[DOCID: f:hr770.110]
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110th Congress Report
HOUSE OF REPRESENTATIVES
2d Session 110-770
======================================================================
CLARIFYING THE METHOD FOR COMPUTING CERTAIN ANNUITIES UNDER THE CIVIL
SERVICE RETIREMENT SYSTEM BASED ON PART-TIME SERVICE
_______
July 24, 2008.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Waxman, from the Committee on Oversight and Government Reform,
submitted the following
R E P O R T
together with
[To accompany H.R. 2780]
[Including cost estimate of the Congressional Budget Office]
The Committee on Oversight and Government Reform, to whom
was referred the bill (H.R. 2780) to amend section 8339(p) of
title 5, United States Code, to clarify the method for
computing certain annuities under the Civil Service Retirement
System which are based on part-time service, and for other
purposes, having considered the same, report favorably thereon
with an amendment and recommend that the bill as amended do
pass.
CONTENTS
Page
Purpose and Summary.............................................. 2
Background and Need for Legislation.............................. 2
Legislative History.............................................. 3
Section-by-Section............................................... 3
Explanation of Amendments........................................ 4
Committee Consideration.......................................... 4
Rollcall Votes................................................... 4
Application of Law to the Legislative Branch..................... 4
Statement of Oversight Findings and Recommendations of the
Committee...................................................... 4
Statement of General Performance Goals and Objectives............ 4
Constitutional Authority Statement............................... 4
Federal Advisory Committee Act................................... 5
Unfunded Mandates Statement...................................... 5
Earmark Identification........................................... 5
Budget Authority and Congressional Budget Office Cost Estimate... 5
Changes in Existing Law Made by the Bill, as Reported............ 7
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. COMPUTATION OF CERTAIN ANNUITIES BASED ON PART-TIME SERVICE.
Section 8339(p) of title 5, United States Code, is amended by adding
at the end the following:
``(3) In the administration of paragraph (1)--
``(A) subparagraph (A) of such paragraph shall apply with
respect to service performed before, on, or after April 7,
1986; and
``(B) subparagraph (B) of such paragraph--
``(i) shall apply with respect to that portion of any
annuity which is attributable to service performed on
or after April 7, 1986; and
``(ii) shall not apply with respect to that portion
of any annuity which is attributable to service
performed before April 7, 1986.''.
SEC. 2. APPLICABILITY.
The amendment made by this Act shall be effective with respect to any
annuity, entitlement to which is based on a separation from service
occurring on or after the date of enactment of this Act.
Purpose and Summary
H.R. 2780, a bill to adjust the method for computing
certain annuities which are based on part-time service, was
introduced by Rep. James Moran on June 19, 2007. The bill would
correct an inequitable annuity reduction that currently occurs
if certain federal employees work part-time at the end of their
career. This inequity can create personnel problems in federal
agencies because it can lead individuals who are eligible to
retire, or who will shortly be eligible, to avoid working on a
part-time basis, even if it would otherwise be in the
government's interest.
Background and Need for Legislation
H.R. 2780 addresses an issue created by a 1986 law (Sec.
15204 of P.L. 99-272, the Consolidated Omnibus Budget
Reconciliation Act of 1985) affecting federal employees in the
Civil Service Retirement System (CSRS). The law was enacted to
end a practice under which federal employees who had worked on
a part-time basis throughout most of their careers were allowed
to switch to full-time employment at the very end of their
careers and calculate their annuity based on their salary from
just those full-time salary years. This practice resulted in
inappropriately high annuities for some part-time federal
employees. The 1986 law fixed that problem but created another.
Under the 1986 law, federal employees who work on a part-
time basis at the end of their careers but who worked most of
their careers on a full-time basis could receive a reduction in
their annuity computation for some of the years in which they
worked full-time. This is because the law provides that the
annuity for the years of service performed prior to 1986 is
calculated based on a part-time salary even if the employee
worked full-time in those years. As a result, the value of pre-
1986 service in the annuity computation is significantly
greater if the employee works full-time at the end of their
career.
A hypothetical example may help illustrate the problem. Two
employees started full-time federal employment in 1969. Each
has an identical career, retiring in 2003 after 34 years of
service, except that each worked part-time for three years at a
different point during their career. Employee A worked half-
time from 1998 through 2000 and employee B worked half-time at
the very end of her career, from 2001 through 2003.
Each employee in this hypothetical has the same high-three
used in the computation of the annuity for the post-86 service.
The full-time salary for each was $100,000 per year during
their final three years of service, and $80,000 for the
preceding three year period. The system produces equal
annuities for the post-86 service, approximately $31,000.
However, the computation of the annuity for the 17 years of
pre-1986 service will be very different. Each employee will be
entitled to about 30% of high-three for that period of service.
