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73–447 PDF 2012

RETIREMENT READINESS: STRENGTHENING THE

FEDERAL PENSION SYSTEM

HEARING

BEFORE THE

SUBCOMMITTEE ON FEDERAL WORKFORCE,

U.S. POSTAL SERVICE AND LABOR POLICY

OF THE

COMMITTEE ON OVERSIGHT

AND GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

SECOND SESSION

JANUARY 25, 2012

Serial No. 112–114

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

(

Available via the World Wide Web: http://www.fdsys.gov

http://www.house.gov/reform
(II)

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

DARRELL E. ISSA, California, Chairman

DAN BURTON, Indiana

JOHN L. MICA, Florida

TODD RUSSELL PLATTS, Pennsylvania

MICHAEL R. TURNER, Ohio

PATRICK T. MCHENRY, North Carolina

JIM JORDAN, Ohio

JASON CHAFFETZ, Utah

CONNIE MACK, Florida

TIM WALBERG, Michigan

JAMES LANKFORD, Oklahoma

JUSTIN AMASH, Michigan

ANN MARIE BUERKLE, New York

PAUL A. GOSAR, Arizona

RAU ́ L R. LABRADOR, Idaho

PATRICK MEEHAN, Pennsylvania

SCOTT DESJARLAIS, Tennessee

JOE WALSH, Illinois

TREY GOWDY, South Carolina

DENNIS A. ROSS, Florida

FRANK C. GUINTA, New Hampshire

BLAKE FARENTHOLD, Texas

MIKE KELLY, Pennsylvania

ELIJAH E. CUMMINGS, Maryland, Ranking

Minority Member

EDOLPHUS TOWNS, New York

CAROLYN B. MALONEY, New York

ELEANOR HOLMES NORTON, District of

Columbia

DENNIS J. KUCINICH, Ohio

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

STEPHEN F. LYNCH, Massachusetts

JIM COOPER, Tennessee

GERALD E. CONNOLLY, Virginia

MIKE QUIGLEY, Illinois

DANNY K. DAVIS, Illinois

BRUCE L. BRALEY, Iowa

PETER WELCH, Vermont

JOHN A. YARMUTH, Kentucky

CHRISTOPHER S. MURPHY, Connecticut

JACKIE SPEIER, California

LAWRENCE J. BRADY, Staff Director

JOHN D. CUADERES, Deputy Staff Director

ROBERT BORDEN, General Counsel

LINDA A. GOOD, Chief Clerk

DAVID RAPALLO, Minority Staff Director

SUBCOMMITTEE ON FEDERAL WORKFORCE, U.S. POSTAL SERVICE AND LABOR

POLICY

DENNIS A. ROSS, Florida, Chairman

JUSTIN AMASH, Michigan, Vice Chairman

JIM JORDAN, Ohio

JASON CHAFFETZ, Utah

CONNIE MACK, Florida

TIM WALBERG, Michigan

TREY GOWDY, South Carolina

STEPHEN F. LYNCH, Massachusetts,

Ranking Minority Member

ELEANOR HOLMES NORTON, District of

Columbia

GERALD E. CONNOLLY, Virginia

DANNY K. DAVIS, Illinois
(III)

C O N T E N T S

Page

Hearing held on January 25, 2012 ......................................................................... 1

Statement of:

Coble, Hon. Howard, a Representative in Congress from the State of

North Carolina .............................................................................................. 83

Coffman, Hon. Mike, a Representative in Congress from the State of

Colorado ......................................................................................................... 95

Dold, Hon. Robert J., a Representative in Congress from the State of

Illinois ............................................................................................................ 106

Griffin, Hon. Tim, a Representative in Congress from the State of Arkansas .................................................................................................................. 88

Grimes, Charles D., III, Chief Operating Officer, U.S. Office of Personnel

Management; Andrew G. Biggs, Ph.D., resident scholar, American Enterprise Institute; Pete Sepp, executive vice president, National Taxpayers Union; and David B. Snell, director of retirement benefits, National Active and Retired Federal Employees Association ........................ 7

Biggs, Andrew G., Ph.D. ........................................................................... 17

Grimes, Charles D., III ............................................................................. 7

Sepp, Pete .................................................................................................. 24

Snell, David B. ........................................................................................... 39

Nugent, Hon. Richard B., a Representative in Congress from the State

of Florida ....................................................................................................... 102

Schilling, Hon. Robert T., a Representative in Congress from the State

of Illinois ........................................................................................................ 99

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

Biggs, Andrew G., Ph.D., resident scholar, American Enterprise Institute,

prepared statement of ................................................................................... 19

Coble, Hon. Howard, a Representative in Congress from the State of

North Carolina, prepared statement of ....................................................... 85

Coffman, Hon. Mike, a Representative in Congress from the State of

Colorado, prepared statement of .................................................................. 97

Connolly, Hon. Gerald E., a Representative in Congress from the State

of Virginia, prepared statement of .............................................................. 112

Cummings, Hon. Elijah E., a Representative in Congress from the State

of Maryland, prepared statement of ............................................................ 113

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

of Illinois, memo dated November 22, 2011 ................................................ 56

Dold, Hon. Robert J., a Representative in Congress from the State of

Illinois, prepared statement of ..................................................................... 108

Griffin, Hon. Tim, a Representative in Congress from the State of Arkansas, prepared statement of ........................................................................... 90

Grimes, Charles D., III, Chief Operating Officer, U.S. Office of Personnel

Management, prepared statement of .......................................................... 10

Lynch, Hon. Stephen F., a Representative in Congress from the State

of Massachusetts, prepared statement of Ms. Kelly .................................. 75

Nugent, Hon. Richard B., a Representative in Congress from the State

of Florida, prepared statement of ................................................................ 104

Ross, Hon. Dennis A., a Representative in Congress from the State of

Maryland, prepared statement of ................................................................ 4

Schilling, Hon. Robert T., a Representative in Congress from the State

of Illinois, prepared statement of ................................................................ 101

Sepp, Pete, executive vice president, National Taxpayers Union, prepared

statement of ................................................................................................... 26

Snell, David B., director of retirement benefits, National Active and Retired Federal Employees Association, prepared statement of ................... 41

(1)

RETIREMENT READINESS: STRENGTHENING

THE FEDERAL PENSION SYSTEM

WEDNESDAY, JANUARY 25, 2012

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON FEDERAL WORKFORCE, U.S. POSTAL

SERVICE AND LABOR POLICY, COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM, Washington, DC.

The subcommittee met, pursuant to notice, at 9 a.m., in room

2203, Rayburn House Office Building, Hon. Dennis A. Ross (chairman of the subcommittee) presiding.

Present: Representatives Ross, Walberg, Lynch, Connolly, and

Davis.

Staff present: Robert Borden, general counsel; Will L. Boyington,

staff assistant; Jennifer Hemingway, senior professional staff member; James Robertson, professional staff member; Peter Warren,

legislative policy director; Jaron Bourke, minority director of administration; Kevin Corbin, minority deputy clerk; Ashley Etienne,

minority director of communications; William Miles, minority professional staff member; and Mark Stephenson, minority senior policy advisor/legislative director.

Mr. ROSS. Good morning. I will now call the Subcommittee on

Federal Workforce, U.S. Postal Service and Labor Policy to order.

Today’s hearing is on ‘‘Retirement Readiness: Strengthening the

Federal Pension System.’’

As we do in all Oversight Committees, I will recite the Oversight

Committee mission statement.

We exist to secure two fundamental principles: First, Americans

have a right to know that the money Washington takes from them

is well-spent; and, second, Americans deserve an efficient, effective

government that works for them. Our duty on Oversight and Government Reform Committee is to protect these rights.

Our solemn responsibility is to hold government accountable to

taxpayers, because taxpayers have a right to know what they get

from their government. We will work tirelessly, in partnership with

citizen watchdogs, to deliver the facts to the American people and

bring genuine reform to the Federal bureaucracy.

This is the mission of the Oversight and Government Reform

Committee.

And I know we have votes probably as early as 9:30. So we hopefully, especially with just the ranking member and I here today

right now, will be able to get through this panel before we have to

do votes, and then we will impanel our second panel right after

that.
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With that, I will recognize myself for 5 minutes to deliver my

opening statement.

