental illness is linked to other illnesses. In

March, a 12 year old boy from Prince George’s County, MD, died

from an infection that started in an abscessed tooth. The infection

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spread to the boy’s brain and, for the want of dental care, a completely preventable death was not prevented.

Corrected vision and healthy gums are not cosmetic electives.

This is not about tinted contact lenses or bleached teeth; this is

about health care.

AFG urges Congress to add language to Chapter 89 of Title 5 to

make vision and dental coverage mandatory categories for the Federal employee health benefit plans. OPM has carried out the Bush

administration’s health care policy by shifting costs to enrollees

and trying to persuade them to replace traditional insurance with

health savings accounts. In addition, the administration has each

year included in its budget proposals policies that would require

employees to pay more or receive less. Worse, it has promoted carving out benefits currently subsidized by the Government and offering them on an employee-pays-all basis.

None of these policies is consistent with an effort to recruit the

next generation of Federal employees or to maintain morale and

commitment among those on board. AFG urges Congress to resist

the administration’s efforts to undo a generation’s progress and establish the Federal Government as a fair employer and provide decent benefits sufficient to provide economic security to its employees and retirees.

This concludes my statement. I would be glad to take any questions, sir.

Mr. DAVIS OF ILLINOIS. Thank you very much, Mr. Cox.

Ms. Baptiste.

STATEMENT OF MARGARET BAPTISTE

Ms. BAPTISTE. Mr. Chairman, I am pleased to present NARFE’s

views on the Federal retirement benefit programs which are so crucial to the economic and health care security of our Federal employee, retiree, and survivor members. Our primary legislative objective is to preserve the retirement and insurance benefits we earn

as part of the total compensation packages of careers in Federal

service.

Clearly, it is essential that Federal service attract and retain the

highest caliber employees as new challenges put new pressures on

the Federal budget, yet it also is imperative that the Federal Government continue to honor its commitments to its workers and retirees. Among those commitments is the Federal Employees Health

Benefits Program, a program cited by many policy experts as a

model group health insurance plan.

I cannot pass up this opportunity to thank Congressman Tom

Davis and the majority of the members of this subcommittee for

the introduction and support of H.R. 1110, the NARFE-backed bill

to extend to retirees the tax benefit of premium conversion which

executive and legislative branch employees have had for several

years. This clarification of the tax code would be a modest step in

making annuitants’ FEHBP premiums more affordable.

I hope that by working together we can move this legislation out

of the Ways and Means Committee toward enactment in this Congress.

The Office of Personnel Management does a good job of negotiating premiums for the FEHBP, but we are concerned that a $1 bilVerDate 11-MAY-2000 12:26 Nov 16, 2009 Jkt 000000 PO 00000 Frm 00080 Fmt 6633 Sfmt 6633 U:\DOCS\52884.TXT KATIE PsN: KATIE
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lion payment which could be used to lower costs is left on the table.

The 2003 Medicare law provided all employers, including to Government, a subsidy if they provide drug coverage as generous as

Medicare. Unfortunately, the administration has decided to forego

this payment on behalf of FEHBP enrollees.

A recent GAO report found that premium growth in one of the

largest FEHBP plans, with many older enrollees, could have been

3.5 to 4 percent lower in 2006 had the payment been accessed, and

it could have reduced overall FEHBP premiums for the year by

more than 2 percent. We cannot understand why the administration failed to apply for this subsidy, to which they did not originally

object.

In addition, NARFE is concerned that offering health savings accounts could undermine the FEHBP. GAO data has strengthened

our belief that healthier, wealthier enrollees tend to be attracted to

HSAs because, as low health care users, they can be rewarded with

unspent balances at the end of each year. Less-health enrollees

avoid them and are more likely to stay in traditional, comprehensive plans, forcing these plans to raise premiums, cut benefits, or

both.

So far, HSAs have had minimal effect on comprehensive plans

because few have joined them. The administration’s 2008 budget

could jump start enrollment in HSAs if Blue Cross/Blue Shield is

allowed to offer them in the FEHBP. Their brand loyalty and marketing resources could significantly increase HSE enrollment if

they offered such an option in the FEHBP, and if an additional indemnity HSA also should be added, as the administration has suggested.

NARFE opposes any further expansion of HSAs. HSAs are a solution in search of a problem. Prescription drugs, the greatest cost

driver in FEHBP, are a problem in search of a solution.

