Need for Recognition of the Full Cost of Retirement Benefits for Federal Work Force

FPCD-79-49: Published: Apr 11, 1979. Publicly Released: Apr 11, 1979.

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The Senate adopted a resolution requiring the Secretary of the Treasury to conduct a complete study of certain Federal and District of Columbia retirement programs to determine their financing methods, the extent of their unfunded liabilities, and any actions necessary to insure their solvency. A series of reports on Federal retirement matters have been issued since 1974. Congress is not being provided realistic and consistent information on the costs of Federal retirement programs, and as a consequence, its ability to make sound fiscal and legislative decisions on establishing and amending, or funding retirement and agency programs is inhibited. A lack of full recognition of the cost of currently accruing retirement benefits results in an understatement of the cost of Government programs, including subsidies to agencies whose operations are intended to be self-supporting.

In considering the fiscal year 1980 budget, estimates of the amounts by which agencies' proposed budget authority are understated because they are not being charged the full cost of their employees' retirement benefits. The costs of benefits accruing each year under the Civil Service retirement system are understated because the system's normal cost is calculated on a static basis, whereby no consideration is given to the effect of future general pay increases and annuity cost-of-living adjustments on ultimate benefits payments. The Military retirement system operates on a pay-as-you-go basis. A fund is not maintained and benefit payments are financed through annual congressional appropriations. As a result, the Department of Defense budget reflects the cost of retirement benefits earned in prior years but does not include any accrual of retirement costs for current military personnel. Under the Foreign Service retirement system employees contribute 7 percent of pay and the Government contributes the difference between the system's normal cost and employee contributions. Benefits accruing under Federal retirement systems represent a large and growing long-term financial commitment of the U.S. Government. Since accruing costs are not fully recognized, the cost of Government programs are understated and large unfunded liabilities are created.

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