The problem is that because the pre-86 rules will apply, they
will have different high-three average salaries. Under the pre-
86 rules, because employee A worked full-time during the high-
three period, his high-three is $100,000. Thus, the annuity for
his pre-86 service will be $30,000.
However, employee B will be much worse off. Under the pre-
86 rules, the average salary for the last three years will be
only $50,000 because she was working a $100,000 job half time.
Thus, the actual high-three period to be used will be the
preceding three-year period for which the average is only
$80,000. Under the pre-86 rules, because employee B worked
half-time during the final three-year period, the annuity for
her pre-86 service will be only $24,000, (approximately 30% of
$80,000).
The total annuity of employee A will be $61,000, while the
total annuity of employee B will be about $55,000. This anomaly
is illogical and unfair. H.R. 2780 would simply require the use
of the same high-three for all pre-86 service. This would
create fairness, and eliminate the current disincentive for
CSRS covered employees to work on a part-time basis near the
end of their careers.
H.R. 2780 would permit the use of high-three average salary
computations for full-and part-time work whether the work was
performed before or after 1986, eliminate the adverse effect of
part-time service performed late in an employee's career, and
provide a simplified annuity computation in cases involving
part-time service.
Legislative History
On August 31, 2007, the Subcommittee on Federal Workforce,
Postal Service, and the District of Columbia held a hearing on
H.R. 2780. On September 18, 2007, the Subcommittee reported
H.R. 2780 with an amendment striking the provision that
provided for the re-computation of the annuities for federal
employees who retired prior to enactment of the bill, with an
estimated savings of $2.1 billion dollars.
Section-by-Section
Section 1: Computation of certain annuities based on part-time service
This section would amend section 8339(p) of title 5, United
States Code, by adding at the end a new paragraph 3. This new
paragraph provides that subparagraph (B) of paragraph (p)(1),
which deals with the computation annuities for part-time
service, shall not apply to that portion of any annuity which
is attributable to service performed before April 7, 1986.
Section 2: Applicability
This section provides that the amendment made by this Act
shall be effective with respect to any annuity which is based
on a separation from service occurring on or after the date of
enactment of this Act.
Explanation of Amendments
No amendments were offered during Committee consideration
of H.R. 2780.
Committee Consideration
The Committee held a business meeting on March 13, 2008, to
consider H.R. 2780 and ordered the bill to be reported
favorably on a voice vote.
Rollcall Votes
No rollcall votes were held.
Application of Law to the Legislative Branch
Section 102(b)(3) of Public Law 104-1 requires a
description of the application of this bill to the legislative
branch where the bill relates to terms and conditions of
employment or access to public services and accommodations. The
bill does not relate to employment or access to public services
and accommodations.
Statement of Oversight Findings and Recommendations of the Committee
In compliance with clause 3(c)(1) of rule XIII and clause
(2)(b)(1) of rule X of the Rules of the House of
Representatives, the Committee's oversight findings and
recommendations are reflected in the descriptive portions of
this report and include an inequity in the calculation of
annuities for certain federal employees.
Statement of General Performance Goals and Objectives
In accordance with clause 3(c)(4) of rule XIII of the Rules
of the House of Representatives, the Committee's performance
goals and objectives are reflected in the descriptive portions
of this report, including improving the effectiveness of the
civil service.
Constitutional Authority Statement
Under clause 3(d)(1) of rule XIII of the Rules of the House
of Representatives, the Committee must include a statement
citing the specific powers granted to Congress to enact the law
proposed by H.R. 2780. Article I, section 8, clause 18 of the
Constitution of the United States grants the Congress the power
to enact this law.
Federal Advisory Committee Act
The Committee finds that the legislation does not establish
or authorize the establishment of an advisory committee within
the definition of 5 U.S.C. App., section 5(b).
Unfunded Mandates Statement
Section 423 of the Congressional Budget and Impoundment
Control Act (as amended by section 101(a)(2) of the Unfunded
Mandates Reform Act, P.L. 104-4) requires a statement on
whether the provisions of the report include unfunded mandates.
In compliance with this requirement the Committee has received
a letter from the Congressional Budget Office included herein.
Earmark Identification
H.R. 2780 does not include any congressional earmarks,
limited tax benefits, or limited tariff benefits as defined in
clause 9(d), 9(e), or 9(f) of rule XXI.
Committee Estimate
Clause 3(d)(2) of rule XIII of the Rules of the House of
Representatives requires an estimate and a comparison by the
Committee of the costs that would be incurred in carrying out
H.R. 2780. However, clause 3(d)(3)(B) of that rule provides
that this requirement does not apply when the Committee has
included in its report a timely submitted cost estimate of the
bill prepared by the Director of the Congressional Budget
Office under section 402 of the Congressional Budget Act.