FEHBP plans should be allowed to buy prescription drugs for enrollees at the discounts provided through the Federal supply schedule. This was considered as a pilot project, but the pharmaceutical

industry refused to participate. New congressional support for allowing Medicare to directly negotiate drug prices makes it time to

revisit this proposal.

Retirement income security is a critical part of our compensation

package, and an integral part of retirement income planning is the

option to select a survivor annuity. Survivor annuities go a long

way in providing peace of mind to the loved ones of Federal retirees. I know because I am a survivor annuitant. When my husband

elected a survivor annuity, the most he could provide was 55 percent in exchange for an 8.5 percent reduction in his own retirement.

NARFE believes a Federal employee should be able to elect a

higher survivor amount if they pay the additional actuarial cost. To

make this a reality, we ask you to support a budget neutral proposal allowing retiring employees to elect additional amounts in 5

percent increments up to a maximum 75 percent.

Unfortunately, certain CSRS retirees who work part time toward

the end of their careers do not receive the full amount of the annuity they earned because of the application of a 1986 law. Current

interpretation discourages many from working part time at the end

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of their careers and can result in annuities being reduced by 20

percent. President Bush’s 2008 budget proposed using full-time

equivalent salary to calculate the annuities of future retirees who

work part time, but current retirees are left out of this plan. For

that reason, NARFE had supported Representative Jim Moran’s

bill, H.R. 2780, but we were disappointed to hear from him today

that retirees will be excluded from the part-time remedy in his

amended bill.

On the other hand, we are pleased that retirees are being sought

by agencies that want to re-hire them. We believe retirees interested in returning to Government service should receive the full

salary of the job without any offset of their annuity. NARFE supports OPM’s proposal to allow agencies to reemploy Federal retirees on a limited, part-time basis without this offset.

Mr. Chairman, we are pleased with the performance of the Federal Thrift Savings Plan and its management. We support a proposal to allow Federal workers to contribute bonuses into their TSP

accounts and are pleased OPM also supports this.

Thank you for your support of Federal employee benefits and retirement programs as an investment in the Federal Government’s

most valuable asset, its human capital.

We stand ready to work with you and the administration to ensure that our retirement programs remain competitive, innovative,

and a model for others.

Thank you.

[The prepared statement of Ms. Baptiste follows:]

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Mr. DAVIS OF ILLINOIS. Thank you very much.

Mr. Marchant, I will go to you first.

Mr. MARCHANT. Thank you very much for your testimony. I am

on a learning curve on this subject, so I have a few questions.

I come from a Texas system. I spent 18 years in the this legislature, and actually served on the Pensions Board and the Pensions

Committee, so I am still trying to digest and understand the Federal system.

We do have a 25 year old provision in our insurance, and that

is why I am not on Federal insurance. I am a retiree from Texas

and my family and I are still on the Texas insurance as a retiree,

mainly because I have two kids under the age of 25.

Have you been able to get an actuarial study done? I know that

when the kids go out at age 22 and 23 that their insurance is

cheaper. Have you been able to get some kind of a study or anything in your hands that will show that there might even be a premium lowering?

Ms. KELLEY. Actually, I am aware of a study that OPM did, but

I would call it kind of a back-of-the-envelope calculation. It was a

three-page report, and I think it would be very helpful and beneficial if there were a better look taken, a closer look, to see what

the actual numbers would be, and also to make sure that all of the

costs and benefits are considered in the calculation. I do not think

that has been done to date.

Mr. MARCHANT. Yes. It may be a missed opportunity to broaden

the pool and at least stabilize the premium.

Ms. KELLEY. I agree.

Mr. MARCHANT. The other aspect of it, I have opted to do a deferred retirement so that if I pass away my wife gets the retirement, but ours is a substantial decrease. It is about a 30 to 40 percent decrease with 100 percent replacement, so, Mr. Chairman, I

am wide open to that idea. I think that we should explore it and

I think it should be the prerogative of the retiree. Again, it would

have to be actuarially sound, but I do know States that are funding

their benefits out of an independent pool, not out of the budget, the

operating budget, are doing that, and it is actuarially sound. So I

would be a proponent of that.

Those are the two thoughts I had, Mr. Chairman. Thank you

very much.

Mr. DAVIS OF ILLINOIS. Thank you very much.

Let me ask each one of you: do you have any recommendations

or how would you improve the prescription drug benefit in the

FEHBP?

