Government Unions Fight Trump Plan to Raise Retirement Benefits for Some Feds

COMMENTARY Budget and Spending

Government Unions Fight Trump Plan to Raise Retirement Benefits for Some Feds

Apr 3rd, 2019 4 min read
COMMENTARY BY
John W. York, Ph.D.

Policy Analyst

John is a policy analyst at The Heritage Foundation.
This “inside the Beltway” brawl highlights how labor union intransigence blocks improvements to our badly outdated civil service system. Westend61/Getty Images

In a strange twist, a provision in the Trump administration’s 2020 budget to increase retirement benefits for many federal employees has public-sector unions outraged. 

This “inside the Beltway” brawl highlights how labor union intransigence blocks improvements to our badly outdated civil service system.

Under the current system, term employees—those hired into the civil service for up to four years—accrue far less money for retirement than do permanent employees. 

That’s because federal employees do not gain access to the most generous portion of the federal government’s retirement package (a defined-benefit annuity into which the federal government contributes as much as 13 percent of salary) until their fifth year of service. 

Term employees only receive a 401(k)-type Thrift Savings Plan, to which the federal government contributes a maximum of 5% of salary.

The Trump administration’s proposal would increase the government’s automatic contribution from 1% of base pay to 5%. The plan would also increase the dollar-for-dollar matching contribution from 4% of salary up to 5%.

Under the Trump budget, a federal employee making $80,000—the median federal salary—would amass at least $4,000 and up to $8,000 in government contributions per year, compared with the $800 to $4,000 that they receive today. 

Term employees in the public-safety field receive an even bigger bump under the administration’s budget proposal. Employer contributions to their retirement could total as much as 14% of base pay. 

This system will make term employment a better option for employees accustomed to the “gig economy.” 

Many employees have little expectation of, nor patience for, a lifetime’s work with one employer. Today, the federal government’s retirement system penalizes potential employees who view the federal government as a way of serving their country while propelling their career, but not necessarily as a final destination. 

As a result, the federal government misses out on the efforts and talent of entrepreneurial job-seekers who balk at the idea of spending decades in the same office.  

While this provision of the administration’s 2020 budget will result in tens of thousands of dollars in additional retirement savings for term employees, the American Federation of Government Employees—the largest federal employees union in the country—describes the plan as the first step in a “race toward the bottom.” 

Union leaders worry that the Trump administration’s real objective is eliminating altogether the other retirement benefits that permanent civil servants now receive, leaving them only with 401(k)-style retirement packages.

The American Federation of Government Employees is also leery of normalizing term and temporary employment in the public sector, even though gig work is becoming the norm in the rest of the economy. 

“It is a noxious myth that today’s workers or tomorrow’s workers don’t want or need job security,” said Jacqueline Simon, director of Public Policy at the American Federation of Government Employees. “Just because the gig economy has made employment for so many Americans unstable and insecure doesn’t mean the federal government should follow suit.”

These critiques of the administration’s proposal are not very compelling. 

First, if this really is the beginning of a “race to the bottom” vis-a-vis employee benefits, the federal government sure has a lot of ground to cover if it ever hopes to catch up with the private sector. According to the Congressional Budget Office, federal employees currently receive a 47% benefit premium compared with private-sector employees.

Union leaders also ignore that fact that, despite the instability and uncertainty of gig employment, this sort of employment model can result in significant salary bumps for many workers.

Further, for good or for ill, the federal government has already adapted to the gig economy. Agencies regularly bring on federal contractors to fill temporary staffing needs.

At last count, the number of private-sector contractors working for the federal government is about 3.7 million—far more than the number of federal civil servants (2.1 million). 

By contrast, there are only about 45,000 term or temporary employees throughout the federal government.

While many functions should continue to be handled by contractors, the federal government should bring more of this temp work in-house. 

Though it’s typically cheaper to hire contractors, that’s not always the case. For instance, the Department of Defense found that it saved money by contracting with private-sector health technicians and social workers, but lost money outsourcing for psychologists and physician contractors. 

By making term employment a better deal for job-seekers, the Trump administration’s 2020 budget would make it easier to attract term employees when it makes financial sense to do so.

Despite the naysaying of union leaders, the Trump administration’s plan to boost retirement benefits for term employees is a clear win for both term employees and federal agencies. 

Hopefully, this is the first step toward broader civil service reform. The federal government’s retirement system is built for a time when armies of clerks and typists were perennially needed to index paper files and take dictation. Those days are gone. 

Like every other sector of the economy, the federal government’s work is more fluid, stochastic, and piecemeal than ever before. 

Expanding the use of 401(k)-style retirement plans is a sensible first step toward addressing this reality. If this model gains popularity among term employees, it may gain traction throughout the civil service.

This piece originally appeared in The Daily Signal