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[IWS] CRS: FEDERAL EMLOYEE'S RETIREMENT SYSTEM: BUDGET AND TRUST FUND ISSUES [24 March 2014]

IWS Documented News Service

_______________________________

Institute for Workplace Studies----------------- Professor Samuel B. Bacharach

School of Industrial & Labor Relations-------- Director, Institute for Workplace Studies

Cornell University

16 East 34th Street, 4th floor---------------------- Stuart Basefsky

New York, NY 10016 -------------------------------Director, IWS News Bureau

________________________________________________________________________

 

Congressional Research Service (CRS)

 

Federal Employees’ Retirement System: Budget and Trust Fund Issues

Katelin P. Isaacs, Analyst in Income Security

March 24, 2014

http://www.fas.org/sgp/crs/misc/RL30023.pdf

[full-text, 19 pages]

 

Summary

Most of the civilian federal workforce is covered by one of two retirement systems: (1) the Civil

Service Retirement System (CSRS) for individuals hired before 1984 or (2) the Federal

Employees’ Retirement System (FERS) for individuals hired in 1984 or later. FERS annuities are

fully funded by the sum of employee and employer contributions and interest earned by the

Treasury bonds held by the Civil Service Retirement and Disability Fund (CSRDF). The federal

government makes supplemental payments into the CSRDF on behalf of employees covered by

the CSRS because employee and agency contributions and interest earnings do not meet the full

cost of the benefits earned by employees covered by that system.

 

The Office of Personnel Management (OPM) estimated that in FY2014, obligations from the

CSRDF would total $80.0 billion, of which $79.4 billion will represent annuity payments to

retirees and survivors. Other outlays consist of refunds, payments to estates, and administrative

expenses. Obligations from the fund are projected to increase by 3.4% to $82.7 billion in

FY2015, of which $82.1 billion will represent annuity payments. OPM estimated that receipts to

the CSRDF from all sources would be $95.3 billion in FY2014 and $98.5 billion in FY2015. The

year-end balance of the CSRDF was projected to increase from $848.5 billion at the end of

FY2014 to $861.8 billion at the end of FY2015.

 

The total annual income of the CSRDF will increase from $94.8 billion in FY2012 to an

estimated $158.8 billion in FY2025 and to $1.1 trillion in FY2090. The total expenses of the fund

are projected to rise more slowly, increasing from $73.9 billion in FY2012 to an estimated $115.0

billion in FY2025 and to $715.8 billion in FY2090. Consequently, the assets held by the CSRDF

also are projected to increase steadily, rising from $829.1 billion in FY2012 to an estimated $1.3

trillion in FY2025 and $13.7 trillion in FY2090. Expenditures from the CSRDF currently are

about 38% as large as federal expenditures for the salaries and wages paid to federal employees.

Pension expenditures are projected to decline relative to the government’s wage and salary

expenses, beginning around FY2020. By FY2090, the expenditures of the CSRDF are estimated

to be only about 30% as large as the government’s expenditures for wage and salary payments to

employees.

 

Because CSRS retirement benefits have never been fully funded by employer and employee

contributions, the CSRDF has an unfunded liability. The unfunded liability was $789.9 billion in

FY2012. According to actuarial estimates, the unfunded liability of the CSRDF will continue to

rise until about FY2025, when it will peak at $855.9 billion. From that point onward, the

unfunded liability will steadily decline and is projected to turn into a surplus of $29.5 billion by

FY2090. Actuarial estimates indicate that the unfunded liability of the CSRS does not pose a

threat to the solvency of the trust fund. Unlike the Social Security trust fund, there is no point

over the next 80 years at which the assets of the Civil Service Retirement and Disability Fund are

projected to run out.

 

Contents

Introduction ...................................................................................................................................... 1

Fundamentals of Pension Plan Financing ........................................................................................ 1

Pre-funding of Pension Benefits in the Private Sector .............................................................. 2

Pre-funding of Federal Employee Pension Benefits .................................................................. 3

Investment of Trust Fund Assets ............................................................................................... 3

Financing Retirement Annuities for Federal Employees ................................................................. 4

Employee Contributions ............................................................................................................ 4

Employer Contributions ............................................................................................................ 5

Operation of the Civil Service Retirement and Disability Fund ...................................................... 6

Financial Status of the Civil Service Retirement Fund .................................................................... 7

The Short-Term Picture ............................................................................................................. 7

The Long-Term Picture ............................................................................................................. 8

The Civil Service Retirement and Disability Fund in the Federal Budget .................................... 10

Civil Service Retirement: Funding and Accounting Issues ........................................................... 12

Accounting for Pension Costs Under CSRS and FERS .......................................................... 12

Why Are CSRS Revenues Less Than the Present Value of Benefits? ..................................... 13

Accounting Issues Raised by the Way CSRS Benefits Are Financed ..................................... 14

Conclusion ..................................................................................................................................... 16

 

Tables

Table 1. Receipts and Obligations of the Civil Service Retirement Fund, FY2013-2015 ............... 8

Table 2. Projected Income and Expenses of the Civil Service Retirement Fund ............................. 9

 

Contacts

Author Contact Information........................................................................................................... 16

 

________________________________________________________________________

This information is provided to subscribers, friends, faculty, students and alumni of the School of Industrial & Labor Relations (ILR). It is a service of the Institute for Workplace Studies (IWS) in New York City. Stuart Basefsky is responsible for the selection of the contents which is intended to keep researchers, companies, workers, and governments aware of the latest information related to ILR disciplines as it becomes available for the purposes of research, understanding and debate. The content does not reflect the opinions or positions of Cornell University, the School of Industrial & Labor Relations, or that of Mr. Basefsky and should not be construed as such. The service is unique in that it provides the original source documentation, via links, behind the news and research of the day. Use of the information provided is unrestricted. However, it is requested that users acknowledge that the information was found via the IWS Documented News Service.

 

 




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