Ms. KELLEY. Well, actually a number of us have mentioned the

drug subsidy. I mean, from a cost perspective that is the complain

that I hear all the time from enrollees in the plan. There just

seems to be such a missed opportunity here that I don’t understand

why OPM has not taken advantage of, you know, with the opportunity with the Medicare subsidy. I would hope they would just

take it because it is the right thing to do, but absent that, again,

I would hope that some legislation is passed that directs them to

do it and requires them to do it. It is costing Federal employees

money that they shouldn’t have to pay.

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Mr. COX. Mr. Chairman, as I shared with you, I worked for the

Veterans Administration for 23 years. I believe AFGE has raised

the issue on numerous occasions. Why can’t Federal employees,

their health insurance, bargain with the VA and those other entities that go out to the drug manufacturers and try to get the better

prices? I mean, VA does very well with its drug buying, and I believe if you put that pool of several million Federal employees and

retirees in that, that you certainly would have a much larger buying power and could certainly have a cost savings with that.

Mr. DAVIS OF ILLINOIS. Ms. Baptiste.

Ms. BAPTISTE. Well, as I said in my statement, Mr. Chairman,

we believe strongly that the subsidy should have been taken, and

I agree with Ms. Kelley on that. We also believe that the FEHBP

plan should be allowed to buy prescription drugs at the discounts

provided through the Federal supply schedule.

Mr. DAVIS OF ILLINOIS. How important would you say that vision

and dental coverage are? Both of those I think have always been

stepchildren, quite frankly, of health care delivery. We have

reached the point where dental, vision, or mental health services

have had the kind of attention that I think they have needed. Just

the dental vision, how important do you think that is?

Mr. COX. Mr. Chairman, I would not be able to see you without

my glasses on. I would not be able to read this paper. Vision is

very, very important to all of us. Think what it would be like to

not be able to see.

Dental, again, that is part of a healthy person. Your teeth are

in your head that is next to your brain. You do not want infections

in your teeth.

It is a shame that the Federal Government has not, again, with

the many Federal employees and the retirees, had a program that

required all of the participants in the Federal Employees Health

Benefits Program, all the companies to offer dental and vision and

to cover, like at 80 percent, to do that for them. That is how you

have healthy people. It will save money in the long run because

you keep people well and you prevent things.

I think of this 12 year old boy. That is a tragedy that should

have never occurred in a country as great as this.

Ms. KELLEY. I think the numbers of enrollment for the first year

in the vision and dental speak volumes to how important this is.

Even with employees having to pay 100 percent of the cost, there

were 700,000 Federal employees who signed up when it was first

made available.

NTEU supported the introduction of a vision and dental plan for

Federal employees, but we had also supported that it be done with

some Government contribution, even if starting out it wasn’t the

full FEHBP contribution, some contribution, and we had hoped

right up to the last minute that would happen.

Even in the end, when it was clear there would be no contribution by the Government, NTEU still supported these plans because

we believed that they were important to Federal employees and

that they would be taken advantage of. Like I said, I think for a

first year enrollment that those numbers were higher than I expected, but they would have been much, much higher had there

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been any kind of contribution by the Government so that others

who could not afford to pay the whole premium could do so.

Mr. DAVIS OF ILLINOIS. Ms. Baptiste, do you have any comment

on that?

Ms. BAPTISTE. I agree with Ms. Kelley. It would put up the cost

of enrollment a very considerable amount, but teeth and vision are

important, and it is a subject that needs working on.

Mr. DAVIS OF ILLINOIS. Let me ask each of you, Ms. Kelley, are

you familiar with community health centers?

Ms. KELLEY. I am not, Mr. Chairman.

Mr. DAVIS OF ILLINOIS. Mr. Cox, are you familiar with them?

Mr. COX. No, sir.

Mr. DAVIS OF ILLINOIS. Ms. Baptiste, are you familiar with community health centers?

Ms. BAPTISTE. No.

Mr. DAVIS OF ILLINOIS. Well, let me thank you all so very much

in terms of, again, your patience and willingness to be here and to

share your testimony with us. We appreciate it. Thank you very

much.

Mr. COX. Thank you, Mr. Chairman.

Ms. KELLEY. Thank you.

Ms. BAPTISTE. Thank you very much, Mr. Chairman.

Mr. DAVIS OF ILLINOIS. The first shall be last, and the last shall

be first, but in this one we will say that the third shall be last.

