Payroll-tax deal includes pension contribution hike for new federal employees

Published: February 16, 2012 - Pensions & Investments

Newly hired federal employees will contribute more to their defined benefit pension plan under a deal to extend a payroll tax cut and unemployment benefits reached in Congress on Thursday.

Under the agreement expected to be approved by both chambers Friday, new federal hires would contribute 3.1% of their pay to the $411.9 billion Federal Employees Retirement System, Washington. Current federal workers pay 0.8% of their salaries.

Some of the $15 billion needed to pay for the extensions would come from the higher pension contributions. Last-minute negotiations by Sen. Ben Cardin, D-Md., and Rep. Chris Van Hollen, D-Md., prevented the contribution hike from also being applied to current employees.

Colleen M. Kelley, president of the National Treasury Employees Union, which represents 150,000 federal workers in 31 agencies, argued in a statement that higher contributions on top of two years of pay freezes amount to “a steep pay cut” and warned that higher contribution demands for FERS would have a negative impact on voluntary contributions to the $302 billion Thrift Savings Plan, Washington.

“We will find over time another generation of workers not fully able to fund their retirement. For our nation, this is shortsighted in the extreme,” Ms. Kelley said.