Civilian Employee Benefits

Civilian employees earn pension and other retirement benefits over the course of their working years, but these benefits are not paid until employees retire. Pensions represent the largest civilian employee retirement benefit, followed by post-retirement health benefits.

In the budget, payments made to retired employees are recorded as outlays and reflected in the cash deficit. Any contributions made by employees to their retirement plans are recorded as receipts and offset part of the cash outlays. Contributions made by agencies for employee benefits do not affect the cash deficit since they are intra-governmental transactions where no cash actually leaves the federal government.

The accrual deficit reflects an annual expense for the estimated long-term cost of these benefits each year as the employee renders his or her services. The annual expense also includes accrued interest on the outstanding liability, adjustments for any changes to the plan’s benefits or assumptions, and any deviations between actual experience and assumptions. Contributions made by employees towards pension, health, or other benefits are recorded as earned revenue, which offset part of the expense.

The civilian employee benefit liabilities reflect the estimated present value of the benefits that have been earned as of the end of the reporting year but are projected to be paid in the future; as such, the liability represents the estimated future spending associated with this fiscal exposure that has been reflected in the accrual deficit and will be reflected in future cash deficits. The change in the liability from the previous year is the primary difference between what is recorded in the accrual deficit and the cash deficit for civilian employee benefits. The change in liability is generally equal to the accrued expense for current and former employees less payments made to current retirees during the current year. Therefore a positive change in the liability represents accrued expenses in excess of cash outlays.

Civilian Employee Benefit Liabilities (By Fiscal Year, Dollars in Billions)

Fiscal year
2009 2010 2011 2012 2013
Accrued liability $1,939.5 $2,054.6 $2,032.6 $2,175.4 $2,270.4
Pensions 1,529.4 1,632.9 1,619.7 1,772.3 1,867.9
Post-retirement health 352.2 355.5 342.5 328.1 326.7
Other (e.g., insurance) 57.9 66.2 70.4 75.0 75.8
Change in liability from previous year 88.4 115.1 -22.0 142.8 95.0
Change in liability for pensions 74.6 103.5 -13.2 152.6 95.6
Change in liability for post-retirement health 10.4 3.3 -13.0 -14.4 -1.4
Change in liability for other (e.g., insurance) 3.4 8.3 4.2 4.6 0.8

What drives changes in civilian employee benefit liabilities?

Changes in civilian employee benefit liabilities can affect the accrual deficit without a corresponding change to the cash deficit. The accrued benefit expense depends on assumptions and projections for salaries, years of service, interest rates, inflation, and other economic and demographic variables. As such, changes in these assumptions and deviations between actual experience and these assumptions can lead to large differences between the changes in the civilian employee benefit liability from year to year and in the accrual deficit itself.

With the exception of 2011, the pension liability has generally been increasing.  The $13.2 billion drop that year was largely due to changes in actuarial assumptions. Post-retirement health benefit liabilities declined in 2011 and 2012 largely because actual experience related to population change, medical cost increase and health coverage choices was more favorable than assumed.  While expected future costs increased in 2013 due to these factors, the overall liability decreased slightly.