While our panel is assembling, let me just introduce them. Our

panel consists of Ms. Hinda Chaikind, who is a Specialist in Health

Care Financing at the Congressional Research Service [CRS], covering Federal employee health benefits, Medicare advantage, Medicare reform, Medicare spending, retiree health insurance, and other

private health insurance issues. Prior to joining CRS, she was with

the Department of Health and Human Services in the Office of the

Assistant Secretary for Management and Budget, responsible for

budgetary, legislative, and regulatory activity in the Medicare program.

Thank you so very much for being with us.

Ms. CHAIKIND. Thank you.

Mr. DAVIS OF ILLINOIS. Mr. Patrick Purcell is a Specialist in Income Security at the Congressional Research Service. He specializes in policy issues related to the Civil Service Retirement System,

the Federal Employees Retirement System, the Thrift Savings

Plan, individual retirement accounts, and 401(k) plans. He has previously worked at the Urban Institute, the Congressional Budget

Office, and the Department of Health and Human Services.

Thank you both for being here.

It is our custom to swear in witnesses.

[Witnesses sworn.]

Mr. DAVIS OF ILLINOIS. Thank you very much. The record will

show that each of the witnesses answered in the affirmative.

Of course, each of you know the drill with this, and so if you

would summarize your statement, we will put the whole statement

in the record, of course. Then we will have some questions after 5

minutes.

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STATEMENTS OF HINDA CHAIKIND, SPECIALIST IN SOCIAL

LEGISLATION, DOMESTIC SOCIAL POLICY DIVISION, CONGRESSIONAL RESEARCH SERVICE; AND PATRICK PURCELL,

SPECIALIST IN INCOME SECURITY, DOMESTIC SOCIAL POLICY DIVISION, CONGRESSIONAL RESEARCH SERVICE

STATEMENT OF HINDA CHAIKIND

Ms. CHAIKIND. Mr. Chairman and members of the subcommittee,

my name is Hinda Chaikind and I am a Specialist in health care

Financing with Congressional Research Service. Thank you for inviting me to speak to you today about the Federal Employees

Health Benefits Program and the Federal Employees Dental and

Vision Insurance Program.

The Federal Employees Health Benefits [FEHB], Program covers

about 8 million current full-time and part-time workers, Members

of Congress, annuitants, and their families. Eligible family members include a spouse, unmarried dependent children under the age

of 22, and continued coverage for qualified disabled children 22

years and older.

As Director Springer stated, in total there are about 300 different

plan choices, including nationally available fee-for-service plans, locally available plans such as HMOs, as well as choices offered by

plans for standard option, high option, and, since 2003, high-deductible health insurance plan options combined with a tax advantaged account.

Beneficiaries can use their tax advantaged accounts to cover

qualified medical expenses. As a practical matter, depending on

where an enrollee resides, his or her choice of plans is limited to

about five to fifteen plans. Also, since July 2002, FEHB-eligible active employees can place their own pre-tax wages into a health care

flexible spending account to cover qualified medical expenses.

Participation in FEHB is voluntary, and enrollees may change

plans during designated annual open season periods. Special enrollment periods are also allowed for new employees and for those

with a qualifying special circumstances such as marriage. Pre-existing condition exclusions are not allowed.

The Government’s share of premiums is set at 72 percent of the

weighted average premium of all plans in the program, not to exceed 75 percent of any given plan’s premium. It is calculated separately for self only and for family coverage.

Part-time workers pay a larger share of their premiums, depending on the number of hours that they work. Annuitants and active

employees pay the same premium amounts, although active employees have the option of paying premiums on a pre-tax basis.

Premiums in 2007, compared to the prior year, remain the same

for about 63 percent of enrollees, and another 15 percent of enrollees had a premium increase of less than 5 percent. That said, while

these overall increases are small, some plans did have large increases.

Although there is no core standard benefit package required for

fee plans, OPM may prescribe reasonable minimum standards for

health benefits. All plans cover broad categories of services, including basic hospital, surgical, physician, and emergency care. Plans

are required to cover certain special benefits, including prescription

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drugs, mental health care with parity of coverage for mental health

and general medical care coverage, child immunizations, and limits

on an enrollee’s total out-of-pocket costs for the year.

Plans must also include certain cost containment provisions,

such as offering a preferred provider organization network and a

fee-for-service plan.

