Brake the Federal Pension Gravy Train

1996 seems to be a big year for those who favor a balanced budget. Every presidential candidate has come out in support of it. But the public and the press should be wary that this newfound fiscal responsibility may simply be an empty promise. The biggest clue to the candidates’ commitment to a balanced budget, or lack thereof, is their refusal to confront the issue of federal pensions--Civil Service, the military and Social Security--within that context.

Consider: Entitlements now make up almost 50% of the federal budget. Civil and military pensions alone are the third-largest entitlement after Social Security and Medicare. Steve Forbes raised the idea of privatizing Social Security, and many of his former fellow candidates supported raising the retirement age. The debate over Medicare continues in Congress and most of the candidates expressed their opinions about it. But federal pensions have been totally ignored. Any discussion of balancing the budget cannot overlook or dismiss the $65 billion in pension payments to federal retirees, most of whom (three-fourths of the Civil Service and all of the military) also have Social Security and Medicare.

The candidates’ failure to discuss federal pensions is not accidental. Federal employees and retirees are one of the most potent voter blocs in the country. Their numerous employee and retiree lobbies donate such large sums of money to campaigns that they are often among the top five contributors in a given election year. Their superbly organized grass-roots campaign is capable of generating hundreds of thousands of letters, telegrams and phone calls to individual congressmen and to the president when their excessive benefits are endangered in any way.

It was with these realities in mind that the late John Macy and I, with a substantial number of other public-minded persons, founded the National Committee on Public Employee Pension Systems more than 15 years ago. Macy had been chairman of the Civil Service Commission, president of PBS and head of the Federal Emergency Management Agency. I served 14 years in Congress and receive multiple pensions. Our organization, PEPS, has been working to reform federal pensions ever since.

The engine of cost growth in federal pensions is the insidious cost-of-living adjustment, or COLA. These annual adjustments made to federal pensions are intended to compensate for the increase in the cost of living due to inflation. But many federal pensioners receive COLAs far in excess of the actual cost of living, making them a cost-of-luxury adjustment. It confounds our committee that any presidential candidate can claim to be for a balanced budget but have nothing to say about these excessive COLAs.

PEPS believes that COLAs should be capped at that amount of pension income necessary to pay for food, clothing and shelter (the basis for calculating the annual Social Security maximum). According to current actuarial forecasts, if such a COLA cap were enacted, the long-term cost of federal pension systems, currently a whopping $1.8 trillion, could be cut in half. As former Rep. Otis Pike (D-N.Y.) said, “It doesn’t cut anybody. It just limits their future raises to the cost of living.”

COLAs are making an elite of the federal retiree community. While the budget crunch continues and private sector retirees see their benefits reduced or postponed, or both, federal retiree benefits are virtually unscathed. Unless one or another of the candidates works up the courage to take on this powerful group, yet another election cycle will have passed in which the federal retirees exert their influence at the expense of current and future generations of taxpayers.

PEPS sent a questionnaire about this issue to all the candidates early in the primary season. An explanatory letter stressed the importance of their taking a position on this issue. We received only two responses. One was from Pat Buchanan’s campaign, commenting that the candidate did not have time to respond to surveys (translation: We do not want to get involved). The other was from Morry Taylor, who was enthusiastically supportive.

Winston Churchill, in a commentary on misguided public policy, said, “The multitudes remained plunged in ignorance of the simplest economic facts, and their leaders, seeking their votes, did not dare to undeceive them.” If the budget is ever to be balanced, there will have to be significant reform of federal pension COLAs, and the public will have to be undeceived. Doing so ought to be the yardstick against which the presidential candidates’ commitment to a balanced budget is measured.