Today’s hearing will explore options in reforming the entire Federal pension system to bring it more in line with the private-sector

work force and help balance the budget. It is clear that the taxpayer cannot afford the current Federal pension cost structure in

the long term.

But what is good for the goose is good for the gander. Today’s

hearing will also explore options to ensure that Members of Congress are treated no better than their fellow citizens in the Federal

work force. The taxpayer has had enough of ‘‘do what I say, not

what I do’’ from Washington.

Being a Member of Congress is not a career; it is an honor bestowed upon a few by the great people of this Nation—a great people who pay a great price for a work force and a Congress that

costs too much.

According to an August 10, 2010, analysis conducted by the

CATO Institute, the Federal Government pays almost $42,000 in

health insurance and pension benefits for Federal employees,

which is nearly four times greater than that which is the average

in the private sector.

Worse, Members of Congress currently receive a pension benefit

that is vastly better than the rest of the Federal work force. According to the Office of Personnel Management, the average annual

pension for those retiring from Congress was $53,940. To put it in

perspective, the average Social Security recipient receives $14,000

per year.

In 2010, Obama’s deficit-reduction commission recommended increasing the amount Federal employees pay toward their retirement and to start calculating their pension using the employee’s

average of 5-year salary rather than the current 3-year salary as

a base.

Last December, Republicans in the House of Representatives

passed H.R. 3630, which called for reform of the Federal pension

system, making it more comparable to the marketplace and saving

taxpayers $38 billion, according to the Congressional Budget Office.

The bill also included recommendations of the President’s deficit

commission: increase the employee retirement contribution; eliminate the supplemental payment to individuals who voluntarily retire before age 62; and changed the pension formula for new hires.

The bill also applied to Members of Congress and their staff.

Unfortunately, this bill died in the Senate, but I suppose we

should not expect too much since it currently takes over 1,000 days

to pass a budget in that chamber.

Today we will hear from distinguished witnesses to examine the

current policies and formulas that govern Federal pensions under

the Civil Service Retirement System and the Federal Employees

Retirement System. We will also hear from several Members of

Congress who have introduced legislation aimed at adjusted or

eliminating Members’ pension coverage.

Today’s hearing is not about beating up on Federal employees or

even Members of Congress. It is about living in the real world—

a world where defined-benefit pension plans are disappearing and
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market-driven solutions, like the Federal Thrift Savings Plan, are

on the rise.

Protecting taxpayers and ensuring reasonable retirements for the

Federal work force is our primary goal. But a deeper reality should

set in here in Washington: The American people demand in their

elected representatives a willingness to live under the laws they

pass. They are tired of the perks and hypocrisy they witness in

their Congress and are rightfully outraged by the pension benefits

guaranteed to a Federal work force that has grown too large, paid

for through an ever-increasing tax burden on the hardworking

American taxpayer. Too many working Americans watched their

pensions evaporate because of the economic consequences of debt

and borrowing caused, in part, by these unsustainable promises.

There is no way to ensure value to the taxpayer and security to

the worker, both private and public sector—there is—excuse me—

there is a way to ensure value to the taxpayer and security to the

worker, both public and private sector, through a more affordable

pension system.

On top of today’s hearing, I will be introducing legislation that

overhauls the Federal pension system and applies to Members of

Congress. H.R. 3813 would increase the employee and Member retirement contribution by 11⁄2 percent of salary over 3 years. My bill

would also eliminate the supplemental payment to individuals who

voluntarily retire before the age of 62; increases the employee retirement contribution for new hires; changes the multiplier used in

the pension formula; and uses a 5-year average as a salary base.

And all of these reforms would apply to Members of Congress, as

well.

As Congress looks forward to cut costs, Congress must also lead

by example. I sincerely hope that this is just the beginning of a reform year in which we make government and Congress more accountable.

I thank the witnesses for appearing today, and I look forward to

your testimony.

And I now recognize my friend and ranking member from Massachusetts, Mr. Lynch.

[The prepared statement of Hon. Dennis A. Ross follows:]
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Mr. LYNCH. Thank you very much, Mr. Chairman. It is good to

be with you this morning.

I do have to say, though, this is really—this hearing really is an

attack on Federal employees, on Federal pensions. Only in Congress, only in the U.S. Congress, would a hearing entitled ‘‘Retirement Readiness: Strengthening the Federal Pension System’’ consist of eliminating Federal pensions. That is the way that my colleagues have suggested they are going to strengthen the pension

system, is by eliminating the pension system.

A couple of other things. The President did indeed recommend

that Federal employees pay more for their pension, make greater

contributions. The President also suggested we eliminate the supplemental benefit for early retirees. But he introduced those ideas

as part of a—in a context of asking the wealthiest in this country

also to kick in, to pay a little bit more. So he conceded that, yes,

we should ask Federal employees to contribute more; yes, we

should pare back benefits in light of our economic crisis. But at the

same time, the President said, could we ask the wealthiest in this

country to pay a little bit more?

And that is why the bill went nowhere in the Senate. That is

why it crashed and burned over there, because a lot of folks on the

Republican side have signed this oath, this oath to Grover

Norquist, that under no circumstances will they raise taxes. They

won’t raise taxes on the wealthiest. They won’t raise taxes to pay

for the war in Iraq, they won’t raise taxes to pay for the war in

Afghanistan, even though they describe themselves as being promilitary. Pro-military as long as they don’t have to pay for it.

And this hearing and much of the testimony that you will hear

today is really an attack on Federal workers. There are some comparisons here—we will get into it later—but it is sad, it is really

sad in this day and age that we would just go after our Federal

employees.

You know, eliminating pensions for Federal workers and eliminating pensions for Members of Congress is popular, I guess. And

I think that, you know, we could have a bill that the people would

support if we eliminated—if we eliminated all pay for Members of

Congress, make them work for zero; eliminate their health benefits;

eliminate their pensions; make them walk to work, even if from

Massachusetts, make them walk back and forth. I think, you know,

Congress is very unpopular right now. There is one poll out there

that says that Congress’ popularity is somewhere between the

Taliban and the swine flu. And we probably deserve that. So, you

know, it is one thing to acknowledge that and try to do better. It

is quite another to feed into it.

And if we eliminate pensions and health benefits and cut pay for

Members of Congress, pretty soon it will get to a point that only

people who are independently wealthy—you know, if we really are

ascribing to the wishes of the Founders of this Nation and those

who drafted our Constitution, the Framers of the Constitution really thought that Congress should be constituted by a mixture of people and backgrounds. If we eliminate pay and pensions and health

benefits for Members of Congress, only those people who are independently wealthy or retired and have had a full career will be able
7

to come here, will be able to afford to come here and represent the

people in this great government.

So I think it is pathetic, really, that so many bills are out here

to go after Federal employees. We are asked to, in every aspect of

government, match up against a private sector that is enormously

well-funded and well-equipped to deal with some of the issues,

whether it is financial services or environmental issues. We have

a hard time matching up, posting up against people who we are,

you know, proposed to regulate.

But I thank the gentleman. I look forward to the testimony, and

I yield back the balance of my time.

Mr. ROSS. Thank you, Mr. Lynch.

I now ask unanimous consent that the statement of House Administration Chairman Dan Lungren be placed into the record.

Without objection, it is so ordered.

Members have 7 days to submit opening statements and extraneous material for the record.

I will now introduce our first panel, and I welcome our witnesses.

We have Mr. Chuck Grimes, who is the chief operating officer for

the Office of Personnel Management. We have Dr. Andrew Biggs,

who is a resident scholar at the American Enterprise Institute. We

have Mr. Pete Sepp, who is executive vice president of the National

Taxpayers Union. And we have Mr. David Snell, who is the director of retirement benefits for the National Active and Retired Federal Employees Association.

Pursuant to committee rules, all witnesses will be sworn in before they testify. So please rise and raise your right hands.

[Witnesses sworn.]

Mr. ROSS. Thank you.

Let the record reflect that all of the witnesses answered in the

affirmative.

In order to allow time for our discussion, please limit your comments to 5 minutes, and please also understand that your entire

written statement will be made part of the record of this proceeding.

With that, I will recognize Mr. Grimes for 5 minutes for an opening.

