Today marks the 24th day of the partial shutdown of the federal government. As the shutdown drags on, the effects are becoming more widespread. Some of those most significantly impacted are federal employees who have either been furloughed or forced to work without pay during the shutdown.
Federal employees participate in the so-called “three-legged stool” of retirement: a defined benefit pension; a defined contribution plan (called the Thrift Savings Plan [TSP]); and Social Security. Federal employees contribute to both their pension and the TSP with every paycheck. When the shutdown eventually ends, Congress will almost certainly retroactively grant back pay to those who were furloughed or forced to work without pay during the shutdown. Their retirement plan contributions would be withheld from this back pay, just as their income taxes, FICA taxes, etc. will be. However, those who are trying to retire during the shutdown are facing many obstacles. The Washington Post recently profiled one IRS employee whose retirement plans are in a holding pattern until the shutdown ends.
Below we re-share a blog post from June 2017 about the impact on states of proposed cuts to the pensions of federal employees.
In his 2018 budget proposal unveiled last month, President Donald Trump proposed attacks on the pensions of federal employees. We wrote about how harmful these cuts would be to the retirement security of federal employees. However, these proposed cuts would also have a detrimental effect in the states, where the majority of federal employees work.
Contrary to popular opinion, most federal employees don’t work in Washington D.C. In fact, according to data compiled by Governing magazine, 79 percent of federal employees work outside of the Washington D.C. metro region. Even though the headquarters of most Cabinet departments and major federal agencies are in Washington, the staff that carries out the work of these agencies are in states across the nation.
National Park rangers, food safety inspectors, and air traffic controllers live and work in every state. In absolute numbers, California has the largest number of federal employees at 141,158, which makes sense since California is the largest state by population. 114,170 federal workers reside in Texas, 31,783 reside in Arizona, and North Carolina is home to 43,589 federal workers. You can see how many federal workers live in your state at this Governing webpage.
According to the National Institute on Retirement Security (NIRS), in 2014, $78.8 billion in pension benefits was paid to 2.6 million federal government retirees and beneficiaries. NIRS reports that each dollar paid out in pension benefits supported $2.21 in total economic output nationally, meaning the pension benefits of federal employees generates a substantial amount of economic activity each year. NIRS calculates that expenditures from federal pensions supports 1.1 million jobs nationwide. A separate study by the National Conference on Public Employee Retirement Systems finds that cutting pension benefits increases income inequality.
Public pensions also have an important countercyclical role in the economy. Pension benefits will be paid even if the economy slows. In energy-dependent states like Louisiana, home to over 18,000 federal employees, and Oklahoma, home to 38,000 federal employees, states that are frequently subject to boom-and-bust economic cycles, public pension benefits help shore up local economies when the energy sector is in a bust cycle.
President Trump has been threatening to attack the pension benefits of hard-working federal employees since he took office. Now he has made his threat real. So far, Congressional Republicans are signalling agreement with Trump’s proposal. If the president succeeds in cutting the pensions of federal employees, every state would be affected. To stop these harmful cuts from moving forward, working families and their allies in every state need to contact their senators and representatives and speak out against these proposed cuts.
[Originally posted on June 15, 2017]