Despite the wide range of plan choices, more than one-half of all

individuals enrolled in a fee plan choose one of the Blue Cross and

Blue Shield plans, and even those enrolled in other plans tend to

remain in their plan from year to year.

Comparing the access and employer contributions for the benefits

of Federal workers to those offered in the private sector provides

some insight into how these benefits measure up. According to the

Department of Labor’s March 2006, National Compensation Survey, 71 percent of private sector workers have access to health benefit plans and 67 percent have access to prescription drug coverage.

Access to health insurance in the private sector increases for firms

with more than 100 workers, those who employ white collar workers, full-time workers, union workers, and those with average

wages of $15 per hour or higher.

Private sector employers contributed an average of 82 percent of

the health insurance premium for self only coverage, and an average of 70 percent of the premium for family coverage.

On average, 46 percent of private sector employees have access

to dental care, and 29 percent have access to vision care. As required by statute, OPM created the Federal Employees Dental and

Vision Insurance Program [FEDVIP], available since December

2006. Employees who are eligible to enroll in a fee program, whether or not they are actually enrolled, may also enroll in FEDVIP.

Enrollees are responsibility for 100 percent of the FEDVIP premium. There are three nationally available vision plans, four nationally available dental plans, and another three dental plans that

are only available regionally.

FEDVIP enrollment occurs during annual open season, as well as

special election periods, and individuals may choose a self only, self

plus one, or family plan. This set of options differs from the fee

plans, which allows for two choices, self only or family plan.

Premiums vary by plan, by whether enrollment includes other

family members, and residency. Unlike the fee plans, individuals

enrolled in a nationwide FEDVIP plan, dental plan, pay different

premiums depending on where they live. Active employees must

pay FEDVIP premiums on a pre-tax basis. While there are no preexisting condition exclusions for this coverage, there are waiting

periods for orthodontia, and switching to a new plan may require

a new waiting period.

Finally, turning to current issues, Congress is considering legislation that encompasses a wide range of changes to the fee program, including but not limited to: Allowing Federal, civilian, and

military retirees to pay health insurance premiums on a pre-tax

basis; expanding the program to cover individuals who are not Federal employees, such as employees of small private businesses or,

as the chairman has mentioned, employees of federally qualified

health centers; expanding required benefits to include additional

services such as hearing aids; increasing the level of Government

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contributions; eliminating the time limit on the continuation coverage for employees who leave Federal service; and requiring plans

to establish and maintain electronic individual personal health

records.

Other issues facing the program include maintaining the integrity of the risk pool eliminating fraud and abuse, and containing

cost.

This concludes my statement. I would be happy to answer any

questions that the members of the subcommittee might have.

[The prepared statement of Ms. Chaikind follows:]

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Mr. DAVIS OF ILLINOIS. Thank you very much, Ms. Chaikind.

Mr. Purcell.

STATEMENT OF PATRICK PURCELL

Mr. PURCELL. Mr. Chairman, Ranking Member Marchant, thank

you for inviting me to speak with you today about the Federal Employees Retirement System.

Federal employees are eligible for retirement benefits under either the Civil Service Retirement System [CSRS], or the Federal

Employees Retirement System [FERS]. Employees hired in 1984 or

later are covered by FERS; employees covered before that date are

covered by CSRS, unless they switched to FERS in open seasons

held in 1987 and 1998.

Today, about three-fourths of Federal employees are covered by

FERS. This figure rises each year as employees under the old

CSRS retire.

FERS was established under the Federal Employees Retirement

System Act of 1986 and it consists of three elements: Social Security, a defined benefit pension called the FERS-based annuity, and

the Thrift Savings Plan. Before 1984, Federal employees were not

covered by Social Security, they were covered instead by the CSRS,

which Congress created in 1920.

Because Social Security needed greater cash contributions to remain solvent, in 1983 Congress required Social Security coverage

for all new Federal employees hired in 1984 or later.

Congress recognized that Social Security provided some of the

same benefits as CSRS and that covering workers under both plans

would require payroll deductions of more than 13 percent of pay.

Therefore, Congress directed the development of a new retirement

system with Social Security as the base, but also including a defined benefit pension and a savings plan. The result of this was the

FERS Act of 1986.

Federal employees are fully vested in the FERS basic annuity

after 5 years of service. The minimum retirement age, which was

55 for workers born before 1948, will increase over time to 57 for

workers born in 1970 or later. This year a worker with 30 years

of service can retire at age 55 and 10 months. Workers with 20 to

29 years of service can retire at 60, and workers with 5 to 19 years

of service can retire at 62.