STATEMENTS OF CHARLES D. GRIMES III, CHIEF OPERATING

OFFICER, U.S. OFFICE OF PERSONNEL MANAGEMENT; ANDREW G. BIGGS, PH.D., RESIDENT SCHOLAR, AMERICAN ENTERPRISE INSTITUTE; PETE SEPP, EXECUTIVE VICE PRESIDENT, NATIONAL TAXPAYERS UNION; AND DAVID B. SNELL,

DIRECTOR OF RETIREMENT BENEFITS, NATIONAL ACTIVE

AND RETIRED FEDERAL EMPLOYEES ASSOCIATION

STATEMENT OF CHARLES D. GRIMES III

Mr. GRIMES. Chairman Ross, Ranking Member Lynch, and members of the subcommittee, thank you for the opportunity to appear

before you to discuss Federal pensions.

OPM’s mission is to recruit, retain, and honor a world-class work

force to serve the American people. As part of that mission and by

law, OPM oversees administration of the Civil Service Retirement

System [CSRS], and the Federal Employees Retirement System
8

[FERS], covering annuitants in the executive, legislative, and judicial branches.

OPM processes annuity payments for retirees and their survivors. As of October 1, 2010, there were 1.52 million CSRS annuitants, with an average monthly annuity of $2,941, based upon 29.6

years of service; and 361,000 FERS annuitants, with an average

monthly annuity of $1,065, based on 17.2 years of service. There

were 262 retired CSRS Members, with an average monthly annuity

of $5,785, based on 20.7 years of service; and 181 retired FERS

members, with an average monthly annuity of $3,205, based on

16.2 years of service.

Generally, Federal employees who entered service prior to 1984

are covered by CSRS. When established in 1920, coverage was limited to permanent and competitive employees in the executive

branch. In the 1940’s, coverage was extended to agency heads and,

upon election, to the President, Vice President, and Members of

Congress.

With some exceptions, Federal employees contribute 7 percent of

their pay to CSRS, congressional employees contribute 7.5 percent,

and Members contribute a combined 8 percent of their pay to CSRS

and Social Security, while the employing agency pays those rates

into the retirement fund. The CSRS defined annuity benefit is computed based on the high–3 average pay and length of service.

The Federal Employees Retirement System Act of 1986 established a new three-tier retirement structure with a defined benefit

annuity, a defined contribution under TSP, and Social Security.

Generally, Federal employees who entered service on or after January 1, 1984, are covered by FERS, and Members first elected in

1984 or later are automatically covered.

With FERS, Congress made a conscious and conscientious decision to prevent the underfunding problems that have plagued so

many private, State, and local defined-benefit retirement systems.

FERS was designed as a fully funded retirement system with a dynamic normal cost-of-service credit paid for by the employer and

employee contributions. It was also designed to better serve the

needs of a more mobile work force. Though the defined benefit provides maximum benefits when an employee continues Federal employment into retirement, TSP and Social Security are fully portable.

Under FERS, Federal employees contribute 0.8 percent of their

pay, and the employing agency in fiscal year 1912 contributes 11.9

percent. Members and congressional employees pay 1.3 percent,

and Congress pays 16.7 percent for employees and 18.3 percent for

Members. Federal employees and Member contribute 6.2 percent of

their pay to Social Security, with the exception of 2011 and the

first couple of months of 2012 due to the payroll tax relief bill.

The FERS basic annuity is computed based on the high–3 average pay and length of service. In addition, some FERS retirees may

be entitled to receive an annuity supplement, payable to age 62,

based on the potential Social Security benefit earned by Federal

employment.

On September 19, 2011, President Obama released ‘‘Living Within Our Means and Investing in the Future: The President’s Plan

for Economic Growth and Deficit Reduction.’’ The President’s plan
9

proposed an increase in the employee contribution to FERS and

CSRS, as well as other defined-benefit plans not administered by

OPM. Federal employees’ total pension amounts would remain unchanged, and the employee contribution would increase 0.4 percent

of pay a year over 3 years, for a total increase of 1.2 percentage

points.

The President’s plan also proposed the elimination of the FERS

annuity supplement for new employees, other than employees subject to mandatory retirement. Overall, the plan is estimated to save

$21 billion over 10 years.

Thank you for the opportunity to testify today, and I am happy

to address any questions you may have.

[The prepared statement of Mr. Grimes follows:]
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Mr. ROSS. Thank you, Mr. Grimes.

Mr. Biggs, you are recognized for 5 minutes for an opening.

STATEMENT OF ANDREW G. BIGGS, PH.D.

Mr. BIGGS. Thank you very much.

Chairman Ross, Ranking Member Lynch, and members of the

subcommittee, thank you for offering me the opportunity to testify

today with regard to Federal employee retirement benefits.

Legislation has been proposed that would alter Federal employee

retirement benefits by increasing employee contributions and reducing the percentage of final earnings replaced by the FERS pension plan.

If we wish to ensure comparability of pay between the public and

private sectors, whether these policies make sense depends, in part,

upon how the Federal and private-sector pension provision compares. If Federal compensation drops below private-sector levels,

then the government may have difficulty attracting and retaining

employees. If Federal compensation exceeds private levels, however, then taxpayer resources may be wastefully employed.

To illustrate potential differences, I analyzed retirement benefits

for a typical Federal employee relative to what a private-sector

worker with the same salary could expect to receive. The details of

my calculations are outlined in my written testimony, but I will

summarize the results here.

While older Federal employees are covered under the Civil Service Retirement System, younger and newly hired workers will receive retirement income from three principal sources: Social Security benefits, the defined-benefit Federal Employee Retirement System, and the defined-contribution Thrift Savings Plan. Most private-sector workers will receive retirement income from a combination of Social Security and a defined-contribution 401(k)-type pension plan.

In a defined-benefit plan, retirement benefits are calculated

using a formula based upon final earnings and the number of years

of service. In a defined-contribution plan by contrast, benefits are

a function of contributions and interest earned over the years.

Workers may choose how to invest their contributions, but they

also bear any market risk associated with those choices.

I assumed a Federal employee retiring at age 62 after 28 years

of service with final earnings of $78,650, which is roughly typical

for Federal employees of that age. At retirement, he or she would

be eligible for the following benefits: $18,264 per year in Social Security benefits, $23,710 from the FERS plan, and $8,610 from his

or her TSP account. The Federal employee’s total retirement income would equal roughly $50,583, or 64 percent of their final

earnings.

A private-sector worker with the same salary could expect to receive the same Social Security benefit of $18,264, plus around

$7,044 from a 401(k) plan with a typical employer match. The private-sector worker’s total benefit of $25,308 replaces roughly 32

percent of final earnings.

For this stylized employee, Federal retirement benefits are

roughly twice as generous as those paid to a typical private-sector

worker. Federal employees receive an employer match to their de-
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fined-contribution TSP pension that is significantly more generous

than the typical private-sector plan, in addition to which they receive defined benefits through the FERS plan.

Federal employees also may have access to supplemental benefits

if they retire prior to age 62 and to retiree health coverage. In

short, the Federal Government retiree income package is a generous one that few private-sector employers match or exceed.

Now, differing employees will experience different outcomes, and

we obviously can disagree about some of the assumptions made in

generating these figures. But no reasonable changes to assumptions will show Federal retirement benefits to be comparable to or

inferior to a typical private-sector plan.

These figures alone do not say what we should do about Federal

employee pensions. What matters is the total compensation package, which includes salaries, pensions, other fringe benefits, job security, and general working conditions. Yet most peer-reviewed

academic research conducted over the past several decades has

shown Federal employees’ salaries to be higher than those paid to

private-sector workers with similar levels of experience and education. My own work with Jason Richwine of The Heritage Foundation found similar results with salaries, while recording a total benefits package that exceeded private-sector levels.

Employee compensation is often described and certainly perceived as a matter of fairness. But the fair level of compensation,

meaning fair both to employees and to taxpayers, is the minimum

level that allows the Federal Government to attract and retain the

employees it needs. It appears that the Federal compensation

taken as a whole exceeds that minimum level, sometimes by a significant margin.

Whether to alter the terms of Federal retirement benefits, salaries, or other terms of employment is up to Congress to decide. It

should be done in the context not of meeting some specific budgetary goal but of setting pay that competes with but doesn’t supersede private-sector levels.

Thank you very much.

[The prepared statement of Mr. Biggs follows:]
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Mr. ROSS. Thank you, Dr. Biggs.

Mr. Sepp, you are recognized for 5 minutes for an opening.