Budget Authority and Congressional Budget Office Cost Estimate
With respect to the requirements of clause 3(c)(2) of rule
XIII of the Rules of the House of Representatives and section
308(a) of the Congressional Budget Act of 1974 and with respect
to requirements of clause 3(c)(3) of rule XIII of the Rules of
the House of Representatives and section 402 of the
Congressional Budget Act of 1974, the Committee has received
the following cost estimate for H.R. 2780 from the Director of
the Congressional Budget Office:
U.S. Congress,
Congressional Budget Office,
Washington, DC, July 10, 2008.
Hon. Henry A. Waxman,
Chairman, Committee on Oversight and Government Reform,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed estimate for H.R. 2780, a bill to amend
section 8339(p) of title 5, United States Code, to clarify the
method for computing certain annuities under the Civil Service
Retirement System which are based on part-time service.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Sam
Papenfuss.
Sincerely,
Peter R. Orszag.
Enclosure.
H.R. 2780--A bill to amend section 8339(p) of title 5, United States
Code, to clarify the method for computing certain annuities
under the Civil Service Retirement System which are based on
part-time service.
H.R. 2780 would alter the way retirement benefits under the
Civil Service Retirement System (CSRS) are calculated for
workers with part-time service. The bill would apply to workers
who performed work prior to April 7, 1986, and who retire from
part-time service after the bill is enacted.
CBO estimates that the change would increase direct
spending by $1 million in 2009 and $63 million over the 2009-
2018 period. The estimated budgetary impact of H.R. 2780 is
shown in the following table. The costs of this legislation
fall within budget function 600 (income security). Implementing
the bill would not have a significant effect on discretionary
spending. Enacting the bill would not affect revenues.
--------------------------------------------------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
-------------------------------------------------------------------------------------------
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2009-2013 2009-2018
--------------------------------------------------------------------------------------------------------------------------------------------------------
Estimated Budget Authority.................................. 1 2 4 5 6 7 8 9 10 11 18 63
Estimated Outlays........................................... 1 2 4 5 6 7 8 9 10 11 18 63
--------------------------------------------------------------------------------------------------------------------------------------------------------
Under current law, benefits for CSRS workers with part-time
service are calculated using a two-step process--the
calculation of an annuity for service prior to April 7, 1986,
and a separate calculation related to service on or after that
date. The worker's retirement benefit is the sum of those two
annuities.
For workers who were employed prior to April 7, 1986, the
current formula uses the worker's actual earnings over his or
her entire career (whether full-time or part-time) to determine
which three years' salaries are counted in calculating the
annuity for service prior to the above date. Thus, years of
part-time service might not be used for that calculation, even
though the hourly salary in those years might be among the
highest three.
For work on or after April 7, 1986, the formula uses a
deemed salary (what the worker would have been earning if the
worker had been working full time) to determine benefits and
applies a pro-rata factor to adjust for part-time service.
Because salaries tend to increase over time, part-time service
at the end of a career is likely to have a higher hourly rate
than part-time service at the beginning of a career. Thus, the
current formula effectively treats new retirees with part-time
service early in their careers more favorably than those whose
part-time service comes at the end of their careers.
Under H.R. 2780, CSRS benefits would be calculated by
treating all part-time service according to the formula
currently used to determine benefits for service performed on
or after April 7, 1986. To ensure that benefits under the new
formula would not be smaller than benefits calculated under the
current formula, part-time service performed prior to April 7,
1986, would be credited as full time. CBO estimates this
provision would affect benefits for several thousand new CSRS
retirees each year and that more federal workers would shift to
part-time service before retiring. Depending on an individual
employee's work history, benefits for those retirees could, on
average, increase by up to $2,000 in 2009; that average
increase would decline to about $500 in 2018.
H.R. 2780 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act and
would impose no costs on state, local, or tribal governments.
The CBO staff contact for this estimate is Sam Papenfuss.
This estimate was approved by Peter H. Fontaine, Assistant
Director for Budget Analysis.
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (new matter is
printed in italic and existing law in which no change is
proposed is shown in roman):
TITLE 5, UNITED STATES CODE
* * * * * * *
PART III--EMPLOYEES
* * * * * * *
SUBPART G--Insurance and Annuities
* * * * * * *
CHAPTER 83--RETIREMENT
* * * * * * *
SUBCHAPTER III--CIVIL SERVICE RETIREMENT
* * * * * * *
Sec. 8339. Computation of annuity
(a) * * *
* * * * * * *
(p)(1) * * *
* * * * * * *
(3) In the administration of paragraph (1)--
(A) subparagraph (A) of such paragraph shall apply
with respect to service performed before, on, or after
April 7, 1986; and
(B) subparagraph (B) of such paragraph--
(i) shall apply with respect to that portion
of any annuity which is attributable to service
performed on or after April 7, 1986; and
(ii) shall not apply with respect to that
portion of any annuity which is attributable to
service performed before April 7, 1986.
* * * * * * *
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