Retirement Benefits for Panama Canal Employees

FPCD-80-41: Published: Feb 14, 1980. Publicly Released: Feb 14, 1980.

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GAO was asked to evaluate the Office of Personnel Management's (OPM) determination of the cost of the increased retirement benefits granted to Panama Canal employees by the legislation implementing the Panama Canal Treaty. The legislation granted major retirement benefits to Canal employees that are not provided to other Federal personnel under the civil service retirement system. Canal personnel, who were employed at any time during March 31 to September 30, 1979, are allowed to retire as early as age 48 with 18 years of service, or at any age with 23 years of service. Those employees remaining after September 30, 1979, will have their benefits calculated at the rate of 2.5 percent of their high-3 average salary for each year of service after that date. Other employees under the system are generally allowed to retire no earlier than age 55 with 30 years of service and their benefit formula provides a maximum of 2 percent of their high-3 salary for each year of service.

OPM has not yet determined the cost of the increased retirement benefits. Its rough estimates based on its assumptions of the retirement that might result from the enactment of the legislation amount to $205 million. However, this static estimate did not consider future pay increases and cost-of-living adjustments. A dynamic estimate including these considerations would amount to $335 million or more than a 60 percent increase. OPM plans to prepare cost estimates using both static and dynamic assumptions and bill the Panama Canal Commission (PCC) for the amount to be paid in installments over the next 20 years. Because the PCC will go out of existence on December 31, 1999, a 20-year billing period is used. It has not yet been decided as to whether this estimate will be reviewed periodically and revised to reflect any differences between projected and actual experience. During hearings on the personnel aspects of the legislation, there was considerable discussion on the costs of the legislation computed on a dynamic basis. GAO believes that Congress intended OPM to bill PCC for the full cost of the retirement program changes. If the billing considers cost-of-living and general pay increases, PCC will be paying all the cost associated with the increased retirement benefits.

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