STATEMENT OF PETE SEPP

Mr. SEPP. Mr. Chairman and Mr. Ranking Member, members of

the committee, I am very grateful that you invited National Taxpayers Union to testify today.

I will begin my testimony by referring to another testimony, one

that occurred in 1984 from our pension consultant at the time, H.P.

Mueller. He pointed out not only the dimensions of the old Civil

Service Retirement System and its possible financial difficulties; he

also talked about how that current system was unfair to Federal

retirees and employees, as well. So we are approaching this issue

from both perspectives.

Another interesting parallel, though, is that he was saying, even

at that time, that the consultants the committee that he was testifying before, Hay Associates, paid to try and do private-sector comparisons with pensions still were not including an adequate universe of the private sector to conduct such a comparison. I think

we still have those difficulties today. I think it is a testament to

my fellow panelist, Mr. Biggs, that he could come up with such

great comparisons with the private sector.

That is one of the points that I would like to make in this testimony. We still need high-quality data to do good comparisons of

congressional Federal employee compensation versus the private

sector. That is going to be necessary for any reform efforts moving

forward.

Another point I would like to make has to do with bipartisanship. We are going to have a great deal of partisan disagreement

over what direction to take over pension reform. I would contend

that this kind of bipartisan effort has to begin not only within Congress but outside of Congress. We are willing to do that; we have

been doing that.

I would call your attention to this report, ‘‘Toward Common

Ground.’’ This was put out by NTU and U.S. Public Interest Research Group, a left-of-center organization, identifying over a trillion dollars’ worth of budget savings. This was not easy. It took us

sitting down in a room, arguing with each other, literally coming

close to pulling each other’s hair out, but we settled on these recommendations.

One of them had to do with the granting of waivers under OPM

for retired annuitants coming back into Federal service and drawing full dual compensation. We noted that if this practice were curtailed, if the rules were restored to a more reasonable level, you

could achieve something on the order of $600 million in savings

over 5 years. Not much, but it is a start. My message: If we can

do it, so can Congress.

Which brings me to Congress. I am not here necessarily to argue

that Members should not be compensated at all. How about we

start with a few basic reforms that can show the American people

we are trying to make progress?

One I think, H.R. 981. It would allow Members to opt out of the

FERS system. That is a good start. H.R. 2162, it would expand the

number of felonies to 20 that would disqualify a Member for receiv-
25

ing a pension. Let’s start there, see where else this could possibly

lead.

One example might be to simply equalize the contribution rates

and benefit formulas for Members with those of the general Federal rank-and-file. I know my testimony has conducted a couple of

comparisons along those lines. One I would like to point your attention to—and, here again, I am not talking about comparisons between the general public and Members of Congress but rather between Members and the rank-and-file. Is the differential, the

amount of extra benefit plus the amount of extra contribution

Members pay, justifiable? I would argue the time has come to reconsider that.

Just one illustration: Ten years of service of a lawmaker, 10

years of service of a rank-and-file employee, same salary. The employee gets about $15,600 in pension to start at 62; the Member,

$26,600. For that differential, the Member pays a little over $8,300

over his or her entire career. And that is an $11,000 extra benefit

in the first year for about $8,300 worth of extra contributions over

10.

That provides an illustration, I think, that we can approach this

from a sensible perspective and say, all the rhetoric, all the anger

from the public aside, we have some genuine issues that can be resolved here. We are willing to work with you to do that.

And let me thank you, Mr. Chairman, as well as Mr. Gowdy and

Mr. Chaffetz, for cosponsoring several pieces of reform legislation

that could help get this conversation going.

Thank you.

[The prepared statement of Mr. Sepp follows:]
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Mr. ROSS. Thank you, Mr. Sepp.

STATEMENT OF DAVID B. SNELL

Mr. Snell, you are recognized for 5 minutes for an opening.

Mr. SNELL. Thank you, Mr. Chairman and members of the committee. I am Dave Snell, director of retirement benefits at the National Active and Retired Federal Employees Association.

I am testifying here today on behalf of the Federal Postal Coalition, a group of nearly 30 organizations whose individuals span almost the entire spectrum of the Federal community. Thank you for

the opportunity to testify on behalf of these nearly 5 million workers and retirees.

I would like to make three basic points today. First, retirement

plans should be judged by whether they provide the income security needed to ensure that retirees do not suffer significant decline

in their standard of living in retirement. Second, judged by that

universal standard, current Federal retirement programs provide

adequate but not overly generous retirement income. And, third,

making permanent cuts to modest Federal retirement compensation of middle-class workers to pay for a 1-year payroll tax holiday

is both unfair and unwise.

Federal workers did not enter public service to become rich, but

they do face the same economic challenges as everyone else, including the need to prepare for retirement. Although they are paid, on

average, 26 percent less than their private-sector counterparts, a

modest retirement package helps to make up for part of that lower

pay by helping to provide reasonable income security in their later

years.

Unfortunately, recent legislative proposals have sought to unravel this basic bargain, unfairly singling out middle-class Federal

employees for disproportionate sacrifice. Last month, the House

passed legislation that would use permanent cuts to Federal retirement compensation of middle-class Federal and postal workers to

pay for a 1-year payroll tax holiday. Federal employees should not

have to pay for two-thirds of the cost of continuing the holiday.

This is not shared sacrifice.

Federal families are no more immune from the challenges that

come with tough economic times than any other working American

family. They, too, have been experiencing declining home values,

diminished savings, rising health insurance costs, escalating tuition for their children’s college, spouses who have lost jobs, and

grown children unable to find work after college.

Cuts to Federal retirement benefits and further pay freezes harm

hardworking Federal employees and their families who are struggling with these challenges just like their private-sector counterparts. They also undermine the Federal Government’s ability to attract and retain talent, threatening harm to a Federal civil service

critical to meeting the increasingly complex and deeply important

tasks that the American citizens need for them to do.

Rather than looking to eliminate the current Federal Employees

Retirement System [FERS], or reduce its benefits, Members of Congress should look to the system as a model for private-sector reforms. The basic FERS annuity is modest. Taken together with the
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other two components of the plan, Social Security and the Thrift

Savings Plan, FERS provides an adequate retirement security.

H.R. 3630 would substantially reduce the retirement income security provided by FERS and effectively provide a pay cut for Federal employees currently under a pay freeze for the last 2 years.

New employees would experience a 41 percent reduction in their

deferred compensation, resulting in a new median annuity of only

$425 a month or $5,098 annually. That is barely over a third of

what a minimum-wage earner would make per year working 40

hours per week for $7.25 an hour.

As much as anyone, our Nation’s civil servants understand the

constraints of the Federal budget and the gravity of the Nation’s

fiscal responsibilities. But we do not believe that it is fair to be singled out for sacrifice to pay for a tax holiday that some of us do

not even receive.

Thank you again for the opportunity to share our views, and I

am happy to take any questions.

[The prepared statement of Mr. Snell follows:]
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Mr. ROSS. Thank you, Mr. Snell.

I will now recognize myself for 5 minutes for questioning. And

I am going to go to the heart of what I think is facing us here, and

that is the congressional pension system.

Do you, each one of you, believe that Congress should bring its

retirement rules in line with those of most Federal employees? And

I will start off with you, Mr. Grimes. And why or why not? Speaking specifically of Congress.

Mr. GRIMES. Honestly, the administration would not have a view

on whether congressional pensions should be the same as the rankand-file. Thank you.

Mr. ROSS. Dr. Biggs.

Mr. BIGGS. In general, yes.

Mr. ROSS. And any follow-up, I mean, as to why or why not?

Mr. BIGGS. Well, with congressional pensions, there are some

specific issues that you are looking at, in terms of short tenure and

not—well, presumably, or supposedly, not as much job security.

But, in general, you can address those through a defined-contribution plan, where there is an employee contribution and an employer match. If the Member of Congress leaves, they can take that

with them.

Working that circumstance into a defined-benefit plan gets

tricky. The defined-benefit plan, if you look at what is called the

normal cost of pensions under FERS for Members of Congress, is

much, much more generous than the ordinary FERS for Federal

employees, which in turn is much, much more generous than what

a typical private-sector worker gets. So I think clearly some scaling

down makes sense.

Mr. ROSS. Mr. Sepp.

