Federal Retirement System Financing

GAO discussed federal retirement system financing, focusing on: (1) how the government finances the Civil Service Retirement System (CSRS) and the Federal Employees Retirement System (FERS); and (2) the budget implications of the financing methods being used. GAO noted that: (1) employees contribute toward CSRS and FERS costs and the government funds all remaining costs; (2) CSRS contributions are equal to the cost of future benefits and are calculated under the assumptions that federal pay schedules will not increase and employees will not receive cost-of-living adjustments after they retire, while FERS contributions include assumptions for future pay increases and cost-of-living adjustments; (3) although the amount of agency contributions does not cover the actual cost to the government of providing CSRS benefits, the remaining costs are covered by other government contributions to the retirement fund; (4) CSRS has accumulated a large unfunded liability and automatic annual appropriations will be made to amortize the shortfall over 30 years; (5) agencies are charged less than the full accruing cost of CSRS, which understates the cost of government programs; (6) the President proposed that CSRS be funded in the same manner as FERS for fiscal years 1995 and 1996, but Congress has not forwarded any legislation to implement the proposal; and (7) consideration has been given to moving the retirement fund out of the unified budget, but the purpose for such action is unclear.