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Home Publications Blogs Beat the Press According to Economists, Increased Pension Payments by Federal Employers are a Cut in Pay

According to Economists, Increased Pension Payments by Federal Employers are a Cut in Pay

Tuesday, 17 May 2011 05:38

This basic fact should have been included in a Washington Post piece that talked about plans to require federal employees to contribute more from their paychecks to their retirement plan. Economists of all political persuasions view workers' pay as a total compensation package. When comparing pay in different jobs or industries economists include employer payments for health insurance, pensions, and other benefits, along with straight wages.

This means that when political figures call for federal employers to pay more money out of their paycheck into their pensions, they are calling for these workers to get a pay cut. This is not a debatable point in a he said/she said as this article implies. It is true.

Comments (12)Add Comment
It's Not a Pay Cut: It's a Decrease to Match Private Pay Cuts
written by izzatzo, May 17, 2011 7:17
It's not possible for government workers to take a pay cut absent a corresponding decline in productitivy.

If they contribute more to their pension with no offset that just means their comparable worth has decreased to match the same decrease in the private sector.

Otherwise this action would drive government workers into the private sector due to a shortage condition and this can't happen in free markets that maintain equilibrium.

Even Baker acknowledges that market pressure from the private sector determines the true value of total compensation for government workers and not the other way around.
Article seems pretty clear cut...
written by Justin, May 17, 2011 7:24

It's not in the first few paragraphs, but the acknowledgement of a pay cut is in the article...

"Presently, only $1 out of every $15 placed into the Federal Employment Retirement System, or FERS, comes from federal workers. About 80 percent of federal employees are under FERS. The plan pushed by Republicans would require civilian federal employees to pay 6 percent of their salary. As federal workers currently contribute only 0.8 percent, the change would amount to more than a 5 percent pay cut."

Nobody in the article disputes this, nor is there an "on the other hand..." quote either.
Pay Cut
written by Jeff Z, May 17, 2011 9:58

I agree. The actions of the workers that the post reported after the passage imply that they are certainly treating it like a pay cut. Their actions make little sense otherwise.

Perhaps what Dean is saying is that the Post did a crappy job pointing this out. It is left for the reader to infer from the actions of the employees.

Perhaps an additional explanation after that sentence would clarify things. And don't just say 'Economists point out . . ." The Post should talk to recognized labor economists, or even just staff economists at the Bureau of Labor Statistics.

Or better yet, make it the lead item. But that would likely violate Fox on 15th's own policy of not supporting anything that could make the lives of the serfs better in any way.
"According to economists"
written by Dan, May 17, 2011 12:29
The headline should have been, "Increased Pension Payments by Federal Employers are a Cut in Pay." By starting with "According to Economists," you make it sound as if there is reasonable disagreement, with economists taking one side.
Deferred comp.
written by beezer, May 17, 2011 3:32
Pensions, health care and wages make up the total compensation in an employees contract. If health care remains the same, and the pension benefits funded the same, then upping the amount of employee 'contributions' is a shift of some amount of their current take home pay into deferred compensation. From this perspective the overall compensation hasn't changed.

Reducing pensions benefits is a pay cut in the deferred comp portion of the overall package as much as a straight take home pay cut. The same is true with health care benefits that are cut.

The package, take home pay and deferred comp., is actually paid for entirely by the employee.
pay cut
written by Ethan, May 17, 2011 6:04
Beezer: Doesn't it depend on whether the employer will or will not reduce his contribution after he forces the employee to increase his contribution? I agree with you that the employee's total compensation is not "cut" if, but only if, the employer continues his same contribution to retirement, and the employee only shifts some current compensation to deferred compensation.
Better than I gave them credit for
written by Dean, May 17, 2011 7:39
This piece does present the point more clearly than I gave them credit for. Still, the point should have been in the headline or at least near the top of the article. The point is that requiring higher pension payments by workers is a pay cut. There really is not way around this.
written by Jim A, May 18, 2011 8:49
Beezer. I thought it was pretty clear, but you obviously misunderstood it so I was wrong. We're talking about an old-fashioned "Defined Benefit" plan. And nobody is talking about changing the benefit. So the money that employees receive after they retire would be unchanged. But more is deducted and therefore they receive smaller paychecks while employed.
Edit headline, plz!
written by John D., May 18, 2011 1:37
The increase pension payments are to be made by employEEs, not employERs.
And another thing ...
written by John D., May 18, 2011 1:39
Pension checks are a VERY small part of fed retirement under the FERS system.
Continued war on functional government?
written by travc, May 19, 2011 5:05
Playing games dividing up benefits and wages and talking about either as if it were total compensation is still rampant. So beating the point home is all good IMO.

Also got to say that continually cutting public sector employee compensation is a sure-fire way to ensure an incompetent government. Which is the goal of more than a few unfortunately.

PS: When the USPS is among those getting cuts, a less well known effect is reducing a lot of minority (especially black) incomes. Since the federal government stopped openly embracing discrimination long before the private sector, the Post Office has long been a solid middle-class job which minorities could actually get.
written by liberal, May 19, 2011 7:24
The federal retirement plan, outside of SS, has two parts: a very small piece which I believe is defined-benefit, and the rest which is TSP.

According to the OPM page on FERS, the defined-benefit piece is taken out of the paycheck, hence is already nominally paid by employees.

TSP starts with a 1% employer contribution. After that, the employee can contribute, and there's perhaps matching from Uncle Sam.

So they must be referring to the 1% contribution, and the match. The only thing I see that can be on the order of 5% of gross pay is the match.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.