Mr. SEPP. Certainly. And I would just point out one other rather

interesting statistic concerning the normal cost factor, in other

words the agency contribution that is set aside for Members of

Congress. That actually has been rising at a somewhat faster rate

than what you would find for the rank-and-file contribution, which

actually tends to fluctuate between 11 and 12 percent. It was about

15 percent back in 1997, now it is over 18 percent for lawmakers.

Mr. ROSS. Mr. Snell.

Mr. SNELL. Mr. Chairman, our coalition believes that Members

of Congress should be on an equal footing with all other Federal

retirees in the matter of their retirement.

Mr. ROSS. Thank you.

Mr. Grimes, I know it is very important that OPM makes sure

that the Federal Government recruits and retains and rewards

Federal employees. And that is all part and parcel, I think, of what

needs to be done in order to keep our human resources at their

best.

Now, taking us from a defined-benefits plan to a defined-contributions plan, will that in any way, in your opinion, impact the

recruitment and retention of Federal employees?

Mr. GRIMES. Our employee surveys show that benefits provided

by the Federal Government for employment are essential for recruiting and retaining high-quality employees.
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We believe that the President’s proposal to increase contributions

over 3 years by the amount of 1.2 percent is an adequate response

in this time of difficulty.

Mr. ROSS. Okay. But do you think it is—is it going to change the

ability for the Federal Government to retain and recruit if we move

toward a defined-contribution plan as opposed to a defined-benefit

plan?

Mr. GRIMES. Well, back when FERS was implemented, of course

we did add that component.

Mr. ROSS. Right.

Mr. GRIMES. And I don’t know that our recruitment strategy

changed at that time. But time would have to tell.

Mr. ROSS. Dr. Biggs, in terms of the private sector versus the

public sector, I think we have seen Fortune 500 companies rarely,

if at all, provide a defined-benefits plan. In fact, I think—and let

me know if this is true or not—they are moving toward an almost

all defined-contribution plan, which is essentially a 401(k). Is that

your understanding?

Mr. BIGGS. That is correct. Defined-benefits plans are dying out

in the private sector, and there is a variety of reasons, one of

which, though, is the ability to recruit and retain.

Defined-benefit plans have an very odd, sort of, path of benefit

accumulation over a worker’s career. For a long period of time,

under defined-benefit plans, an employee accumulates very little of

what you call pension wealth. That tends to shoot up very quickly

later in their career and then falls down again once they reach

their 60’s. I would refer you to the work from Michael Podgursky

of the University of Missouri, who has looked at this very closely

with reference to teachers.

What that means is a defined-benefit plan is worth very, very little to short-term employees. The young, mobile employees you

might wish to recruit, a defined-benefit plan is essentially worthless to them. Also, you have older employees who you wish to keep

on the job later, continuing employment often means they lose

money under a DB plan. So you get this pushing and pulling effect

which often works contrary to what you want to do in terms of employee recruitment and retainment.

Mr. ROSS. Mr. Sepp, from your research, are we moving toward,

even in government pensions, whether it be municipal, county, or

State pensions, from a defined-benefits plan to a defined-contributions plan?

Mr. SEPP. I would say we are. And a lot of it is not by choice,

it is by necessity. If you take a look, for example, at Rhode Island’s

problems. The treasurer there, Gina Raimondo, had to come up

with a plan that has much heavier reliance on defined-contribution

systems to finance the whole retirement structure.

Mr. ROSS. Because they just can’t afford it.

Mr. SEPP. Affordability is a problem. Plus, of course, in the State

and local pension plans, you have the additional factor of investments. In other words, the Federal Government doesn’t invest DB

assets——

Mr. ROSS. Right.

Mr. SEPP [continuing]. In markets, whereas State and local governments often do. They have had a lot of volatility there.
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Mr. ROSS. I follow you.

I see that my time is up. I will now recognize the ranking member, Mr. Lynch from Massachusetts, for 5 minutes for questioning.

Mr. LYNCH. Thank you, Mr. Chairman.

I do note here, we have a MetLife—a 2008 MetLife study that

indicates that workers are more likely to consider pension benefits

as an important factor in remaining with a company. And it would

seem to refute at least some of what we are hearing there from the

panel. Is there any real rebuttal on that?

MetLife is saying that—let me see if I can find it—72 percent of

employees cite retirement benefits—defined-benefit retirement benefits as an important factor in their loyalty to their employer. And

they additionally found—there are several others studies that show

defined-benefit plans keep workers at the job longer than workers

without pensions and that firms with defined-benefit pensions experienced lower turnover rates than non-pension firms.

Do you find that surprising?

Mr. BIGGS. I am not sure that finding is actually inconsistent

with the points that I just made, in terms of the incentives of defined-benefit pensions.

It is certainly true that a mid-career employee under a DB plan

who quits and shifts to another job, because the DB plan isn’t portable, will often leave literally hundreds of thousands of dollars on

the table by doing that. So a mid-career——

Mr. LYNCH. That would be a disincentive, wouldn’t it?

Mr. BIGGS. Sure. A mid-career employee, therefore, has a strong

disincentive to leave.

What that often means in public service, though, is if you have

somebody—this applies more to the State and local level—someone

who is burned out in their job and would like to leave, they effectively are prohibited from doing it by the effects of the DB plan.

There is, I think, strong empirical evidence that public employees

respond to the push-and-pull incentives of defined-benefit pension

plans. For instance, if you have a——

Mr. LYNCH. Okay. I don’t want you to eat up all my time.

Mr. BIGGS. Sure.

Mr. LYNCH. Thank you.

I also notice that, you know, there is a lot of comparison going

on about private-sector defined-benefit plans. One thing I did notice, that 96 percent of defined-benefit plans in the private sector

are fully paid for by the employer, so that there is only 4 percent

of these defined-benefit plans that—I mean, 96 percent of them,

the employer covers everything. Employees don’t have to contribute

a nickel, not a dime, nothing. And we are comparing them to, you

know, the Federal plan that requires employees to contribute over

their lifetime—a fairly significant amount over their career.

So I having a little bit of trouble comparing a private-sector plan

that requires no contribution, employer covers everything—which

is 96 percent of those plans—and the plan that we are talking

about here today. Any thoughts on that?

Mr. BIGGS. I think my answer to that would be that very, very

few private-sector employees today, particularly newly hired private-sector employees, have DB pensions. I noted in my testimony

that most private-sector DB plans are not contributory; there isn’t
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an employee contribution. But the fact is simply that very few private-sector workers have those. If you look at——

Mr. LYNCH. Would they be larger firms or—the problem is, you

know, you try to compare—I mean, what is it, 8 million Federal

employees, and then you are trying to compare that to Al’s Deli.

You know, how do you make that comparison?

Mr. BIGGS. They would tend to be more unionized firms—heavy

industry, airlines, auto, things of that nature. In my testimony, I

focused based on worker type. I compared two workers who were

classified by the Bureau of Labor Statistics as professional management or related workers—the white-collared, skilled workers that

roughly approximate where Federal employees are.

If you adjust for firm size, you are likely to find somewhat larger

pension contributions. But there are very few newly hired privatesector workers in any type of firm who are being offered a DB pension. It is just very unusual.

Mr. LYNCH. Right. But, as you said, if you are comparing defined-benefit plans to defined-benefit plans, you probably should

look at firms that are similar, right? As opposed to—new firms are

generally small when they start. You know what I mean?

Mr. BIGGS. I am not talking about firms. I am——

Mr. LYNCH. So you are already——

Mr. BIGGS. Even newly hired employees at large firms.

Mr. LYNCH. I am going to take back my time, if I could. Thanks.

Actually, Mr. Chairman, I will yield back. I only have a few seconds left. Thank you.

Mr. ROSS. Thank you.

The gentleman from Illinois, Mr. Davis, is recognized for 5 minutes.

Mr. DAVIS. Thank you very much, Mr. Chairman. I want to

thank you for yielding.

I would like to go back to a remark that was made by one of the

witnesses a few minutes ago that I believe deserves some highlighting. Mr. Snell from the Federal Postal Coalition, I believe it

was you that said that Federal workers do not enter public service

to become rich. And I will repeat that: Federal workers do not

enter public service to become rich.

In fact, I believe that the average Federal worker enters these

jobs out of the desire to serve their country and to make a difference on behalf of others. That is a point that I think has been

overshadowed a great deal in recent years.