The FERS basic annuity pays a pension equal to 1 percent of the

average of the three highest consecutive years of pay, so for a

worker retiring at 55 with 30 years of service this annuity is equal

to 30 percent of his or her high three pay. FERS also pays a supplement until age 62, which is equal to the amount of the Social

Security benefit that the worker earned while employed by the

Federal Government. The supplement ends at 62, regardless of

whether the employee applies for Social Security at that age.

The legislative history of the FERS Act shows that Congress

wished to enroll new employees in Social Security, to provide a

benefit that in total was comparable to that under CSRS, and to

make the FERS plan similar to retirement plans of large employers

in the private sector. Thus, in establishing the FERS, Congress

provided Federal employees the opportunity to save for retirement

on a tax-deferred basis through the Thrift Savings Plan [TSP].

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The thrift plan is similar to 401(k) plans provided by many companies in the private sector. This year employees under age 50 can

contribute up to $15,500 to the TSP. Employees 50 and older can

contribute an additional $5,000. These contributions are pre-tax,

and investment earnings grow tax-free until the money is withdrawn.

The Government contributes an amount equal to 1 percent of pay

to the TSP for all employees. In addition, employees covered by

FERS receive a 100 percent match on the first 3 percent of pay

they contribute and a 50 percent match on the next 2 percent contributed, for a total employer contribution of 5 percent of pay.

Currently, 86 percent of employees covered by the FERS contribute to the TSP, and the Thrift Board has submitted a bill to Congress to make enrollment in the TSP automatic for new Federal

employees.

The pension benefits provided to Federal employees compare favorably to those provided in the private sector. Under FERS, employees participate in Social Security. They are covered by defined

benefit pension, and they can save pre-tax through the TSP. This

combination of benefits has become rare in the private sector.

The Department of Labor reports that only 51 percent of workers

in the private sector participated in an employer-sponsored retirement plan of any kind in 2006, and just 20 percent of private sector

workers were covered by defined benefit plans that provide a guaranteed retirement income.

The Labor Department estimates that only 12 percent of private

sector workers participated in both a defined benefit plan and a

401(k) plan in 2006.

This concludes my statement, and I will be happy to answer any

questions.

[The prepared statement of Mr. Purcell follows:]

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Mr. DAVIS OF ILLINOIS. Thank you both very much.

Ms. Chaikind, let me try to make sure that I understand the

comparison between what Federal employees basically qualify for

in terms of health benefits and those in the private sector.

It seemed to me that you are saying that basically Federal employees compare rather favorably——

Ms. CHAIKIND. That is correct.

Mr. DAVIS OF ILLINOIS [continuing]. To what they could expect in

the private sector.

Ms. CHAIKIND. In terms of access to plans, yes. I mean, that is

all that I was talking about. There was access to plans. All Federal

workers who are considered either full time or part time do have

access to a health benefit plan.

In the private sector, that access varies. As I said, it increases

as firm size increases, as pay increases, as full time increases, so

there are more barriers, I would say, in the private sector for any

given individual to have access to health insurance than there are

in the Federal work force.

Mr. DAVIS OF ILLINOIS. Do you have any value comparisons in

terms of the values of what they qualify for?

Ms. CHAIKIND. I don’t have that, but I think that is something

that I could get back to you with, if you would like me to.

Mr. DAVIS OF ILLINOIS. I would appreciate it.

Mr. Purcell, your testimony suggests that when it comes to retiree benefits, that Federal employees similarly compare rather favorably to what exists in the private sector; is that accurate?

Mr. PURCELL. I think that is an accurate characterization. And

the reason for that is that in the private sector, since the early

1980’s there has been a strong trend away from the traditional defined benefit pension in favor of the 401(k) plan. What that means

is if you looked at the statistics in 1980 you would have seen about

the same percentage of workers in the private sector in a plan as

are in a plan today, about half. But in 1980, virtually all of them

would have been in a traditional pension. Today, only one worker

in five in the private sector is participating in a traditional pension, and a number of those, perhaps as many as a quarter, have

been frozen in one respect or another, meaning either no new benefits are accruing or new workers are not allowed into the plan.

