The Payroll Allotment Program Needs a Second Look

FGMSD-78-52: Published: Sep 29, 1978. Publicly Released: Sep 29, 1978.

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The federal government's voluntary payroll deduction or allotment program permits military and civilian personnel to take care of personal and financial responsibilities by authorizing the government to withhold money from their pay and send it directly to designated recipients, including dependents, charitable organizations, financial institutions, and insurance companies.

The government charges financial institutions for handling the allotments of civilian employees who work in the U.S., but it does not charge them for military allotments or for allotments of civilians who work overseas even though the benefits to the institutions are identical. Under the present system, the Government does not recover from financial institutions the full costs of processing allotments of civilians, as intended by law, because the rates are outdated. As a result, the government does not recover any portion of the $5.6 million spent annually to process military and overseas allotments and recovers only about half of the $2.6 million for allotments of U.S. civilians. There is a basic disagreement among the Office of Management and Budget, the Department of Defense, and the Department of the Treasury on the need to charge financial institutions for the administrative costs of handling payroll allotments for military personnel and overseas civilians.

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