For the most part, Federal workers are middle-income, hardworking Americans who perform critical jobs and duties day-in and

day-out. To suggest that they do not deserve a retirement annuity

sufficient enough to cover their expenses in the later years of their

life is pretty much as uncompassionate as I think we can get.

Let me ask each of you if you are aware that the majority of Federal employees work in cities and communities outside the District

of Columbia. You are aware of that?

Mr. SNELL. Yes.

Mr. DAVIS. Well, in fact, I believe that each and every one of us

on this podium, as well as on the panel, know Federal employees

and postal employees in my congressional district who work with
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the idea that after retirement they ought to be able to at least take

care of their basic expenses.

I have a large number of Federal employees in my congressional

district, which is the Seventh Congressional District of Illinois,

which is a major metropolitan area. And, Mr. Snell, let me ask you,

what do you think are some of the potential negative economic consequences in congressional districts such as ours if Congress

freezes Federal workers’ pay for an additional year, as required

based on H.R. 3630?

Mr. SNELL. Thank you, Congressman.

That is—the implications on freezing it for another year, workers’ pay, it will substantially reduce their ability to help feed their

families, send their kids to school. It will also have an impact on

their contributions to their Thrift Savings Plan or other retirement

nest eggs that they may have.

So I think what we are talking about by another freeze is again

penalizing middle-class Federal workers, postal workers, to help

solve a budget problem they didn’t commit. And, I mean, they

didn’t have—they are not responsible for.

Mr. DAVIS. Thank you.

Mr. Biggs, in your testimony, you mentioned that Federal work

force pay is comparable to pay in the private sector for similar

work. However, I would like to ask if you and the other witnesses

are aware of a recent study by the Bureau of Labor Statistics that

found that there is actually a 26 percent pay gap between Federal

workers and their similarly skilled and educated private-sector

counterparts.

Mr. BIGGS. I am well aware of that study.

I will say, opinion is divided on Federal pay. On one side are the

studies done for the Federal pay agent, which find these large pay

gaps for Federal employees. On the other side are effectively three

decades of peer-reviewed academic research, which finds a very different result using different—a variety of different methods.

The problem with the pay-agent result is they try to compare

jobs to jobs. They say, what does a Federal job pay relative to a

similar private-sector job? They don’t look at the people who fill

those jobs. The Congressional Budget Office, over 20 years ago,

along with academic research, has shown that for any given job the

Federal Government tends to place in that job an individual with

less experience and less education than the private sector would.

Once you account for that, this 26 percent pay gap simply disappears.

So there is a reason why those studies from the pay agent are

not taken particularly seriously by academics who look at these

issues.

Mr. DAVIS. Mr. Chairman, let me ask unanimous consent to include in the record the memorandum from the Federal Salary

Council that highlights the 26 percent pay gap found by the Bureau of Labor Statistics.

Mr. ROSS. Without objection, so ordered.

[The information referred to follows:]
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Mr. DAVIS. Thank you. My time is up, and I would yield back.

Mr. ROSS. Thank you.

Mr. Lynch.

Mr. LYNCH. Thank you, Mr. Chairman.

Similarly, I would like to ask unanimous consent that the statement of Colleen M. Kelly, the national president of the National

Treasury Employees Union, also be entered into the record.

Mr. ROSS. And, without objection, it is so ordered.

[The prepared statement of Ms. Kelly follows:]
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Mr. ROSS. That completes our questioning by these Members. We

have been called to vote. We will recess now.

I want to thank our panelists for being here today. I appreciate

your testimony.

And then we will reconvene right after this series of votes to impanel our second panel of witnesses.

[Recess.]

Mr. ROSS. I want to reconvene the Subcommittee on Federal

Workforce, U.S. Postal Service and Labor Policy. In the interest of

time, we are going to go ahead and get started, and I would like

to recognize one of our first panelists, the gentleman from North

Carolina, Mr. Coble, for 5 minutes on his bill.

STATEMENT OF HON. HOWARD COBLE, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF NORTH CAROLINA

Mr. COBLE. Chairman Ross, I thank you and your fellow members of the subcommittee for having called this hearing.

Reforming congressional pensions is long overdue. From the feedback that I have received over the years, Mr. Chairman, this program is unpopular with many taxpayers. When I first ran for office

in 1984, I told citizens of the Sixth District of North Carolina that

if elected, I would not participate in the congressional pension program—not my most brilliant financial decision, I might add—and

would work to reform the system.

North Carolina has a similar system back home, and I have rejected that as well, for this reason, Mr. Chairman. I believe the

taxpayers pay our salary. I don’t know that they need to pay our

pensions. Over the years, I have tried unsuccessfully to change the

congressional pension program. I have introduced bills to abolish

the system and to make it equal to the pension that all Federal

employees receive. All of these past efforts died quickly and quietly.

So for the 112th Congress, I tried a new approach. My bill would

link to the time of service required before a Member of Congress

would be eligible for participation in the pension program. This legislation, H.R. 2652, extends the time required, as is the case now,

from 5 years to 12 years before a Member is vested in an annuity

under the Federal Employees Retirement System. In order to avoid

any constitutional concerns, the bill would only apply to Members

who have not yet been elected to serve in the Congress.

Extending the required years of service from 5 to 12 years was

a logical calculation. It is the equivalent of two terms in the Senate

or six terms in the House or a combination of each of the two.

It is also important to note, Mr. Chairman, that H.R. 2652 has

no impact on other Federal employees. During the past few years,

many workers and retirees in America have lost their pensions due

to bankruptcy or in the stock market. In my view, the decision to

participate in the congressional pension program is a personal one,

between the Representative and his or her constituents. H.R. 2652

does not interfere with that relationship. It simply raises the bar

of eligibility for Members seeking a Federal annuity.

I think the bar should be raised, and considering the current

economy, I think doing so now would be received very well by the

American taxpayers.
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I am not patting myself on the back. Well, maybe I am, but I am

patting you on the back as well, Mr. Chairman, you and your members, for having called this hearing because many people in this

town don’t want any discussion directed to pensions. They want the

status quo to remain intact, and I think that is probably—in my

opinion, that is a mistake. I appreciate your consideration for H.R.

2652 and hope that you will support this legislation so that we can

begin the process of improving the congressional pension program.

Mr. Chairman, in closing, I don’t know of any pension situation

that vests after only 5 years. I think it is overly generous, and I

think that is one of the reasons why it is so unpopular among taxpayers in America, and I thank you again, Mr. Chairman.

[The prepared statement of Hon. Howard Coble follows:]
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Mr. ROSS. Thank you, Mr. Coble, I appreciate your time today.

Now recognize the gentleman from Arkansas’ Second Congressional District, Mr. Griffin, for 5 minutes.

Mr. COBLE. Mr. Chairman, may I be excused?

Mr. ROSS. Yes, sir.

Mr. COBLE. I am going to head to the airport.

Mr. ROSS. Have a safe trip home, Mr. Coble.

Mr. COBLE. Thank you, sir. Appreciate it.

Mr. ROSS. Yes, sir.

STATEMENT OF HON. TIM GRIFFIN, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF ARKANSAS

Mr. GRIFFIN. Thank you, Mr. Chairman, thank you to Ranking

Member Lynch for inviting me to testify on my bill, H.R. 3480, the

End Pensions in Congress [EPIC] Act.

My top priority in Congress is to encourage private sector job creation, especially through finding ways that the government can live

within its means. I believe the EPIC Act helps to achieve this goal.

Americans are demanding bold and real change from Washington, and I believe my proposal meets that test, and as I hear

a lot when I am back in my district in Arkansas, it is something

that my constituents really don’t think we will ever do.

On November 18, 2011, I introduced the EPIC Act, which would

end the congressional pension plan for future Members of Congress

and recently elected Members who have not yet vested. So if you

are here like me and you haven’t been here 5 years, then it would

end the pension for you as well as new Members of Congress.

If you have already vested, then you have the opportunity to opt

in if you want to stay in the system, and then it won’t impact you.

I thought that was only fair for the people who had been here for

some time, to leave the rules of the game as they were when they

got here.

For me, this is not a moral judgment. I personally, like Congressman Coble, decided not to participate in the congressional pension

program. I did that because I ran on it. But this is not a moral

judgment for me, and I don’t ask that folks necessarily share my

view on whether to take the pension in order to support the EPIC

Act.

