Cost-of-Living Adjustment or Pork Barrel Windfall? : Federal pensions: Yearly increases have sent costs through the roof. We can be reasonable about this without getting mean.

Four years ago, when the Gramm-Rudman deficit-reduction legislation was under attack by federal retirees, their lobbyists were arguing--as they are now--that civil and military retirees should continue to get cost-of-living adjustments (COLAs) on all of their federal pensions.

What does the absence of COLA restraint mean for the civil-service retiree? Take the case of a typical civil-service retiree. As Robert Hartman pointed out in his Brookings Institution study, the current value of this pensioner’s stream of lifetime benefits is 11 times the earnings of his last year of employment. He contributed $14,000 to the civil-service retirement fund. And assuming that federal worker took a private-sector job after retiring, he would have qualified for Social Security at age 62. His starting pension was $9,452 a year. The retiree is now 73 years of old and his pension is, because of COLAs, $21,850. And he is getting Social Security--with COLAs.

In a 1986 article, I attempted to convey that average federal pensioners were, because of COLAs, becoming an elite in the retiree community. Most of them, like me, were getting double dips and triple scoops--all of them with COLAs.

When the Gramm-Rudman legislation came on the scene in 1985 and froze COLAs, lobbyists for civilian and military retirees descended on Congress with millions of dollars in political action committee money and mail by the truckload.

They found one senator up for reelection in 1986 and “persuaded” him, with a $10,000 campaign contribution, to file an amendment exempting federal retirees from the COLA freeze provisions of Gramm-Rudman. Their PAC money and letters overwhelmed Congress, and they got their way.

Here it is 1990 and pension costs, largely because of COLAs, have increased about 50% since 1986. The lobbyists’ self-interest is again in evidence. When they learned that the budgeteers were about to agree to cap cost-of-living adjustments, they threatened to cut off all PAC funds. They warned that they would not back “any member of the Congress who supports a budget agreement that discriminates against retired federal workers.” Once again, political pressure paid off. The budgeteers, feeling the heat, were “persuaded” to grant full COLAs for all federal retirees.

This means that all retired members of Congress and all highly paid federal retirees who are dipping into two, three, four or even five federal pensions will be able to get all of their federal pension income fully indexed. It means that because of inflation, my $90,400 a year will go up 5.4% to $95,291, an increase of $94 a week! Meanwhile, the average private-sector pension plan pays only about $335 a month and provides no COLAs (in addition, only about one-half of all private-sector retirees have any pension besides Social Security).

These overly generous pensions, and the COLAs that go with them, have led to gross federal pension liabilities that now approach $2 trillion, an enormity that threatens to outstrip the cost of the savings-and-loan bailout.

The National Committee on Public Employee Pension Systems has a plan that would save about $400 billion over the lifetime of the current participants. It is known as the PEPS COLA Cap. Contrary to what many federal retirees believe, the PEPS cap wouldn’t stop COLAs from being awarded to those who need them. Full COLAs would be awarded after age 62 and on the first $1,000 a month of an individual’s federal-pension income or $1,500 for an eligible married couple. (PEPS settled on this figure because it is the maximum Social Security benefit for someone retiring at 65.)

What makes this plan so attractive is that although a freeze affects everyone, no matter how large or small the pension, the PEPS Cap affects only those who can afford it. It is targeted at those who receive more than one federal pension or one large federal pension.

We whistle-blowers are not loved even if we are blowing the whistle on ourselves. If we are on the gravy train, we are supposed to shut up and eat our gravy. If PEPS’ proposal were adopted, my future COLAs would be limited to this maximum Social Security benefit. Instead of getting $5,000 next year in COLAs, I would get $784. I could stop needling my former colleagues and enjoy life among my former constituents on Cape Cod.