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Changes in benefits could hurt workers

March 11, 2007 12:36 am

THIS WEEK should be very interesting for those of us who watch the federal budget process for issues that impact federal workers and retirees. Tomorrow, the Budget Committee of the House of Representatives will present a spending blueprint for next year.

As you know, November's elections changed the leadership in Congress. It will be interesting to see how South Carolina's John Spratt, the committee's new chairman, will try to address the deficit.

Unfortunately, there are several ways to reduce federal spending that could have an adverse impact on the federal community.

Here are some key areas to watch:

The Congressional Budget Office recently suggested that the government change its funding formula for the Federal Employees Health Benefits Program to a flat fee. Currently, the government picks up an average of 72 percent of the premium. Under the CBO's proposal, the government would provide $3,600 for individuals and $8,400 for families.

The new flat fee would rise according to inflation rather than with premium hikes. As federal workers and retirees are keenly aware, health insurance premium increases rise faster than inflation.

The CBO's suggestion comes in the wake of the president's budget recommendation that government contributions be reduced by up to 50 percent for federal workers retiring with less than 10 years of service.

Currently, federal and military pensions base annual cost-of-living adjustments on a consumer price index for urban wage earners and clerical workers. The CBO recommends tying future increases to a modified or alternate CPI that would reduce the annual adjustment by about 1 percent. The CBO believes that the current formula overstates increases in the cost of living.

Under the Federal Employees Retirement System the government currently matches up to 5 percent of a worker's salary contribution to the Thrift Savings Plan. The CBO recommends changing this to make the full 5 percent available only when the employee contributes 10 percent or more of salary to the government's 401(k)-like retirement savings plan. Besides reducing federal spending, the CBO believes this change would make the TSP more like the private sector and encourage younger federal workers to contribute at a higher rate.

As the budget process progresses, I will let you know what is going on with these and other important issues.

Everyone has been nervously watching the TSP accounts after the huge one-day drop at month's end. Here are the Thrift Savings Plan returns for February: C Fund (common stocks) dropped 1.95 percent; I Fund (international stocks) fell 0.18 percent; S Fund (small caps) lost 0.26 percent; F Fund (bonds) grew by 1.53 percent; and G Fund (government securities) gained 0.34 percent. The new L funds (a mixed blend of all five funds) suffered minor losses: 2040 down 0.64 percent; 2030 down 0.49 percent; 2020 down 0.38 percent; and 2010 down 0.14 percent. The "L income fund" posted a slight 0.16 percent gain.