I would love to provide Members with pensions, but for me, it is

just a matter of the bottom line, and that is that we can’t afford

it. Our national debt has topped $15 trillion, going to $16 trillion,

and the Federal Government borrows 42 cents for every dollar it

spends. And I recognize that ending congressional pensions alone

will not fix our debt problems. In fact, it won’t even significantly

reduce our Federal spending. I get that. But I believe it is the gateway, if you will, it is the necessary starting point for reforming the

Federal Employees Retirement Program more broadly, FERS, as

we call it.

Congress must lead by example and cannot credibly tackle FERS

without first reforming our own federally funded benefits. Many of

my constituents have told me they support ending congressional

pensions and pensions for future Federal employees because they

know those combined, not just focusing on the congressional, but

those combined will save the American taxpayers hundreds of bil-
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lions of dollars. The private sector has already realized that defined-benefit pension plans for employees are a thing of the past.

This realization came at a cost with the failure of the pension programs of some of America’s biggest companies.

Take, for example, United Airlines and Delphi corporations. Both

of these companies’ pension programs were turned over to the Pension Benefit Guaranty Corporation, and now some participants in

those programs receive reduced payments.

If you look at what the private sector gets in terms of privatesector employees and their benefits and what we get in the Federal

Government, what we get is generous by any standard. Most private-sector employers do not provide pension benefits. Some provide TSPs with a 3 percent match. We get a 5 percent match.

The Federal Government is currently projected to contribute about $25 billion to FERS in 2012. By 2025, there is a three-quarter of a trillion dollar deficit. If we do not adjust these benefits for

future recipients, our retired Federal employees may be faced with

potential cuts to their benefits. We have already seen this in

Greece, where the current financial crisis has resulted in a 20 percent cut in pensions.

So the bottom line is this: It is not a choice between leaving

things the same or changing and reforming the system. We either

have to reform the system, or eventually benefits are going to be

cut for people currently relying on them.

I ask for your support with my bill. I think it is a first step toward reforming pensions more broadly. I think it is about time we

did it. Thank you for having me here today. Look forward to working with you on it.

[The prepared statement of Hon. Tim Griffin follows:]
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Mr. ROSS. Thank you, Mr. Griffin.

I now recognize the gentleman from Colorado’s Sixth Congressional District, Mr. Coffman, for 5 minutes.

STATEMENT OF HON. MIKE COFFMAN, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF COLORADO

Mr. COFFMAN. Thank you, Mr. Chairman, and Ranking Member

Lynch.

I had the honor of serving in both the U.S. Army and the Marine

Corps. And in the Congress of the United States, I have the opportunity to serve on the House Armed Services Committee. And I

think Admiral Mullen, when he was chairman of the Joint Chiefs

of Staff, testified before the Congress that the greatest threat to

U.S. security is our national debt. He didn’t say it was Al Qaeda.

He didn’t say it was North Korea or Iran. He said it was an internal problem, and that is America’s national debt.

We in the Congress are going to have to exercise extraordinary

leadership in navigating this country out of our debt crisis, and in

doing so, we are going to have to ask the American people to make

sacrifices, to include Federal employees and even our military, and

so it is about leadership.

And if there is one thing I learned in both the U.S. Army and

the Marine Corps about leadership, it was leading by example.

Never ask anyone to do anything that you yourself would not be

willing to do. And so I believe that the Congress of the United

States has to lead by example to give us the credibility to attack

these very difficult issues.

Last September, I introduced House Resolution 2913, and what

House Resolution 2913 does is it in effect ends the congressional

pension program. It does so by honoring all accrued benefits that

Members have earned under this program, but not allowing any

more benefits to accrue. Members of Congress pay in 1.3 percent

of their salary into this pension program. It is a factor of 1.7 percent is the benefit they accrue for the first 20 years, 1 percent

thereafter, and so what it would say is that we will honor anything

that has been accrued up to the effective date of the bill, and for

those Members who are not vested yet, it takes 5 years to be vested, then they would certainly get that 1.3 percent refunded to

them.

I believe that the Founding Fathers of this country envisioned a

Congress where its Members came from other professions to serve

in the Congress and didn’t see the Congress as a career in and of

itself, where they would be reliant upon the taxpayers of the

United States to provide them a pension for the rest of their lives,

and so I feel that this also fits in that vision by doing away with

the defined benefit pension program.

We would still have a defined contribution pension program that

is available to all Federal employees, whereby members can put up

to $17,000 into the defined contribution pension plan and have a

5 percent match of their salary that is matched by the taxpayers

of the United States, and I think this is more in line with what

our private sector counterparts get all across America, and so,

again, I think this is about leading by example. This is about Congress making a sacrifice to show the American people that we have
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skin in the game with them during these challenging economic

times. So, Mr. Chairman and Ranking Member Lynch, I look forward to your questions.

[The prepared statement of Hon. Mike Coffman follows:]
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Mr. ROSS. Thank you, Mr. Coffman.

Mr. GRIFFIN. Mr. Chairman.

Mr. ROSS. Yes, Mr. Griffin.

Mr. GRIFFIN. I just want to ask permission I be allowed to go

catch my plane.

Mr. ROSS. Sure.

Mr. GRIFFIN. Thank you, appreciate it.

Mr. ROSS. Thank you, Mr. Griffin.

The gentleman from the 17th Congressional District of Illinois,

Mr. Schilling, you are recognized for 5 minutes.

STATEMENT OF HON. ROBERT T. SCHILLING, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ILLINOIS

Mr. SCHILLING. Thank you, Chairman Ross and Ranking Member

Lynch.

I appreciate the opportunity to be here today to testify. When I

came to Congress, there was several different issues to discuss, and

what I did was I put together a bill 2397, H.R. 2397. I call it the

Congressional Retirement Age Act. It is a bipartisan money-saving

piece of legislation that provides an opportunity for Congress to

lead by example.

And in Congress, we often talk about what we can do today to

make things better for our kids and our grandkids. To achieve this,

I think we are going to have to make some tough decisions and

then some easy decisions. The Congressional Retirement Age Act

represents a small commonsense step we can take toward reevaluating the pensions that the Members of Congress are eligible to receive.

When I ran for office, I made a contract with the people of the

17th District of Illinois, and one of the elements of this contract

was to reject the congressional pension. This was a personal decision, rooted in the belief that our Founders did not set Congress

up to be a career. And I am not here to preach to anyone. My goal

is to advocate for good policy change basically.

As you know, Members of Congress are eligible to receive a pension at the age of 62 after 5 years of Federal service. However, if

a Member has served for 25 years, they can receive it as early as

age 50. I can tell you that I have talked to many of my constituents

about this issue and am hard pressed to recall one person that believes Congress should receive a pension, let alone as early as age

50, and this especially rings true when you consider that the earliest the folks back home can retire and receive their Social Security benefits is age 65.

The first bill I introduced as a Member of Congress is H.R. 2397.

It simply ties a Member of Congress’ eligibility to receive pension

benefits to the Social Security retirement age. Regardless of whether or not you believe Congress should be getting a pension, I hope

that we can all agree that Members of Congress who do elect to receive the pension benefits should not be able to do so before their

constituents can access Social Security benefits.

I believe that this is a bipartisan effort with 26 cosponsors in the

House, and then Senator Sherrod Brown of Ohio has spearheaded

the effort in the Senate. The Congressional Retirement Age Act has
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the support of the National Taxpayers Union and the Taxpayers

Protection Alliance.

According to a preliminary CBO staff estimate, this legislation would save $10 million to $15 million over 10 years. This is real

money. At a time when we are facing a national debt of more than

$15 trillion, all the cost savings we can get definitely count.

Again, I would just like to thank you for opportunity to speak on

this legislation today, and I would also like to thank Chairman

Ross and Congressman Chaffetz for cosponsoring H.R. 2397. I

would welcome the support of all of the Members in Congress on

this bill and look forward to working together and hope that we

can advance the Congressional Retirement Age Act.

[The prepared statement of Hon. Robert T. Schilling follows:]
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Mr. ROSS. Thank you, Mr. Schilling.

Mr. SCHILLING. And I also have a——

Mr. ROSS. A plane to catch?

Mr. SCHILLING. Yeah.

Mr. ROSS. Have a safe trip.

Mr. SCHILLING. Thank you very much. Have a great one.

