Overpaid Federal Employees

With the election only weeks away, pundits are visualizing how a Republican-controlled Senate would impact future policy decisions.  Today’s Washington Post highlights the supposed plight of federal workers under a Republican Congress.

The piece discusses House Budget Chairman Paul Ryan’s budget proposal:

Under the Ryan budget, the contribution of most federal employees toward their retirement plan would increase by 5.5 percentage points with no increase in benefits — effectively a pay cut. Ryan emphasizes a “defined-contribution system” that centers on employee payments to their retirement program instead of the current system, which includes pensions from the U.S. government. He estimated his plan would save the government $125 billion over 10 years.

That $125 billion in savings, however, would come from the pockets of federal employees.

The piece continues in a similar vein discussing Republican-supported legislation that would make it easier for federal employees to be disciplined, fired, and restricted in their conference expenditures–all  reasonable proposals. It cites federal employee union officials on the difficulties these policies would place on federal workers.

But the piece fails to mention the elephant in the room: federal employees are compensated more generously than their private-sector counterparts.

Using data from the Bureau of Economic Analysis, the average wage for a federal civilian employee in 2013 was $81,076, compared to the average wage of $55,424 for private-sector employees.

The big advantage for federal employees is their robust benefit packages. Federal employees receive the largest selection of health insurance of any employer in the country, generous vacation and time-off policies, and  both a defined benefit pension and 401(k)-style retirement account. Adding in the value of these benefits, the average federal civilian employee receives annual compensation of $115,524. Compensation for the average private-sector employee is $66,357.

Particularly striking is that availability of pensions to federal employees. According to the Bureau of Labor Statistics, only 10 percent of private-sector employers are offered defined benefit pension plans. The majority of recipients are unionized employees, concentrated in the utilities industry.

Given this large disparity it is reasonable that the Ryan Budget would increase employee contributions to their pensions. This plan was also endorsed by the Bowles-Simpson commission as a meaningful step to reforming compensation for the federal civilian workforce.

While $125 billion sounds like a large cut to federal employee compensation, it represents less than 5 percent of compensation over the next ten years. Asking federal employees to pay a bit more for their lavish benefits is a common-sense reform for the new Congress. Hopefully, Congress will go further and phase-out the defined-benefit pension program in its entirely.