If you isolate on, say, the 500 largest companies in the S&P or

Fortune 500, you will still see a majority, roughly two-thirds, that

offer a defined benefit pension, but it is still a minority that offer

both a DB plan and a tax-favored savings plan, which Federal employees are able to participate in.

Mr. DAVIS OF ILLINOIS. Let me ask both of you, do you have any

idea why there is sort of a common perception? I mean, when you

talk to people, there seems to be a tendency to believe that the private sector does a better job in both these arenas than the public

sector.

Mr. PURCELL. I can’t answer for sure why that perception might

exist, but, as one of the earlier witnesses said today, the difference

in pay is very easy for people to measure. The difference in benefits

is more complicated, particularly with younger workers. As the Director of the TSP mentioned today, they have lower participation

rates and lower contribution rates. They are going up, which is a

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good thing. But it is very difficult to get younger workers, in particular, to focus on the importance of saving for retirement or to

understand the value of the defined benefit pension.

I think when people are comparing between the private sector

and the public sector they have a much clearer idea about differences in pay than they do differences, particularly in retirement

benefits. I can’t really speak about the health insurance aspect because that is not my area.

Mr. DAVIS OF ILLINOIS. Let me just ask about the health insurance.

Ms. CHAIKIND. Well, I am going to draw from some of my other

experience in health insurance and say that many people in both

the private and the public sector are concerned about health insurance coverage as employers, whether they are private sector employers or other, are reducing benefits, increasing co-insurance, increasing co-payments. So I am not sure that this is an issue that

is of concern only to Federal Employees Health Benefits Program,

but it is also an issue of any employer-sponsored health benefit

plan.

Mr. DAVIS OF ILLINOIS. Have you seen much movement in the vision/dental coverage arena in terms of trends that might be evolving or developing?

Ms. CHAIKIND. In terms of trends, as I mentioned in my statement, other private sector employees do have lower access than

Federal employees have lower access, but what I cannot speak to

is whether or not those employees have to pay 100 percent just like

Federal employees have to pay.

Mr. DAVIS OF ILLINOIS. Thank you. Thank you both very much.

Mr. Marchant.

Mr. MARCHANT. Thank you, Mr. Chairman.

Part-time employees have the same ability to access the health

insurance, so if you are brought on at 20 hours, you have the same

waiting period and you can enter the program and you have exactly

the same access, no pre-existing?

Ms. CHAIKIND. Everything is the same except the premium. Parttime employees will pay a larger share, and it is pro-rated based

on the number of hours that they work.

Mr. MARCHANT. But the access is available and they can get it,

so there is a great amount of value, as opposed to the corporate

world now. Most corporations are moving to a part-time status so

that they are not required by law to offer insurance at any price.

Ms. CHAIKIND. Yes, that is correct. In the Federal Employees

Health Benefits Program, employees are given the same access. As

I said, they just have to pay a larger share of the premium, and

they also are able to pay the premiums on a pre-tax basis, just as

the full-time workers are.

Mr. DAVIS OF ILLINOIS. Mr. Chairman, that is a great thing to

be offered. In the private world right now, in the corporate world,

it is almost unheard of for a part-time worker to be even offered

the plan.

Is there any document, Mr. Purcell, that you know of that a Federal worker is shown when they take their job that says, Here is

your cash compensation and here is the value of your benefits

package, its equivalency, so that a person can say, OK, if I have

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to work for this company and I pay this, or I go to work for the

Federal Government and pay this, same cash amount? Is that

made available?

Mr. PURCELL. For new Federal employees they would receive information as part of their orientation that will explain the pension

benefit that is provided. The Thrift Board puts out numerous publications that are very easy to read. They don’t go into eight pages

of fine print, but they have charts and show here is what you will

accumulate if you start saving at this age or this age. So I believe

that the Federal Government is doing a pretty good job right now

of informing new employees what retirement benefits they have

available to them. How that is done in the private sector I am not

sure.

I would say that more companies in the private sector, about a

quarter of the, say, Fortune 500, have gone to automatic enrollment in 401(k) plans, and I think most observers expect that trend

to continue, and that is going to get a lot more people into 401(k)

savings plans at an earlier age, just as it would if it was adopted

by the thrift plan.

Mr. MARCHANT. So the ability to enter a defined benefit plan is

a plus.

Mr. PURCELL. The interest thing is in a defined benefit plan, the

traditional pension, as a worker you don’t do anything. You are on

the payroll, you are in the plan. You may not even be aware of it.