Mr. ROSS. Thank you for taking the time.

The gentleman from Florida’s Fifth Congressional District, my

colleague Mr. Nugent, you are recognized for 5 minutes.

STATEMENT OF HON. RICHARD B. NUGENT, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF FLORIDA

Mr. NUGENT. Well, first of all, I would like to thank the committee and particularly you, Chairman Ross, and Ranking Member

Lynch for allowing us to speak here today.

I came to D.C. in 2010 as a new Member at orientation week like

everybody else, and I met with the benefits office to talk about the

health care benefits, the Thrift Savings Plan, and other pension

plans. During that meeting, I turned down the health insurance

plan. I didn’t think that I should have better benefits than anybody

at the Sheriff’s Office where I just retired. I did that because I believe I am here representing the people of the Fifth District, Congressional District of Florida. I am not here to enrich myself but,

rather, serve my community, my neighbors, and my Nation.

That is why to this day, my wife and I buy health insurance,

which we pay for out of our own pocket. This decision costs us over

$10,000 a year.

During that meeting, I also tried to opt out of the congressional

pension fund, FERS, for the same reason. I also asked if there was

a way to contribute to the Thrift Savings Plan without getting a

government match for my investment. Frankly, I was shocked

when the benefits representative told me that I was legally required to accept a congressional pension as long as I was here for

at least 5 years. Similarly, I couldn’t contribute to the TSP without

receiving a Federal match of up to 5 percent. Even more, if I didn’t

put a single penny, not a single penny into the TSP, the government would still contribute to the match of 1 percent of my salary

without any cost to me.

Once I was sworn in, I dug into this issue further to try to figure

out why, exactly, I was legally prohibited from choosing not to participate in the Federal Employee Retirement System. What I found

out was until 2004, Members of Congress could opt out to decline

coverage under the Federal Employee Retirement System. In fact,

to this day, anybody elected to this body before September 30, 2003

continues to be able to decline the Federal Employee Retirement

System coverage. It is only Members of the House of Representatives, not even Senators, entering office of September 30, 2003 who

are legally obligated to participate in the Federal Employee Retirement System. Why are Senators allowed to opt out and not Representatives? Why are folks elected before September 30, 2003 allowed to opt out at this time but not after that date? And, frankly,

I really don’t know.

What I do know is this, I was a cop for 38 years, and for the last

10 of those years, I was sheriff of Hernando County, Florida. That
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was my career, and what I am doing here in the House of Representatives is serving my country. As I see it, you get a pension

for your career, not for your service. Congress is not and will never

be my career. That is why I introduced H.R. 981, Congress is Not

a Career Act.

This bill would simply put Members of Congress like me, elected

to the House of Representatives after September 2003, on the same

footing as those folks that were here longer than us. I want to

make it clear that Congress is Not a Career Act does not require

anybody to give up a pension. Additionally, supporting my bill does

not commit you to opting out of the Federal Employee Retirement

fund. It simply says that you will have a choice.

H.R. 981 gives Members the choice of participating in the Thrift

Savings Plan without receiving the Federal match. Again, the bill

doesn’t require anybody to do something nor does it prohibit anybody from participating in anything. It simply says that Members

should have the option to invest in their future without having the

taxpayers contribute to that investment.

As you all may know, all three of my sons are active duty members of the U.S. Army. They and their brothers and sisters of arms

also have a TSP program that they can contribute to. However, the

majority of service members do not receive any type, any type of

Federal match for their TSP contribution. I can’t fathom receiving

a TSP match while my kids and other service members fighting for

our freedoms don’t get a match of their own.

The Congress is Not a Career Act is not about denying anybody

benefits they are rightly entitled to. It is about allowing those of

us who don’t view this institution as a career and don’t think we

should get a pension for serving our country, who don’t think we

should be enriching ourselves while sitting in the People’s House

the ability to opt out of the Federal Employee Retirement System

and the Federal match to our Thrift Savings Plan. I was amazed

that you become vested in the Federal system after simply 5 years.

With that, I really want to thank this committee for listening to

all of us today in regards to how we can restructure and bring sanity back to the Federal Government. When we are at an all-time

low, it is about us acting to restore faith in this body that we so

proudly serve, the public of this United States, and with that, I

yield back the balance of my time.

[The prepared statement of Hon. Richard B. Nugent follows:]
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Mr. ROSS. Thank you, Mr. Nugent.

I now recognize the gentleman from Illinois’s 10th Congressional

District, Mr. Dold, for 5 minutes.

STATEMENT OF HON. ROBERT J. DOLD, A REPRESENTATIVE

IN CONGRESS FROM THE STATE OF ILLINOIS

Mr. DOLD. I certainly want to thank the committee.

And Chairman Ross, thank you for holding the hearing.

Ranking Member Lynch, thank you.

I am here today to talk a little bit about the Congressional Integrity and Pension Forfeiture Act, which is really an expansion of a

law that was signed the Honest Leadership and Open Government

Act in 2007, and while you have a copy of my statement, what I

thought I would do is just summarize the gist of it and why we are

putting forth this bipartisan piece of legislation.

Right now, you have the ability to, if you are a felon, to receive

a pension from the taxpayers of the United States. Congressional

Research Service has said over the past 50 years that we have had

Members of Congress that have been convicted of at least 16 different felonies, including receiving illegal gratuities, bribery, conspiracy, extortion, income tax evasion, embezzlement, theft of public funds, and yet these individuals would be eligible to receive a

pension, at least until 2007, and that law became the law of the

land.

Unfortunately, it only covers Members of Congress while currently serving. We have had other instances and other instances

more recently in the State of Illinois where we have had former

Members of Congress that have gone on to hold elective office and

become—and I believe should be held to a higher standard by their

constituents that have violated the law and become felons, and yet

they are still eligible to receive their pensions from the American

taxpayer. I think this is wrong.

I think that if you violate a public trust and commit a felony

under the certain areas that have been provided, expanded, that

you should forfeit that pension. Right now, we are talking about

not a big sum of money—it is about $800,000 a year that if this

law were to have been enacted would not have to be paid out to

former Members of Congress.

I think this is a commonsense piece of legislation, one that

should pass the House by 435 votes and pass the Senate unanimously.

We continually hear about how Congress is passing laws that are

not holding themselves up to that law first and foremost, and I

hear that back in my district regularly, and I am confident that

most of you do as well. We need to be held, I think, to a higher

standard. And if we violate that public trust, we should absolutely

have skin in the game to say we will not be able to receive taxpayer funded pensions for the remainder of our lives.

Now, I recognize that there is some misconceptions about what

the pensions are out there for Members of Congress, that you vest

in 5 years and that it is 1.7 percent, so it is not a huge sum of

money, but what it does do is it lets the American public know that

we, indeed, in this body will hold ourselves to a higher standard.
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This is an expansion of the already existing Honest Leadership

and Open Government Act. I think it makes a lot of sense. It is

one that I think we should act on actually immediately, and I don’t

want to belabor the point, so I am happy to answer your questions,

and thank you again for the opportunity to join you.

[The prepared statement of Hon. Robert J. Dold follows:]
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Mr. ROSS. Thank you, Mr. Dold, and in the interest of time and

pursuant to a previous agreement, we will not be asking questions

of the Members, but I believe, Mr. Connolly, you would like to

make a statement?

Mr. CONNOLLY. No, Mr. Chairman. Well, thank you. I just wanted to participate.

I am very interested in hearing our colleagues and certainly will

take their proposals under advisement. I continue to believe on the

broader point in terms of public service, you know, we have fine,

upstanding civil servants who serve this country, whether they

wear the uniform or they don’t. And I would hope that we here in

Congress, as we talk about benefits and compensation, provide the

dignity and respect those civil servants have earned and that we

make sure that we take care to ensure that their compensation is

fair and reflects that dignity and respect.

And with that, I yield back, Mr. Chairman.

Mr. ROSS. Thank you, Mr. Connolly.

I want to thank the Members for appearing today and thank you

for your efforts and look forward to working with you on these

pieces of legislation. This subcommittee now stands adjourned.

Thank you.

[Whereupon, at 11:25 a.m., the subcommittee was adjourned.]

[The prepared statements of Hon. Elijah E. Cummings and Hon.

Gerald E. Connolly and additional information submitted for the

hearing record follow:]
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