That is one reason I was saying before it is difficult for workers to

compare retirement benefits because they are not quite sure of the

value of those benefits.

In a defined contribution plan, since you are getting sort of a

quarterly statement of how much is in your account, it is much

easier to see how you are doing.

The inertia in the past has been that newer workers and lowerpaid workers were reluctant to give up take-home pay to put

money into either the thrift plan for the Government or the 401(k)

plan in the private sector. With automatic enrollment, the default

is at 6 months or whatever the start date is, a certain percentage

is going to be put into your account.

Now, of course, you have to offer them the option to say I don’t

want to do that, but studies, real-world experiments in companies,

have shown once people are automatically enrolled, 90 percent, 95

percent of them stay in.

Mr. MARCHANT. Well, just from a pure PR standpoint, the Federal Government I don’t think does as good a job as they could do

informing the potential employee out there that they can join a

company, get automatic coverage on the health care and their family—at a price, but get it—get in a pension system that has a definable benefit, and then have a structure that surrounds it that is

not contingent on a board of directors annuitizing their pension

plan and freezing them in it.

Mr. PURCELL. It is one of those things where I think the appreciation of the health and retirement benefits that Federal employees receive often doesn’t dawn on them until they have been in the

Federal Government a number of years. I mean, I talk to a lot of

Federal employees about retirement issues. Many of them are not

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aware at all that they are covered by a traditional pension in addition to the Thrift Savings Plan.

Mr. MARCHANT. The one thing that I don’t know, Mr. Chairman,

if this dogs you or not, but sometimes on Sunday afternoon I am

driving back from my ranch back home getting ready to come back

here and I listen to these financial gurus, you know, and they harp

on the fact that I don’t pay any Social Security tax, and then I get

these chain e-mails. Was there ever a time that we did not pay Social Security tax? Where does that come from?

Mr. PURCELL. A long time ago. Prior to 1984 Members of Congress, like every other Federal employee, were in the Civil Service

Retirement System, and that system was actually created before

Social Security.

Mr. MARCHANT. OK.

Mr. PURCELL. When the 1983 Social Security Amendments were

passed, part of those amendments said from now on all new employees are going to be in Social Security and all Members of Congress will be in Social Security. All Members of Congress pay Social

Security taxes. I have seen the e-mail. I have seen it many, many

times. And we do have a report about retirement benefits for Members of Congress that explains very clearly that they pay the same

Social Security taxes as every other citizen of the United States except, of course, there are some State workers who don’t.

Mr. MARCHANT. Right.

Mr. PURCELL. And Texas I think is one of them.

Mr. MARCHANT. Yes, it is, and they want to double dip.

Thanks for your information. I appreciate your testimony.

Mr. DAVIS OF ILLINOIS. And that the retirement is not nearly as

lucrative as some believe.

Mr. MARCHANT. It is probably not going to be the many millions

of dollars that the e-mail says.

Mr. DAVIS OF ILLINOIS. Well, you know, the public has this perception that it is just a fat cat pension that you get. I do a television show every week, and I have some callers who just call in

and want to know, what are you going to do with your pension?

And I am saying, My wife would probably like to know what I am

going to get as a pension.

I have just one additional question, Mr. Purcell. What is the average age at which Federal employees retire, and what is their average monthly pension?

Mr. PURCELL. The average age has been very stable for many

years, right around 61. Currently, the retirees under the Civil

Service Retirement System get an average pension of about $2,500

a month, which will work out to $30,000 a year. And under the

FERS the average pension is about $900. Now, the reason that

number is so much lower, there are two reasons. One is the FERS

pension is smaller because those workers are also covered by Social

Security, so their combined benefit is bigger. Second, the retirees

under CSRS still have a higher average career length. FERS is

still, as a pension system, fairly young, so the FERS retirees don’t

have as long a career as the CSRS retirees.

Mr. DAVIS OF ILLINOIS. Well thank you very much. I think that

is about what the average Member of Congress who retires will get.

I understand it is about $35,000 a year.

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Let me thank you all very much for your patience and your diligence. We really appreciate the fact that you stayed.

Mr. Marchant, unless you have some additional questions, comments?

[No response.]

Mr. DAVIS OF ILLINOIS. We thank you very much. This hearing

is adjourned. We thank our staff who have also done due diligence

and got a lot of late evening work.

[Whereupon, at 5:30 p.m., the subcommittee was adjourned.]

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